The Prudent Retiree - May 11, 2022

Only two things are cheaper this year—stocks and bonds. Inflation is ravaging the economy and our pocketbooks. We’ve experienced nothing like this since the great inflation of the 70s and early 80s.

It’s somewhat ironic that Paul McCartney wrote this song the last time we were living with out-of-control inflation. The country was also working through the tragic end of the Vietnam War. Gas prices spiked and President Ford passed out WIN badges—Whip Inflation Now. Unfortunately, nothing worked until we had a market crash, stagflation and record high interest rates. Apologies to Yogi Berra, but we don’t want déjà vu all over again.

Economics 101 clearly lays out our current problems. It is simply an imbalance between supply and demand. Global supply has been constrained by Covid-19 and shortages exacerbated by the war in Ukraine. Massive government stimulus put too much money into the system, increasing demand and causing labor shortages and a boost in wages. Too much money chasing too few goods. No surprise—inflation.

Alas, the Fed hoped this was a transitory issue. The Fed has been slow to react and is playing catch up. Historically, wage increases and inflation have ended in recession. The Fed hopes to engineer a so-called soft landing and avoid economic contraction, but they’ve rarely been successful doing so. How can there possibly be a good ending in Ukraine?

For the markets, this means turmoil and volatility. Scary times for investors. It is important to stay in the moment and not overreact to worrisome news. Will the market respond to rising inflation and war with a crash as it did in 1974 when Paul was on Junior’s Farm? Will the market recover quickly as it did in 2020 after the Covid correction? No one knows.

Prudent Retiree believes the best allocation is half in the market and half in cash. Paul sang, “Low life, high life, oh, let’s go.” We believe that a 50/50 allocation best positions us for the low or the high. Expect continued volatility.

Paul McCartney started with the Beatles and is touring America right now almost sixty years later. Extraordinary. Prudent Retiree has been singing the same tune for forty some years—Avoid large losses and you’ll be a successful investor.

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Horseman Group – 3 CityPlace Drive - Suite 290 – St. Louis, MO 63141 – 314.692.7842 – www.horsemangroup.com

Advisory Services offered through Horseman Group. Securities offered through AW Securities, a registered Broker/Dealer, member FINRA/SIPC.