It is such a pity and a shame that Russia is devastating Ukraine. We all watch hopefully as Ukraine is courageously fighting back. The sanctions imposed by Western governments and the abandonment of businesses inside Russia have had steep consequences.
The most significant market result thus far is a sharp increase in the price of oil. Other commodities are surging in price as well. Throw a dose of high inflation on top of the geopolitical situation and what do we get? We get a hawkish Federal Reserve Bank Policy as Chairman Powell has signaled five to seven interest rate increases this year.
It is common knowledge that investors fear a hawkish Federal Reserve stance. Nevertheless, one of our central bank’s most important priorities is price stability. Given all the money that has been printed over the last two years to fight the woes induced by the pandemic, it is no surprise that inflation is at a forty year high.
The stock and bond markets are trying to find their way amid serious economic and geopolitical challenges. When one considers America’s dependence on foreign oil, combined with the supply chain issues, and the large government deficits, it almost seems like the perfect storm for inflation.
As we discussed last autumn, volatility was in the making. The year 2022 has begun with great volatility and, in our opinion, will continue. Investors need a strong backbone to endure the challenges ahead. However, we believe they will be rewarded for their patience riding through this turbulent time.
One way to decouple from the day-to-day price fluctuations in the market is to look at stocks not as pieces of paper, but as businesses. Would you not want to be the owner of Apple, Amazon and Microsoft if you could own the whole company?
As volatility grows, we are pleased to utilize multi-manager platforms that offer nonmarket correlated returns by engaging in active trading strategies. An investor in these vehicles may give up some upside relative to the stock market, but the returns, historically, compete favorably to fixed income. There are years that the returns even compete favorably to equities.
Another long-time area of focus for Family Management has been investing in real estate. We enjoy extremely good relationships with a premier triple net lease investor and several multi-family investments.
Considering the many headwinds and the challenges that lie ahead, it is important to make sure that your asset allocation is consistent with your long-term goals. Of course, age, career, and emotional stress all play a role in the equation.
Shakespeare wrote “To thine own self be true.” In the field of investing everyone needs to follow this advice. Know what you are capable of handling on the downside. Of course, everyone enjoys upward volatility!
Let us pray for the Ukrainian people. Please join us in contributing to various organizations to help in this horrific humanitarian crisis. The Red Cross and other organizations are available online if you choose to lend a hand.
As we get into the days of spring, let us be hopeful that man’s inhumanity to man will cease. Wishing you a peaceful holiday.
With kindest wishes always,
Seymour W. Zises