June 9, 2022

As you know, the economy is being buffeted this year by unprecedented geopolitical events all hitting at the same time – a “Perfect Storm” so to speak. While I am confident that things will ultimately turn around, we need to avoid mistakes like selling “good” investments in down markets, as well as avoiding the opposite end of the temptation to “buy the dip” at this time … as the “dip” may not be over yet.  So, I prefer to see how things “shake out” on inflation and higher interest rates, as well as the ultimate effect the other Federal Reserve policy of reducing the monthly dollar amount of home mortgages they are willing to support. 

Take a deeper dive into inflation.

Inflation, in the basic sense, is a rise in price levels. Economists believe inflation comes about when the supply of money is greater than the demand for money. Inflation is viewed as a positive when it helps boost consumer demand and consumption, driving economic growth.

Inflation is one of the greatest threats to a healthy economy. Inflation eats away at our standard of living if our income doesn't keep pace with rising prices over time. This means that the cost of living increases and a high inflation rate can hurt the economy.

In Season 1 of Ken Burns documentary series on the Vietnam War entitled, “The Vietnam War: A Film by Ken Burns and Lynn Novick (Vietnam: Burns and Novick),” his narrative helps illustrates mistakes the United States made in managing a war we intentionally provoked. Mistakes that likely could have been avoided by a more balanced 360 degree look at the “Domino Theory,” taking our politicians’ egos out of the equation - especially LBJ’s, who after admitting on tape recorded phone calls that fighting a war in Vietnam likely would be the biggest mistake he ever made, one he didn’t want to fight, and one he couldn’t easily get out of without risking being “impeached” for being the first president to lose an American war. Despite his own recorded comments, he kept sending increasing larger numbers of troops to fight in Vietnam to keep South Vietnam’s independence. The irony was, that South Vietnam was a corrupt state that didn’t want to fight for their own freedom. At the end, a humanitarian catastrophe occurred, and the United States wasted billions of dollars and caused hundreds of thousands of war casualties among the combatants.

What does the current environment mean for investors?

The premeditated Russia invasion has started a land war in Europe and is the first major invasion of a European country since World War II. On the negative side, the implications are certainly unknown, and the unintended consequences could be very serious. The old Cicero quote, used by Churchill in May of 1940 in a famous speech to Parliament, of the only thing that could be promised was “blood, sweat, toil, and tears” comes to mind. Oil prices are skyrocketing.

On the positive side, it seems like Russia’s invasion has solidified and possibly even united NATO’s and the European Union’s resolve to strengthen and support each other’s borders with help from the U.S. Help that consists of mainly economic sanctions on Russia, at this point. But, the U.S. and the other countries are also positioning troops and tanks in the Eastern NATO countries. If that continues, Russia could have a stronger and united foe.