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Start at the Beginning and Stop at the End

January 2nd, 2022

It is the first working day in January, and every business is at zero: zero sales, zero expenses, and zero profits.

So, will we have a better, another record-setting year? What is the likelihood?

A few things have not changed; we are all working to improve the outcomes of our clients and customers, and in doing so, increase our enterprises’ value.

Our friends at Dow Jones Indices, publisher of earnings and other financial metrics for the S&P 500, estimate that earnings should grow about 9% over last year. If the estimate holds, we’ll see in a couple of quarters; the result would be remarkable in the face of higher material, labor, logistics, and borrowing costs.

“History doesn’t repeat itself, but it often rhymes.” As you may know, this quote is attributed to Mark Twain: In our last newsletter, we commented on Alan Greenspan’s “Irrational Exuberance” speech in 1996, referencing the high-flying tech companies of those days. In our previous newsletter, we brought to your attention several examples of outsized valuations on a variety of asset classes; real estate, art collectibles, cars, and some meme stocks.

As inflation accelerates, you may even recollect the 1970’s “Stagflation,” a term coined by Iain MacLeod, a British politician of the time, often used to describe the Carter years of impossible high inflation and low economic growth. I do not think we are about to experience a period resembling the 70’s.

I just heard the word “Slowflation” and believe it describes the period we are entering. Think of it as Stagflation light: increasing prices and interest rates, a slowing economy, kind of like a deflating balloon. Not a pop, not exhaustion, just tired, needing a nap. We believe some high-flying valuations exhibited across many asset types and classes will most likely begin to reset.

The Federal Reserve has announced that they expect to raise interest rates no less than three times this year. Several outcomes are likely: (1) Equity markets should experience bouts of volatility until the earnings climate becomes clearer. (2) U.S. banks will most likely continue to attract foreign funds as interest rates are negative in much of the world. (3) Demand for goods and services should continue to increase but at a declining pace.

Towards the end, the likelihood is we’ll get back to normal: moderate growth with moderate inflation: Wouldn’t that be nice?


Carlos Dominguez – CERTIFIED FINANCIAL PLANNER™, Portfolio Manager, RJFS


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