Week of 2/24/2022

We don’t know the exact origin of the saying, but, “Things are never as good (or as bad) as they seem,” is as correct today as ever. Russia’s invasion of Ukraine is deeply distressing. We’re going to review the financial implications but can’t ignore the sadness we feel for the loss of life and health that is resulting. We’ve seen more downward movement in the market in response to the conflict and expect volatility to continue. Oil prices will continue to be impacted, and this will further impact inflation, an ongoing domestic concern. US producers have already started to ramp up production. The direct impact on financial markets will likely be small, speaking of the effect on earnings and other related measurements of economic activity. As Brad McMillan explains, for the conflict to sink the markets in a meaningful way, earnings would have to be affected. Economic fundamentals remain strong. As with previous periods of uncertainty, focusing on your specific goals and situation is most important.

In other economic news, the economic impact of the Omicron wave was less than feared. It’s the middle of income tax season, and prime time for scammers to use tax-related schemes to try and steal your money. The attached infographic has some helpful information, key among them is to remember that the IRS will never contact you by email or text to request personal or financial data. We have written before about the practice of civil asset forfeiture. This story is another example of how the practice can be used in the absence of criminal charges to great detriment. The government already has an enormous advantage in criminal proceedings. In WW2, mail was critical for troop morale, however it took up a ton of space on ships. A system, known as “V-mail,” was established to save shipping space. Letters were photographed, shipped as microfilm, and then reproduced on location.

Q: I have a balanced portfolio and I’m worried about what rising rates means for my bonds. A: We do have some recent history we can review to understand what might happen to bonds. Goldman Sachs published this helpful look at previous rate increase cycles. 10-year treasuries have been the hardest hit in each cycle, with some areas of the bond market actually showing positive returns. Interestingly, the market (as measured by the unmanaged S&P 500 index) had positive performance during each of those cycles. There is no guarantee we will see similar results by looking at past performance. But there is a consistent pattern, so we continue to think long-term investors benefit from maintaining their current allocations, especially when we consider the difficulty of timing market movement and the poor yield on cash and similar safe options.

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