July 11

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Inflation Will Destroy the World

We have two cats, Coconut and Hemingway.  Since my daughter is about to turn 16, she is taking a lot of defensive driving classes.  We thought it might be a good idea to have Hemi take some lessons as well.  As you can see, he is not too happy about being in the driver's seat.


You may have heard the news.  The first half of this year had the worst market returns since 1970. That’s over 50 years!  Let’s take a look at how statistics can lie.  

In 1970, if you look at the whole year, the markets went up 3.56%.  That’s right.  The market completely recovered and then some by the end of the year. Don’t let the news trick you by twisting around data and history.

Does inflation have a direct correlation with lower stock market returns?  No.  Inflation does not mean the markets will go down.  The markets are fundamentally unknowable.  I know it is frustrating, but stock and bonds and illogical and unpredictable.  

So much of today’s market fluctuations are based on fear, greed, and speculation.  Companies are not showing lower profits.  Bonds are not defaulting on loans.  It’s all a game to see who can make the most money by guessing at market returns.  Long-term returns will remain the same.

See below for some perspective on the correlation between inflation and stock market returns.

Inflation  S&P Return  Year
14.4%         5.2%        1947
13.6%         31.7%      1980
11.3%         18.5%      1979
11.1%         -25.9%     1974
10.9%        19.2%       1942
10.3%        -4.7%        1981
9.1%          37.0%       1975
8.5%          -8.4%        1946
7.9%          23.7%        1951
7.7%          5.7%          1948
7.6%          6.5%          1978
6.5%         - 7.0%         1977
6.2%         -14.3%        1973
6.1%         20.4%         1982
6.0%         25.1%         1943
5.8%         3.6%           1970
5.7%         23.8%         1976

As you might notice:  There is no correlation.

What is up with all this recession talk?!  Sure the markets are having a tough time, and while the markets may drop even more, it has no bearing on your life.

You cannot listen to any news source lately without hearing warnings of a pending recession.  I’ve had several people in my office recently scared to death.

It is completely out of control.

Remember that the news will report on anything that will get and hold your attention. Stock market pullback? Big news!  Network executives are thrilled. It’s great for ratings, but it is terrible for you.

Why? It gives you the faulty perception that anyone and I mean anyone, can predict what will happen over the next days, months, and years.

Stay the course.  In a couple of years you won’t even remember this happened.

I’m sorry this article is so short this week.  My daughter is celebrating her Sweet 16, Grammy is coming into town, and we are very very busy.

Be Blessed,

Dave

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