The Weight of the Evidence

According to market veteran Ed Yardeni, “This has been the most
anticipated recession of all time.” At the same time, earnings expectations
have not only not fallen; they are actually higher now than at the end of last
year.

You may have noticed that in the 3rd and 4th quarters of 2021, our
portfolios began to become more defensive. We did this by shortening
fixed-income duration, thereby reducing interest rate risk, and by
rebalancing from what we perceived as expensive growth to more
moderately priced value allocations. As it turns out, 2021 saw a cyclical
peak in speculation; the belief that certain companies and assets would
always go up.

Many try to compare today’s environment to the 1970s when inflation and
unemployment both hit 13%. Today, with inflation potentially peaking and a
severe labor shortage ( rather than surplus) the comparison to the 1970s is
highly suspect. Even if they aren’t, you may find this interesting:

From 1973 – 1982 the U. S. experienced 5% inflation and 5%
unemployment every single year. Our Chief Investment Officer, David
Stuyck calculated that the average annual total return of the S&P 500 for
that 10-year period was not down, but up 6.6%. That period included a
market downturn worse than anything seen since the great depression down
35%. After that, the average annual total return from 1975-1982 was
14.6%.

Our country has many financial and economic issues to deal with. I don’t
need to enumerate them here: all one needs to do is turn on the news for
60 seconds What those headlines too often miss is that we still have
innumerable hard-working entrepreneurs, creative designers, and
incredibly bright scientists working every day to invent and develop new
ideas, services, and products to improve our lives.

As Warren Buffet has said, betting against America has never been a good
idea. Just ask King George III.