![]() The stock and bond markets seem to agree it’sĪ temporary challenge. How many investors todayīelieve the Fed Funds Rate is on a path toward 8%? Inflation is taking longer to stabilize than expected and Chairman Powell is pointing toward short-term supply chain problems, or transient war impacts. Virtually every time inflation spiked over the past fifty years, the Fed Funds Rate went higher than the inflation rate to tame it. The end of the pandemic and possible slowing of the economy may bring inflation down somewhat, we cannot avoid the ramifications tied to years of quantitative easing, rapid money supply growth, and unprecedented fiscal expansion. Additionally,īoth politically and strategically, the West will need to secure more production domestically or with friendly regimes – whether it be in energy, materials, or manufactured goods – adding to inflation pressure in the short-to-intermediate term. Least three decades, the world’s inflation picture has benefitted from a giant Chinese labor arbitrage that is now in the rearview mirror, as the Chinese working-age population is no longer growing, and wages there have risen markedly. Inflation, which started rising rapidly twelve months ago, remains at a 40-year high. Energy and mineral prices have blown out. The war has already had impacts on commodities, intermediate products, and the supply chain. China can ill afford a trade war with the West, although the and $701 billion to the European Union in 2021. On a gross basis, China exported $577 billion to the U.S. We don’t expect Putin to change course because of sanctions or exposure of warĪtrocities, but perhaps Xi Jinping has taken notice and pauses any moves on Taiwan. Maybe the coordinated effort of a surprisingly large number of Russian trading partners and central banks will prove to be the exception. Historically, sanctions have not been terribly effective, as authoritarian leaders (Mussolini, Castro, Kim Jung Un/IL, Chavez, Maduro, Khomeini) survived by controlling the narrative andĬrushing popular dissent. A new two-prongedĬold war with China and Russia has been underway for some time. Although markets have largely ignored it, China and Russia substantially increased their belligerence toward the U.S. All of these elements were in play long before the invasion. Quarterly investment letters across the land will be focused on the Russian invasion and what it means for geopolitical stability, supply chains, energy, inflation, globalization, economic growth, and The market has moved in somewhat of a barbell fashion, with Energy/Non-Energy Minerals and Industrial Service companies tied to these segments driving the value trade, while many speculative growth names also moved up sharply. Since the Russian invasion of Ukraine on February 24, added to performance in the quarter while Masco Corp., Quest Diagnostics Inc., and PPG Industries Inc. Cl B, Omnicom Group Inc., and Dollar Tree Inc. Sectors that detracted included Producer Manufacturing, Health Technology, and Energy Compared to the S&P 500, sectors that helped performance included Finance, Technology Services, and Commercial Services. Areas where the Fund had little exposure such as Energy & Non-Energy Minerals, and our overweighting in Producer Manufacturing, explain the lion’s share of the difference between Poor’s 500 Index, and 0.74% loss in the Russell 1000 Value Index. The FMI Large Cap Fund (“Fund”) declined 6.16% 1 in the March quarter compared to a 4.60% drop in the Standard &
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