Inflation, pandemic and war? Markets have appreciated it.

Instead of making fruitless predictions, we can plan a wide range of results. But it requires dispassionate thinking – and the ability to see beyond the current news. Just as too much optimism can make you make stupid bets, excessive gloom can lead to panic – which in this case can mean running away from investing in both stocks and bonds, as both major asset classes are presented poorly.

Instead, in bleak times like these, it is worth appreciating the potential for profit at terribly low prices. First, always make sure you have enough cash to meet your urgent needs. But then, if you invest steadily in low-cost diversified index funds that track the entire stock and bond market, those low prices can be a boon, assuming the markets eventually recover. History suggests they will.

It would be easy to give up the markets.

It is difficult to miss the bad news of hot inflation. Prices for a wide range of goods and services have risen rapidly, but the situation has worsened recently. The latest government report on the consumer price index showed that headline inflation in the United States rose by 8.5% year on year in March, the highest since December 1981. Various other measures of inflation are also worrying in the United States and around the world.

John Butters, a senior research analyst for FactSet, a research firm, wrote in a report on April 12 that 65% of S&P 500 companies that reported first-quarter profits cited inflation as the biggest problem. He quoted Lawrence Curzius, CEO of McCormick, the global food company, as saying in a profit call: “Cost inflation remains steady with the recent escalation in some areas, such as transport costs. And as such, we have raised our guidelines for cost inflation. It’s now a medium to high increase for teenagers. “

The three main causes of current inflation are well described and include:

  • A combination of stimulating fiscal and monetary policies undertaken to support the recovery of the economy from the coronavirus recession in 2020.

  • Shortages of supply caused by the pandemic, ranging from shortages of car parts to bottlenecks in factories in China, to a shortage of workers willing and able to take jobs with the prevailing wages.

  • Russia’s war in Ukraine and Western sanctions against Russia, which together have raised prices for energy, food and many other goods and contributed to a shortage of supplies.

Yet the problem of raging inflation is hardly a new discovery. A year ago, it was obvious that prices were rising fast enough that they needed to be taken seriously. Then I pointed it out, as did many others.

Russia’s war greatly complicates matters. Nevertheless, inflation is at least at low tide. James Paulson thinks so. He is the chief investment strategist of Leuthold Group, an independent equity research firm in Minneapolis.

“I think we can be at a turning point,” he said in an interview. “There is a good chance that inflation has peaked or is very close to its peak.”

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