February 2022

February 01, 2022

Well, that was an ugly month. I am grateful for the slight recovery today. When all Funds, except the G Fund of course, are negative for the month it is disappointing and tempting to move money to the G Fund. However, as I have stated countless times, money in the G Fund is an instant negative return due to inflation. So, if I can't put my money in any fund without losing money, I will place it in the fund with the highest reward vs risk potential. In this case, the C Fund is still the strongest of all the funds. Obviously, there are many factors impacting the market. The strongest of course are the inflationary pressures impacting everything from milk to used car prices. The cause of course is hotly debated. Some claim quantitative easing, others COVID recovery, but the fact is it must be controlled. The Federal Reserve is in a tough spot. They only have a few tricks up their sleeve to help mitigate both recessions and inflation. To fight inflation, they MUST raise interest rates. We have had very low rates since the Great Recession and the money supply has more than doubled since COVID started. With the velocity of money remaining relatively low during COVID the increase in the money supply was less impactful, but with a return to normal underway, any slight uptick in velocity is magnified and inflation is the result. So, the Federal Reserve must raise interest rates to bring the money supply down; however, during weak economic periods, of which we are in one, this can cause a recession. So, the market is trying to figure out which evil the Federal Reserve will choose (hint, they have to bring down inflation) and when. I think we will continue to see several rough months as this is carefully managed AND messaged but trying to time it is impossible. Short term, I think all funds will have more negative months than positive months, but in the medium term (6-9 months), there is likely to be a return to more stable months, if a recession is avoided. Keep calm and keep investing!