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The ‘Roar’

“It’s the end of the world as we know it… And I feel fine.”  R.E.M., 1987

This thirty-five-year-old lyric could be sung by the S&P 500 today, which feels fine regardless of the seemingly fragile state of the world. While worries abound about everything from the latest COVID-19 variant to supply chain ‘bottlenecks,’ climate change to the death of TV icon Betty White, the stock index of five hundred ‘important’ US companies nonetheless blasted expectations in 2021 by rising an extraordinary twenty-eight-point-seven percent! Many other stock markets, but not all, fared reasonably well, too.

What keeps driving markets higher and higher? There are, as always, many possibilities. One is that stock markets do well when people think that the economy is going to do well in the future, so the market could be ‘telling’ us that the outlook is bright, at least for corporate profits (and thus shareholders).  Another reason could be that the economy is doing well right now, even if many people don’t seem to feel or express it. The data, however, show it - unemployment is at very low levels; interest rates remain low, profits are solid and moderate growth looks like it is back. This sounds like a good, if not perfect ‘goldilocks’ economy.

Another possibility is that the stock market is pricing in future inflation, now.  Inflation?! Yes. The dreaded I word made a big comeback in 2021, as there were some historically high readings on inflation. Questions abound around inflation such as: How ‘bad’ are the numbers? Is it permanent? and, how do you (or we) preserve/protect capital during periods of higher-than-normal inflation?

Let’s start with how bad are the numbers? They are very bad if they stick around, which could lead to ‘hyperinflation.’ This is what we really fear when we talk about inflation being scary, but this scenario remains highly unlikely to happen. For the past decade or so, inflation has been relatively muted, and this recent spike may simply be a ‘reversion to the mean.’ Recall that we really do ‘want’ inflation. In fact, the stated goal of the Federal Reserve is to maintain a long-term constant inflation rate in the broad economy. However, this is impossible to achieve on a linear path, so don’t panic! Number two: Is this permanent or ‘transitory’? The answer is both.  While outsized readings of CPI came through last fall, it was a perfect storm. The trifecta of high oil prices, abnormally and temporarily elevated building material costs, and pandemic-induced elevated prices on items like used cars all conspired to create a late 1970s type inflation number (+6.8% in November). Some of these increases have already abated and the CPI number will not continue at this rate, meaning a piece of this is ‘transitory.’ On the other hand, labor costs have risen in the US and input costs are up so some portion of this is indeed permanent. Lastly, how do we protect and preserve capital in these environments. This is what portfolio management is about. Investing in assets that rise with inflation expectations before, during or after inflation hits your pocketbook is a primary goal of our investing activities. Asset allocation continues to work as intended.

If you ever want to discuss your portfolio or anything in your financial situation, then please do not hesitate to call or email. In the meantime, we wish you a healthy and happy new year and great things for 2022!


Scott Lasky, CFP™

Lionshead Wealth Management, LLC is an investment adviser in New York. Lionshead Wealth Management, LLC is registered with the Securities and Exchange Commission (SEC).  Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission.  Lionshead Wealth Management only transacts business in states in which it is properly registered or is excluded or exempted from registration.  A copy of Lionshead Wealth Management 's current written disclosure brochure filed with the SEC which discusses among other things, Lionshead Wealth Management's business practices, services and fees, is available through the SEC's website at: Past performance is not an indication of future results. Please note, the information provided in this document is for informational purposes only and investors should determine for themselves whether a particular service or product is suitable for their investment needs. Please refer to the disclosure and offering documents for further information concerning specific products or services. Nothing provided in this document constitutes tax advice. Individuals should seek the advice of their own tax advisor for specific information regarding tax consequences of investments. Investments in securities entail risk and are not suitable for all investors. This is not a recommendation nor an offer to sell (or solicitation of an offer to buy) securities in the United States or in any other jurisdiction. This document may contain forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio's operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of Lionshead Wealth Management or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.

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