We Are Now Officially in a Bear Market
by Eric Nager on Jun 27, 2022
The market declined 20% from its all-time high, which is the definition of a bear market. Most people have lived through one or multiple bear markets and none of them are pleasant, but mercifully they all come to an end. More importantly, they all have been followed by strong bull markets that have gone on to reach new highs. We believe, as long as our capitalistic system is in place, this pattern will continue.
There are a number of factors that have contributed to this market downturn. These include bad monetary policy by the Fed (creating too much money) and bad fiscal policy from the government (spending too much money). These bad policies laid the foundation for the powerful inflationary situation that we are experiencing. And now, the Fed feels forced to raise interest rates and cut back on the money supply in order to fight the inflation monster. An unfortunate byproduct is a declining stock market and possibly a recession.
Not having a crystal ball, we were not able to foresee the timing or severity of the impact of the Fed's reaction to these ill-advised policies. However, we have taken the following steps: introduced inflation hedges, added an energy ETF, eliminated most of the growth-type investments, added value type investments and increased the cash allocation . We feel these steps will soften the impact of the "bear'' and yet leave us in a position to participate when the inevitable upturn begins. There is reason for some optimism . It has been reported that some of the large institutional management firms are beginning to shop for bargains.
We are prepared to take further steps as we deem to be appropriate.
Your team at Southern Capital Services, Inc.