Cynical Realpolitik 220612

The selloff late last week put an end to what could have been a three-week recovery.  Stocks started to collapsed ahead of the May inflation report, which was “higher than expected”. 

Expectations are much like “policy”, both can change very abruptly.  I’m less concerned about inflation than most, because I believe that the current inflation surge is due to the Ukraine Invasion and not because of Federal Reserve monetary policy.  Oil prices could collapse as quickly as they rose, given favorable policy decisions.

My optimism is based on “realpolitik” cynicism.  It’s not in the Establishment’s best interest to have extremely high energy or food prices; therefore, I expect policies to moderate.  Abrupt changes which could mitigate Russian sanctions (cease fire, negotiation, détente, price caps, export bans) would also cause abrupt upward moves in the Market.  Over the long term, I see being in the Market less risky than being out of the Market.

US corporations are favored by established long term trends of automation, technology, industrial reshoring & demographics.  They emerged from the Pandemic stronger, and I’m betting they’ll do just fine in the aftermath of this current crisis. 

Where are the future opportunities?  Just like Oil stocks two years ago, future appreciation can be found in companies that offer growth prospects at reasonable valuations.  As an example, if you believe in an expanding US manufacturing and industrial base, then consider the following quality industrial companies: AYI, CAT, GNRC, GTLS, HON, JBT & PH.  None of these are currently in my core holdings, but they do screen very favorably. 

Having a long term growth perspective is always easiest when the Market is going up…it takes a steely eyed investor to be optimistic during a sustained selloff.

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