Dear Oxford Friends,
I have been missing each of you and it has been a while since I last had the opportunity to reach out to you. This felt like the right time to connect with you and share some of my musings.
First of all, I hope that this email finds you well and that you are getting past all of the COVID-related issues that we have been dealing with for the last year or two. Speaking for myself, I am exhausted discussing it and hope that we can cleanse our conversations of this nasty part of our recent history. Too many lives lost. Too much politics. Too many different interpretations of what to do to solve the transmission of the disease. Too many homes having to deal with parent and childcare issues…on and on. Hopefully, we are about finished with all of these COVID-related matters and I hope that your family made it through as painlessly as possible, even though I know personally that many of you had some horrible tragedies. Our heart goes out to those of you that lost family and relatives due to COVID.
As we hopefully move beyond COVID, I would like to talk about some of the issues that come up in almost every client meeting these days. Everyone wants to discuss Ukraine. Inflation. Interest rates. Supply chain. Chip supplies. The stock market. The economy—and what is going to happen going forward with same. Printing money by the Fed. The chances of a recession. The National Debt. And, of course, politics.
Ukraine
Regarding Ukraine, as most of you probably agree, this situation between Russia and Ukraine is more than tragic. The lives that are being lost and the imminent destruction of a wonderful country and the Ukrainian people is horrendous. Our view is that as unfortunate as this situation is, it is likely to get worse before it gets better. Every category of bad that relates to this infiltration by the Russians is going to become more acute. The Ukrainians are very resolute, but unfortunately, so is Putin. Putin’s success has been significantly less than what most pundits would have earlier believed, but given the firepower of the Russian army, the eventual success of the Ukrainians will continue to depend upon the aid of the US, the Europeans and many other strong-willed countries. Time will tell the outcome of this skirmish, but early polling favors the Ukrainians. Our view.
Clients ask frequently if the Ukrainian conflict will affect our economy. Our view is that despite how painful it is for their country, it will not have much of an impact on the US. Perhaps Europeans will have to deal with energy prices and that may affect the global inflation rates, but other than the daily media clicks keeping the US audience engaged, it is not going to move the needle in our domestic lives. However, we should continue to help the Ukrainians in as many ways as possible. Nationally and individually. I am not trying to be contrite on this matter, but absent Putin doing something irrational with his little red button, this conflict will eventually pass with not much of an influence on the United States.
Inflation
Let’s discuss inflation. As I predicted during my last communication to you, our inflation is/was not transitory. Inflation in the US is real and it is going to get worse before it gets better. Significantly worse. As I stated during the holidays, you cannot just “push a button” and turn off or reduce inflation; it takes years. At Oxford, we are a little exhausted watching the politicians and economic experts suggest that this inflation matter is going to go away. It is not. Mark my words. We do not expect it to become as devastating as during the Carter administration, but it is going to get much worse in the coming quarters and next couple of years. It could easily take four to five years to get the economy right-sized and to control the inflation at a more normal level. This success presumes that the Federal Reserve handles the matter with finesse. Of course, many of the folks (our clients and advisors) reading this email may not see the impact on their personal finances due to inflation, but 99% of the domestic population is going to be challenged to keep up with food prices, energy, clothing, mortgage rates, small-business borrowing, travel and entertainment, labor rates, vehicle prices and on and on. We had better try hard to get a handle on this matter sooner rather than later and not crush 99% of the US population. It is going to get bad and eventually worse.
Supply Chain and Chip Supplies
Supply chain and chip issues are still real. Very real. When I last spoke to you, I indicated that it was going to take a couple of years to work out of this situation. Our sense is that it is still going to take a couple more years. Perhaps longer. Eventually, we must figure out how to have more and more of our manufacturing in the US (including chips) and avoid these international squabbles that are crippling our economy and keeping many of our household items and vehicles (and many other things) limited in terms of the ability to deliver the needed quantity of finished products. Of particular note, some of these vehicles that we drive every day can have as many as 1,000 to 2,000 to 3,000 chips in them! This is just one example of thousands of products that we need in our economy (not including our National Defense) that needs serious attention by the business leaders and Congress. Hopefully we are getting close to recognizing the data surrounding these chip and supply chain matters.
One positive remark about the chip and supply chain solution is that once it does get resolved (which it will), it is going to provide a massive increase in our GDP because of the holdbacks occurring in hundreds of industry verticals that are not able to sell products that they do not have! If this matter is resolved simultaneously with the inflation resolution, we could be looking at a wonderful 2024! In the meantime, see below.
The Stock Market
Of course, everyone wants to know what is going to happen to the stock market over the next year or two. This is the million dollar question. Our view is that it is going to have significant volatility over the next 24 months. Endless volatility. Everyone knows that market timing does not work, and intellectually you all know that you need to be committed to the equity market. However, if you are fortunate to have a liquidity event, the funds MUST be invested over four to eight quarters and the dollar cost average must be figured into your equity allocation. You cannot be out of the market, but you want to get into the market over time. Thoughtfully. Intentionally. Do your tax loss harvesting, but do not take the bait to reduce your equity allocation. Just be “okay” with the ups and downs. We are due for bumps (based upon the significant runup over the last decade) and the time is right for us to be patient with the coming attractions. Between the Fed raising the interest rates, the supply chain issues, labor rates, money printing by the Fed and concern over the National Debt, among other things, the equity markets are going to try your stamina. Avoid any overreaction and committing the unforgivable sin of letting emotions drive your investment actions.
Recession Concerns
In pretty much all of our meetings, our clients ask about their recession concerns. We do not believe that we are headed for a recession; however, it is entirely possible that if there is a systemic event that all of us fail to predict (like every other recession), we will be wrong. Dead wrong. Currently we do not see what that systemic event might be, but the reason that it is called a systemic event is because none of us ever see it coming! In theory, it could be anything. It could be the ridiculous housing prices that blow up. It could be the student debt space that has grown to trillions. Maybe the banks get tired of lending massive multiples against EBITDA to private equity firms. Credit card debit. The car companies go through one of their routine/regular economic downturns. Municipalities can’t make payroll. A couple of large states that have lost significant population can’t pay their bills/bonds. Putin does something so unbelievable that our economy reacts in such a manner that there is not a way out other than respond to him, and in the meantime, our economy tanks. Take your pick or invent your own, but if any of the above occurs, all bets are off on our views of an imminent recession. The good news (that seems trite but is truly real) is that there is going to be a massive buying opportunity in the equity markets and the discount could be meaningful. However, this does not necessarily mean that we will actually be in a recession…You get it.
How Oxford is Doing
Lastly, given the closeness that we have with our clients and advisor friends, they always ask all the above questions, and then sincerely ask, “Now, how are you guys doing?” Our clients and advisor friends are such lovely people to care about us and to truly want to know how we are doing. Well, the answer is, we are doing well. Very well. Our quality of professionals is the best that we have ever had in over 40 years (and we have had some awesome people over the last four decades). Our firm’s culture is focused and intentional, but has become more caring. Caring for our clients and caring for each other. Hardly a week goes by where I do not get a few personal emails from our colleagues thanking me for something. Our client retention has been about 99% over the last 20 years. Our new business has been at a record clip over the last two to three years. We have had the good fortune of replacing our competing “commission” private banks and brokerage firms with our more competitive fee arrangement and hopefully a better brand platform for Aspirational Solutions, Diversifiers and some of the most sophisticated multi-generational estate planning solutions in the country. We see our competitors (as prospective clients move to Oxford) and we see the kind of estate/financial planning out there when we take on new clients and our offering has resonated with our new institutions and families in such a manner to nicely reinforce our Oxford value proposition. Additionally, ALL of our Partners like each other and they continue to work tirelessly to continue to properly grow the firm (top and bottom line) to ensure our independent and private ownership will provide our succession for retiring Partners and new net additions to make sure that Oxford is here for you, your organization and family for many generations. As you may recall, our Delaware Voting Trust ensures our private ownership; this is important to all of you and to all of us. We must “eat our own cooking” and make sure that we “measure twice and cut once” on our decisions to delight each and every one of you. Indefinitely.
Thank you Oxford Friends, for taking time to read this email, and thank you for being there for us at every turn. We appreciate you. We value your feedback. We like getting smarter with your good ideas. Further, if there is something that you would personally like to share with me regarding this email or Oxford, please feel free to reach out to me. It would be a pleasure to hear from you. Your constant sharing with us has made us a better organization! It is with warm regards that we serve each of you. Thank you!
Best,
Jeffrey H. Thomasson, MBA, CFP®
Managing Director and Chief Executive Officer
The information in this presentation is for educational and illustrative purposes only and does not constitute tax, legal or investment advice. Tax and legal counsel should be engaged before taking any action. The above commentary represents the opinions of the author as of 5.4.22 and are subject to change at any time due to market or economic conditions or other factors. The information above is for educational and illustrative purposes only and does not constitute investment, tax or legal advice.OFG-2205-2
1Source: New York Times: https://www.nytimes.com/2021/04/23/business/auto-semiconductors-general-motors-mercedes.html
