Letters category: Letters

Q&A: How the Russian Invasion of Ukraine May Affect Investors

On Thursday, February 24, after months of tension and military buildup, Russia invaded Ukraine.  It’s the first major war between European nations in decades and brings significant humanitarian and economic ramifications for the entire world.

We want to assure you that our team has spent a lot of time analyzing the situation and how it might impact you.  We’ll go over some of the details in a moment, but the most important thing for you to know is that we are keeping a close eye on everything.  We remain confident in our investment strategy as well as the path to your financial goals.

Now, as you can imagine, the markets fell sharply when the world woke up to the news of invasion.  In this message, we’re going to explain what effect this war is likely to have on both the global economy and on the markets.  Because we’re financial advisors, not a geopolitical expert or military strategist, we’re going to refrain from commenting on why this war is happening, even though we have our own opinions, as we’re sure you do.  Before continuing, though, we do want to say that our hearts go out to the Ukrainian people.  While this message will focus on the financial and economic consequences of war, nothing compares to the human cost.  We earnestly hope that peace prevails as soon as possible.

Now, let’s do a Q&A about how this conflict will impact investors.  These are some of the most common questions we’ve heard from clients over the past few days.

Q: Why is this conflict impacting the markets? 

A: You’ve undoubtedly noticed in recent weeks how volatile the markets have been.  The ultimate reason, frankly, is quite simple.  War brings disruption.  To production, to trade, to everything.

That’s especially true with this conflict.  When it comes to the global economy, Russia and Ukraine are key players.  For example, both together comprise 29% of the world’s wheat.¹  Ukraine alone is one of the world’s top producers of corn, while Russia is Europe’s largest source of both oil and natural gas.  Both countries also play a major role in producing minerals and metals – think copper, nickel, platinum, etc.

These are not products the world can live without.  From the U.S. to China, from Germany to Ghana, we depend on these products to eat, communicate, get to work, grow crops, and even stay warm.  If you think of the global economy as a big spider web, touching a strand on one end causes the entire web to vibrate – sometimes violently.

Now, there are steps both Europe and the United States can take to mitigate these issues.  (More on that in a moment.)  But given that we are still recovering from supply disruptions caused by the pandemic, war is the last thing the world needs right now.

Another reason this conflict is impacting the markets is because of the shock it will have on the global financial system – in the form of economic sanctions the West has started levying on Russia.

Q: What are the U.S. and European Union doing about this?

A: Before we get into what the U.S. is doing, let’s quickly cover what the U.S. is not. 

This is not a war between the United States and Russia.  Currently, there are no plans to send U.S. troops into Ukraine.²  While American forces have reinforced several nearby countries like Poland and Romania, these are fellow NATO members.  Ukraine is not a member of NATO, which means NATO is not bound by the terms of its alliance to defend it from invasion.  Instead, the U.S. will support Ukraine by providing supplies, intelligence, and logistical assistance.

Because Russia’s actions are both a violation of international law and its own pledge to respect Ukraine’s borders³, the U.S. and many other western countries have announced a number of economic sanctions.⁴  Some of these sanctions include:

• Asset freezes and travel bans on dozens of influential Russian politicians and business leaders.
• Restricting Russia’s access to the European Union’s financial markets.
• Halting approval of the undersea Nord Stream 2 pipeline, which was set to deliver natural gas to Germany and be a major source of new business for Russia.
• Barring select Russian banks from raising money in the west or trading new debt in U.S. or European markets.

According to President Biden, these sanctions are just the first wave, with more soon to come.

Now, there’s no question that sanctions will have a major impact on Russia’s economy.  When Russia forcibly annexed Crimea in 2014, the U.S. also imposed sanctions on Russia that many experts believe have stalled Russia’s economic growth dramatically.  (Since 2014, Russia’s economy has grown by an average of 0.3% per year, compared to the global average of 2.3%.⁵)  These new sanctions are likely to be even greater, with an even greater effect.

But sanctions take time, and alone won’t stop Russian forces from penetrating Ukraine.  They can also be a double-edged sword.

Since World War II, Europe has become more economically intertwined to prevent another devastating conflict.  (This idea was the impetus behind the European Union.)  Since the end of the Cold War, Europe has also worked to make Russia a more integral economic partner.  The idea was that the more East and West relied on each other for trade, the less likely war would ever break out.

While this experiment has largely been successful, there’s a downside.  Trade in times of peace brings mutual gain – but nixing trade brings mutual pain.  Sanctions will undoubtedly punish Russian banks and companies that depend on foreign business.  But it can also hurt U.S. and European firms that rely on business with Russia.  This is another reason the war is roiling the stock market.

Q: Okay, so let’s focus on what’s happening here at home.  How long will market volatility last because of this? 

Obviously, that’s impossible to say.  Furthermore, trying to guess – and then making decisions based on a guess – is one of the worst things we as investors can do.  So, we’re not going to do it!

That said, there are some interesting things to note here.  First is that, historically, geopolitical crises often have a surprisingly short-lived effect on the markets.  For example, take the Cuban Missile Crisis.  The world has never been closer to nuclear war than during those nerve-wracking thirteen days in 1962, yet during that time, the Dow only fell 1.2%.  By the end of the year, the Dow was up 10%.⁶

Remember when Iraq invaded Kuwait back in 1990?  The Dow declined more than 18% in the immediate aftermath – only to recover completely a few months later, and indeed climb 38% over the next two years.⁷  Eleven years later, after the September 11 attacks, the Dow fell over 14%, but returned to normal a few months later. ⁷   More recently, look at Brexit.  When the UK voted to leave the European Union, it took most analysts by surprise, and many predicted it would lead to a major drop in the markets.  At first, it did.  The vote took place on a Thursday.  The next day, the Dow fell over 600 points, and then another 250 points the Monday after.⁸  But less than a month later, the Dow climbed to a new record high.

As you can see, while geopolitical events often seem scary to investors, their impact on the markets isn’t necessarily huge.  That’s because many things impact the markets.  Even something as big as war is only one ingredient in the dish.

On the other hand, financial experts like to say that “Past performance is no guarantee of future results.”  So, just because history has leaned one way doesn’t mean it can’t shift course in the future. This current crisis could have a sustained impact on the markets for all the reasons we’ve discussed.  There’s no way to know – meaning we need to be mentally and emotionally prepared for both possibilities. Our team is well prepared.

Another thing we need to prepare for is the possibility of higher prices here at home.

Q: So, how will this war affect our own economy? 

There’s no point beating around the bush: Consumer prices are already sky-high and are now likely to rise even higher.

Due to the pandemic, inflation has risen at a historic rate.  New sanctions and supply-chain issues will only compound the problem.  For that reason, it’s very possible we’ll see a jump in prices for the following goods and commodities:

• Gasoline. While oil prices and the price we pay at the pump aren’t the same, they are linked. On February 24 alone, oil prices rose above $100 per barrel.9
• Natural gas. As of this writing, prices are up 29% in Europe; we could see a similar rise.10
• Travel costs. Pricier oil means pricier jet fuel, which means higher airfares for travelers.
• Food. As we’ve already covered, Russia and Ukraine are hugely important to the world’s supply of wheat, corn, and other staples.
• Electronics. From your car to your cell phone, we rely on minerals and metals for our technology to function. Due to the pandemic, there was already a shortage of these supplies.

The U.S. can release oil reserves to combat rising fuel prices, and Europe can turn to other places for natural gas and wheat. (Including the United States.) But while these measures can help, they’ll take time – and can only blunt a rise in consumer prices, not stop it entirely.

Interest rates may also be affected. Most experts expected the Federal Reserve would soon announce significant rate hikes to combat inflation. In light of the invasion, interest rates will probably still go up, but might be less than previously thought. That’s good news for the stock market, at least in the short term, but it won’t help slow inflation as much.

Whew! We just threw a lot of information at you, didn’t we?  Well, take a breath, grab a sip of water, get up and stretch your legs – and then let’s cover the fifth and final question.

Q: Given everything that’s going on, what should we be doing about it? 

Prior to today, the idea of one European country invading another seemed almost unthinkable.  It was something for the history books, not the front page.  But that’s the world we woke up to today.  A different world than the one we went to sleep to yesterday.

But here’s the thing to remember.  The world is always changing – and we’ve always done a great job of adapting!

Massive change often triggers massive uncertainty.  Massive uncertainty often triggers massive overreaction.  That’s why so many investors tend to lose money during times of volatility, because they make long-term decisions based on short-term emotions under a fog of uncertainty.  By acting without overreacting, you are literally doing the single best thing you can to stay on track to your financial goals.

The situation in Ukraine will likely change every day, hour, and even minute.  Headlines you read in the morning might be obsolete by afternoon.  That’s why it makes no sense when investors panic, sell, or “cash out” just because of uncertainty.  By the time they do, the situation they’re reacting to may have already passed!  So, my advice, «Salutation»?  Over the coming weeks, let’s keep doing what we always do.  Let’s keep our heads and hold to our long-term strategy.  After all, we already know that it works!

We hope you found this message to be informative.  Of course, please let us know if you have any questions or concerns about your portfolio.  Our team is here for you.  We’ll keep monitoring the situation, and if anything changes, we’ll let you know immediately.

Sincerely yours,

Barbara B. Hudock CIMA®, CPM®
Chief Executive Officer
Founding Partner

Michael J. Hudock, Jr., CPM®
President and Founding Partner
Wealth Consultant

Sources

¹ “How a Russian invasion of Ukraine could hit supply chains,” CNBC, February 23, 2022.  https://www.cnbc.com/2022/02/23/impact-of-russia-ukraine-on-supply-chains-food-metals-commodities.html

² “Here’s what Biden has said about sending US troops to Ukraine,” CNN, February 24, 2022.  https://www.cnn.com/2022/02/24/politics/us-troops-ukraine-russia-nato/index.html

³ “Letter from the Permanent Representatives of the Russian Federation…to the United Nations,” General Assembly Security Council, December 19, 1994.  http://www.securitycouncilreport.org/atf/cf/%7B65BFCF9B-6D27-4E9C-8CD3-CF6E4FF96FF9%7D/s_1994_1399.pdf

⁴ “U.S. imposes sanctions on Russian banks, sovereign debt and elites after Ukraine invasion,” Politico, February 22, 2024.  https://www.politico.com/news/2022/02/22/u-s-sanctions-russia-ukraine-invasion-00010733

⁵ “The impact of Western sanctions on Russia,” The Atlantic Council, May 3, 2021.  https://www.atlanticcouncil.org/in-depth-research-reports/report/the-impact-of-western-sanctions-on-russia/

⁶ “How markets reacted to geopolitical crises,” The Economic Times, April 13, 2017.  http://economictimes.indiatimes.com/markets/stocks/news/how-markets-reacted-to-geopolitical-crises/articleshow/58158842.cms

⁷ “Stock Market History: More Ups Than Downs,” Forbes, September 27, 2017.  https://www.forbes.com/sites/johndobosz/2017/09/20/stock-market-history-more-ups-than-downs/?sh=71324c093951

⁸ “Dow plunges over 600 points as U.K. ‘earthquake’ crushes global markets,” CNN Money, June 24, 2016.  http://money.cnn.com/2016/06/23/investing/eu-referendum-markets/index.html?iid=EL

⁹ “Global oil prices soar above $100 and could go much higher,” CNN Business, February 24, 2022.  https://edition.cnn.com/2022/02/23/business/brent-oil-ukraine-russia/index.html

¹⁰ “Russia’s attack on Ukraine means these prices are going even higher,” CNN Business, February 24, 2022.  https://www.cnn.com/2022/02/24/business/inflation-russia-ukraine-explainer/index.html

At Hudock Capital, there is nothing more important to us than YOU.  We are grateful for the opportunity to help you live the life you’ve imagined and we take great pleasure in celebrating your successes.  When our clients succeed, we succeed.

It’s my pleasure today to share with you one of our own team member’s successes.  We just learned that Forbes released its America’s Top Women Wealth Advisors Best-In-State List for 2022 and named Barbara Hudock as one of the top ten Women Wealth Advisors in Pennsylvania!  This is the fourth year that Barbara has been included in this list and it places Barbara among the highest ranked women wealth advisors in the nation.

As we congratulate Barbara on this achievement, all of us at Hudock Capital know that we cannot do what we do without our clients or each other.  In that sense, Barbara shares her recognition with each member of the Hudock Capital family, including you.

Celebrating our collective success with you, we are reminded how fortunate we are.  We are humbled by this recognition; we are grateful for your trust and friendship; and, we appreciate your business.  Thank you for being a part of our family and for making this achievement possible.

Sincerely yours,

Michael J. Hudock, Jr., CPM®
President and Founding Partner
Wealth Consultant

A Short Guide to Dealing with Market Corrections

If you’ve been paying attention to the news, you know the markets have endured a topsy-turvy month of January. As a result, the S&P 500 and Dow Jones are both on the verge of what analysts call a market correction.¹ (Something the NASDAQ already entered last week.¹)  Should this volatility continue, you’re likely to see that term a lot in the days ahead.

Headlines proclaiming a market correction can often look very scary. That’s a problem because fear is every investor’s worst enemy.  It’s what drives investors to make irrational and shortsighted decisions instead of sticking to their long-term strategy. So, in this letter we’re going to give you a few simple steps for dealing with the market correction that will never go out of date.

Step 1: Know What a Correction Is

Quick refresher in case you’ve forgotten or are unfamiliar with the term: A market correction is defined as a decline of 10% or more from the most recent peak.

It’s important to know this so you understand why corrections are not the end of the world. For example, it’s hypothetically possible for a stock to drop 10% and still be higher than it was a week ago. And while corrections can sometimes worsen into bear markets — defined as a drop of 20% or more — they usually don’t. In fact, on average, corrections last only around three to four months.²

Step 2: Remember That Corrections Are Common

Unlike bear markets, market corrections are also surprisingly common.  Prior to this month, we’ve had ten since the turn of the century alone…of which three turned into bear markets.³ You see, “a drop from a recent peak” doesn’t mean the sky is falling. It simply means that, for whatever reason, investors are feeling pessimistic and have decided it’s time to sell. Invest for long enough and you’ll live through dozens of corrections in your lifetime.  They’re like getting a stomach bug: Unpleasant and unavoidable, but usually short-lived.

Step 3: Understand Why This Correction Is Happening

So why are investors retreating? Well, there are two main drivers of the current correction. The first is an old story, one we’ve been dealing with for over a year now. The second is newer, at least to those of us living on this side of the Atlantic.

We’re referring, of course, to inflation and Ukraine.

Let’s start with inflation. As you know, the ongoing pandemic has wreaked havoc on global supply chains.  This has caused prices to rise on everything from cars to food to toiletries.  At the same time, the economy has expanded, partially due to the Fed keeping interest rates at historic lows. The result? Skyrocketing inflation.

Early in the recovery, the Fed hoped that inflation would be transitory, meaning temporary and short-lived. But inflation has proven stubbornly persistent.  After all, COVID-19 has not gone away, choosing to spit out new variants instead.

For months, investors have been expecting the Fed to raise interest rates to combat inflation. (Higher interest rates slows the economy by encouraging consumers and businesses to save rather than borrow or spend. This, in turn, leads producers to lower prices to attract new business.) Now, in 2022, many analysts anticipate the Fed will raise interest rates several times this year. Although the “growing pains” of removing emergency measures from the economy can create high levels of volatility, the reality of this decision is positive.  It means the Federal Reserve sees enough economic strength that its time to take off the “training wheels.”  Historically, the market anticipation of the change in policy is where most of the volatility lives.  Once the change in policy is official (A.K.A, the Fed pivot), the market is in a better position to adjust to the actual data over anticipation and expectations.  During the January 26^th press conference, the Federal Reserve Chairman Jay Powell confirmed the strength of the economy and inflation pressures will likely lead to interest rate increases for 2022.  “This is going to be a year in which we move steadily away from the very highly accommodative monetary policy that we put in place to deal with the economic effects of the pandemic,” Powell declared. “I would say that the committee is of a mind to raise the federal funds rate at the March meeting, assuming conditions are appropriate for doing so. I don’t think it’s possible to say exactly how this is going to go, and we’re going to need to be, as I’ve mentioned, nimble about this so that we can respond to the full range of plausible outcomes.”

Why do stock investors fear the prospect of higher interest rates?  Well, low interest rates mean that many securities, like bonds, simply don’t provide the same return on investment as they would in a high-interest-rate environment.  That drives more into the stock market to get the returns they need.  Higher interest rates could potentially reverse this trend, leading to money flowing out of the stock market and into other areas.  When that happens, stock prices typically fall before they are in a position to recover.

For these reasons, the interest rate/inflation story is unlikely to go away anytime soon. But now, the markets have a new question mark to deal with: The prospect of Russia invading Ukraine.

Now, this is hardly the place to dive into the long and controversial history of the Russian-Ukrainian relations. So, let’s just cover the basics. In recent weeks, Russia has moved over 100,000 troops near the Ukrainian border.⁴ This has NATO — of which the US is a leading member — understandably concerned. (Remember, Russia forcibly annexed Crimea from Ukraine back in 2014.) All the major nations in the region are currently engaged in diplomatic talks, but the situation is growing so serious that the U.S. has ordered all family members of embassy personnel in Kiev to leave Ukraine.

Compared to inflation, it may be hard to see why this story has any effect on the markets at all. The reason can be boiled down to a single word: uncertainty. Will Russia really invade Ukraine? No one’s certain. What would happen if Russia did?  No one’s certain.  What will the US and other Western countries do about it? No one’s certain. If, theoretically, the US were to levy sanctions against Russia, or prevent Russian banks from doing business with the US financial system, what would that do to global trade? No one’s certain.

The markets hate uncertainty.  When investors encounter it, they tend to draw the curtains, head for the hills, and circle the wagons.  So, when you see a broad selloff after news like this, keep in mind that it’s not because investors know what will happen.  It’s because they don’t.

The good news is that geopolitical events tend to have a very short-lived effect on the markets.  That’s because, as the situation clarifies and uncertainty is replaced by understanding, the markets will settle down and go back to focusing on more domestic concerns.  However, our team will keep a close eye on this.  If the Russia-Ukraine crisis continues to impact the markets over the coming weeks, we will cover the subject in greater depth in a future message.

Step 4: Determine Whether a Correction Is Likely to Affect Any Short-Term Needs

Now that you know what a correction is and why this one is happening, the next step is to determine whether we need to do anything about it. For most long-term investors, the answer is usually no. However, if you have a major life event coming up, or feel you may need access to your money in the coming weeks, it’s possible your answer will be different. Should this be the case, please reach out to us as soon as possible so we can plan accordingly.

If that’s not the case, then proceed to…

Step 5: Keep the Long View

You knew this was coming, didn’t you?  But this fifth and final step always bears repeating, because it’s so important.

Think back on everything we just covered: Corrections are common.  Historically, corrections are short-lived.  Most investors will experience many corrections in their lifetime.  Corrections occur because investors want to sell stocks, often because of fear, not strategy.  Investors do this not because they know what the future holds, but because they don’t.

Put it all together, and it becomes clear: Corrections really aren’t worth overreacting to, are they?

That’s why keeping the long view is so crucial.  Generally speaking, it’s not the markets that determine whether we reach our financial goals or not.  It’s our own decisions.  Which, in some respects, can be a bit of a struggle, because it means we must stay disciplined all the time.  But it’s also an enormous comfort, because it means the power to control our financial future is always in our hands.

So, there you have it!  Your guide to dealing with market corrections.  Simple, right?  Of course, simple doesn’t always mean easy.  So, if you have any questions or concerns that we didn’t address in this message, please feel free to contact us.  We’re always happy to speak with you!

In the meantime, always remember that we are here for you.  From inflation to Ukraine and everything in between, we’ll keep monitoring the situation, so you don’t have to…and inform you immediately if there’s ever anything else you need to know.

Have a great February!

Sincerely,

Barbara B. Hudock CIMA®, CPM®
Chief Executive Officer
Founding Partner

Michael J. Hudock, Jr., CPM®
President and Founding Partner
Wealth Consultant

¹ “Dow, S&P 500 and Nasdaq all in ‘correction’ territory as inflation and geopolitical tensions flare,” CBS News, January 24, 2022.  https://www.cbsnews.com/news/stocks-s-p-500-dow-nasdaq-correction-inflation-russia-ukraine-2022-01-24/

² “Correction,” Investopedia, updated January 24, 2022.  https://www.investopedia.com/terms/c/correction.asp

³ “What is a stock market correction?” The NY Times, January 24, 2022.  https://www.nytimes.com/article/stock-market-correction.html

⁴ “How Russia’s Military is Positioned to Threaten Ukraine,” The NY Times, January 7, 2022.  https://www.nytimes.com/interactive/2022/01/07/world/europe/ukraine-maps.html

“I may walk slowly, but I never walk backwards.” – Abraham Lincoln

Happy New Year!

Every January, our minds drift to Lincoln’s quote above.  That’s because this is the time when people set new goals for their lives.  I’m going to lose weight.  I’m going to quit smoking.  I’m going to learn the piano.  I’m going to retire.  I’m finally going to write that book.  

But we all know that, while goals are easy to set, they aren’t always easy to do.  Life is constantly throwing obstacles in our way.  Distractions and setbacks abound.  Sometimes the road to our goals curves unexpectedly.  Sometimes the climb gets too steep.  Sometimes we get stuck in the mud.

When this inevitably happens to us – or, we should add, when it happens to our clients – we always try to remember Lincoln’s words.  After all, there was a man who knew something about setbacks and obstacles.  When he was 23, he tried his hand at business by opening a general store.  It failed.  Next, he ran his first political campaign for the Illinois General Assembly.  He lost the election.  A decade later, he campaigned for a seat in Congress – but couldn’t even get nominated.  A decade after that, he ran for the Senate for the first time to no success.  Then, in 1858, he ran one of the most famous political campaigns in history – most notable for his seven debates against rival Stephen Douglas – but still lost.

Of course, you know what happened next.

You see, amid all those setbacks, Lincoln also scored numerous victories.  He eventually did get elected to the Illinois Assembly.  He opened a successful law practice.  He served one term in the House of Representatives.  Sometimes, those victories were temporary.  Sometimes, they were less grand than he hoped.  Sometimes, they were mere steppingstones to what he really wanted.

The older we get, the more we realize how similar the road to our goals is to Lincoln’s.  There are wrong turns and false starts.  Dead ends and cul-de-sacs.  Pitfalls and potholes.  Our progress may get interrupted or delayed.

But every time we take that next step –

Every time we measure progress not by time elapsed but by distance run –

We are doing what Lincoln did.  Walking slowly…but never walking backwards.

So, this year, as you pursue new goals and embark on new journeys, we encourage you to remember Lincoln’s words.  Whether your goals be physical or financial, vocational or spiritual, you will achieve them.  All you have to do is take the next step.

That way, when the next twelve months are up and people ask how your year was, you can answer with a single word.

“Lincolnesque.”

From everyone at Hudock Capital Group, we wish you a Happy New Year!  Make it the best it can possibly be!

Sincerely,

Barbara B. Hudock CIMA®, CPM®
Chief Executive Officer
Founding Partner

Michael J. Hudock, Jr., CPM®
President and Founding Partner
Wealth Consultant

P.S.  One more thing.  As you set new goals this year, never forget that our team is a resource that’s always at your disposal.  Whether you need financial advice or just someone to cheer you on from the sidelines, we are here to help.  Nothing gives us more joy than to see you succeed!

Every year, we sit down at our desks to write a few thoughts about Christmas to share with our clients.  We ask ourselves, “What can we say that will spread a little Christmas spirit in some small way?  How can we add a little more peace to the world, a little more hope, a little more goodwill?”

Most years, we think it’s easy for people to feel the Christmas spirit.  But some years, it’s more difficult.  Maybe the year was harder.  Maybe life is a little more uncertain.  Maybe hope has been shut out by hardship, and goodwill replaced with grudges.  Some years, maybe Christmas seems more like a burden than a holiday.  Like an obligation more than an opportunity for joy.

Whenever we feel that way, we take a few minutes to read an excerpt from the first Christmas story Charles Dickens ever wrote.  No, not A Christmas Carol – this story was written almost a decade earlier.

Dickens knew all about hardship.  After his father was sent to debtors’ prison, Dickens was forced to leave school to work in a dank, unsanitary shoe factory infested with vermin.  To earn more money, he pawned his most prized possession – his books.  He was only twelve years old.

Later in life, Dickens’ experiences drove him to push for social reforms.  They also filled him with a lifelong love for the spirit of Christmas.  The spirit of family and love, giving and goodwill.  To him, Christmastime was what the world should be like every day of the year.  It was more than just a day.  It was a feeling that everyone should strive to cultivate in their hearts.

This is what he wrote:

Christmas time! That man must be a misanthrope indeed, in whose breast something like a jovial feeling is not roused – in whose mind some pleasant associations are not awakened – by the recurrence of Christmas. There are people who will tell you that Christmas is not to them what it used to be.  That each succeeding Christmas has found some cherished hope or happy prospect of the year before dimmed or passed away.  That the present only serves to remind them of reduced circumstances and straitened incomes – of the feasts they once bestowed on hollow friends, and of the cold looks that meet them now, in adversity and misfortune.

Never heed such dismal reminisces.

There are few men who have lived long enough in the world who cannot call up such thoughts any day of the year.  Then do not select the merriest of the three hundred and sixty-five for your doleful recollections, but draw your chair nearer the blazing fire – fill the glass and send round the song – and if your room be smaller than it was a dozen years ago, or if your glass be filled with reeking punch instead of sparkling wine, put a good face on the matter, and empty it off-hand, and fill another, and troll off the old ditty you used to sing, and thank God it’s no worse.

Look on the merry faces of your children as they sit round the fire.  Reflect upon your present blessings – of which every man has many – not on your past misfortunes, of which all men have some.  Fill your glass again, with a merry face and contented heart.  Our life on it, but your Christmas shall be merry, and your new year a happy one!

Who can be insensible to the outpourings of good feeling which abound at this season of the year?  There seems a magic in the very name of Christmas.  Petty jealousies and discords are forgotten.  Social feelings are awakened, in bosoms to which they have long been strangers.  Kindly hearts that have yearned towards each other but have been withheld by false notions of pride and self-dignity, are again reunited, and all is kindness and benevolence.

Would that Christmas lasted the whole year (as it ought) and that the prejudices and passions which deform our better nature were never called into action among those to whom they should ever be strangers.¹

To us, this is what Christmas is really all about.  It’s more than a day.  It’s a feeling.  A feeling of giving and gratitude.  A feeling of home, hearth, and hope.  A feeling shared between family and friends.

That feeling is the Christmas spirit.

We want you to know that we feel it, and that it’s in part because of you and our relationship.  We count ourselves blessed to know you, and to work with you.  We hope you feel that spirit this holiday season, too.

So, on behalf of everyone at Hudock Capital Group…

MAY YOUR CHRISTMAS BE MERRY, AND YOUR NEW YEAR A HAPPY ONE!

Sincerely,

Barbara B. Hudock CIMA®, CPM®
Chief Executive Officer
Founding Partner

Michael J. Hudock, Jr., CPM®
President and Founding Partner
Wealth Consultant

¹ Charles Dickens, “A Christmas Dinner,” Bell’s Life in London, 1835.  https://www.charlesdickenspage.com/a-christmas-dinner.html

Have you ever received a gift you didn’t actually want?  Well, investors got just such a gift recently – the kind nobody wants.  We’re not talking about an ugly sweater or a pair of socks.  We’re referring to a new bout of market volatility, just in time for the holidays.

(Quick recap in case you haven’t been following the news.  The Dow fell over 900 points the day after Thanksgiving – giving a whole new meaning to the term “Black Friday” – and then it slid a further 650 points on November 30.)¹

So, what’s the cause of this winter wobble?  Three familiar characters from our ongoing pandemic drama: COVID-19, inflation, and the Federal Reserve.  In this message, we’ll recap what’s going on and then discuss what we as investors can do about it.  Let’s start with…

The Omicron Variant

On November 26, the World Health Organization announced the discovery of a new variant of COVID-19 designated as Omicron.  What we know: It was first discovered in South Africa, and it contains “an unusually large number of mutations” from the original virus.²

Here’s what we don’t know: Is Omicron more contagious?  Is it more virulent?  Can it evade the protection offered by vaccines?  Scientists are racing to find the answers, but until they do, the rest of us must wait.

When it comes to the markets, what we know prompts investors to buy, but what we don’t spurs the impulse to sell.  The markets hate unknowns.  When faced with too many – especially on such an important subject – the reaction tends to be fear and panic.  That’s especially true here. You see, any answers scientists come up with will inevitably lead to more questions.  For example, if Omicron is more contagious, will it lead to fresh lockdowns and restrictions?  Will that derail the economic recovery?  If so, would that also overturn the bull market?

Another unknown: How will Omicron affect our second character, inflation?

Inflation

As you know, inflation has risen sharply in 2021.  While inflation doesn’t directly impact stocks as much as, say, bonds, it can still spook investors.  That’s because higher inflation typically leads to higher interest rates – more on this in a moment – which can cut into corporate profits.  Inflation can also increase the cost of doing business, such as hiring new employees or purchasing new equipment.   This eats into profits further still.

With Omicron, experts are trying to figure out what the new variant will do to inflation.  There are three possibilities.

First, if Omicron were to cause an economic slowdown – and remember, that’s still a big “if” at this point – then that would likely dampen inflation.  (Remember, inflation increases when demand outpaces supply.)  But if demand were to fall, inflation would, too.  Unfortunately, an economic slowdown is not the remedy anyone would choose to fight inflation.

The second possibility is the exact opposite: Omicron could make inflation worse.  Imagine that Omicron doesn’t require a new wave of restrictions here in the States.  In that case, the economy probably wouldn’t be affected too much.  But there’s more to the world than the United States.  If other nations – those with a lower percentage of vaccinated citizens, say – were to get hit hard by Omicron, it could further snarl supply chains.  Given that supply is already struggling to keep up with demand, that would be like trying to put out a fire with gasoline.

The third possibility: Omicron turns out to be manageable and has little to no effect on inflation or the economy.  Keep an eye on this space!

In the meantime, though, these unknowns are giving our third character a major headache.

The Federal Reserve

Ever since the pandemic began, the Federal Reserve has tried to prop up the economy by keeping interest rates near zero.  But with inflation on the rise, the Fed recently signaled plans to wind down their stimulus efforts.  Their reasoning?  The economy is strong, and inflation doesn’t seem to be going away, so it’s time to start raising interest rates.  (Higher interest rates tend to cool off the economy, because they prompt people to save their money instead of spending or borrowing it.  A cooler economy decreases inflation, and things gradually go back to normal.)

The problem is the stock market has become accustomed to the Fed’s low interest, “easy money” policies.  Low interest rates mean that many securities, like bonds, simply don’t provide the same return on investment as they would in a high-interest-rate environment.  That drives more into the stock market to get the returns they need.  Higher interest rates could potentially reverse this trend.  That’s why investors don’t like any talk of the Fed “tapering” their stimulus program.

On Monday, November 29, the Chairman of the Federal Reserve announced the possibility that tapering might happen even sooner than investors thought.³  That was too much for investors handle, preoccupied as they already were with the Omicron variant.

And now you know why the markets delivered a big, ugly pile of volatility on our doorstep.  There wasn’t even a bow on it!

So, what do we do? 

we were thinking about how best to answer this question when we came across another headline: The start of the 2021 World Chess Championship in Dubai.  Then it hit us.  The best way to describe what we as investors should do is by comparing it to what the top chess players do.

The best chess players are masters at calculating possibilities.  (“If I move my Bishop here, he’ll have to move his Queen there, which means I can move my Knight…”)  In some ways, they think like computers, and indeed they often use computers to figure out the best moves to play.

But no human can calculate everything.  There are occasions when the position is just too complex to predict every possible outcome.  In some cases, they literally don’t have time to calculate, and must make a move with only seconds on the clock.  In a sense, chess players, like investors, are always operating under uncertainty.

When this happens, chess players rely on principles instead of predictions.  They make decisions they know to be fundamentally sound, even if they can’t calculate the result.  They don’t react emotionally.  They don’t guess.  They rely on years of training and experience, knowing that, more often than not, their overall strategy will see them through.

Analysts, pundits, the Federal Reserve – they’re all trying to calculate.  But no one can calculate everything, which is why no one knows exactly what the future holds.  As a result, too many investors fall back on emotional guessing as they try to navigate unknowns.  Hence, the big selloff right after Thanksgiving.

We’re not going to do that.  Right now, the markets are beset with unknowns.  Since we can’t calculate every possible outcome, we’re going to rely on principle instead of prediction.  We know that volatility is always temporary.  We know that none of these unknowns are actually new – investors have been wrestling with them for a year now.  (Just swap “Omicron” for “Delta”.)  And we know our long-term strategy has helped you get closer to your long-term goals.  In other words, we’ve put our pieces on good, sound squares – and we’ll continue to do so moving forward.

That way, you’ll be giving yourself the kind of gift everyone wants: Financial confidence.

In the meantime, our advice is to enjoy the holiday season!  We hope it’s a wonderful one, filled with family and good cheer.  As always, let us know if you have any questions or concerns about your portfolio.  We are always happy to talk with you!

Happy Holidays!

Sincerely,

Barbara B. Hudock CIMA®, CPM®
Chief Executive Officer
Founding Partner

Michael J. Hudock, Jr., CPM®
President and Founding Partner
Wealth Consultant

¹ “Dow drops 650 points on growing omicron fears, Powell taper comments,” CNBC, https://www.cnbc.com/2021/11/29/stock-market-futures-open-to-close-news.html

² “SARS-CoV-2 Omicron variant,” Wikipedia, https://en.wikipedia.org/wiki/SARS-CoV-2_Omicron_variant

³ “Powell: The Fed May wind down its stimulus sooner than expected,” CNN Business, https://edition.cnn.com/business/live-news/stock-market-news-113021/h_59fd45577438f2211df2aedffcea26d9

It is cold, muddy, and the cities are in ruins.  It is France, November 1918, and over a million Americans are about to miss Thanksgiving, being far away from home.

The First World War has ended, Germany having signed an armistice only a few weeks before.  The rebuilding, however, has just begun.  It will be a long time before the Americans – doughboys, as they are popularly known – sail back across the Atlantic.  Many are wounded and most are sick; either homesick or from disease.

Back in the states, people are rationing food.  The government asks them to cut back on sugar (none on fruits or in desserts, less on cereals and in coffee) and refrain from eating turkey and cranberry sauce.  Thanksgiving dinner will be as “home grown as possible,” with each family expected to grow their own food.

“Everybody is expected to remember that other nations are subsisting on tight belt rations,” declares one newspaper.¹  Since our Allies know only scorched fields and devastated economies, their ability to feed themselves – much less our troops – is limited.  “Only by moderation in use of food on our part can this condition be bettered.” 

After all, everyone knows someone “over there.”

In the trenches and the hospitals, the doughboys write letters to their loved ones.  They are anxious for news, stories, and written kisses, anything to feel closer to home.  Anything to make home closer to them.

Then, the flyers arrive.

Five-hundred-thousand soldiers receive a copy of Abraham Lincoln’s legendary proclamation: that all Americans, including those sojourning in foreign lands, should give thanks “with one heart and one voice” for their blessings.  Lincoln’s words strike a chord.  Auxiliary organizations set up Thanksgiving Day celebrations for the benefits of the troops.  The Y.M.C.A. arranges football games between rival units.  Those soldiers who were professional actors, comedians, and singers before the war stage plays and dances.  Technicians erect movie screens; carpenters lay down dance floors.  And all the turkey, cranberries, cider and pumpkin pie willingly forfeited back home arrives via the Red Cross.  The sick and the wounded, the bent and broken – each gets a Thanksgiving feast.

Perhaps it is not quite like mother would have made it.  But it is close.

Then, an announcement comes down the lines.  All over France, families are inviting American soldiers into their houses.  This family can host three men.  This family can host five.  And on and on and on.  What little they have to share – and for most, it is little indeed – is shared gladly.  Commanders publish official lists of those soldiers who most desire a meal around an actual table, in an actual dining room.  In response, local French communities take the lists and send out personalized invitations.

All so these strangers can feel closer to home.

In France, there is no such holiday as Thanksgiving.  This year, the French celebrate it anyway. And on both sides of the Atlantic, people unite with one heart and one voice, just as Lincoln wanted.

That was Thanksgiving, over 100 years ago. 

Isn’t it astounding to see how, even after such a long and horrible conflict, people still found so much to be thankful for? Even more astounding is how people relished the opportunity to give thanks.  They saved and skimped and shared.  They opened their doors to strangers.

They worked just to make Thanksgiving possible.

Now, over a century later, we think about all we have to be thankful for.  It’s an enormous list.  Unlike those doughboys, we are not wounded, hungry, or homesick.  Unlike their families, we do not have to ration food or go without.  And unlike the French, we do not see a ruined, smoking skyline whenever we step outside our doors.

Yes, we have so much to be thankful for.

We are thankful for this country.  We are thankful for all people in our lives who have ever shown us kindness.  We are thankful for the convenience of this modern world we live in.

And we are thankful for a chance to express our gratitude every Thanksgiving.

This year, let us do as President Lincoln asked and give thanks with one heart and one voice.  Let us remember how far we’ve come since that day in 1918.

Let’s have a wonderful Thanksgiving.

Sincerely,

Barbara B. Hudock CIMA®, CPM®
Chief Executive Officer
Founding Partner

Michael J. Hudock, Jr., CPM®
President and Founding Partner
Wealth Consultant

Sources:

“Turkey, Football, Shows on A.E.F’s Thanksgiving Day,” The Stars and Stripes, November 22, 1918.  http://www.oldmagazinearticles.com/Thanksgiving_in_WW1_France-pdf

“Sugar Conservation,” U.S. Food Administration, 1917-1919, U.S. National Archives

Frederic J. Haskin, “Thanksgiving Dinner of Home Grown Food Advocated by Hoover,” The Wyoming State Tribune, November 23, 1918.  https://blog.genealogybank.com/rationing-thanksgiving-dinner-during-world-war-i.html

Happy Veterans Day!

As you know, Veterans Day is a chance to honor those who have served our country.  Of course, we always hope that when soldiers return home from defending our country, they are rewarded for their heroism.  Sometimes, it may be in the form of a ticker tape parade.  Sometimes it may be a medal ceremony.  Sometimes it may be a plaque hung in their honor at their old high school.  It can come in many forms, but recently, I read about one soldier – Air Force pilot Royce King – who received the greatest reward of all.  You see, Royce got to watch his wife walk down the aisle in her wedding dress.

He just had to wait 77 years to do it.

The year was 1944.  World War II was still raging across several continents when Royce King was told he would be stationed overseas for the Air Force.  Royce had always wanted to fly and had no qualms about serving his country.  But there was just one problem: He and his fiancé, Frankie, were due to be married.  Because the young couple had already been engaged for six months, they didn’t want to delay their marriage until after the war.  After all, no one knew how long it would last – or if Royce would come home at all.

Unfortunately, Royce was given only two days to say his goodbyes.  That simply wasn’t enough time to stage their dream wedding, so Frankie and Royce had to improvise.  They quickly booked a local church, but there was no photographer.  No elaborate meal for all their friends and family.  No grand wedding cake.  Not even a dress – Frankie wore a tailored suit instead of a white gown.¹

But it was enough.  Because what they did have was each other.

The next day, Royce shipped out.  For a year, he flew a C-47 over the Himalayas.  Luckily, he returned home in one piece, and though they didn’t get a dream wedding or idyllic honeymoon, he and Frankie spent over seven happy decades with each other.

Yet, while Royce and Frankie were content, their children – and the staff of St. Croix Hospice, who care for the elderly lovebirds – were not.  So, they took matters into their own hands.

On September 24, 2021, staffers helped the 98-year-old Royce into his old Air Force uniform.  They placed a handkerchief over his eyes and led him into the backyard to stand under a white arch.  In the background, another staffer played hits from the 1940s on his guitar and saxophone.  Then, Royce’s daughter, Sue, stepped up and said, “Are you ready to see your bride?”

They removed the blindfold.  For the first time, the pilot, the veteran, the hero, was able to see his beloved Frankie in a beautiful white dress.

As Sue later described it, “He gazed at her and just beamed.  They both did.”²

The rest of that afternoon, husband and wife kissed under the arch, danced to the tunes of their youth, and posed in front of a photographer.  For the staff of St. Croix Hospice, it was a chance to give back to a hero.  For Royce and Frankie’s families, it was a chance to finally be able to peruse photos of a beautiful wedding.

And for one old soldier, it was a reward long delayed…but a reward well-worth the wait.

***

As you know, veterans give up so much in defense of our country.  Their time, their talents, and sometimes their lives.  But they also give up many of life’s richest experiences.  High school graduations and first dates and Saturday nights spent with friends.  Opportunities to be best men or bride’s maids.  Birthday parties and funerals.  Their child’s birth.  Their child’s first steps.

The chance to see the person they love walk down the aisle.

Our job, as citizens, is to honor and reward our veterans as much as we can.  The staff of St. Croix Hospice did that.  We hope we can all find opportunities to honor them in our own way, too.  So, this Veterans Day, let’s all strive to remember the veterans in our communities.  Let’s all strive to make their futures as rich as the future they have given us.

From everyone here at Hudock Capital Group, we wish you and the veterans in your life a happy Veterans Day.  And to Royce and Frankie…congratulations!

Sincerely,

Barbara B. Hudock CIMA®, CPM®
Chief Executive Officer
Founding Partner

Michael J. Hudock, Jr., CPM®
President and Founding Partner
Wealth Consultant

¹ María Luisa Paúl, “After 77 years, Iowa couple gets long overdue wedding photos – with help from hospice workers,” The Washington Post, October 10, 2021.  https://www.washingtonpost.com/lifestyle/2021/10/10/hospice-workers-help-couple-take-wedding-photos/

² Caitlin O’Kane, “Couple gets wedding photo redo 77 years later,” CBS News, October 14, 2021.  https://www.cbsnews.com/news/bride-wedding-day-hospice-77-years-later/

Remembering September 11…and the Day After

This month, we observe the twentieth anniversary of the September 11 attacks.  But there’s another day we feel we should be observing, too.  The Day After.  September 12.

Now, what’s so special about this day, you ask?  It’s simple.  If September 11 was the day America was hurt, September 12 was the day America began to heal.

It’s been a long road for our country since then.  So much has happened, so much has changed.  One of those changes, in my opinion, is the role September 11 plays in our lives…and the place it holds in our hearts.

You see, when those nineteen terrorists seized the planes, they were trying to drive a wedge through the heart of America.  They wanted every American to feel terror and hatred.  And it worked – but only for a short time.  Because even though the towers fell, something happened after September 11 that they couldn’t anticipate.  Something far too powerful for them to ever destroy.

That thing was September 12.

On September 12, firefighters rescued two survivors who were buried beneath the rubble, even after all hope of finding survivors was lost.

On September 12, workers began the monumental task of cleaning and then rebuilding Ground Zero.

On September 12, candlelight vigils were held in Union Square, Central Park, and locations around the country.

On September 12, other nations played The Star-Spangled Banner in honor of the United States.

On September 12, parents everywhere hugged their children close and whispered, “I love you.”

On September 12, spouses held hands and gave thanks for what they had.

On September 12, the country began to heal.

Since then, we remember September 11 differently than the terrorists wanted us to.  Yes, we still feel sadness for those who lost their lives, or who lost loved ones.  But every September 11, we spend more time marveling at the bravery and heroism of those in the towers and on the ground; in the planes and the Pentagon.  We spend more time reaffirming our love for those around us.  We spend more time reflecting on the rights and freedoms we enjoy.

We spend more time being grateful for our country.

All of us, we think, have at some point wondered, “Why?”  Why did September 11 happen?  Why did such a tragedy occur?  Why is there evil in the world?  But at some point, those questions recede into the background.  Anger and bewilderment over the past fade…replaced by hope for the future.

As Brian Clark, a survivor of the World Trade Center, once said:

“Why am I here?  What is the reason I was saved?  They’re really unanswerable questions.  After going through something like I did, all you can do is try to live your best life from day to day and move forward with gratitude.”¹

No terrorist in the world could stop America from healing…or her people from moving forward with gratitude.  Twenty years later, that, to us, is the legacy of September 11.  That is why we will always remember that fateful day.

And it’s why we will always remember September 12.

On behalf of our entire team, we wish you a safe and peaceful September 11…and a hope-filled September 12.  May we never forget.

Sincerely,

Barbara B. Hudock CIMA®, CPM®
Chief Executive Officer
Founding Partner

Michael J. Hudock, Jr., CPM®
President and Founding Partner
Wealth Consultant

¹ “9/11 Survivors Reflect on Their Miraculous Escape,” People Magazine, September 11, 2017.  https://people.com/human-interest/911-survivors-reflect-escape-south-tower/

On July 4, 1852, a young man named Ezra Meeker found himself staring up at a huge granite monolith in central Wyoming.  It was called Independence Rock, partially because westward-bound pioneers, like Ezra, knew that if they made it to this landmark on or before Independence Day, they stood a good chance of reaching their destination before winter came.

That day, Ezra was more concerned about keeping his wife and newborn baby alive than anything else, but he and the other pioneers in the area did take the opportunity to celebrate Independence Day.  He also took the time to carve his name into the rock, like hundreds had before him, and hundreds would after.  Then, he continued his way along the Oregon Trail.

In 1906, fifty-four years later, Ezra Meeker found himself concerned that the nation’s memories of the Oregon Trail were beginning to fade.  So, despite being 75 years old, he set out again, retracing his exact steps along the trail in an actual covered wagon.  Along the way, he set markers and tablets, designating important landmarks and milestones.  And once again, on July 4, he found himself staring up at Independence Rock.  He was no longer able to climb to the top, as he could in his younger days, but he still inscribed a message for future generations to read:

The Old Oregon Trail, 1843-57

In 1916, now 85, Meeker traveled the trail again –this time in a Pathfinder automobile.  Although the car was an absolute relic by modern standards, Meeker was probably amazed at how much faster and easier the route was compared to when he walked it on his own two feet.  Along the way, he became one of the first advocates for a national highway system, so that every American could travel the width and breadth of our country.

The years passed.  Technology improved.  The country changed.  But Meeker kept on traveling.  And for his last trip over the Old Oregon Trail, in 1924 at the grand age of 93, Meeker finally did it in style – in an airplane.

Between Meeker’s birth and his death, America celebrated 97 birthdays.  We’re sure Meeker was astonished at how much the nation changed during that time.  It expanded, going from 30 states to 48.  It grew, going from roughly 13 million people to over 120 million.  It mechanized, with horses and covered wagons being replaced by trains, then cars, and finally aircraft.  It modernized, thanks to the invention of the camera and the film projector.  When Meeker was born, the telegraph was just coming into use.  During his life, he would witness the birth of both the phone and the radio.  (In fact, Meeker made an appearance on the radio one year before he died.  He declared it a “new and wondrous invention.”¹)

Most of all, the country progressed.  During Meeker’s life, slavery ended, women won the right to vote, and children swapped the coal mine for the classroom.

In a few years, America will have celebrated almost 100 more birthdays since Meeker died.  If he were to see America today, we think he would be even more impressed!  Meeker dreamed of a national highway.  Today, we have 70 different interstates.  Meeker appeared on the radio.  Today, we have smartphones.  Meeker flew in an airplane.  Today, we have spacecraft.  48 states have become 50; 120 million people have become 330 million.

When the pioneers reached Independence Rock on the 4^th of July, they couldn’t possibly fathom how their country would change over the decades.  Now, as we celebrate another birthday for our great nation, we wonder how it will continue to change.  What amazing new inventions await us?  What progress will we make, and our children after us?

There are many reasons to be grateful for the United States of America.  But high at the top of our list is that we live in a country that is constantly changing, constantly moving, constantly growing.  America never stands still.  Neither do her people.  That was true in Ezra Meeker’s day, and it’s true in ours.

And for that, we are grateful.

So, happy birthday America!  We can’t wait to see where you’ll go – and how you’ll grow – next.  And to you, we wish a very happy Independence Day!

Sincerely,

Barbara B. Hudock CIMA®, CPM®
Chief Executive Officer
Founding Partner

Michael J. Hudock, Jr., CPM®
President and Founding Partner
Wealth Consultant

¹ “Meeker, Ezra,” HistoryLink.org, 5/02/2006.  https://www.historylink.org/file/7737