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Dear Clients,

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair.”

Charles Dickens wrote those prescient words one hundred and sixty-three years ago in his celebrated book, The Tale of Two Cities. To quote another great author, Mark Twain, “History doesn’t repeat itself, but it often rhymes.”

Let’s not sugar coat where we stand today. The financial markets are unstable, inflation is much higher and for longer than economists forecasted, a war is raging in Eastern Europe, our political system is in a stalemate, energy prices are through the roof, interest rates are on the rise, and uncertainty, which rules the roost in determining the direction of markets, is lurking around every corner.

But there are many positive things happening all around us every day. Jobs are plentiful, incomes are rising, albeit not as fast as some would hope, the economy still seems resilient, households have saved more money in the past couple years than in a long time, balance sheets are in relatively good shape, the pandemic, although still lurking, is in a better place than a year ago, and the equity markets, while hiccupping this year, are up almost 7% just in the past week and have basically doubled in the past three years. I could go on.

From our perch, the equity markets will react to news on inflation above all else. Inflation numbers dictate what the Federal Reserve Bank will do with interest rates, which will ultimately drive the direction of asset prices. If inflation comes meaningfully down over the next few months, markets could, at a minimum, tread water and hopefully recover a bit. At that point, we can catch our collective breath and begin the rebuilding process.

Something to think about as we enter the second half of the year. In behavioral economics, studies have shown that the pain of losing something is possibly as much as twice as powerful an emotion as the pleasure gained from winning. After forty years tracking the markets, and dealing with investor emotions, I can personally attest that this is, in fact, very true. And I can also attest to the fact that those of us long-term investors who understand this concept have always done fine while staying the course. For example, think of those that bailed on the markets a few weeks back only to have missed a 7% gain this past week. Remember, its time in the market, not timing the market.

Victor Frankl, an Austrian physician and Holocaust survivor said something that resonated with me many years ago. I have his quote taped to my file cabinet in my office. He said, “Everything can be taken from a person but one thing: the last of the human freedoms – to choose one’s attitude in any given set of circumstances – to choose one’s own way.” This from someone who saw the horrors of war with a front row seat and set out afterwards to find a profession and dedicate himself to helping others. When markets look grim, as they sometimes do, I think about this quote. It provides comfort and perspective. Surely, if Dr. Frankl could look forward to a brighter day, we certainly can.

All the best,

James K. Tonrey, Jr.
Partner/Chief Executive Officer

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