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70’s Rerun & More, Earnings: CSH, EXE, SIA, CAN, SU

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Rising interest rates are beginning to weigh on markets. It always takes a while for the bullish momentum to stumble. Whether the stumble becomes a fall depends on how much central banks raise interest rates, how quickly inflation begins to recede and petroleum prices. Last Friday's US CPI annualized rate of increase at 8.2% was the second consecutive monthly gain of over 8%. The last time inflation was this elevated was in the 1970's when interest rates were subsequently increased to double digits.

It was during the late 1970's when inflation last ran this hot. From above 5% beginning in 1973 and then 10%+ for 1979 and 1980. The current rate of inflation increases is being advertised as 40 year highs, but are not yet nearly as high, and still for a much shorter time than the previous experience.

There are similarities between now and the late 1970's when interest rates ultimately headed into the teens. The Cold War between the US and Russia was in full bloom, oil prices were moving sharply higher, and climate change issues were gaining momentum. From today's perspective, the Ukraine-Russian war is reigniting the Cold War, oil prices are surging and climate change issues have been dominating capital allocation. While there are similarities, the differences include much lower level of interest rates as a starting point today compared to the early 1970's, and a Pandemic that is hanging around for too long. This makes an interesting mix for the central banks to handle, if they can do anything at all. Inflation has gone from not being a problem, to transitory, to out of control. Comments consider these various influences on inflation, markets and the important issues for income investors to keep in mind.

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