“So Long Will They Be a Little People, a Silly People”


Kerr Financial Group

Kildare Asset Mgt.

Jeffrey J. Kerr, CFA


 April 11, 2022 – DJIA = 34,721 – S&P 500 = 4,488– Nasdaq = 13,711

“So Long Will They Be a Little People, a Silly People”


The above quote is from the movie “Lawrence of Arabia” as the main character describes the fighting and squabbling among the local tribes and factions in the Middle East during World War I. The movie depicts British army lieutenant T.E. Lawrence and his life in the region during the war. Throughout the plot, Lawrence, being accustomed to the sophisticated British culture, is continually frustrated with the brutal and violent fighting between the divisions in and around the Ottoman Empire.

The above quote was resuscitated recently as talk show host Bill Maher (“Real Time with Bill Maher”) used it in describing the state of our country. Maher, who doesn’t wear a MAGA hat, harshly criticized the lurch to the left that is sweeping the country.

The HBO show host acknowledges that the U.S. has “already lost” to China because we are too busy on “Woke” culture battles. He compared the discussion on Mr. Potato Head’s gender that took place in the U.S. to our global opponents’ attention to teaching their children such things as math, science, history, and literature. He went on to say, “You know who doesn’t care that there’s a stereotype of a Chinese man in a Dr. Seuss book? China.”

The silliness goes beyond cultural issues including developments in the financial markets. Crippling and historic inflation, the Federal Reserve on a path to raise interest rates perhaps as many as 8 times, and the possibility of slowing economic growth. But the greatest silliness it that the dollar is at risk of losing its prominence as the reserve currency which would cause a massive shift in the global power rankings.

During times of emotional chaos, leadership can offer calm and reason. Unfortunately, the current lunacy is being promoted through the actions by our bureaucratic and political leaders. Since the 2008 financial crisis, the Federal Reserve journeyed on a path of unproven policies that involved injecting newly printed dollars into the financial system.

Here is a chart of the size of the Fed’s balance sheet. As shown, the money supply (the total amount of money in the system which is controlled by the Fed) doubled from 2008 and 2012 as the Fed flooded the system in response to the mortgage and financial crisis. It has continued to grow and is approaching an astounding $8 trillion.

In normal economic conditions, expanding the money supply on this scale would cause catastrophic problems. Inflation and a collapse of confidence are typical results as anything that increases that much is cheapened. The U.S. avoided this mainly through the fact that the dollar is needed for all international transactions, so our trading partners bought dollars needed for their economy. This kept the value of the U.S. dollar stable and helped the U.S. avoid facing any responsibility for the poor decisions.



This confluence of events gave freedom to the silliest Americans which includes our elected government officials. Fiscal spending increased at a record pace as any logic and accountability has been ignored. Our government debt continually sets records, and no elected official is doing anything about it.

As an example, Washington recently passed a $1.5 trillion spending bill with no effort to finance it other than increasing debt to over $30 trillion. (If we add unfunded government liabilities to this debt amount, we are well over $100 trillion in debt).  But as bad as that was, the real insult was that the 2,700-page bill was distributed in the afternoon and Congress passed it in the middle of that night. This means no one read the proposal let alone debated it. We truly have become a silly people.

The markets might be getting its fill of this silliness. Stocks and bonds have been declining this year and the turmoil might increase. Bonds yields have been moving up which translates into lower prices. The 10-year treasury closed last week above 2.7%. Last summer the 10-year’s yield was below 1.2% and the increase is beginning to be reflected in such things as mortgages.

The stock market had its worst quarter in 2 years to start 2022 and the selling has continued in April. Here is the year-to-date performance for the major averages as of last Friday, April 8th.



Financial asset prices are a function of the expected cash flows from the investment. The second derivative of this is the economic landscape under which the entity operates. Of course, the cultural stability impacts the economy which impacts the earnings potential of business. When a culture is dominated by silliness, it will be a headwind to the conditions of a strong financial system. It is the direction that we are heading and risks are increasing.

Copy of the 4th Quarter Review Letter



45 Lewis Street, Lackawanna RR Station

Binghamton, NY 13901

Phone: 607-231-6330                                             email: [email protected]


The following is a copy of the 2021 4th quarter letter sent to clients. It reviews the markets and the client account’s activity and performance for the 4th quarter of 2021.

February 10, 2022

The S&P 500 has had three consecutive years of double-digit gains. It was up 27% in 2021. Given the challenges and turmoil that we have endured, this is a remarkable outcome. These three-peats of double-digit returns have only happened 9 times in the history of the index. The last time was 2012 – 2014 as the economy was recovering from the Great Financial Crisis.

Looking at the year-end numbers, one could naturally assume it was all unicorns and rainbows. In other words, every decision was a good one and trading profits abounded. This is not what happened. The year began with the controversies surrounding the meme stocks (GameStop, AMC, etc.) and the Robinhood gang.

These stocks rocketed early in the year as individual investors targeted companies high short interest positions which caused pain and consternation throughout Wall Street. The established old guard of the financial industry fought back, and some trading platforms restricted “buy” orders in the meme stocks. Eventually, the battle calmed a bit and many of the stocks returned to their previous levels.

Another development of 2021 was the growth and popularity of SPACs (special purpose acquisition company). These organizations raised money from selling stock and then used that money to buy another company that had, unlike the SPAC, business operations. There was a high level of excitement and speculation around SPACs and their potential targets. The price of many SPACs dropped in the second half of 2021.

Commodities prices captured some headlines. Lumber futures began the year below $1,000 per 111,000 per board feet (one 73-foot railcar). The price jumped to $1,700 and then plunged to $500 before ending the year above $1,100.

Bitcoin had a similar roller coaster trip. It started the year around $37,500 and reached $60,000. It plummeted 50% and then recovered to above $47,000 at year end. As with the meme stocks and lumber, if you bought bitcoin or another cryptocurrency at the wrong time it was a regretful decision.

Back in the stock market there were rotations between industries and sectors which offered rewards to those navigated these changes. It was a challenging trip for those who may have been a step behind.

For example, the Russell 2000 (small cap index) was the best performing of the major indexes in the first 6 months (+17%). The Russell lost 2.8% in the second half of the year. Most of this drop came in November and December as the index peaked on November 8th. The Nasdaq also peaked in November and drifted sideways into year end.

Despite all the gyrations, it was a good year the stock markets. The S&P 500 logged 70 all-time highs during the year. Here are the major indexes’ performance numbers for the 4th quarter and for the entire year.



In 2021, the markets overlooked and overcame such obstacles as inflation, covid variants, widespread shortages of goods, intense cultural division, and geopolitical tensions. Those probably continue in 2022 and then could be compounded with other headwinds. The biggest of the new issues could come from interest rate increases by the Federal Reserve.

The Fed is projecting that they will raise interest rates at least four times this year. Our monetary officials are targeting inflation and believe that the economic momentum is strong enough absorb this reversal in monetary strategy. The first-rate hike is expected to be in March.

There is widespread confidence that the Federal Reserve can successfully raise interest rates without inflicting damage. An extension of this is that Wall Street thinks the Fed has its back and won’t let the stock market fall. This has developed over the past decade as the Fed has implemented multiple versions of quantitative easing which primarily supported the capital markets.

The current trust in the Fed might be misplaced as our central bankers, unfortunately, have s a long history of blunders. As an example, the Fed told us for many years that they would generate a 2% inflation rate. Until last year’s spike in prices, they failed.

Another policy misstep happened in 2018. The Fed attempted to cut back on stimulus (bond purchases) and raise interest rates. As the Fed acted the stock market fell. When it became clear that the Fed was going to keep tightening, stocks collapsed. The S&P 500 lost 20% in the 4th quarter of 2018. In early January 2019, Fed Chairman Powell ‘pivoted’ and announced the interest rates increases would end. The stock markets stabilized and started to move higher.

I worry that 2022 could be a replay of 2018. The Fed is strongly committed to multiple interest rate increases this year. Currently, the markets appear to be understanding. I fear that there could be significant harm as interest rates go up while inflation remains elevated, and growth slows. As a reminder, this would be within an overleveraged financial system which increases risk.

The capital markets have a lot of factors to deal with under normal conditions. This year will present an even greater number of issues for the economy to understand and digest. This could result in a step up in volatility. This landscape could be tricky but will likely present many opportunities.

Please contact me with questions or comments. As always, thank you for your support and confidence in Kerr Financial Group.


Jeffrey J. Kerr, CFA


Copy of the 3rd Quarter Review Letter



45 Lewis Street, Lackawanna RR Station

Binghamton, NY 13901 | Phone: 607-231-6330  | email: [email protected]


The following is a copy of the 2021 3rd quarter letter sent to clients. It reviews the markets and the client account’s activity and performance for the 3rd quarter of 2021.


November 3, 2021

In the past 40 years, inflation became an accepted part of our economy. This is partially a result of it being at low levels and not an obstacle to economic progress. After the financial crisis, inflation became an encouraged outcome of monetary policy. Our government and monetary bureaucrats have been telling us for the past decade that a “little” inflation is good thing. The Federal Reserve repeatedly told us they were working hard to achieve higher inflation levels.

While we were being sold that we needed inflation, we were also assured that that our leaders could manage all negative developments if any arose. What was absent in promotion of inflation is who it hurts. Inflation does the most damage on the middle and low classes as well as retirees on a fixed income. At the same time, the elites and wealthy feel little pain from the increases in gasoline, groceries, and the necessities of everyday life.

P.T. Barnum reportedly claimed that “Many people are gullible, and we can expect this to continue.” The modern public’s acceptance of such propaganda as a little inflation is good is evidence of the showman’s wisdom. The public’s unwillingness to hold leaders accountable for inflicting harmful policies and running up astounding amounts of debt is a head scratcher.

Inflation has soared in 2021. As measured by CPI (Consumer Price Index), the inflation rate was 1.4% in January 2021 and rose to 5% in May and has been above 5% for every month since. Government officials tell us it is transitory and will fall when the economy reopens. This is also the same gang that told they were working hard to get the inflation rate to 2% but couldn’t do it. Here is a chart of the recent monthly CPI readings.




Despite the claims that it is temporary, inflation could easily turn into a long-term issue. Labor shortages and supply chain disruptions will contribute to keeping prices higher. This could become circular in that businesses raise prices to cover higher costs and payrolls which causes other businesses along the food chain to do the same.

Concerning the markets, inflation has moved to the forefront of corporate mindsets. Few executives and managers have any history of decision making during high inflation environments which increases the possibility of bad ones. Nevertheless, rising prices is a clear corporate worry. The number of times that “inflation” was mentioned on 2nd quarter S&P 500 earnings conference calls jumped 900% year-over-year. Here is the chart.


How the financial markets cope with inflation could cause important variations from recent years. Increasing prices should hurt long maturity bonds which many investors think is “safe”. Further some industries will be challenged in passing along their higher costs. If shortages continue, some sectors will be able to command their price. It promises to be a different investing world.

Looking back at the 3rd quarter, the stock market finished flat to down. Despite just being a sideways slither, it was the worst quarterly stock market performance since 1st quarter 2020 (the Covid shutdown). The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite climbed during July and August but gave back the quarter’s gains in September. For the year-to-date, all the averages are showing gains. Here are the major indexes’ performance number for the 3rd quarter and 2021.


The markets could be facing a classic case of be careful of what you wish for because you may get it. Our elected and unelected leaders have been telling us for years that the economy needs inflation. Until 2021, they couldn’t provide any lift in prices. Now that inflation has arrived, we are supposed to believe it is temporary. The Federal Reserve has a long history of being wrong so it would be prudent for investors to consider that inflation is a longer-term problem.

This new landscape will present new risks and opportunities. I will continue to take advantage of the favorable situations in this environment.

As a new part of this quarterly communication, we are attaching a video. I try to cover some specific positions and get into more detail on the how the markets have impacted your account. Please let me know any comments, questions, or suggestions.

As always, thank you for your support and confidence in Kerr Financial Group.




 Jeffery J. Kerr, CFA