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3rd Quarter Newsletter

     A repetitive theme in our newsletters has been the importance of planning for the unexpected in your investment strategy. Markets have experienced major advances and declines more often from unforeseen events, more than those which have been widely anticipated, whether positive or negative. After many years in the industry looking for the best prognosticators among analysts to help us determine what is likely to happen, we began to work on a strategy focusing on what is happening now. This helps us take advantage of upside potential and run defense against downside volatility. While we are less likely to hit the ball out of the park in the best of markets, we can mitigate damage in the bad ones. You might say that we embrace the unexpected after following this strategy for over a decade.

     This summer was one of high expectations for many, full of promise as COVID vaccines became widely available and more age groups became eligible. Businesses and recreational venues cautiously reopened, or expanded their limited operations, preparing to welcome back their clientele. Most of us anticipated consumer spending to flourish, employment to mount a strong recovery, and the economy to recognize the benefit of various government stimulus programs put in place in 2020. While a resurgence in COVID cases were expected as life moved back in the direction of “normal,” and the risk recognized by investment markets, the degree of supply chain and labor problems was not.

     In a recent article by Paul Wiseman and Tom Krisher of the Associated Press, “Chemical Shortage Ignites Prices,” they describe the root of the problem; and how it has played out across many industries: As the economy sank into near paralysis, petrochemical producers, like manufacturers of all types, slashed production. So, they were caught flat footed when the unexpected happened: The economy swiftly bounced back, and consumers, flush with cash from government relief aid and stockpiles of savings, resumed spending with astonishing speed and vigor.[1] So, years of “just in time” inventory made it difficult to ramp up supplies, and the country’s panic buying aggravated shortages.

     Federal Reserve Chairman Powell addressed a panel sponsored by the European Central Bank on 9/ 29 and responded to a question about whether Fed policies may have “done too much” in supporting the economy through the COVID crisis. Inflation, by the Fed’s measure, was 4.2% for the month of July.  Powell had earlier called the inflation transitory, driven in large part by unexpectedly stubborn supply and labor issues as the economy recovered from the COVID shut down. The Fed had felt the supply “kinks” would be worked out soon.  But in his remarks, he acknowledged it is “frustrating to see the bottle necks and supply chain problems not getting better; in fact, at the margin, apparently getting worse.”[2] Widespread supply issues have been only one major problem affecting retailers and people in the food industry.

     As retailers, restaurants, and entertainment venues prepared to ramp up and welcome back eager customers, they found it impossible to hire staff. The expectation was laid off employees would eagerly return to work as businesses reopened. Despite improved wages and benefits, there was a reluctance to fill jobs. Federal and state governments began offering incentives for people to return to work for the summer, rather than waiting until special unemployment benefits ran out in October. They were largely unsuccessful. Chairman Powell also addressed the ongoing labor shortage during his remarks on 9/29. He pointed to disappointing job gains in August, about ¼ of the gains seen in June and July, and additionally notes the upsurge of COVID cases due to the delta variant as part of the problem with the economy and employment.[3] There is evidence of reluctance to rejoin the traditional workforce for many people who were laid off or worked from home during COVID, especially among prime workers, considered by economists, as most important to economic growth (see last quarter’s newsletter).

     Many existing businesses hanging on through COVID with the help of stimulus aid are now unable to take advantage of the US “reopening” and the demand for their products and services.  We can probably all name several businesses forced to close their doors for good this summer after decades due to the shortage of labor. In Maine, some of the restaurants most loved and missed during 2020 by locals and tourists have been forced to close early this season or drastically cut hours because of staffing issues. Anecdotally, we looked forward to this summer for revisiting our favorite restaurants but have been frustrated by long waits and limited menus, as the owners struggle with labor shortages. Seeing stressed out owners frantically clearing tables before customers give up and walk away has been a common sight. We applaud all those in the service industry this summer for their energy, patience, and stamina, working through long hours as they do the work of many, trying to stay open and still have smiling customers. For many of us, the business and social landscape we saw this summer, while better than the summer of 2019, was far from our expectations, and a long way from what used it used to be.

     One might expect all this, along with debate over massive spending bills before Congress (and how to pay for them), and whether to extend the debt ceiling, to have had a significant drag on equity markets this summer. Not so. Here is a look from YTD and 1-YR performance from 9/24 of Franklin Templeton, “What Happened In The Market:”[4]











Russell 2000



S&P 500









Real Estate















Consumer Staples



     As we enter the last quarter, we expect there will be more surprises in store, both in what happens and how the markets react. We kick off the quarter with October, a month known for past market volatility, and one which celebrates mystery, magic, disguises, and trick-or-treating. Enjoy your fall; and know that we are prepared to act when needed. We may have the opportunity to add to our treat bags. We so appreciate your business and support and look forward to talking with you soon.




The Galarneau Group


[1]Portland Press Herald, Wiseman, Paul & Krisher, Tom, “Chemical Shortage Ignites Prices,” 9/30/21.

[2] Portland Press Herald, Rugaber, Christopher, “Powel Defends FED Policies Amid Rising Criticism,” 9/30/21.

[3] Portland Press Herald, Rugaber, Christopher, “Powel Defends FED Policies Amid Rising Criticism,” 9/30/21.

[4] Franklin Templeton, “What Happened In The Market,” 9/24/21.

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