Weekly Summary

“bad guy”

“bad guy”

The banking crisis depicted in our last two commentaries commanded mostly the attention of Congress and various government officials this week as they tried to discern who the “bad guy” was – or who the bad guys were – who helped precipitate this crisis. In her song “bad guy”, Billie Eilish made it easy as she identified herself as the “bad guy.” We thought that one phrase in particular captured the essence of her persona in the song: “I do what I want when I’m wanting to.” We surmise that this might have been the attitude of many people who were involved in laying the foundation that could turn into the crisis that transpired.

“Calm Down”

“Calm Down”

Late Thursday morning, we thought that it was highly likely that U.S. equities traded at a level that could be at least a short-term peak. We thought that the risk-reward no longer justified full positions in many stocks. We also detected what we would characterize as much complacency in regard to economic trends, which many investors and analysts viewed as perhaps predictable and evolving slowly. We suppose that future economic and inflation trends could evolve in a sudden and non-linear pattern.

“Karma Chameleon”

“Karma Chameleon”

The Fed will have a difficult task in balancing the risks of tighter monetary policy to rein in inflation against the risk of financial instability. To what extent are these objectives compatible? To what extent will the Fed become a chameleon? To what extent will this change the Fed’s “karma?”

“Desert Rose”

“Desert Rose”

We continue to stress that stock selectivity in this current financial market environment is of paramount importance. We are looking for that special “Desert Rose.” We remain wary that we are not imagining what we want to see, but instead keep an open mind so that we can better see the “reality” of a company’s fundamentals. Only then would we be able to properly assess the risk-reward of owning a particular investment. Another important consideration would be how a specific investment might fit into a diversified portfolio.

“Nothing Else Matters”

“Nothing Else Matters”

We continue to stress that stock selectivity in this current financial environment is of paramount importance. We will reassess our investment posture after we have analyzed the next set of monthly economic data. We maintain our strategy of buying equities only on downturns. We will continue to scrutinize investments on a risk-reward basis.

“Wind of Change”

“Wind of Change”

As indicated in our commentaries of the past few weeks, we have been anticipating the rise in interest rates and USD. We have also advocated the trimming of equity positions. We maintain our strategy of buying equities only on downturns. We continue to stress that stock selectivity in this current financial market environment is of paramount importance. On Friday afternoon the two-to 10-year yield curve inversion increased to at least 85 bps. We interpret this as an indication that financial markets are pricing in the increased probability of a U.S. recession this year. We are hopeful that this might still be avoided. We will make a new assessment of this possibility after we have analyzed the next set of monthly economic data.

“Minefields”

“Minefields”

Given the myriad of possible explanations to account for financial markets’ reactions this year, we view the investment process this year as navigating through a landscape of “minefields.” We feel “equipped” to embrace this task. We believe that maintaining an “open mind” could be the key to a successful “navigation.” Many U.S. equities continue to show a remarkable resiliency.

“The Times They Are A-Changin'”

“The Times They Are A-Changin'”

For the time being we are maintaining our basic investment approach as expressed in last week’s commentary. We continue to prefer high quality big cap stocks that offer good balance sheets, as well as relatively stable cash flows and profit margins. We prefer a very diversified global portfolio for long term investors.
We believe that the Fed indicated a much more dovish stance this week in regard to their restrictive monetary policies. We still expect the Fed to hike the federal funds rate by another 25 bps at its next meeting. We will then decide if we believe another hike would be appropriate after that time. We remain data dependent. At this time, we do not expect the Fed to cut rates this year. We are also becoming more convinced that if the U.S. were to enter a recession this year, it would be a mild one. We still believe that the U.S. might avoid a recession this year.