Quarterly Letter

“Grab your coat and get your hat
Leave your worries on the doorstep
Life can be so sweet
On the sunny side of the street”

– Tony Bennett1, On the Sunny Side of the Street

Dear Client,

While US economic data continues to deteriorate along with much of the globe, pockets of growth have developed. We continue to be generally cautious but have expanded the portfolio to include Japan where we see opportunity today. More on that below, but first, a review of Q2 performance for “primary” assets.2

Risky assets were mixed in the second quarter. US equities were up 8.7% during the three-month period. Global equities were up 6.3%. Commodities lost 3.1% during the quarter. Perhaps the equity and commodity divergence is because commodities are more immediately economically sensitive; an interpretation consistent with the global economic slowdown seen across manufacturing, industrial production, and country-level gross domestic production. (Details below.)

Through the end of June, the equity market remained narrow.3 Like the first quarter, the USA MSCI Equal Weighted Index meaningfully trailed the market capitalization weighted index and returned 4.7%. The narrow breadth and its persistence are not signs of a healthy market.

Unlike the first quarter, safe-haven assets were down in the second quarter. Gold was down -2.7%. Long-dated US Treasury bonds returned -2.5%. On the one hand, this action may corroborate the equity market rally. On the other hand, it may be indicating more and longer inflation than previously expected and with that higher-for-longer short-term interest rates.