A Historic Week…

Well last week proved historic and very interesting or aggravating depending on your political
opinions. On thing is for sure: there will be plenty of distractions with both sides of the
political spectrum displaying their appetite for criminal investigations. Welcome to “Politics
Latin American style.”

First, the numbers. Last week all the major averages inched forward with the Dow Jones
Industrial Average gaining .04% for 2.2% year to Date. The Standard and Poor 500 added .39%
improving YTD returns to 11.96%. The continued big winner was the Nasdaq which added
only .01% but is up YTD 26.61%. Europe was mixed with the MCSI-EFI up fractionally +.90%
but the FTSE lost .59%, as the European Central Bank did its version of the Federal Reserve
show. The big winner, if you are wondering, was the Japanese NIKKEI 225 which gained 2.4%
(to a new 33 year high).

It's a big week on the economic data and policy fronts. Investors and analysts will deal with
major inflation data and the central banks meetings, plus a mired of other economic and
earns releases. The Federal Reserve’s monetary policy committee meeting (FMOC) will
announce a decision on Wednesday on interest rate increases or not. The futures markets are
sending a clear signal by overwhelmingly pricing in a pause in interest rate hikes. The
European Central Bank is widely expected to raise its target interest rates by 25 basis points
(.25%) on Thursday.

The bureau of Labor Statistics will report the Consumer price index for May tomorrow,
followed by the producer price index on Wednesday. The consensus estimates are for
increases of 4.2% and 1.5% respectively. What does it mean? How bad was inflation last
month.

The markets experienced low volatility as investors remain cautious, with all eyes on the
Federal Reserve this week, as previously mentioned most observers expect a pause and a
large sale of treasury notes to cover the Federal Reserve’s cash needs due to with all this
government spending. The new round of interest rate drama will unfold on July 26 th Federal
Market Open Committee meeting to see if they do pause and if the data will support leaving
things alone or returning to a rising interest rate posture. The 10-year treasuries yield rose to
3.75% but still are significantly less than the short-term treasuries rates of 5.45%.
It is fair to say that the Bull is back, not that bull, though there is plenty of that to go around,
but a positive market as we crossed a threshold and eclipsed a level for the Bear market exit.
Will the markets soar? Not likely, because we still are dealing with the pandemic hangover
effect, which has allowed the market to stubbornly move forward from the October lows despite high interest rates and high inflation. We believe this will catch up with the economy
as it affects consumer spending, the engine of the US Economy.

Going forward we recently added to most portfolios, where appropriate, a 2% commodity
position in Natural gas for two reasons: Natural Gas hit a low recently and the needing the
coming winter to meet energy demands. Saudi Arabia just cut its production by 1 billion
barrels (about 10% of total Saudi oil production). The other crack in the optimist view is new
jobless claims which significantly exceeded expectations and revealed some fundamental
problems still need to work to survive and be dealt with.

The portfolios are all under review now and we will maintain a bias toward short term bonds
over intermediate or long-term bonds as we are getting good yields and less dramatic
volatility. The good news is the balanced portfolios, (balanced between stocks and bonds)
should do well and outperform due to improvements and less volatility in the bond markets.
The new shinny object in investors eyes is AI (artificial intelligence), which is bring out all
Orwellian nightmare scenarios and has rapidly piqued the interest of Congress, probably the
only thing that can be discussed or worked on in a bipartisan manner. It is important to
realize what the new innovations in technology, good or bad, can lead to unintended
consequences. Just look at the huge dustup with social media manipulation and censorship.
Overall, the portfolio strategy is well diversified, and the fine tuning is to serve the purpose of
hedge and caution with a defensive eye to interest rates and inflation.

Mike Urbik