SUMMARY. This week we saw a continuation of weaker economic data here in the US as interest rates fell in response. A key jobs report was among them for June which came in much weaker than expected. A shift in allocations to large cap technology continued from economically sensitive companies. On Friday, China capitulated on their weakening economy there and began easing its monetary policy once again. The US isn't far behind in that capitulation in our view. The problem is with inflation (6-7% in US annually as measured by CPI YTD--which we believe UNDER states actual inflation) so high across the globe monetary easing can go so far unlike other periods where massive action took place to support both growth and asset prices. Thus, our conclusion as we head into 2022 economic growth may slow DRAMATICALLY and gov't response may be muted given elevated inflation.
INVESTMENT IMPACT. This week we increased cash levels somewhat, while slightly adding to existing positions which we believe offer compelling risk/reward & attractive valuations. Further, as we have mentioned, we continue to seek names that may have relatively low correlation to markets and whos fundamentals are less exposed to a slowing economy. Thus, for the most part portfolio performance may not follow markets and returns may occur over short periods of time as investors recognize the fundamentals of each stock in models. Many equity positions are small to micro capitalization in nature thus are more volatile, less liquid and prices may move irrespective of direction of markets. This as we said is BY DESIGN. Unfortunately, larger companies may offer higher valuations, lower growth and higher market correlation in our view, but continue to be owned because some funds MUST be fully invested in equities by design. Thus, the rotation that is occurring between value & growth at a time when economic growth concerns maybe increasing. This is worrisome in our view and maybe yet another sign of a slow growth environment to come.
Our model portfolio performance has been updated on our website as of 6/30/21.
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