Letters to Our Clients

    2024 Client Letters

Letter to Clients, April 2024
It’s been a quiet quarter for economic news. Inflation as measured by the Consumer Price Index (CPI) was 3.2% on February 29th, up from January’s 3.1% and not far from the recent low in June ’23 of 3.0%. Real (inflation adjusted) GDP growth was 2.5% for the 4th Quarter of 2023 with the Atlanta Fed’s “GDP Now” calculation showing an estimated current GDP growth of 2.8% on April 1, 2024.
Letter to Clients, January 2024
In our January 2023 Quarterly Letter, we thought there were three questions of particular importance to investors: 1. Will inflation remain high? If so, how high will it be? 2. Will the United States enter a recession? If so, how bad will it be? 3. Will a financial crisis erupt that prompts the Federal Reserve to drop interest rates and perhaps restart quantitative easing? If so, will this cause inflation to run up again?

    2023 Client Letters

Letter to Clients, October 2023
Let’s start, as we usually do, with a review of the most relevant developments that impact the investing environment. We’ll begin with inflation. The August reported CPI inflation was 3.7%, up from the June low of 3%. Since both 3% inflation and 3.7% inflation are above the Federal Reserve’s target of 2%, the Federal Reserve raised the Federal Funds Rate by .25% to a range of 5.25 – 5.5% at their July meeting…
Letter to Clients, July 2023
U.S. inflation as measured by the Consumer Price Index (CPI) peaked at just over 9% the end of June 2022. It has since fallen nearly as rapidly as it rose and stands at 4% as of 5/31/2023. Energy and food prices have led the decline as the world has adjusted to the disruptions in energy and food supplies created by the Russia-Ukraine War. The end of China’s “Zero-COVID” policies has helped normalize supply chains and removed upward pressure on the price of goods imported from China…
Letter to Clients, April 2023
Inflation remained high in the United States in the first quarter with the February 2023 Consumer Price Index rising 6% year over year, down from the recent peak of 9.1% in June 2022. The February 2023 unemployment rate is 3.6%, little changed from February 2022 when it was 3.8%. The Federal Reserve continued its inflation-fighting efforts by raising the Federal Funds target rate to a range of 4.75% – 5.00% at their March meeting, an increase of .25%…
Letter to Clients, January 2023
2022 was the year inflation ended ultra-low interest rates. Inflation, as measured by the U.S. Consumer Price Index (CPI), began the year at 7.0% and was still at 7.1% in November, having peaked at 9.1% in June. The ongoing high levels of inflation prompted the U.S. Federal Reserve to reduce the assets on their balance sheet and to raise their target for the Federal Funds Rate …

    2022 Client Letters

Letter to Clients, October 2022
Inflation remained high in the United States in the third quarter with the August 2022 Consumer Price Index (CPI) rising 8.3% year over year. The Federal Reserve continued its inflation fighting efforts by raising the Federal Funds target rate to 3.25% at their September meeting (an increase of .75%).  The Federal Reserve is not alone in raising rates as most countries around the globe have followed suit in order to fight their own domestic inflation…
Letter to Clients, July 2022
In our last letter we wrote about inflation and four other “seismic shifts” in the investing environment.  This quarter we continue to focus on U.S. inflation…
Letter to Clients, April 2022
Inflation appears to be here to stay. The US inflation rate in February (latest data available) as measured by year-over-year change in the Consumer Price Index (CPI) was 7.9% (up from 7% the end of December). Inflation measured this way has been above the Federal Reserve’s 2% target since March 2021. Responding to higher inflation the Federal Reserve flipped from encouraging inflation to discouraging inflation…
Letter to Clients, January 2022
During 2021 the global economy continued to be buffeted by waves of COVID-19—first the Delta variant, then late in the year the Omicron strain. The reactions by government bodies continue to be quite varied: Sweden at one extreme imposed minimal restrictions as case counts rose, China on the other extreme completely locked down entire cities when cases were discovered…

    2021 Client Letters

Letter to Clients, October 2021
In July we described at length the uncertainty that COVID-19 had introduced into the global economy. We called it “noise.” A summer wave of COVID hit a number of countries across the globe from Israel to Vietnam, including the United States, with the peak case count generally appearing in early September. The resurgent COVID slowed economic recovery and exacerbated the problems in global supply chains which had not fully recovered from the winter round of the illness and associated containment measures…
Letter to Clients, July 2021
In our view, the main attribute of the second quarter was noise. The economic noise introduced by COVID-19 and the responses to it by individuals, businesses, and governments made it extremely difficult to determine what the underlying trends were. We expect this noisy environment to persist for at least another quarter or two assuming that COVID countermeasures diminish over time.
Letter to Clients, April 2021
The first quarter of 2021 has been pretty good to us. Our homebuilder holdings have benefitted from a very strong housing market that began in May of 2020 and has not seen a letup since. Buyers are occupants not speculators and are putting money down, so the excesses we saw in the housing market early this century are not currently present…
Letter to Clients, January 2021
In September 2020 we wrote that we thought COVID-19 was in the process of burning itself out in Europe and the United States. We couldn’t have been more wrong…

    2020 Client Letters

Letter to Clients, October 2020
Economic activity in the U.S. and around the world continues to be driven by the spread of the COVID-19 virus and reactions to it. We said that in July and it remains true, if perhaps a little too obvious to be worth stating…
Letter to Clients, July 2020
Since early March the economy has been driven by public reaction to the unfolding COVID-19 pandemic.  It remains our observation that public perception and actions are in the lead, not government actions, though there is significant feedback between the two…
Letter to Clients, April 2020
Before Ron and I start with our normal topics, please allow us to extend our heartfelt wishes for good health and good luck during this exceptional period. Also, our deepest thanks to all of you that are reaching out to help others. We are continually amazed at the many, many ways we see people helping each other and are inspired and heartened by such actions. Thank you…
Letter to Clients, January 2020
Looking back over 2019 only two things really mattered much to the economy of all the things that hit the headlines: tariffs and the Federal Reserve. The imposition of tariffs on imported goods forced a re-evaluation of a lot of supply chains and was a headwind for businesses. The Fed reversed the direction of policy in January: shifting from raising rates and reducing their balance sheet to lowering rates and expanding their balance sheet…

    2019 Client Letters

Letter to Clients, October 2019
It’s been a noisy summer. Lots of political news, lots of tariff and trade war news, lots of international headlines of various sorts. Funny thing though, as we write this note during the last week of September the S&P 500 Index is within three percent of the all-time high it set in July. By that measure, it’s been a quiet summer…
Letter to Clients, July 2019
Here are the highlights of what we’re seeing so far this year: The Federal Reserve last raised short-term interest rates in December 2018 and is now actively talking about cutting them. The futures market, in fact, is pricing in two to three cuts this year. The Fed has also stated they will end the shrinking of their balance sheet in October. They’ve undergone quite a shift in thinking over the last six months! Our concern last year was that the Fed, through the reduction of the balance sheet, would reduce dollar availability and cause asset markets to fall. The Fed’s actions this year have alleviated that concern…
Letter to Clients, April 2019
A couple of noteworthy changes have occurred in the first quarter of 2019: First, the Federal Reserve has reconsidered their program of interest rate increases and balance sheet reductions. They now intend to hold short-term rates steady in 2019 and end their balance sheet reduction program in October 2019. Last year, we wrote extensively about the risk to asset prices we saw in the Federal Reserve’s asset reduction program and, we believe, the market started reacting to that program in October 2018…
Letter to Clients, January 2019
When we began 2018 we thought the markets would be dominated by two important changes: the passage of the new tax law in the final days of 2017 and a decline in dollar liquidity as the Federal Reserve both raised short-term rates and reduced the size of its balance sheet. We thought the first change would be good for the economy in both the short and long-term and the second change would be negative for most asset markets. We didn’t hazard a guess regarding when the negative influence would start to appear…

    2018 Client Letters

Letter to Clients, October 2018
At the end of the third quarter the U.S. economy is by most indicators in good shape. Real (inflation adjusted) GDP growth the first two quarters averaged 3% and forecasts are for the full year to come in at about 3%. Small business and consumer sentiment indicators are at high levels. Unemployment is quite low and most credit metrics are looking fine.
Letter to Clients, July 2018
Allow us to summarize what we’re seeing so far this year. The U.S. economy is doing well, with 1st quarter Gross Domestic Product (GDP) growth coming in at 2%, unemployment in May was a low 3.8%, and inflation was 2.8%. The interest rate on 2-year U.S. Treasury notes at the end of June was roughly 2.5%, 10-year U.S. Treasury notes yield almost 2.9%, and the average 30-year fixed mortgage rate in the county is 4.4%.
Letter to Clients, April 2018
The first quarter of 2018 was marked by a sharp market correction and the unraveling of some very popular investment themes. The correction kicked off in February when wage data triggered inflation fears which caused bond yields to jump up (bond prices dropped) and equity prices to drop.
Letter to Clients, January 2018
If you had told us a year ago that the market would rise 20% in 2017, we would have been skeptical. Yet, here we are at the end of the year and the S&P 500 Total Return Index was up 21.83% for 2017. The S&P 500 Index was up 19.42%.

    2017 Client Letters

Letter to Clients, October 2017
From a market perspective, this has been a quiet summer. As of 9/30/2017, the S&P 500 was up 6.63% over the last six months with hardly a dip. Low economic growth continues on a global basis, none of the major central banks have altered course in any fashion, inflation remains low, second quarter earnings came in nicely, etc.
Letter to Clients, July 2017
As June comes to a close, we find that most of the things we talked about in March haven’t changed much. Starting at the international level, both the European and Japanese Central banks continue to buy bonds (Japan also buys equities) in order to manage interest rates and support their economies…
Letter to Clients, April 2017
The plot of the National Federation of Independent Business (NFIB) Small Business Optimism Index since March 2000 is the single most interesting chart we’ve seen in the last quarter. The NFIB conducts monthly surveys of its members in order to better understand the environment in which small businesses are operating. The way we interpret the chart is that small businesses are MUCH more optimistic about their future post-election than they were pre-election…
Letter to Clients, January 2017
2016 was a disappointing year for us as our accounts, on average, lost about 3.56% of their value over the course of the year (individual performance varies by account), while the S&P 500 gained 11.96%—both figures include reinvestment of income. The obvious question is “Why the underperformance relative to your benchmark?” The short answer is that we didn’t own enough of the best performing sectors in the market: energy, financials, and industrials and we owned too much of the worst performing sector in the market: health care…

    2016 Client Letters

Letter to Clients, October 2016
Last quarter we said “It seems like every quarter something big happens for us to talk about… .” Well, not this quarter. The last three months have been very quiet – economic growth hasn’t changed much, central bank policies haven’t changed much, bond prices haven’t changed much, commodity prices haven’t changed much, etc. …
Letter to Clients, July 2016
It seems like every quarter something big happens for us to talk about, this quarter was no exception. The UK voted itself out of the European Union on 23 June. The markets (currency markets, equity markets, commodity markets) reacted violently to the development on 24 June—a bunch of market participants must have been caught by surprise…
Letter to Clients, April 2016
In the spirit of our times, when trigger warnings abound, we should probably warn you now that what we’re about to discuss may make you uncomfortable. Continue reading at your own risk. And no, we won’t be discussing politics…
Letter to Clients, January 2016
In the fourth quarter, the S&P 500 Index was up a bit over 7% and up 1.38% for the year. Our accounts, on average, were up 3.52% in the quarter and down 5.03% for the year. (Individual performance varies by account.) The gains for the broader Index in the quarter were mostly made by a small number of large capitalization tech stocks, Facebook, Amazon, Netflix, Google, and Microsoft among them.

    2015 Client Letters

Letter to Clients, October 2015
The domestic quiet we wrote about in June did not last very long. Between August 17 and August 25 the S&P 500 Index dropped 11%. The S&P 500 Index bounced back about 4% and, as of September 30, it is down 6.4% for the quarter. For the year, the S&P 500 Index is down 5.3%.
Letter to Clients, July 2015
Economic news and domestic equity markets have been pretty quiet since we last wrote to you in April. On the domestic economic front the revised numbers for 1st Quarter Gross Domestic Product (GDP) came in at -0.7%, significantly worse than most expected.
Letter to Clients, April 2015
We’ll start with our views on the U.S. stock market, then briefly touch on some broader U.S. and global issues, then close with a summary of how it all ties together.
Letter to Clients, January 2015
Tony had some ideas and observations he wanted me to share, but I thought it made sense for him to tell you directly in this edition of our Quarterly Letter. — Ron

    2014 Client Letters

Letter to Clients, October 2014
My first draft of this letter, which I wrote three weeks ago began with: Europe has not solved its problems; Nor has Japan; Nor has China; Nor has the U.S. The rest of that draft is now obsolete. Since mid-September, several items have changed—some economic, some market-related, some psychological.
Letter to Clients, July 2014
In Europe, Banco Espirito Santo, the largest bank in Portugal, has defaulted on interest payments on its bonds. Europe has not solved its problems. In the U.S., for at least the fourth consecutive year, estimates of real GDP (Gross Domestic Product) growth, which exceeded 3% prior to the beginning of the year, have been reduced to 2% or less by midyear (now). The U.S. continues on a slow path.
Letter to Clients, April 2014
Most of the economic and market trends we’ve been discussing for the past few years remain in place. Russia’s action in the Ukraine/Crimea may have long-term implications, particularly for Europe, but the near-term economic implications are modest. It remains to be seen whether this gets added to our long-term worry list or not.
Letter to Clients, January 2014
Some of the things we’ve been talking/warning you about in recent years came to fruition in 2013. Specifically, medium- and long-term interest rates rose and commodity prices declined. While the U.S. Federal Reserve (Fed) continues to hold short-term interest rates near zero, rates in the intermediate to longer term, (5-30 year) increased substantially during the year, driving bond prices down.

    2013 Client Letters

Letter to Clients, October 2013
Since 2008, the Federal Reserve (Fed) has been a huge manipulator of the money supply and of interest rates. Beginning with TARP (Troubled Asset Relief Program) in 2008—and continuing through Quantitative Easing II (QE2), Operation Twist, and QE3, the Fed has added over $2 trillion to our money supply (nearly $20,000 per household) and purposely bought U.S. Treasuries and mortgaged-backed securities to keep prices of these securities up and keep interest rates artificially low.
Letter to Clients, July 2013
In a world where the U.S. economy is growing at 2% and most other economies are also growing well below potential, we expect that the stocks of companies that can report good revenue and earnings growth will do well. The great disappointment is that the improvements in the U.S. stock market and Federal income tax receipts (and in European bond markets) have given politicians on both sides of the Atlantic an excuse not to rein in government spending in a meaningful way.
Letter to Clients, April 2013
For two years or more, we’ve been discussing Europe, China, and U.S. politics as drivers for the financial markets. These drivers continue. Europe has reentered recession. That was expected. But it was also expected that, by now, Europe would have found an approach to deal with its problems. It has failed to do so, both politically and financially. Elections have been inconclusive (Greece and Italy), and the responses to the recent banking problem in Cyprus (a tiny country) were more problematic than the banking problem itself.
Letter to Clients, January 2013
2012 was a year of mixed results on the economic front, but generally good investment returns as measured by the S&P 500 Index. Some progress was made in Europe and China, and some clarification in direction was made in the U.S. We presented our thoughts on these topics at our December 6 seminar. A brief review follows.



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