May is coming to its end. Should we have sold in May and gone away? Well, the DJIA has come from 33’875 to about 34’529, the S&P 500 started May at 4’181 and rose to about 4’204, the NASDAQ started the month at 13’962 and sagged a bit to about 13’748. Overall, hardly justifying an exit and re- entry...

Hindsight is a great ‘feelgood’ tool... What these numbers don’t show is the fear and pains of the interval. Early May did cause some serious palpitations as inflation fears soared as did the Fear Index itself, the VIX. This matrix started may at 18.60, scared us seriously as it spiked to 28.3 by the 12th. But here we are at the close of May at 16.76, down for the month. Bitcoin, our enigma, started May at $59’500 on its way to the stars or beyond, only to collapse to $30’000 and rebound some towards $40’000 (and now back down again as the US talks of regulation). Oil, like many commodities, just ticked slowly and steadily up to $67.20, solidifying the perception of rising inflationary forces permeating our world. Yes, Gold gained some $100 per ounce in the interval. US statistics confirmed the fears showing a spike in prices with a CPI rising beyond expectations. But the Federal Reserve did not react, saying it is a transitory spike and well within their tolerance range.

If we revert to our mantra of reading the market to predict the news, we will venture that the Fed is likely correct here. The yield on the 30-year Treasury Bond started May at 3.54% yield and is now at 2.33%, clearly not “seeing” inflationary fears... Actually, the yield on the ‘Long Bond’ is lower than it had been at the start of the year by some 20Bp...

We remain firm in our belief that the “Amazon Effect” of price discovery is spreading and pressuring prices downwards through reduction in intermediation. We believe with high conviction that overall prices have significant room for further declines. Commodities and shipping costs may well be rising for another leg, but the part of commodities and shipping in the general price structure is probably around 10%, so even a 10% spike in costs will translate to say 1% in the price index. The other forces, affecting some 50% of prices will outweigh the increases. That said, Albert Einstein quipped “Making predictions is very difficult, especially about the future...” So, are we certain in our outlook? Indeed, it is just one of many possible futures...

Looking into our own crystal ball we see much the same future as we have been expecting since our first newsletter; steady interest rates around the globe, across most currencies. Low pressure from wages, a broad economic awakening with re-openings as the Pandemic fades with increased vaccinations (at least in the Western world). Clouds on the horizon? Yes, several. Mostly demographic in nature. These are very long-term effects and hardly affect our current positioning. Maybe that housing will lose its importance in the next generation? See Japan with its ageing population and slow household formations. Lower future demand, soon to be visible in China?

So no, it will not be a quick return to the “old normal”, hold on to your Amazon shares. Yes, some return to stores will no doubt occur but the part of E-Commerce is likely to continue its inexorable rise. Less travel, leisure and business are likely to remain the ‘New Normal’. We will live somewhat differently than before; our spending basket will continue its evolution, vacations and the like expenditure to decline vs. the distant past (2019) and more spending on housing and home comforts.

Our portfolios ought to best grow from equity holdings, possibly with a little more exposure to energy and banking as the world pursues some of its past paths. We remain overweight in technology and life-sciences. At least for the remainder of this year.

We trust that the gist of the Biden infrastructure spend program will take form and largely happen. This is good for the economy, both short term due to the spend side and long-term as a better infrastructure supports economic growth. Stay with it, remember George S. Patton’s words - “Courage is fear holding on a minute longer.”