Time and a longer perspective also provide for another opportunity that markets offer to long-term investors. The vast majority of both amateur and professional investors and speculators operating in the stock markets have time horizons that are too short. They try to find stocks where they feel there is a chance for quick profits. At the same time, they tend to ignore stocks where the hope of getting rich quickly is small but the probability of attractive long-term returns is high. This activity creates great competition at the short end of the market; but, as the market lengthens, competition diminishes. Taking advantage of this phenomenon is sometimes referred to as time arbitrage.
One typically associates capital market myopia with microeconomics, but one wonders if there is some application to the macroeconomic picture. There is little doubt that the United States is a going concern, but its financial operations do raise questions.
What we see, however, is a fragile economy with little cushion to absorb future shocks. The U.S. debt-to-GDP ratio now stands at 120%, an all-time high, and is on track to rise further as the “One Big Beautiful Bill” adds trillions more in debt. The dollar has declined roughly 10% against a basket of major currencies, inflationary pressures continue to build, and consumer confidence is weighing down. All this is happening amid lingering tariff uncertainties and a stock market reaching all-time highs in both price and valuation.
If we had to place a bet, I would say the probability of the party stopping is higher than the opposite. What if the bond market begins to question America’s credit worthiness? Should we enter a recessionary environment, what tools would we have left to stimulate the economy?
To this end, the long-term success of the Strategy will always be guided by fundamental stock selection. The second quarter is a reminder that there will be periods and market conditions when the Strategy will be challenged in keeping pace with the benchmark.
While tariffs and trade barriers can be considered another form of tax that may increase the cost of doing business, figuring out their impact on companies would be the equivalent of a Churchillian riddle wrapped in a mystery inside an enigma.
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We are basically back to pre-covid levels of inflation, if the current trends continue. The big question of course, is if these trends will in fact continue. We still have very little clarity on where tariffs will shake out, but they are already causing some prices to rise and the impact could potentially be much worse in a worst case scenario. I do feel like given the Fed’s hawkish stance, inflation will remain low and any tariff driven increase will be a temporary shock. It is painful in the short run, but I think long term will mean it is more likely that we get back to pre-covid levels of inflation (or at least close to that) and thus also lower interest rates. It also probably means a recession of some form is much more likely – potentially something highly regional like we saw in the early or late 90s.
Inflation remains a concern, but it is trending in the right direction. Is it at the Fed’s 2% target? No, but the last mile of a marathon is always the hardest (so we’ve been told). Geopolitical risks are certainly elevated right now, with multiple conflicts across the globe. Russia and Ukraine are still at war and Israel has undertaken a massive initiative to remove Iran’s nuclear capabilities. These geopolitical conflicts are likely to keep oil and energy markets volatile and difficult to forecast. Last year, the Fed was projecting core inflation(their preferred measure) would be 2.5%this year, falling to 2.2% in 2026 and reaching their2.0% targetby2027.However, this year, core inflation is running at3.1%,60 basis points higher. Has the FOMC median number of rate cuts changed? Not yet
Regardless of the fireworks, the stock market ended at record highs. This was not a coincidence. The S&P500 remains the North Star for Washington. Allowing asset bubbles to deflate is a thankless path in the short run. Therefore, in spite of good intentions by this administration, or any, at the outset, the economic agenda will likely be recalibrated as needed to sustain the wealth effect. With mounting evidence that federal overspending will continue and trade hostilities will simmer, investors are taking audacious policy pronouncements with a grain of salt. After all, we’re always one tweet or Fed presser away from a big up day for stocks. Time and again, we have seen Washington prioritize financial assets above all else. Such is the Shakespearean paradox of 2025 U.S. economic policy: sound and fury, signifying nothing.
The key was to survive through the initial “madman” drop to buy the lows of a broken market. At the same time AI was not dead, just taking a breather. Now that the focus is on lowering interest rates regardless of inflation the market is getting into frothy areas, with the stocks that fall under the speculators' radars moving in an incredible fashion. I really believe we are entering bubble territory in many areas/sectors. I mean, a Spanish coffee chain worth €4mm launched a program to buy thousands of Bitcoins and it is of course up 400%.
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