TOPICS AND THOUGHTS
Iran War: began February 28th and is unwinding but its status remains unclear.
The war is challenging the adage “buy on the sound of cannons and sell on the sound of trumpets” as the market has really shown few signs of letting up since the war began.
Ukraine War: began February 24th, 2022 and is still raging with no visible end.
This horrible war of territory has lasted longer than the world anticipated. What was once science fiction has become a new reality of asymmetric warfare replacing expensive war fighting tech with AI killer drones and enemy targeting with AIS meta data. The military industrial complex is rapidly evolving to meet these new challenges.
Trade War: Changes in US trade practices began March 4th 2025. Port of Los Angeles volumes are up 7.93% since trade war began.
The world is resetting and globalism is adapting. Precious metals, money markets, and cryptocurrencies are adapting to this neo-mercantilist world.
US Ten-Two Year Yield Spread: the closely watched US Ten-Two-Year Treasury Yield Spread is at 0.28% down from 0.71% at beginning of 2026.
This recent contraction comes after a yearlong expansion. A negative spread typically precedes a recession. The spread was inverted 2022 through 2024 and yet the long-predicted recession never appeared.
Equity Markets: the Standard and Poor’s 500 is at 7,497 up from 6,845 at beginning of 2026.
The YTD return is impressive but is hiding a seriously concentrated and narrow market meaning that the top ten companies represent 36% of the index value and 13% of the return which harkens back to the DOTCOM era and we remember how that ended.
Federal Reserve Balance Sheet Total Assets: at $6.75 trillion are up slightly from $6.64 trillion at beginning of 2026.
Although up slightly from the beginning of 2026, continues to drop slowly from the highwater mark set in 2022 when it reached almost $9 Trillion. This confirms the government is continuing to tighten by not replacing maturing securities. We remain focused on the short to intermediate area of the yield curve and cautious on the longer term.
Inflation: as measured by the Consumer Price Index has remained elevated but well below its highwater mark in 2022.
Rising prices up and down the supply chain are challenging consumers and businesses. Companies with strong pricing power, high barriers to entry and excellent capital allocator track records will weather the storm and hopefully thrive.
A PICTURE OF INFLATION
PENNIES FROM HEAVEN BUT NOT ON MARS
Thomas Friedman has called this the ‘Polycene’ epoch, meaning an era with many (poly) interconnected events, ideas, crises, and innovations (cene). All one needs to do is watch the news, check their smartphone feeds, or observe the market to get a sense of how rapidly our world is reacting to events, and in turn, how those events are impacting the world in real time.
Some years ago, my late father and I were discussing our government’s spending habits including the 1960’s space race and its costs to the American taxpayer. Dad wisely told me, “Andy where do you think all that money ended up, on the surface of the moon?” I said I didn’t know and he replied, “the money fell back to Earth and landed all around us”.
Even SpaceX can find its origins from the hundreds of job shops that sprouted from the San Fernando Valley orange groves some four decades after the first rockets were constructed. Technologies such as GPS, composites, mobile phones, the internet, solar panels, lasers and quantum computing would not have been discovered, commercialized and distributed without our government’s checkbook. Most recently with COVID our government leaned into MRNA funding and now we are seeing green shoots with cancer treatments and new fields of study in disease and longevity treatments.
Unlike the past when our government provided the life-blood for innovation, today our capital market system with the confidence of millions of participants is now footing the bill. With SpaceX new trillion-dollar market capitalization and Anthropic and OpenAI coming soon it stands to reason that billion-dollar budgets will follow, benefiting multitudes of companies. We will remain focused on companies who stand to benefit from these “Pennies from Heaven” during this “Polycene” epoch.
Be happy and grateful that our system, however flawed, is still the best mechanism ever created by man. Well managed companies will continue to allocate their capital and execute to benefit patient shareholders.
Whatever you may think of Musk and his communication style one should respect his tenacity but I don’t suspect for one minute that he will be able to take all our money with him to Mars.