Good afternoon friends,

You may be aware of some bumpiness in capital markets over the past few weeks and thanks to a particularly bad July 31st soon-to-be-arriving statements will for most investors detail a generally crummy month. Recent sell offs have reduced the year-to-date stock market returns to low single digits. We would like to briefly share our perspective and forward looking expectations.

To begin markets have of course been rattled by events in Ukraine and Gaza. Chilly relations between the eagle and the bear grow increasingly uneasy as additional sanctions are put into place. We’re reminded of Tom Clancy’s “The Hunt for Red October” and the infamous “Crazy Ivans” where soviet captains would unpredictably veer off course confounding western submarines. Markets wonder are we in store for a Crazy Ivan out of Moscow? We tend to believe Europe getting on board with US sanctions will keep Putin in check for the foreseeable future and any market turbulence associated with the conflict in Ukraine is probably a buying opportunity.

The Middle East is significantly more complicated. Truthfully we don’t know how to discount the risks to markets resulting from the current conflict. The one relationship we believe will hold true is the scarier the Middle East gets the higher the price of oil. Look for us to take an opportunistic position in oil ETFs if things deteriorate further.

As is always the case there are extraneous events around the world which influence domestic markets to lesser or greater extent. Today we’re thinking about Argentina defaulting on its sovereign bonds, not long ago it was Greece. However it’s usually domestic factors that have the greatest influence on markets and we believe now is no exception. We attribute much of the recent selling to worries about how economic data will affect Fed policy. Remember this: in our topsy-turvy marketplace bad news is good and good news is bad. We would argue that government interference (regardless of how justified it is) in capital markets always creates distortions and often unintended consequences. Over the past week what can only be described as good news (better than expected GDP, inflation, and jobs reports) have caused people to worry that the economy is heating up and therefore the Federal Reserve may extricate itself sooner than anticipated. As the Fed exits capital markets (so the rationale goes) inflated asset prices will deflate (read: stock market goes down).

Here’s what we think: Good news is good news. Give me a stronger economy and more people back to work and I’ll be a buyer of stocks, thank you very much. Short term? Sure we may see some bumps as the traders scramble around but as I write this I look at the recent selloff as expected and healthy. We still believe we’re in a long term bull market and we will remain long in our portfolios. However, we understand that while our clients are savvy enough to have a long-term view of markets they do look at their statements each month and expect Monarch Asset Management to allocate wisely. For the remainder of summer we will remain slightly overweight cash and slow the rate at which we dollar cost average into markets for newer relationships.

As always please feel welcome to contact me if you would like to discuss these issues in greater detail.