In our letter last quarter, we expressed a cautious outlook for financial markets in an increasingly volatile environment. As 2026 unfolded, geopolitical risks escalated with the United States and Israel launching their war on Iran and wreaking havoc in energy markets.
Despite these events, financial markets have been surprisingly sanguine. While the equity markets have demonstrated some volatility around elevated energy prices, they have been short lived responses that have not impacted equity markets in a meaningful way.
A sense of complacency continues to define global equity markets. While the conflict in the Middle East remains unresolved, markets march on assuming that everything will somehow work out and return to normal. We believe that equity markets continue to ignore such obvious risks as elevated fuel costs, potential supply disruptions, higher interest rates, growing sovereign debt levels and the potential return of stagflation.
At the same time, a “K” shaped recovery features an increasing burden of higher living costs on those in our society that can least afford it. Increasingly, it’s the top income earners that are driving the growth in consumer spending, representing yet another element of risk. Layer on top of this the disruptive potential of AI in the job market and the threat of recession begins to reappear.
Despite these concerns, the companies that we are invested in have demonstrated impressive resilience and disciplined execution of their strategic plans. Furthermore, there has been little change to their outlooks for the year. However, given the particularly uncertain time, we will continue to monitor your portfolio with caution in mind, maintaining elevated cash levels to preserve capital.
First Quarter 2026
In our letter last quarter, we expressed a cautious outlook for financial markets in an increasingly volatile environment. As 2026 unfolded, geopolitical risks escalated with the United States and Israel launching their war on Iran and wreaking havoc in energy markets.
Despite these events, financial markets have been surprisingly sanguine. While the equity markets have demonstrated some volatility around elevated energy prices, they have been short lived responses that have not impacted equity markets in a meaningful way.
A sense of complacency continues to define global equity markets. While the conflict in the Middle East remains unresolved, markets march on assuming that everything will somehow work out and return to normal. We believe that equity markets continue to ignore such obvious risks as elevated fuel costs, potential supply disruptions, higher interest rates, growing sovereign debt levels and the potential return of stagflation.
At the same time, a “K” shaped recovery features an increasing burden of higher living costs on those in our society that can least afford it. Increasingly, it’s the top income earners that are driving the growth in consumer spending, representing yet another element of risk. Layer on top of this the disruptive potential of AI in the job market and the threat of recession begins to reappear.
Despite these concerns, the companies that we are invested in have demonstrated impressive resilience and disciplined execution of their strategic plans. Furthermore, there has been little change to their outlooks for the year. However, given the particularly uncertain time, we will continue to monitor your portfolio with caution in mind, maintaining elevated cash levels to preserve capital.