Q1 2006 Notes on the Quarter

Q1 2006 Notes on the Quarter

Overview of the Quarter:

  1. Most commodities continued to show strength; most of the metals are at new heights. Real estate started to show some weakness. The Fed continued to raise rates, although the Street thinks it is near the end, 5% being the target.
  2. The yield curve has started flattened again. Rates continued to rise, with the long bond closer to 5%.
  3. The international markets continued to climb based on strong commodity growth.

Portfolio Specifics:

  1. We added technology last quarter (either directly or through ETFs) and it is up about 8%. It is still a small part of our portfolio as we do not see huge opportunities in the near term.
  2. We expect the Fed to continue to raise rates—higher than the markets currently believe, thus, we will continue to keep fixed income investments to short maturities. We would not be surprised to see the Fed raise rates beyond 5%. This could lead to a slowdown in the markets—we will be watching carefully. On the other side, the worldwide economy is still quite strong.

Looking Ahead:

  1. We expect to see the high price of oil and natural gas begin to take a toll on consumer spending. This could lead to a drop in consumer spending. NG has dropped dramatically from its highs just six months ago, but oil is back at its high and the summer is the highest demand time for gasoline. If we see continued rising interest rates and higher energy costs for consumers, we could see some trouble.
  2. Energy prices are at new levels permanently. This will lead to further pushes into alternative fuel sources such as ethanol. There will be good opportunities here.

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