Dear Clients and Friends:

I have a weakness for historical quotes that may be relevant to the current environment, and as a reasonable fan of Bill Shakespeare, I cannot help but think of his admonition to Julius Caesar: “Beware the ides of March.” Unfortunately for Caesar, he did not heed the warning, and we all know how that turned out. But seriously, what is it about the month of March? October gets a bad rap, but over the last 20 years, March has brought us the collapse of Bear Stearns in 2008, Covid in 2020, the beginning of the Federal Reserve’s historic hiking cycle in 2022, the “liberation day” tariffs of 2025 (off by a week), and of course, the current military incursion - or war, depending on which side you happen to be on.

While all radically different, these events share at least two commonalities. The first is the endless stream of opinions about where things were headed, most of which ended up being wildly incorrect. Ben Bernanke, then chair of the Federal Reserve, dismissed the Bear Stearns failure and gave us the all-clear; we know how that turned out. Anthony Fauci stated unequivocally that the millennia-old practice of shaking hands would meet the fate of the dodo bird, which is currently being brought back to life via science straight out of Jurassic Park . Yes, the prediction business is tough and rarely accurate, and even the forecasts that “land” are often questionable, as timing is usually an issue. Most of the folks who supposedly “called” prior calamities, upon closer inspection, did no such thing.

The second commonality is related to the first: the dependence on forecasting and predicting to drive decisions. As humans, we are biased toward fear when outcomes are uncertain, which makes sense from an evolutionary perspective. Simple upside versus downside—when the downside is death, that forecast will always get your attention. This is why gloom and doom sells. Last April, we were told by very smart people (you know the type) that the tariffs, which are terrible policy in my opinion, would lead to hyperinflation and a collapse of global trade. Neither has happened, and had you believed those predictions, you would have likely missed out on an outstanding opportunity, which we did not. Today, we are faced with a different challenge, but the dire outcomes predicted are no less prevalent: WWIII, hyperinflation, Iran wins and the U.S. loses....that kind of thing. The common theme in all of these situations is that we cannot know the outcome. While it may be fun to speculate, we are not here to have fun; we are here to generate returns for our clients.

Each of the situations mentioned created massive uncertainty and generated significant changes in yields, prices, and volatility—essentially all the things we care about. The Iran war/incursion is no different. We do not know, nor does apparently even the president know, the timing or the details of the aftermath. So what do we know? Asset prices are generally much cheaper than they were. But are they cheap enough? That depends on your objective. One example illustrates this point. We have been told that this event is inflationary and that this is the reason rates have

risen. However, that is factually incorrect. Real rates have risen, while inflation expectations beyond five years have either been flat or declined. Real rates have actually returned to cycle highs and are objectively attractive. This is not an opinion; it relies on no forecast. You may believe rates will go higher and they might, but that is the very “forecasting thing” we have already dismissed. The real question is whether you find a real rate, or a rate after inflation, close to 3% attractive. We very much do, and this—not our ability to see the future—will dictate our portfolio positioning.

As we look to other areas of interest, the picture is much the same. Valuations are meaningfully cheaper than they were a month ago. If your forecast is grounded in fear, as many are, you will likely wait and end up doing nothing. If you approach this situation as we do, based on investment objectives pursued in an unemotional manner and grounded in what we know rather than what we think might happen, you will see this, as we almost always do, as an opportunity. March did not work out well for Julius, but we are optimistic that we will see a much better outcome than he did and that our clients will be better off for it.

Sincerely,

Mark M. Egan, CFAManaging Director

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