FALLING OFF THE HIGH WIRE

If the 1^st Q market danced on a high wire (see 1Q newsletter), then it fell off the high wire in the 2^nd Q.  In the 1^st Q, profitability had won out over inflationary fears.  In the 2^nd Q, inflationary fears dominated, and the S&P 500 index receded a negative -1.4%.  Oil reached new highs; the 10 year Treasury’s yield rose to 5.15% from 4.85% three months earlier (one year ago it was 3.92%).  Info tech was the worst sector, down -9.6%.  Healthcare, under the threat of generic competition, fell -5.0%.  In comparison, utilities were up +5.7%; energy posted a +4.3% gain.  There is still great fear out there.  Until the situation in the Middle East calms down, inflationary scares will continue.  (All returns are after dividends.) 

Gold Leaf is an independent Registered Investment Advisor that buys stocks in cash positive companies with sustainable competitive advantages.  Gold Leaf’s goal is to provide objective investment management and to protect client assets on the downside while participating in most of the market’s upside.  On June 30th, portfolio attributes were:

Our best stocks in the Q were some that have only recently been purchased.  General Cable, which will profit from upcoming power transmission needs, was up +15.4%.  International Game Technology, the provider of gambling machines, returned +8.1%.  (All returns are after dividends.)  Our worst performing stocks were those exposed to the housing industries.  While we do not own home builders, we do own Simpson Manufacturing and Watsco both of which were down.

We sold our Applied Films position for a nice gain as the company announced that it was being acquired by Applied Materials.  Proceeds were used purchase a small California based bank poised to grow rapidly yet trading at a reasonable valuation.