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Greetings from the Northwest! It’s Summer at last, and it’s time to dive into everything the season has to offer! Many of you are planning family gatherings, vacations and all of those adventures that need to be squeezed into the warmer season. I hope that you are, as much as possible, focusing on things other than your investments, and instead experiencing the life that your hard work and wealth have provided; we’ll keep our eye on the money for you. Rarely has there been a year that has packed so much news into so little time on so many fronts. We have been able to observe in real time the truth of the classic investing lesson that cautions against reacting to the news. For us, it’s in our DNA to observe, listen, and evaluate, but not always respond, and we’ve been rewarded with continued good performance, while maintaining a portfolio that on whole is a much better value than the broader market. Over the next months and years, I’m confident that this will continue to protect and grow your investments. It appears that the economy is not in an immediate crisis, with encouraging employment numbers and moderating inflation. Interest rates seem high but really are not, although it would help to have the mortgage rates soften a bit to allow more movement on the housing front. While things are relatively sedate in the short term, that does not mean everything is rosy. Indeed, there are clouds on the far horizon, and not the least is the long-term standing of the dollar as the world’s reserve currency. This year has seen the largest devaluation of the dollar in over 50 years. The immediate catalyst may be the trade war initiated by the new administration, but the roots of this issue are decades old. The amount of debt that the US carries is approaching unsustainable levels, and as Jerome Powell said earlier this month, the trajectory is unsustainable. Twenty years of military involvement in Iraq and Afghanistan, the insidious and seemly unstoppable scope creep of our entitlement programs, topped off by the surge of cash thrown into the economy during, and unfortunately after, Covid, have created a snowball of debt like we’ve never seen. When interest rates were near zero, the immediate impact was barely perceptible; not so anymore. The solution to this will not be easy, or quick, and will require spending less than our revenue, while somehow growing the economy for several consecutive years. This will take a combination of skill and political courage that we’ve not seen in a generation or two. I’m confident that we’ll find ways to keep you afloat, as we’re able to, and already are, deploying some of your investments outside of the US and into securities tied to dollar alternatives. They’ve performed smartly this year, and they may be with us for some time.
Normally, I’d hand this straight to Patrick at this point, but first a brief detour. In this issue we’re trying something new by spotlighting an organization that I’m involved in and think deserves more attention. Many of you know that I’m a lifelong explorer of the Oregon’s hinterlands; long before the term “Oregon’s Outback” was coined, I was exploring the backroads, streams and canyons in the southeast corner of the state. While the “high desert” is not unique to Oregon, the way that it’s integrated into the state and its psyche is unique.  Looking at the Alvord Desert from Steens Mountain Oregon’s high desert begins not far east of the Cascade Mountains, where the high elevation stalls the intense Pacific moisture and drains the water from the atmosphere, leaving precious little for the journey east. This area includes the Central Oregon Plateau, the Columbia Plateau, much of the John Day River drainage, and pretty much everything south of the Blue Mountains, where it continues into California, Nevada and Idaho. It’s a vast and extremely diverse landscape that defies easy description. Private and public interests intersect each other thousands of times, and while most of the land is publicly owned, it’s not all valued equally. Public ownership does not always mean clear and effective protection.  From a remote spot in the Oregon Canyon Mountains, looking south into the McDermitt Caldera, the likely site of a massive Lithium mine
The Oregon Natural Desert Association, known as “ONDA” to the members, seeks to protect the natural character and biodiversity of Oregon’s high desert, to educate the public about the importance of these arid and underappreciated lands, and to create a passionate network of people who will continue this work into the future. You’ll rarely meet a group more dedicated to the land and as passionate about their cause. ONDA works with interested and affected parties to find solutions that respect the rights of the various stakeholders, while restoring and improving habitat, identifying areas at risk and developing plans to protect them. This work takes place in many forms, from legislative advocacy to hands-on workgroups removing old barbed wire and restoring degraded streams. Current efforts involve protections for the Owyhee Canyonlands, the river basin and desert playas that include the Chewaucan River and Lake Abert, and the vast sagebrush sea of the Hart Mountain-Sheldon systems.  Beatys Butte from Hart Mountain If you’d like to know more about the Oregon Natural Desert Association, I encourage you to visit their website at onda.org. If you’d like to get directly involved or have specific questions, please contact Claire Cekander at [email protected].  Great Basin Horned Lizard (Phrynosoma platyrhinos)
Thanks for considering that, and now on to see what Patrick has to say: Patrick's PartEquity Market and Portfolio PositioningEquity markets remained volatile during the quarter, with April showing initial weakness after the tariff announcements, only to rebound sharply with the delay of tariff implementation. Most equity indices, other than US small cap stocks, returned low double digit returns, with investor sentiment rising sharply on the hope that the tariff impacts to economic growth will be minimal, and that monetary policy will become more accommodative.  The sharp rise in US stocks, measured by the S&P 500, lifted valuations to a level last touched in November of 2021, and still much higher than the peak of the US tech bubble and financial crisis.  The rise in security prices has moved sentiment indicators back to high levels, though not at the extremes witnessed during the end of 2024.  We rely on our data driven, disciplined process to protect against excessive valuations in some asset classes, and the large losses that can follow, by buying companies and asset classes that are undervalued and ignored, and selling those same investments when they become fully valued where the price reflects too much optimism. We continue to view international equities to be more attractively priced, and our allocation to this asset class has been beneficial in 2025 as the US Dollar has declined substantially. We also took the opportunity in February, March and April, during market weakness, to rotate into high quality, attractively valued companies that the market had mispriced over tariff concerns. Within fixed income, we continue to invest in shorter maturity bonds and bond funds. Though the 10-year treasury offers a decent opportunity at current rates (4.30%), the combined deficit and inflation backdrop cause us to tilt towards the shorter end of the yield curve and utilize managers who are flexible in their approach. We still view corporate bonds to be high risk with spreads still sitting at historically low levels, indicating investors are willing to invest in securities with lower credit quality with not much additional compensation for default risk.  In the absence of suitable investment opportunities, we continue to hold a high level of cash that provides a still compelling interest rate, while providing safety and flexibility to take advantage of opportunities when presented. Economic and Interest Rate BackdropThere has been considerable discussion about whether interest rates should be lower, especially given that inflation has cooled over the past 12 months. However, when we look at the data, the current fed funds rate appears appropriate relative to where core inflation stands. In fact, over the past 65 years, the current real interest rate (fed funds rate minus inflation) is right around its historical median. Many of today’s calls for lower rates seem to stem from recency bias, driven by the financial crisis when rates were held artificially low for an extended time to support asset prices. Unlike that era, we’re now in a healthier rate environment, one that encourages more productive investment by companies and appropriately rewards savers.  I find it interesting that the market’s recent exuberance, partially being driven by the hope of more accommodative monetary policy, would only occur in the face of a declining economic backdrop and recession, which would undoubtably have a negative effect on equity prices. After a string of mixed economic reports, investors are now pricing in over 2.5 rate cuts for the remainder of the year. Again, I would say this is overly optimistic, outside of recession. 
Final ThoughtsWe've received many questions in meetings this year about how we navigate the relentless pace of news, sometimes changing daily, even hourly. While we have our own views on where we are in the economic cycle and the potential risks and opportunities ahead, our role is to cut through the noise, set aside emotion, and focus on data to assess where security prices are most likely headed. The decisions we make may occasionally feel uncomfortable or run counter to the crowd, but our top priority remains the same: protecting your wealth while pursuing reasonable growth to meet your long-term goals. At present, we continue to maintain a balanced approach with a tilt toward holding extra cash, based on a disciplined process shaped by decades of market history. As always, when the facts change, we will change our minds and act accordingly. Please don’t hesitate to reach out with any questions or if you’d like to discuss how we’re approaching decisions. In the meantime, thank you for your continued trust, and enjoy the rest of your summer. —Patrick Mason Thanks, Patrick! With that, I wish you a wonderful summer and the best of health. We’ll be here and ready for you to stop by and say hi if you’re in the neighborhood.
Happy Trails, Tim Mosier, President Cairn Investment Group, Inc. Comments are closed.
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