World stock markets overall rallied to new highs during the quarter finishing out 2021 with a stellar ‘Santa
Clause Rally’. During the fourth-quarter of 2021, the S&P 500 Index gained 11.02% (making it the sixth
quarterly gain in a row), the NASDAQ Composite appreciated 8.47%, the Dow Jones Industrial Average
moved higher by 7.87%, the MSCI All Country World Index advanced 6.75% and the Bloomberg Aggregate
Bond Index gained 0.12%. For calendar 2021, the S&P rose 26.9%, the Dow Jones, 18.7% and the NASDAQ,
21.4%. The ten-year US Treasury note, while volatile during the quarter, ended about where it started at
1.51%, while the five-year US Treasury note yield rose 29 basis points to 1.26%.

We have noted previously that the FOMC had loosely defined inflation as ‘transitory’. Reality has usurped
that definition as Consumer Price Index inflation, at an annual 6.8%, is now at the forefront of policy
thinking and concern for the fixed-income markets. As of the December 2021 meeting, The Federal Open
Market Committee (FOMC) has increased the speed at which it is going to remove its accommodative
policy with a now targeted date of March 2022 to taper its bond buying program. The FOMC ‘dot plots’
now show three interest rate increases for each of 2022 and 2023 depending on market and economic
conditions. Previously the first interest rate increase was targeted for the fourth quarter of 2022.

As we suggested last quarter, Congressional Democrat infighting meant that the multi-trillion dollar ‘soft
infrastructure’ package wouldn’t see daylight by year-end 2021. With no bipartisan support,
Congressional Democrats will have to go it alone. Moderates are still looking for a smaller package with
fewer ‘giveaways’ in contrast to progressives, who have a far more liberal agenda. While compromise is
still an anathema to the progressives, the forthcoming election in the fall may force the issue

We anticipate that market volatility will ramp-up later this year as inflations stays elevated and the FOMC
begins to raise interest rates. A possible correction in the global equity and fixed- income markets is a
concern for 2022 with the overwhelming majority of equity securities at highly elevated valuations. Fixed-income spreads are very narrow and ripe for a reversion to mean in a rising interest rate scenario.
Comparative valuations to the 1999/2000 overvalued equity markets cannot be and should not be
ignored. Covid-19 continues unabated after another mutation scars the public’s conscience. As the
aftermath of this pandemic takes its toll on humanity, caution in the global markets is warranted,
especially given the level of unvaccinated population on our planet. Our continuing search for
undervalued assets requires patience.

We want to take this opportunity to wish our readers a very Happy New Year. Please stay safe and