Second Quarter 2005

In the second quarter of this year, we have observed a mid-cycle growth pause in the U.S and abroad. However, while corporate profit growth is beginning to soften, GDP growth figures are being revised upward, demonstrating that the economy has been growing solidly with only modest inflation, despite high oil and commodity prices. The dollar began to strengthen especially against the Euro, as signs of economic slowing were particularly pronounced in Germany and Italy, while France rejected the European constitution. There were some signs of slowing in China thanks to government tightening of credit in that booming region, but in general, the economic outlook both there and in the U.S is still sanguine. U.S. business investment is still growing at a double digit pace, job creations have driven unemployment down to 5.1%, inflation still remains tame despite rising commodity costs, personal income growth is still strong, consumption remains elevated, and consumer confidence is relatively robust highlighted by strong housing start numbers and existing home sales. On the negative side, economic growth is slowing from its breakneck pace of last year, debt in the U.S. is burgeoning, localized housing market bubbles have emerged, wage and price inflation pressures may be building, oil prices may begin to act as a brake on the economy, and manufacturing and leading indicators are declining.

Alan Greenspan raised rates for the ninth time since last year at the last meeting of the Federal Reserve. Prior to that meeting he suggested that any recent signs of weakness “are likely to be transitory” and that it would be “a mistake to overreact to comparatively small number of disappointing indicators.” Fed officials are like to repeat the rhetoric we have seen over the past year that they are likely to keep raising the rate at a “measured” pace going forward. Since 1945, the average economic expansion has lasted for around five years. The current expansion is 3.5 years old. Whether we are in the middle of the game, or in a later inning, the economic cycle is maturing, and when a cycle matures, large cap stocks that can provide solid earnings growth with or without a booming economy are where funds tend to flow. Large cap blue chip stocks have been in the doldrums for the last five years, while small cap and beaten down value stocks have outperformed. Even if the economy were to head into a downturn at some point, the high dividend yields and stability of earnings offered by blue chips will serve to cushion the downside.

For the first half of 2005, the Dow declined 4.7%, the S&P fell 1.7%, and the Nasdaq lost 2.2%.

Grant Rogers Elizabeth Allen

Global Disclaimer

This report has been prepared by Metis Capital Management LLC. This report is for distribution only under such circumstances as may be permitted by applicable law. It has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. It is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in the report. The report should not be regarded by recipients as a substitute for the exercise of their own judgment. Any opinions expressed in this report are subject to change without notice. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. The analyst responsible for the preparation of this report may interact with trading desk personnel, sales personnel, other analysts, journalists, and other constituencies for the purpose of gathering, synthesizing and interpreting market information. Metis Capital Management LLC is under no obligation to update or keep current the information contained herein. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Options, derivative products and futures are not suitable for all investors, and trading in these instruments is considered risky. Mortgage and asset-backed securities may involve a high degree of risk and may be highly volatile in response to fluctuations in interest rates and other market conditions. Past performance is not necessarily indicative of future results. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related instrument mentioned in this report. Metis Capital Management LLC accepts no liability for any loss or damage arising out of the use of all or any part of this report.


keep in touch


411 Theodore Fremd Avenue, Suite 206 South,
Rye, NY 10580
Phone. 914-315-6850
Click here for form ADV3/CRS

Click to Login to your account.

Click to Login to your account.