Second Quarter 2006

he economy in the 2nd quarter of 2006 was characterized by fears of inflation. A coordinated tightening in monetary policy among some of the world’s largest central banks (U.S., Euro zone, UK, China) led to these fears, while uncertainty about new Federal Reserve Board Chairman Ben Bernanke created worries that the Fed might “over-tighten” interest rates. This led to a pullback in stock market indices worldwide, and heightened volatility. Many economists are now divided over whether we may be headed towards a recession due to pressure on consumers from higher interest rates and gas prices. After this month’s interest rate hike, the seventeenth in this rate cycle, we believe that the Fed is now considering a pause in its two year tightening phase, which was borne out in Fed Chairman Bernanke’s comments on June 29th.

The economy grew at a 5.6% rate in the first quarter of this year, and although second quarter figures have not yet been released, they could come in much higher than the now reduced expectations. Merger and acquisition activity worldwide is strongly up this year, and is at its highest level in five years, demonstrating that liquidity is still loose and that corporate cash flows and balance sheets are at the highest levels seen in the current business cycle. Despite higher oil prices and mortgage rates, the residual property related “wealth-effect” continues to buoy the consumer. Americans are more exposed to housing than any other asset class, while U.S. home prices rose at an annualized rate of 7.3% for the quarter. Although there are signs of moderation in some of the more overpriced real estate markets, we do not think there will be generalized downturn in retail sales until housing prices are negatively impacted by higher interest rates. We are still concerned about geopolitical risk and rising energy prices, and do not anticipate any relief on either for some time. Our current position is that the recent market volatility has been exaggerated, and that leading economic indicators are likely pointing to a moderation in growth rather than a serious slowdown.

For the first six months of this year, the Dow rose 4.0%, the S&P increased 1.7%, and the Nasdaq lost 1.5%.

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.