WHEW! That was CLOSE!

 

We’ve all had “close call” moments. I’ve had more than my share, likely due to a risk tolerance common among entrepreneurs. One really close call happened on Old Ocean City Road outside Salisbury, Maryland. A couple of kids were racing, ran a stop sign and one swerved into my lane. I whipped the wheel of my ’81 Camaro hard to the right, hit the grass counter steering to maintain control (dirt track racing fans and folks living in the snowbelt know what I’m talking about), and somehow managed to avoid a head-on collision. All I could see were headlights and the grill of the oncoming car. To this day, I think God Himself intervened.

 

Why this story? Because the economy just had its own close call. In our last newsletter, I warned of an 80% chance of imminent recession due to proposed not so “reciprocal” tariffs. Had those been fully implemented, we might have crashed. But after a market pullback and a brutal hit to the bond market, the Trump administration postponed the tariffs to July 9th, giving breathing room for trade negotiations.

 

A lot has happened since then…

Middle East Tensions with the U.S. militarily engaging Iran. The Big… maybe not so Beautiful Bill being passed. The Trump/Musk bromance coming to an end with Musk launching his own political party and Trump suggesting investigating Musk’s citizenship.

 

Despite this chaos, the stock market soared—recovering its losses and hitting all-time highs. How? Let’s break it down. But first, what did we do?

 

In our previous letter, we had moved over 20% of our models to cash, anticipating market weakness. When the tariffs were announced, the market tanked—and we used that cash to buy. The market then rebounded, and by mid-May, it seemed apparent that the lows were behind us, so we got fully invested. In light of these moves, we’re happy to say that our models have significantly outpaced the broader market year to date.

 

Why the Market Rebounded:

 

1. Tariff Postponement

The original April tariff hike was delayed to July 9th, now pushed again to August 1st. That alone gave the market a major boost. However, the administration has now said that any unresolved deals will default back to the harsher April levels. That could cause a pullback, but we believe it would be temporary.

 

2. Iran Situation

Many wondered how the market could rise while we were bombing Iranian nuclear facilities. Here’s why: Iran’s ability to retaliate was limited. After a short-lived campaign, Iran was clearly depleted, and their lack of counterattack reassured investors. Plus, a denuclearized Iran is seen as a net positive globally. After all, when the leader of a nation is calling for the total destruction of other countries, it helps if they don’t have the means to accomplish their goal. It’s also notable that the U.S. seemed to have kept Israel from hitting Iranian oil sites, which avoided spiking oil prices—a potential inflation trigger.

 

3. The Spending Bill

The new legislation passed, providing some short-term market stability. But from a fiscal perspective, it’s far from ideal. It made the 2017

tax cuts permanent (a plus, especially for those earning under $100k) and added deductions for seniors to help offset taxes on Social Security.

 

Unfortunately, it also includes problematic elements:

 

A $40,000 SALT (state and local property tax) exclusion that benefits high earners in states like NY, NJ, and CA—essentially causing taxpayers of more fiscally responsible states to subsidize taxpayers of states with the highest and most egregious property taxes.

 

The “Trump Accounts” which gives every newborn baby $1,000 in a taxpayer-funded investment account. This equates to about $4 billion per year of TAXPAYER money heading into the stock market. Good for Wall Street who backed the provision, but we’re left wondering how FAFSA will assess those accounts when it’s time for college.

 

As someone who aligns with libertarian politics—limited government, individual freedom, and personal responsibility—this bill feels like another example of reckless spending. I would have found it preferable to have a “small beautiful bill” preserving the 2017 tax cuts and returning spending to pre-COVID levels (adjusted for inflation). Oh well.

 

Moving forward, the market may take a breather as tariff issues are still unresolved, but aside from that, the outlook heading into 2026 looks relatively resilient. Of course, recession risk will always linger—it could come next year, or five years from now. No one knows for sure.

 

What we do know is that the "easy money" phase from the 2022 bear market is largely over. So, we’re preparing for future uncertainty.

 

To boost our diversification and resilience, we’ve added managed futures to our portfolios. These strategies follow commodity trends, often move independently of traditional stock and bond markets and usually provide solid returns with downside protection during volatility. We interviewed the portfolio management teams of the top managed futures strategies in the country and selected a firm with objective, rules-based systems and strong long-term performance. We requested a custom back test going back to 1999 and it showed this strategy fared incredibly well during every major bear market in the past 25 years.

 

From here forward, we want to stay committed to a disciplined and diversified approach. We might give up a little upside if markets continue ripping higher, but we’ll be better positioned if the economy hits turbulence. In essence, it keeps us ready to whip the wheel to the right and counter steer to keep control when facing a sudden head on collision.

 

We’ve dodged a few bullets this year—economically and politically—and just like that nearly fateful night in my old Camaro, we’re still on the road, moving forward. 

 

Happy 249th Birthday, America. Here's to liberty, resilience, and making smart decisions- on the road and in the markets.