CURRENT MARKET VIEW*

Will THE FED PAUSE IN THE NEAR TERM? WILL INTEREST RATES THEN REMAIN ELEVATED?

We Believe:
• INFLATION has peaked.
• Oil prices will be below 70 by the end of 2023.
• Commodity prices have seen their highs, but could reignite in 2024, 2025.
• The FED will not get above a 5% Fed funds rate.
• Interest rates are PEAKING, and the bond markets are stabilizing.
• The equity markets bottomed out in the early part of Q4 2022.
• 2023 equity markets will retest and potentially exceed 2022 highs.
• 2024 will see the return of a strong economy.

This all assumes that, among other factors, the Fed remains moderate by nature. We are not in the camp that expects Fed easing in 2023. We do, however, expect the Fed to pause at a 5% Federal funds rate. Employment remains strong, though sketchy in certain sectors. We do not believe that unemployment will rise to 5% or above.

Though possible, we do not foresee significant additional weakness in real estate. If the Fed, ECB and the BOJ remain on course to pause or moderate, any likely financial disintermediation is unlikely to spread beyond the institution(s) or sector impacted. Crypto, FTX, and Genesis are each reflective of such an event, though relatively small by comparison to the financial dynamics of 2006-2010.

DCA Asset Management, Inc. remains in strong financial condition. It continues to be positioned defensively, though, it has begun to slowly position minerals, materials and Asian exposure in the public markets. We feel that China is beginning to take measures to repair its real estate sector, though, this will take years. The PBOC has entered an easing posture and is providing liquidity to certain sectors of the economy. DCA has been below 10 percent exposure to equities at times over the past year in its public portfolio. It intends to return to a minimum of 35% weighting and potentially as high as 65% as 2023 moves along depending upon Fed actions and macroeconomic indicators. The company also continues to add to its private portfolio.

We believe that below DOW 30,000 is now an outlier. As noted above, in our view, the Fed should moderate its actions as we head into Spring, early Summer. Any moderation and or stimulus (QE) by the Fed and a coordinated effort by the world’s major Central banks could result in a DOW of 45,000 in 2024. Remember, however, that such a scenario could return market dynamics back toward high inflation and subsequent tightening actions in the second half of 2025 or early 2026.

The VC/PE investment space remains in flux: 1) funding is slowing / stagnating, 2) rounds across stages are taking longer to close, 3) investment committees are more carefully scrutinizing deals, 4) valuation multiples have contracted and may continue to do so which is causing reluctance by founders to raise big rounds, and 5) a focus on cash flow has returned to the conversation. Equity investors’ activity is causing more companies to look to other sources of capital (i.e., Venture Debt) or simply delay growth. The focus from the market on current ARR and cash burn is real, and institutional investors are generally not willing to pay on forward revenue. Across both the private and public markets, due diligence, proper screening, and active management are now returning to the conversation with LPs, and DCA is positioned well. We remain patient with the execution of our investment thesis during these times.

ONWARD!
DCA Asset Management, Inc.

*One of DCA’s guiding principles is that we will communicate with our investors and prospective investors as candidly as possible because we believe investors and prospective investors benefit from understanding our investment philosophy and approach. Our views and opinions regarding the prospects of investments and/or the economy are forward looking statements as defined under the U.S. federal securities laws, which may or may not be accurate and may be materially different over future periods. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will,” “may,” “should,” “plan,” or the negative of such terms and similar expressions identify forward looking statements. Forward looking statements are subject to certain risks and uncertainties that could cause actual results to materially differ from an investor’s historical experience and current expectations or projections indicated in any forward looking statements. These risks include, but are not limited to, equity securities risk, corporate bonds risk, credit risk, interest rate risk, leverage and borrowing risk, additional risks of certain investments, management risk, and other risks. We disclaim any obligation to update or alter any forward looking statements, whether as a result of new information, future events, or otherwise. You should not place undue reliance on forward looking statements, which speak only as of the date they are made.