Q3 Portfolio & Market Update

Paul Wildberger |
Categories
portfolio
investment
market commentary

Well, the 3rd qtr has closed and all said, markets have “survived,” albeit not without significant volatility.  Each client will receive a follow-up e-mail for your individual qtr and YTD performance.

General market and economic overview:

  1. Market performance:
    1. S&P 500 Q3: +1.2%; YTD: +18.7%
    2. Average portfolio Q3:  +2.2%; YTD:  11.10%
  1. Portfolio commentary:
    1. Our defensive portfolio earned its keep this quarter as the U.S. and Int’l equity markets were hit with significant volatility.  However, our YTD performance is well below the S&P 500.  We took a big hit during the 1st week of Sept when bonds, gold, and our short position were all down ~2%.  As expected, each of these sectors have been rebounding ever since.
    2. My conviction for our Recession Portfolio strategy is strong as ever.  As you’ll see below, the global economy is UNDOUBTEDLY slowing and heading towards a recession over the next 12 months.
  1. Economic Headlines:
    1. Purchasing Mgr Index (PMI): This was the big news of the day.  This index is a monthly survey designed to gauge manufacturing trends across the country.  Any reading >50 indicates expansion; <50 indicates contraction.  Sept came in at 47.8, the 2nd monthly read <50 indicating we have entered a manufacturing recession.  This is also the lowest reading since 2009.  Note: the European PMI has shown contraction for the past 8 months.
    2. China Trade: This albatross seems to be cooling, and my expectation is that we will have an INTERIM agreement between the parties.  Neither of us want this tariff war to drag out; China because of the significant decline their economy is experiencing and the U.S. because Pres. Trump realizes this will have a negative impact on his reelection bid.  Because China has a much longer term perspective than the U.S., I believe they will attempt to delay any longstanding agreement until after the 2020 election.
    3. Fed and interest rates: The Fed lowered rates by 0.25% again in Sept, and continues to see an economy that is “doing fine” and not in need of drastic rate cuts.  If you follow me on LinkedIn, you’re aware of my concern about a lurking cash crunch in the overnight lending world, i.e., between banks.  This market became OVERLY strained in mid-Sept and the Fed was req’d to come in and inject cash (through Treasury buys/collateral lending) of ~ $75B/day for 2 weeks to normalize the overnight lending rate.  This is a problem and one that appears to be signaling another round of Quantitative Easing by the Fed (aka 2008) – which by the way, the European Central Bank announced they would begin this month.  THESE ARE ALL INDICATIONS OF A SLOWING GLOBAL ECONOMY.
    4. Politics and impeachment inquiry: This is the least of our economic worries as it appears to be without enough support to actually culminate in an impeachment.  However, it does add uncertainty to the market, so it cannot be completely discounted.

Thank you for your continued trust in our firm.  Wise stewardship through Integrity, Commitment, and Trust is our credo.  Please let me know if you have questions or concerns about this update or your portfolio,

 

Paul