Not a Bad September For Us, But More Tough Times Ahead

September was a month of much consternation in the financial markets, but compared to July and August the actual movement in indexes was kind of mild.  The SP500 moved in a range of just 5% ending the month off just 2%.  This brings the loss YTD for the SP500 to -5.23%.  The index is off just 9.1% from the 52 week high.  This is not a disaster, but if you played in the energy patch it is likely that it has felt much worse.

While we don’t have time to dig into all the detail we wanted to recap our Portfolios for September (actually up to October 2nd). Our Blended Income Porfolio is now up 1.99% for the year–not bad when compared against various benchmarks which are generally negative, but we are disappointed just the same. Not that we are greedy, but when we consider that just 4-5 issues out of 48 or 49 account for the lions share of the negative performance we are disappointed with the added risk we put in the model. Of course we know why we added these issues and the risk–without added risk there is no added reward.  This makes us question why we are adding risk if our goal is 7%–with added risk our goal should be higher since we can attain near 7% with much less risk. We are going to have to reconsider our construction in the weeks ahead as we ponder 2016.

On a much better note our Short/Medium Duration Income Portfolio has performed almost exactly as planned. This portfolio was launched on October 15, 2014 and thus has less than 2 weeks to complete the 1st year.  Currently the portfolio is up 6.24% and if there is little change in share price in the next 2 weeks with an added dividend or interest payment we should end up with a gain of around 6.35%. When first set up the current yield was 6.77%, but with 2 called issues and 1 other sold because of quality concerns we will fall a bit short of the initial yield.  Currently the yield has fallen to 5.93% as we have almost $10,000 cash in the account and we can’t allow that to continue if we intend to keep the yield up.  It is our intention to add the Newtek Business Services 7.5% note issue (ticker:NEWTZ) this week, which will be helpful to the current yield. It is our intention to carry this portfolio forward in the future as it suits us personally very well and demonstrates excellent performance with simplicity.

Now as we look ahead for the next number of months our best guess on interest rates is that they will stay in the 1.90 to 2.25% range. We don’t see either domestic or global growth driving rates higher, although there remain a chance the FED will raise rates. We believe a FED funds rate hike will likely flatten the yield curve and leave long term rates at current very low rates after a short upward blip–of course short rates will be in the .25 to .50 area.

We have no expectation of gains in the SP500 for the next 6 months. Currently forecasts call for earnings to fall by 4% in the year ahead and it is hard to forecast rosey global numbers given the worldwide commodity collaspe–in fact we could make a darned good case for a global recession much easier than a global growth case, but we will leave that for another day.