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Oil and Interest Rates Keep Tumbling

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Both oil and interest rates are tumbling again this morning as Wall Street is finally figuring out what we already knew–the global economy is a basketcase. While the equity markets haven’t figured it out yet and traders continue to jerk the markets up and down eventually stocks will figure out that the U.S. can’t stand by itself and drag the world along with it forever.

As mentioned we unloaded crude oil upstream related securities yesterday–the bloodbath remains in the future for these companies as their lenders start going through the redetermination process and decide ‘the emperor has no cloths’. When this happens the upstream companies will have to take non cash charge-offs for oil and gas that can’t be economically recovered at todays prices–this will be ugly and will lead to loan covenents being broken.  Who stands and who falls remain to be seen.  Bankruptcies have already started and these are just the tip of the iceberg.

In spite of the problems in the oil patch and global economy we remain mainly invested as there is no way to predict the future with absolute certainty and crawling in a hole with a bag of money is not a good option for earning income. We did raise the cash portion of the 2014 and 2015 Model Portfolios with yesterdays upstream sales.  We now have around 14% cash in each model and we are ok with this at this time.

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