Have you ever been so busy for an extended period of time that you said to yourself “I really need some time to rest and recharge?” US Domestic Equity Capital Markets are in dire need of a rest and recharge. It is possible we are experiencing this rest already, as there have been no gains since May of this year. The sideways action of US Markets is good as we grow into valuations. Recall profits are growing about 6% this year but capital markets have gotten ahead of themselves.
This from our prior cover letter “World economies continue to struggle… Capital Market participants will sniff the positive economic turn before it comes…The world is global and diversification remains important even when all countries are not firing on all cylinders. Reallocation to softer economies is very similar to buying low and we will continue to do so.”
We did reallocate to international investments in equity portfolio positions during the quarter and luckily in short fashion (rarely this happens so quickly) many also followed in our footsteps, happily pushing capital markets across the ponds upward. At this time we still believe there are better values overseas than domestic.
BERNANKE AND FELLOW FOMC members decided for some reason (maybe the debt ceiling issues) not to taper their purchases of fixed income investments (QE), providing lower rates for the time being, even after repeatedly saying they would. We think this is only delaying the inevitable and are disappointed. Investors were prepared for fewer stimuli and actually caught off guard by a continuance.
Fixed income/Bonds/Interest rates are facing headwinds that will lead to higher interest rates soon, but for the short term have a slightly uphill battle. Now is not the time to reach for yield even with a Bernanke taper U-turn. Staying shorter in time and safer in credit is still the best way to approach the current environment, and we continue to do so. Slow and steady rate increases are fine, not the quick moves we saw near the end of the last quarter.
October is strange historically as many dramatic events have occurred during this spooky month. Notwithstanding the afore mentioned need for a rest and spooky month we are currently in, historically, the final quarter of the year does tend to be the best.
Enclosed you will find your Q 3 2013 Quarterly Performance report for your perusal.
Have a Great Fall!
John Kvale CFA, CFP