Me too. Is Gundlach thinking that long duration bonds are best at this time?
Of course, these bonds have the greatest interest rate risk.
The fund is supposed to have an average duration of at least 10 years, meaning that if the corresponding interest rates go up 1%, the NAV of the fund will go down by 10%.
The Fed just revealed yesterday that the Fed Funds rate, currently 0% to 0.25%, is expected by the Fed to be at 3.75% at the end of 2017. If the corresponding rates of the bonds that the DoubleLine Long Duration Bond Fund will invest in also increase 3.75%, the NAV of the fund would be expected to drop close to 37.5%.
That's huge. What's up with this new mutual fund? Why long duration, in light of what the Fed said yesterday?
Would love to hear what Gundlach would say.
He obviously must think rates will not go up 3.75% over the next 3 years.
MFOers, your comments please......

You will need the extra tax forms.
Here is an analysis of the OAK ipo a couple of years ago.
http://brooklyninvestor.blogspot.ca/search?q=oaktree
Long OAK.
BWG

Hi JohnChisum,
Thank you for the referenced Bloomberg article.
I am not quite as sanguine about the improving character of the so-called dumb money investors as the article posits.
Yes, there is a swing in the positive learning direction, but it is modest and very unsure of itself. A large part of the learning resistance is due to laziness, and another major part is due to innumeracy. Since I occasionally have lectured on this topic to both senior groups and to high school level students, my evidence is personal anecdotal and mostly from readings.
One piece of evidence offered that “The Dumb Money Is Getting Smarter Every Day” is the customer movement to Index investment products. That’s true, but might simply be a result of exposure, an aggressive selling program rather than a better understanding of the whys for the decision. That just might be blind herd following action.
I’m often amazed by the general population’s reluctance to learn investment fundamentals. Far too often they accept the wisdom(?) offered by folks with private incentives without challenging its credulity; the audiences are not nearly skeptical enough. They seek specific recommendations without demanding any meaningful explanations. That’s a formula for an impending disaster.
If the dumb money is getting smarter, the smart money is getting even smarter and faster. Index investing has become an even higher fractional holding among the professional community than among the amateur population. The recent Calpers decision is a timely illustration of this trend.
It’s remarkable how the entire investment world is morphing towards the simple investment rules that John Bogle has long advocated. I take conformation bias comfort in these rules since I have practiced them for many years. Here is a summary of Bogle’s 10 rules:
1. Remember reversion to the mean.
2. Time is your friend, impulse is your enemy
3. Buy right and hold tight.
4. Have realistic expectations.
5. Forget the needle, buy the haystack.
6. Minimize the "croupier's" take.
7. There's no escaping risk.
8. Beware of fighting the last war.
9. Hedgehog beats the fox.
10. Stay the course.
It’s hard to beat John Bogle for investment advice or for the simplicity by which he summarizes his findings and observations. He is indeed a worldwide treasure. Here is a Link to the article that expands on his golden rules and from which I lifted his insights:
http://www.cbsnews.com/news/john-bogles-10-rules-of-investing/
There is a noteworthy equivalence between these investment rules and many military maxims that have survived the acid test of war time. Contingency planning, alternate strategies, flexibility, reserve management, defense in depth, learning from mistakes by after-action reviews, risk recognition, realistic outcome expectations, and a resolve to continue the march are taught at even company-level military seminars.
Investment learning is slow, and at times painful, but it is positive with many pitfalls to avoid.
Best wishes for your continued success.

Mr. Koesterich is the chief investment strategist for BlackRock and iShares chief global strategist.
The briefing room was packed. Perhaps Several hundred people. Many standing along wall. The reception afterward was just madness.
His briefing was entitled "2014 Mid-Year Update - What to Know / What to Do."
He threaded a somewhat cautiously reassuring middle ground. Things aren't great. But, they aren't terrible either. They are just different.
Different, perhaps, because the fed experiment is untested. No one really knows how QE will turn out. But in mean time, it's keeping things together.
Different, perhaps, because this is first time in 30-some years where investors are facing a rising interest rate environment. Not expected to be rapid. But rather certain. So bonds no longer seem as safe and certainly not as high yield as in recent decades.
To get to the punch-line, his advice is:
1) rethink bonds - seek adaptive strategies, look to EM, switch to terms less interest rate sensitive, like HY, avoiding 2-5 year maturities, look into muni's on taxable accounts
2) generate income, but don't overreach - look for flexible approaches, proxies to HY, like dividend equities
3) seek growth, but manage volatility - diversify to unconstrained strategies
More generally, he thinks:
We are in a cyclical upswing, but slower than normal. Does not expect US to achieve 3.5% annual GDP growth (post WWII normal) for next decade.
Reasons: high debt, aging demographics, and wage stagnation (similar to Rob Arnott's 3D cautions).
He cited stats that non-financial debt has actually increased 20-30%, not decreased, since financial crisis.
US population growth last year was zero.
Overall wages, adjusted for inflation, same as late '90s. But for men, same as mid 70s. (The latter wage impact has been masked by more credit availability, more women working, and lower savings.)
All indicative of slower growth in US for foreseeable future, despite increases in productivity.
Lack of volatility is due to fed, keeping interest rates low, and high liquidity. Expects volatility to increase next year as rates start to rise.
He believes that lower interest rates so far is one of year's biggest surprises. Explains it due to pension funds shifting out of equities and into bonds and that US 10 year is pretty good relative to Japan and Europe.
On inflation, he believes tech and aging demographics tend to keep inflation in check.
BlackRock continues to like large cap over small cap. Latter will be more sensitive to interest rate increases.
Anything cheap? Stocks remain cheaper than bonds, because of extensive fed purchases during QE. Nothing cheap on absolute basis, only on relative basis. "All asset classes above long term averages, except a couple niche areas."
"Should we all move to cash?" Mr. Koesterich answers no. Just moderate our expectations going forward. Equities are perhaps 10-15% above long term averages. But not expensive compared to prices before previous drops.
One reason is company margins remain high. For couple of same reasons: low credit interest and low wages. Plus higher productivity.
Advises we be selective in equities. Look for value. Like large over small. More cyclical companies. He likes tech, energy, manufacturing, financials going forward.
This past year, folks have driven up valuations of "safe" equities like utilities, staples, REITS. But those investments tend to work well in recessions...not so much in rising interest rate environment.
EM relatively inexpensive, but fears they are cheap for reason. Lots of divided arguments here at BlackRock.
Japan likely good trade for next couple years due to Japanese pension funds shifting to organic assets.
He closed by stating that only New Zealand is offering a 10 year sovereign return above 4%. Which means, bond holders must take on higher risk. He suggests three places to look: HY, EM, muni's.
Again, a moderate presentation and perhaps not much new here. While I personally remain more cautiously optimistic about US economy, compared to mounting predictions of another big pull-back, it was a welcomed perspective.

Ben Johnson, Director of Manager Research at Morningstar, hosted an excellent overview this afternoon on Exchange Traded Fund trends, during a beautiful pre-autumnal day here in Chicago. It's the 5th such conference M* has held.
The overall briefings included Strategic Beta, Active ETFs (like BOND and MINT), and Exchange Traded Fund Managed Portfolios.
We got clearance to share some charts from the Strategic Beta portion, which I also found most interesting and perhaps some of you on the board will too.
Points made by Mr. Johnson:
1. Active vs Passive is a false premise. Many of today's ETFs represent a cross-section of both approaches.
2. "More assets are flowing into passive investment vehicles that are increasingly active in their nature and implementation."
3. Smart beta is a loaded term. "They will not look smart all the time..." and investors need to set expectations accordingly.
4. M* assigns the term "Strategic Beta" to a growing category of indexes and exchange traded products (ETPs) that track them. "These indexes seek to enhance returns or minimize risk relative to traditional market cap weighted benchmarks." They often have tilts, like low volatility value. And are consistently rules-based, transparent, and relatively low-cost.

5. Strategic Beta subset of ETPs has been explosive in recent years with 374 listed in US as of 2Q14 or 1/4 of all ETPs, while amassing $360M, or 1/5th of ETP AUM. Perhaps more telling is that 31% of new cash flows for ETPs in 2013 went into Strategic Beta products.

6. Reasons for the growth summarized here:

These quasi active funds charge a fraction of traditional fees. And, a general disillusionment with active managers is based on recent surveys made by Northern Trust and PowerShares.
M* is attempting to bring more neutral attention to these ETFs, which up to now has been driven by product providers. In doing so, M* hopes to help set expectation management, or ground rules if you will, to better compare these investment alternatives. With ground rules set, they seek to highlight winners and call out losers. And, at the end of the day, help investors "navigate this increasingly complex landscape."
They've started to develop the following taxonomy that is complementary to (but not in place of) existing M* categories.

Honestly, think this is M* at its best.

Hey there Ted-
I got to thinking about you while in the shower this morning (no, not that way!), as I was mentally reviewing your general style with respect to market investing. To the best of my recent recollection at least, my impression is that you tend to be nearly fully invested, aggressively so if you don't mind, and pretty optimistic with respect to the market potential as a whole. And that perspective seems to be working just fine for you.
The reason that I happened to single you out, in addition to your perspective, is that we are pretty close in age- only a couple of years apart, if I remember correctly. Also, I can't ever recall you being at all negative about staying fully invested. So that led me to wondering...
Would you describe your approach as perhaps a "modified buy-and-hold", in the respect that while you may from time-to-time sell some stuff and replace it with other stuff, by and large you are always pretty much fully invested? How exactly do you see your market approach?
Taking that question a little further, I would think that such an approach could be very rewarding over a long time-frame of investing, such as someone in their 30s/50s might be looking at. But at our age, with the markets "scheduled" to take a significant dive "sometime" in the future (who knows when?) is that a good position, given that we are getting up there and that the next major market down/up cycle could take 4,5, or 6 years to play out?
I'd be very curious to know if in your lifetime of experience you have ever attempted to "get out" before something really bad happened, or have you just let the thing roll no matter what?
I hope that you don't interpret this as being too personal- I'm always trying to learn, and you can only do that by listening to folks with ideas and experiences different that one's own.
Regards- OJ

Good point. It wouldn't take much to get a Pavlovian response from the HFT side of things.

I guess my thing is this: what are your best ideas? Those ideas may change over time and what mine are are likely going to be different from someone else (and that's okay), but what are your best ideas? Allocate to your best ideas and that's it.
At this point in the market, I'd only be interested in things I'm holding for multiple years - and that pay a dividend.

While I'm sure it may upset their worshipers, I think the Fed is at fault, financial media has some blame and there's just a different culture of investing. It's not a culture of "investing" anymore as much as it is a culture of traders.
http://www.businessinsider.com/stock-investor-holding-period-2012-8
"...the average holding period of a stock has fallen from eight years in the 1960s to around five days today."
"One of the consequences of such a short investment time horizon is that investors have begun to fear short-term market events and volatility as much or more than the factors that shape prospects for long-term economic and profit growth that drive stocks over the longer term." - quote from the article and I absolutely believe that's true.

I'm glad Charles went first. Knows a lot more than I do.
On point 1, I'm hoping we're seeing what's known as a "consolidation" stage, and that after a certain period of months stocks will continue higher. I've no scientific or other data to support this. But, where are we without hope? :)
On point 2, it seems to me like there are long stretches (years or even decades) when indexes outperform, and also long stretches when the opposite is true. I think it is partially due to investor psychology and money flows into and out of both categories - but can't nail it down for you in an intelligible way.
A 3rd point is that stock indexes will (almost by definition) outperform the aggregate of actively managed funds over very long stretches. That's baked in the cake. Not just the lower fees, but remember that managed funds are rarely 100% in equities like an index is. They have to hold some cash to facilitate inflows and redemptions. Unless it's a highly aggressive fund, it's also probably holding a significant "cushion" in fixed income for unexpected contingencies (5-15% is not uncommon).

Markets’ Rose-Tinted World Commentary from MOHAMED A. EL-ERIAN
PLENTY of UNCERTAINTY
"This is a rather weighty list of questions. Yet financial-market participants have largely bypassed them, brushing aside today’s major risks and ignoring the potential volatility that they imply. Instead, financial investors have trusted in the steadfast support of central banks, confident that the monetary authorities will eventually succeed in transforming policy-induced growth into genuine growth. And, of course, they have benefited considerably from the deployment of corporate cash.
In the next few months, the buoyant optimism pervading financial markets may prove to be justified. Unfortunately, it is more likely that investors’ outlook is excessively rosy".
Read more at http://www.project-syndicate.org/commentary/mohamed-a--el-erian-asks-why-investors-are-overlooking-six-major-sources-of-global-uncertainty#qor2xgIp358RJKSw.99
Also:
Policy: Economy
New HUD chief: Mortgage credit too tight
By Joseph Lawler | September 16, 2014 | 4:55 pm
"A few years ago, bad loans and risky secondary market products prompted a housing crisis. There was plenty of blame to go around. Some believe it was too easy to get a home loan. Today it’s too hard," Castro said at a housing event hosted by the Bipartisan Policy Center Tuesday. "The pendulum has swung too far in the other direction," Castro added.
http://washingtonexaminer.com/new-hud-chief-mortgage-credit-too-tight/article/2553496?custom_click=rss

FYI: The aging bull market, now nearly 5½ years old, is seemingly unstoppable. It has survived a flash crash, budgetary brouhahas, the threat of war in eastern Europe, hostilities in the Middle East, tepid earnings growth and, last but certainly not least, one of the most feeble economic recoveries ever. What's more, stock prices have continued to march upward despite signs that the Federal Reserve is moving closer to the day when it begins to raise short-term interest rates, after keeping them near zero since 2008.
Focus on investing
More on investing strategies and ways to help manage your portfolio.
See all Investing articles
So, for funds that own stocks, the past year was terrific. Every category tracked by Morningstar save one (funds that invest in Latin American stocks) delivered double-digit returns. Among U.S. stock fund categories, returns fell in a narrow range. The top group, funds that focus on large, fast-growing companies, gained 26.2%, on average through June 30.
Looking ahead, all eyes will be on central bankers around the globe. The availability of cheap money nearly everywhere has been the single most important driver of rising stock prices. It has given companies the wherewithal to buy back shares, purchase other firms and pay dividends. And it has forced investors out of bonds and cash and into stocks in search of better returns.
The Fed is on schedule to end its bond-buying program by the end of 2014, and it has indicated that it may start raising short-term rates next year. However, there's always a chance that the Fed might accelerate its timetable if the economy proves stronger than people expect. The creation of 288,000 new jobs in June suggests that the economy is gaining steam after a miserable first quarter. Earlier-than-anticipated rate hikes could unsettle the stock market.
We show here the top-performing mutual funds over various periods in five categories. The list includes only funds with modest minimum investment requirements and excludes leveraged index funds
Regards,
Ted
Large-Cap Funds:
https://www.fidelity.com/insights/investing-ideas/kiplinger-mutual-fund-rankings-2014-large-cap
Mid-Cap Funds:
https://www.fidelity.com/insights/investing-ideas/kiplinger-mutual-fund-rankings-2014-midsize-company
Small-Cap Funds:
https://www.fidelity.com/insights/investing-ideas/kiplinger-mutual-fund-rankings-2014-small-company
Global Stocks Funds;
https://www.fidelity.com/insights/investing-ideas/kiplinger-mutual-fund-rankings-2014-global-stock-funds
Sector Funds;
https://www.fidelity.com/insights/investing-ideas/kiplinger-mutual-fund-rankings-2014-sector

I'm always suspicious of all-inclusive words like "only". Any kid knows that's usually a signal that the statement on the T/F test is probably "false."
Scanning the article, the author - not Bernstein - seems to be supplying the "only." Without Bernstein's full text - it's hard to evaluate.
Bernstein is competent and seasoned, but wouldn't be among the "brightest lamps" I'd look to for clues on where the markets are heading. Wasn't too impressed when he made occasional appearances on the old Wall Street Week program about 20 years ago. Often found himself "odd man out" being out-smarted by some of the others as I recall.

Hi Guys,
Everyone who knows anything about how a military organization works knows that although the senior officer is in total change, the unit only functions effectively when it has a seasoned sergeant directing the foot soldiers.
In a household, the husband is the senior officer equivalent; the lady of the house is the top sergeant. That distribution of duties is what makes the household a success.
I have the greatest admiration for Stephanie Mucha. She is surely a pervasive force like the female is in most family units. Females are a major factor in what makes the USA the world leader in whatever category or statistic is used as a measuring gauge. We fully use, trust, and perhaps even exploit, our not so secret weapon.
It is an enigma why other countries, and some religions, don’t recognize womanhoods many fine attributes, and consequently saddle themselves almost routinely to the poorest tier of Nations.
All the Islamic world is hindered by the way they underutilize and mistreat their female populations. How can you expect to be prosperous when you systematically discard half the productivity of the population? It never works. When will they ever learn, oh when will they ever learn?
Although anecdotal, I can speak with authority on this subject. I have been married to the same woman for over 53 years. I freely acknowledge that any success our family has enjoyed can be directly traced to her steady hand, her strong back, her intelligence, and her persistent willpower. Like a good sergeant, she makes sure things happen.
After completing military service, we drove across the Country in an old Chevy, carrying all our limited worldly goods in a foot locker and on the rear seat of the car. Today, I’m just a little embarrassed by our riches in many dimensions. My wife was and is the motivating power.
One secret of our survival is that we talk and listen to each other. When she says something, I listen; when I say something, she listens. It’s that simple respect for one another.
“Viva la” womanhood. I salute you all.
Best wishes to all, but in this posting, a special very best wishes to all MFO’s female Board members. By the way, the record shows that you guys outdistance the men in the investment arena. Congratulations. I’m not surprised.

Our family has paid for water as far back as I can remember. Not only do they pay for water coming in but for water going out. Sewer and storm drainage.
Having a well is not that cheap either. No monthly bills but the initial cost of a well is way up there plus any pump issues. I had bladder tanks in my house and we figured every several years they would rupture. The only fix was a new tank at over $1000.

White paper from Mesirow Financial
Scotland’s Hamlet Moment
To Leave, or Not to Leave? That is the Question.
By Adolfo Laurenti, Chief International Economist
"Concerns about a breakdown in
the union are palpable, however, especially
in assessing how viable Scotland would be
on its own. We tend to agree with a skeptical
assessment, for the following reasons:
For good or bad, the British economy is
much broader and diverse than Scotland
will ever be. In terms of revenue, Britain
can provide better pooling of resources
but Scotland would rely on gas and
oil revenues, a very volatile source of
funding, which is at the mercy of global
fluctuations in energy prices. Do not be
fooled by the relative stability in prices
that we have experienced in recent years.
Tax revenue based on oil accounts for
something between 1% and 2% of
UK total tax revenues. In the case of
an independent Scotland, they would
account for 10% to 20% of the total.
Funding an expanded welfare system
on such a volatile source of revenue is a
borderline reckless policy choice"
http://www.mesirowfinancial.com/economics/laurenti/themes/globalmkts_0914.pdf
Also:
Some campaigners for a Yes vote in Thursday’s referendum on Scottish independence have argued that Clair could generate income and tax revenues that would sustain Scotland’s public finances for decades, but industry sources have emphasized the technical difficulties of extracting the oil.
http://seekingalpha.com/news/1983855-ft-conocophillips-to-sell-north-sea-oil-stake-for-2b-3b
A D R /OT C stock purchases.
If I plan to buy a foreign stock I run a test trade to see the brokerage charges.Anything more than normal,I just move on.Have owned Canadian energy monthly dividend payers and an Argentine A D R. Foreign taxes are deducted from Canadian dividends that show up as a credit on 1099. Not sure in I R A s.I was accessed a fee of about 2% on my A D R dividend.

@Crash
How do you pay for water where you live?
Drill a well or a muni water system where we live.
One is paying one way or another, eh?

Hello. We have a municipal water-sewer system here. I have lived along the Ohio River in years past, in an area prone to flood, so some locks were constructed. Even so, rare floods still do happen. In that town (New Martinsville, WV) water was provided by the Utility, but was not metered at all.

Americans spend MORE than they earn, That's what makes investing difficult, and credit card companies profitable.

Hey Tampabay,
I too have always loved your handle!
After so many years, why a few weeks ago did you abruptly stop posting on The Independent Adviser for Vanguard Investors?
Mona

I've read that the initial public offer price for Alibaba shares may be increased before the IPO due to such strong demand already.

That's what Jim Cramer has been saying. He seems to be a big fan of the IPO at the original price of $60-$66, but says they may raise the price and make it unattractive. Wonder if anyone on MFO can even get shares of it for the IPO, and if they will.

You can get exposure to it pre-IPO via Softbank (SFTBY) or Yahoo. Softbank owns 37% of Alibaba and is not selling. I believe Yahoo has to sell a portion of their stake.
I do think that the price will be increased, absolutely.
As for Yahoo: "Based on the details disclosed in the F-1 filing, the market capitalization of Alibaba would be $147.54 billion at the mid point of the band offering (i.e $60-$66 per share). At this valuation, the pre-tax value of Yahoo’s 22.5% stake in the company work out to around $32.98 billion". Yahoo's current market cap is 42.65B. (http://www.forbes.com/sites/greatspeculations/2014/09/12/alibabas-ipo-price-likely-to-boost-yahoos-stock-price/.)
Another way to play Alibaba: Softbank
http://www.cnbc.com/id/101997292#.
From that article: "With Softbank, the benefit you have is you have a manager who basically knows how to be a billionaire, there is no reinvestment risk as there is with [Yahoo CEO] Melissa Mayer."
"With questions surrounding the governance of Alibaba, Garrity said investors may arguably be better off owning the company through a name that has a large stake, like Softbank. As an outside investor, given the ownership structure you're not really going to have a much of a say. You might as well align yourself with a company that's got a big seat at the table." (my note: Alibaba founder Yun Ma is a director on Softbank's board and Softbank founder Masayoshi Son is a director on Alibaba's board.)
I do think that's a concern with Yahoo - the company has not done well in turning things around and while shareholders will apparently get some money from the stake in Alibaba that Yahoo has to sell, people are concerned with how Yahoo will spend the rest.
Many think that either Softbank or Alibaba may buy Yahoo.
I'm wondering if Softbank becomes another situation similar to Africa's media conglomerate Naspers, which owns a sizable stake in giant Chinese tech co Tencent. Look at Naspers over the last couple of years:
http://finance.yahoo.com/echarts?s=NPSNY+Interactive#symbol=NPSNY;range=2y
Softbank also owns stakes in social media company Renren and many other odds and ends (such as a stake in Yahoo Japan and Brightstar, the world's largest mobile handset distributor.)
Keep in mind that Alibaba continues to expand into other countries. US store 11main is opening (https://11main.com/preview)
Lastly, there's some other companies that benefit, including Singapore Post (http://www.forbes.com/sites/hengshao/2014/05/28/alibaba-to-buy-249-mil-stake-in-singapore-post-to-step-up-intl-presence/), which Alibaba bought a 10% stake in earlier this year.
"The moves signal the resolve of this e-commerce giant to expand its sprawling ecosystem beyond China’s borders. The market in Southeast Asia is an under-developed but fast-growing one. In 2013, e-commerce in Singapore and Malaysia increased by 15% and 25%, respectively, a report by Payvision says. In Indonesia, e-Marketer cites a growth figure of 65% for the year. As evidence of the region’s potential, last year Rocket Internet launched Lazada, the Amazon equivalent of Malaysia, following the success of its online fashion retailer Zalora, while Japan’s Rakuten set up a regional headquarters in Singapore.
Besides local customers in the region, the SingPost investment also seeks to capture two underserved groups of Chinese customers: overseas Chinese looking to purchase products on domestic websites, and domestic ones looking to buy foreign products directly from abroad. Currently, the bulk of these transactions is conducted through friends, relatives, and buying agencies (dai gou), often evading tariffs. One estimate by the China e-business Research Center put the total transaction amount of delegated foreign purchases at $12 billion in 2013."
"In Russia, the high volume of sales through AliExpress once paralyzed a local delivery services provider."

VWALX behaves more like the long-term muni fund, VWLUX. VWALX's price moves up and down slightly more than VWLUX and its payout is slightly more than the long-term fund. But VWALX holds a small amount of "private activity" bonds, which are subject to AMT. Also, VWALX may under perform other high-yield muni funds because it has a more conservative portfolio (no Puerto Rican bonds, etc), and VWALX (and VWLUX) have average effective maturities of less than 7 years (putting them in Morningstar's intermediate catagory) which is far less than the longer maturities in other funds.
On the other hand, while the plain intermediate fund, VWIUX, pays less, its daily price movement is much smaller. At times, I've owned all three; currently I have a good amount of VWALX.

BARRINGTON FINANCIAL ADVISORS, INC.
a Registered Investment Advisor
(Celebrating 42 years of Professional Service)
August 2014 Rebound
EQUITIES, MLPs and REITS:
We just experienced the best August in 14 years as the S&P 500 gained 3.8%. One indicator of why this happened is the S&P 500 Volatility index (VIX), which fell from 17.03% at the beginning of August 2014 to 12.09% at the end of August 2014. As you may know, this Index is a measure of fear in the market where many consider below a 20.0% index generally corresponds to less stressful, even complacent, times in the markets. Our Equity, MLP and REIT portfolios returned from a 4.2% to a high of 5.2% performance for August 2014 with the average of 4.65% thus beating the S&P 500 while having a lower risk rating.
During the month I put more of our money to work using the larger cash position to purchase MU, HCLP,HES,WLK,DOW,CPE,AMZN,UA,LNKD,FISI,REX,BITA,PLNR,CMI,Z,SWIR,EPD,TWTR and HMES. I also sold SINA. This was a lot of activity but many of the purchases were to buy back stocks that I sold at the end of July before the large drop in the market on July 31, 2014. These buybacks are now performing for us. A few examples are BITA up 9.48%, CPE up 5.99%, FB up 21.27%, FISI up 4.30%, HCLP up 12.82%, PLNR up 14.30% and WLK up 9.39%. Some have not yet began to perform such as SWIR down 1.96%, UA down 1.71% and EMES down 0.50% since these were purchased towards the end of August 2014 and have not had time to move.
In summary of the Equity, MPL and REIT holdings, I am well-pleased with our August 2014 performance and hope September is a good month as well.
FIXED INCOME:
We experience little change in the Fixed Income portion of our portfolios while keeping the percent of the total portfolio very low in relation to the overall Total.
ECONOMY
This is not the way things are supposed to be five years into an economic expansion, yet it’s the conclusion of yet another report probing chronic economic gloom. The new survey, by the Heldrich Center at Rutgers University, found 71% of Americans feel the recent recession changed the nation permanently and only 16% feel the next generation will end up better off. In 1999, 56% felt life would be better for future Americans.
It’s axiomatic that something is wrong with the U.S. economy — but gloom itself may be part of the problem. Americans are so dour by some measures, they seem to be looking past opportunities as if programmed to see only pitfalls. Prosperity doesn’t come from the places many people seem to be seeking it, and if the middle class is, in fact, in decline, a large part of the reason may be a lost instinct for how to get ahead.
To be sure, there are well-known problems with the economy that aren't easily solved. Wages are stagnant for many workers, household wealth remains depressed and many families are falling behind. Adding to the gloom, policymakers in Washington seem incapable of finding solutions, and they even make some problems worse.
It’s also true, however, that the economy is growing at a decent pace, companies are hiring, and consumer spending, on the whole, is pretty good. In reality, we don’t have one U.S. economy, we have two: one that looks like the old one, in which people work hard and get ahead, and another filled with those glum, underemployed laborers living on the edge. There has always been an American underclass, but it seems to be growing, fed by a continual drip of downwardly-mobile people departing the middle class.
The recession officially ended more than five years ago and ought to be a distant memory. These should be boom times with widespread optimism and robust spending. Yet, consumers are gloomy and the economy is limping along at subpar levels of growth.
It’s becoming clear why: While jobs have returned, incomes have not. The latest evidence is a study by the U.S. Conference of Mayors that highlights stark disparities between the jobs lost during the recession and jobs gained since. The types of jobs lost paid nearly $62,000 per year, on average. The jobs gained during the past six years pay only about $47,000. That 23% shortfall adds up to about $93 billion in lost wages per year — money not being spent because it vanished from the economy.
That startling wage gap reflects the demise of well-paying jobs that don’t require a college degree, which may be the single-biggest challenge facing families trying to uphold a middle-class lifestyle. The two sectors that lost the most jobs during the recession are manufacturing, with average pay of about $63,000, and construction, at about $58,000. Employment in those two fields is still about 3 million workers short of where it was at the start of 2008.
It is my prayer that America wakes up to the reality of how poor the country’s leaders are doing in managing our economy and we make a drastic change in the elections that are coming up soon. We need elected people who understand how to solve the economic problems facing our nation. A recent poll of American voters revealed that many people think that Global Warming is a greater threat to America than the threat from Terrorists. We need to support Israel and build our defenses before we have another attack on American soil. May America return to God and receive His continued blessings. AMEN.
Have a Blessed Day,
William C. Heath, CFP®
Chairman & CEO
(713) 785-7100