Q3 2015 Commentary

Amy Hubble |

October is off to a great start!  We’re only five days in and the market (DJIA) is up 3%, the Sooners are still undefeated and there’s lots to be positive about.

Disclaimer: I’m going to deflect the conversation away from talking about the markets too much, so if that was what you were hoping to read, sorry (not sorry). The market gods have smiled on us by giving us an average annualized return of 16.61% per year on the S&P 500 for the last 4 years so we’ve probably gotten a little too comfortable with consistently positive returns. Investing is risky, and there will be periods like this where we’ll have negative returns, but all our portfolios are well-diversified and poised to take advantage of the turnaround.  Like a rainstorm after 40 days of sunshine, we simply have to wait for the rain to stop before we can go back out and play. NOBODY likes losing money more than me, but we’re all in it for the long haul here at Radix, so let’s move on to things we can control.

Bonds. The 10 year treasury bond yield dropped down to 1.91% last Friday after a disappointing jobs number was released. As has been the case for some time, I still can’t in good conscience, make recommendations for bonds in portfolios. If you’ve already got them, we’re keeping them. But, otherwise don’t expect to see any new bonds popping up in your portfolios. Once you equate the tax, fees, and potential inflation over the next 10 years, you’re better off just taking it and buying an island.

In that same thread, September was one big ‘will they’ or ‘won’t they’ gossip party over at the Federal Reserve when it comes to raising interest rates.  So here’s the deal:

The Fed has two mandates:

  1. Keep unemployment low (currently at 5.1%)
  2. Keep inflation low (currently 0.2%, significantly under the Fed’s 2% target)

With the volatility in the markets, and the strong dollar keeping inflation nonexistent, it’s no surprise that the FOMC decided again to not raise rates.  Well, no surprise to me anyway; but the Fed’s decision had negative impacts around the globe.  International markets fell on the basis of continuing inability for other higher interest rate economies to compete with the accommodating lending rates of the US.  Then we woke up and traded lower because the global markets had sold off.  Vicious circles of logic, these day traders.  Not a game we show up to play.

We’ve got another Fed meeting at the end of October, and then another in December. So while it’s certainly possible that it could happen in 2015, it likely won’t unless we see the recent volatility subdue and/or signs of inflationary pressures. I don’t think we in Oklahoma would whine too much about higher oil and gas prices, but keep in mind that lower gas prices allows most of the rest of the country to have more disposable income for spending which is a strong equity market driver.

Okay. I lied about not talking about the markets. I couldn’t help it.

It’s been a busy month around here. As most of you know, I’m teaching financial planning at the University of Georgia this fall. It’s been great to step back and revisit some of the concepts I haven’t considered in a while, as well as look at the material from a different teaching perspective.  Each week I find myself learning new things. Like, did you know if you still have federal student loan debt they can actually garnish up to 15% of your social security?

As always, I love to hear from you. What you’re thinking, what you’re feeling, and what we can do better to serve you!

Beat Texas!

Amy Hubble, CFP®, CFA