Welcome to the second edition of our Monthly Portfolio Commentary. You can find our inaugural edition from August, which highlights some core elements of our portfolio construct, on this blog as well. For those of you seeing this Monthly Commentary for the first time, our intention here is to give you some insight into the changes you have observed in your portfolios entrusted to us here at Madison Park Capital Advisors.
August was one of those months that you don’t see very often as an investor. There were very few places to hide in the wake of the selloff that happened around the globe. 10 year Treasury yields were flat for last month, but credit spreads widened during that same period, accounting for losses in virtually every fixed income category. Stocks were down – in a big way – with the U.S. markets holding up relatively well compared to other parts of the world.
Here are the different markets for the month of August:
As you can see, prior to last month, most markets were positive for the year. Oh, how much changes in a month…or does it? As we’ve said so many times in the past, pullbacks in the market are to be expected, much like trying to sprint a marathon. It’s not possible; sometimes you have to take a break. I think they call that the pause that refreshes.
I was just sent the following this morning and it is good to keep in mind. Even in bull markets you need to pause and take a break, remembering that during the decade of the 90s, the S&P 500 had a 5% pullback 24 times and seven of those resulted in 10% or more. Some of those episodes we remember, but the pain has subsided: The first Gulf War (1991), Recession (1994), Currency Crises in Thailand and Russia (1997), Long-Term Capital (1998), these were all very painful going through, but now reside in the, “oh yeah I remember that” part of the brain.
After going through the trauma of 2008, a credit crisis we haven’t seen since the Savings and Loan crisis of the 80s and before that back in the Great Depression (we all remember that, right?), we are all on guard for the next big crash in the market. If you’ve been on the internet any time in the last 6 years, you’ve probably run across a scary video of how the world is going to come to an end. I know I have. Like a good book/movie, you need to present something “compelling” that will make your viewer listen to what is being said. Who’s going to listen if you say everything will be fine? Nobody. So you make it really scary and put some emphasis on the bad things that are going on and you have a Rembrandt of sorts.
Now, as you know, we aren’t saying everything is peachy, but there are a lot of things going good in this country and the world and there are certainly things that can be improved on. So a pullback in the market of about 10% so far is not that uncommon and unless we think that we are about to go into a recession, we’re not likely to see a repeat of 2008 at this point.
That all being said, our investment model did raise some cash at the end of last month, but we are already seeing signs that the “wall of worry” is quickly being reconstructed and that is a good contrarian indicator that we use. We would not expect to keep this cash for too long, but it will decrease volatility in the short run and give us dry powder down the road.
Here are the specific changes to each of our portfolios: