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September 2015 Performance Review

October 4, 2015

The stock market continues down, but in September bonds did well again, notably longer-dated government and investment grade bonds. This bond boost, plus our short positions, kept us falling less than the market — even with many foreign funds underperforming the S&P 500.

Our Conservative portfolio was down 0.71%. Our Aggressive portfolio fell 0.57%. Benchmark Vanguard funds for September 2015: Vanguard 500 Index Fund (VFINX) down 2.49%; Vanguard Total Bond Market Index Fund (VBMFX) up 0.76%; Vanguard Developed Markets Index Fund (VTMGX) down 4.08%; Vanguard Emerging Markets Stock Index (VEIEX) down 3.25%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, down 2.12%.

Something is not quite right. Most of the world's economies are sluggish to flat out recessionary. The world's central bankers know it; that's why nobody wants to raise rates. Investors are catching on. There's been too much money going abroad in recent years looking for higher stock returns or bond yields than what American markets have to offer. Some of the outflows were caused by flat out America declinism — "our best days are behind us", "a falling dollar and rising inflation are just around the corner".

As it turned out, they were half right. And half right means you can lose half your money. Even if America's best years are behind us, our not-so-best years are still better than what others got, which increasingly seems like circular commodity booms (we need more trucks, fuel, and drill bits to get the higher-priced X out of the ground) or centrally planned economies with too much money to spend. We had our bridge to nowhere; China builds entire train lines to nowhere. At least we didn't build an economically unviable city on the other side of the bridge.

Falling foreign and emerging markets have recently dragged down higher-risk U.S. debt and stocks. Part of the problem is our dollar is strong because we are now the global winner and the money is coming back, tail between its legs, looking for safer, single-digit returns. A rising dollar isn't ideal for our (or any) economy in a weak global economy.

Eventually the rising yields on risky assets will be attractive again. For now we're sticking with safe lower yields and watching the spread widen.

Many categories of funds are now down double digits for the year. Recently, even hot healthcare headed south with a near 10% slide for the month. In our own portfolios all of our bonds funders were up, but all of our stock funds were down, most more than the S&P 500. Only our short funds PowerShares DB Crude Oil Dble Short (DTO) and Gold Short (DZZ) scored positive returns, the former by almost 14%. We're going to need something new to short to protect us from further downside in global markets — something that can fall much faster than the stock market as a whole. Stay tuned.

Stock Funds1mo %
PowerShares DB Crude Oil Dble Short (DTO)13.97%
Gold Short (DZZ)3.44%
Wasatch Frontier Emerg Sm Count (WAFMX)-1.42%
[Benchmark] Vanguard 500 Index (VFINX)-2.49%
Vanguard MegaCap Growth (MGK)-2.73%
iShares MSCI BRIC Index (BKF)-2.74%
Vanguard Telecom Services ETF (VOX)-3.06%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)-3.25%
PRIMECAP Odyssey Growth (POGRX)-3.82%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)-4.08%
Artisan Global Equity (ARTHX)-4.43%
Vanguard Europe Pacific ETF (VEA)-4.50%
Vanguard European ETF (VGK)-4.56%
Wasatch Long/Short (FMLSX)-5.00%
Satuit Capital Micro Cap (SATMX)-5.19%
Bond Funds1mo %
Vanguard Extended Duration Treasury (EDV)2.20%
Vanguard Long-Term Bond Index ETF (BLV)1.02%
[Benchmark] Vanguard Total Bond Index (VBMFX)0.76%
Vanguard Mortgage-Backed Securities (VMBS)0.69%
SPDR Barclays Intl. Treasury (BWX)0.50%