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October 2019 Performance Review

November 4, 2019

Globally, stocks continued up, with only a slight drop in longer-term bonds. It is almost like the bond market is expecting a recession soon and "better safe than sorry" but the stock market wants to play musical chairs until the actual record stops on the economy. The weakness in small cap and foreign stocks over the last year plus was nowhere to be seen, as most stocks went up last month.

Our Conservative portfolio gained 1.02%. Our Aggressive portfolio gained 1.15%. Benchmark Vanguard funds for October 2019 were as follows: Vanguard 500 Index Fund (VFINX), up 2.15%; Vanguard Total Bond Market Index Fund (VBMFX), up 0.21%; Vanguard Developed Markets Index Fund (VTMGX), up 3.26%; Vanguard Emerging Markets Stock Index (VEIEX), up 3.87%; Vanguard Star Fund (VGSTX), a total global balanced portfolio, up 1.96%.

We're running out of upside on bonds as it seems interest rates may not go lower without real economic trouble. The Federal Reserve just lowered short-term interest rates for the third time since increasing them last year with a high likelihood of pausing at this level with 1.5% at the bottom of the range, and there is a growing feeling that it may work—we engineered our way out of the recession that was brewing. But like the recent tax cuts, for how long? And what is the plan now that we have low rates and high government deficit spending like you would expect in a weak economy, not a strong one. Consumers aren't scared, but business owners are a little skittish about the future.

European stocks did well, as if Europe—already in zero interest rate mode—needed US rates lower to keep their economies out of recession. iShares MSCI Italy Capped (EWI) led the pack, up 4.72% for the month, followed by Vanguard European ETF (VGK), up 3.84%. Value stocks didn't do as well as the increasingly mega cap growth and tech driven S&P 500, with Vanguard Value (VTV) up 1.9% compared to the S&P 500's 2.15%. All our shorts were down except for a barely positive return for PowerShares DB Crude Oil Dble Short (DTO).

Riskier bonds did better last month, as did foreign bonds, leading to a 1.17% return for Dodge & Cox Global Bond Fund (DODLX) and a 0.89% return for SPDR Barclays Intl. Treasury (BWX). The yield curve shape moved back slightly to a normal positive slope, thanks to the Fed lowering rates and longer-term rates inching up. Confidence returned, as an inverted yield curve was scaring investors that a recession was around the corner. Vanguard Extended Duration Treasury (EDV), basically the longest-term bond fund you can get, was down 1.42% even though the bond market index, which is mostly shorter-term bonds, was up 0.21%.

The odd thing? The unfolding impeachment news doesn't seem to be impacting the markets much. That could be because no matter how it plays out, it won't reverse the corporate tax cuts that are boosting after-tax earnings anytime soon. The political pressure might even limit Trump's trade war, which the stock market doesn't seem to like all that much, anyway.

Stock Funds1mo %
iShares MSCI Italy Capped (EWI)4.72%
iShares MSCI BRIC Index (BKF)4.70%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)3.87%
Vanguard European ETF (VGK)3.84%
Vanguard Telecom Services ETF (VOX)3.29%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)3.26%
Vanguard Europe Pacific ETF (VEA)3.21%
Homestead Value (HOVLX)2.86%
iShares Global Telecom ETF (IXP)2.44%
[Benchmark] Vanguard 500 Index (VFINX)2.15%
Vanguard Value (VTV)1.90%
PowerShares DB Crude Oil Dble Short (DTO)0.71%
Vanguard Utilities (VPU)-0.10%
Proshares Ultrashort Russel2000 (TWM)-4.91%
Gold Short (DZZ)-5.14%
Proshares Ultrashort NASDAQ Biotech (BIS)-13.90%
Bond Funds1mo %
Dodge & Cox Global Bond Fund (DODLX)1.17%
SPDR Barclays Intl. Treasury (BWX)0.89%
Vanguard Mortgage-Backed Securities (VMBS)0.34%
[Benchmark] Vanguard Total Bond Index (VBMFX)0.21%
Vanguard Long-Term Bond Index ETF (BLV)-0.30%
Vanguard Extended Duration Treasury (EDV)-1.42%