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November 2022 Performance Review

December 6, 2022

November was a great month for pretty much anything that was down over 20% over the last year or so. This current stock market rebound started in late September and has boosted the S&P by over 10% from the lows of the year, and by even more for harder hit markets. The US market is still down by a double-digit percentage for the year. We had a similar fast rebound from mid-June to early August. It ultimately led to lower lows for the year.

Our Conservative portfolio gained 8.31% and our Aggressive portfolio gained 7.03%. Benchmark Vanguard fund performances for November 2022 were as follows: Vanguard 500 Index Fund (VFINX), up 5.58%; Vanguard Total Bond Index (VBMFX), up 3.69%; Vanguard Developed Mkts Index (VTMGX), up 13.02%; Vanguard Emerging Mkts Index (VEIEX), up 14.42%; and Vanguard Star Fund (VGSTX), a total global balanced portfolio, up 6.82%. Our Aggressive portfolio is now down 10.27% for 2022 compared to the 13.14% slide in the S&P 500. Our Conservative portfolio is still down 14.19%, even with the sharp rebound, as yield-oriented investments have been hit harder than the US stock market in 2022.

Foreign markets are now benefiting from a falling US dollar, reversing the pattern of much of the last year. Our high relative interest rates and general safety, plus economic distance from the Russia–Ukraine war, led to capital inflows and pushed up the value of the US dollar.

The current rebound in stocks is based on the likely overly optimistic assessment that the Fed will slow rate increases soon, that the rate of inflation will continue to fade, and that the economy will avoid a recession. The related boost is from the rebound in the bond market. Long-term rates have turned lower, perhaps because inflation expectations are falling, but likely also because 4%+ from a risk-free bond seems like a good yield to lock in. As rates go back down, the value of stocks (and real estate) goes up.

The highlights from our portfolio include a sharp 30.76% rebound in Franklin FTSE China (FLCH) as an overdone slide in Chinese stocks reversed course abruptly. Funds investing in China are still down over 20% for the year. Almost all of our foreign stock funds—except for Franklin FTSE Brazil (FLBR), which was down 3.73%—were up by double-digit percentages in November. Brazil has been hot and is up over 10% for the year, largely due to being seen as a commodity beneficiary. Our only other losers in November were funds that short. Longer term bonds had a great month but are still down over 20% for the year. Vanguard Extended Duration Treasury (EDV) rebounded 10.08% while Vanguard Long-Term Bond Index ETF (BLV) scored an 8.56% return.

If you exclude the heavy tech weightings in the S&P 500 and Nasdaq, stocks aren’t even down that badly this year. The Dow through the end of November, including dividends, was down around 3%. The S&P 500 is down only 13.1% (again with dividends) for the year, while tech stocks are down just over 30%, even with the recent rebound. Much of this Dow outperformance of the S&P 500 is due to the generally good year that value stocks are having; they are now up slightly for the year. Our own index fund in this category Vanguard Value Index (VTV) is up slightly for the year. Some of it is due to the strong performance of energy stocks, which are the number one sector, with the average energy fund up around 52% for the year.

Considering how fast interest rates have risen, it is remarkable that stocks aren’t down more this year. One way to look at it is that they aren’t down by only 13%; they are down maybe 25% from the top, adjusting for inflation. All other things being equal, most companies are worth 20% more if prices inflate 20% because earnings will just inflate with everything else. There are even benefits to companies that borrowed at interest rates that are now below the rate of inflation. They are inflating away their debts, just like locking in a mortgage at 2.5% before the value of your house zooms away with inflation.

There are risks, and high inflation is not a good thing overall. Many companies borrow short-term or with adjustable rate loans, and will have to borrow at today’s much higher rates, which can cut into profitability. The real hit, which has mostly yet to happen, is to businesses tied directly to housing. Home sales are semi-frozen, as prices are still too high to finance at current mortgage rates. In theory, inflation will boost rents and salaries and catch up with the pricing imbalance. Or housing will slide and bring down the broader economy with it, with a Fed that can’t do anything while on inflation watch. Consumer financing costs are rising and sales of financed goods in general, notably autos, will slow, which is exactly what the Federal Reserve wants.

Stock Funds1mo %
Franklin FTSE China (FLCH)30.76%
Franklin FTSE South Korea (FLKR)16.73%
Franklin FTSE Germany (FLGR)16.37%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX)14.42%
Vanguard FTSE Europe (VGK)13.49%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX)13.02%
Vanguard FTSE Developed Mkts. (VEA)12.55%
Franklin FTSE Japan ETF (FLJP)11.47%
Vangaurd All-World Small-Cap (VSS)11.32%
Proshares Short Bitcoin (BITI)8.06%
Homestead Value Fund (HOVLX)7.39%
Vanguard Value Index (VTV)5.99%
VanEck Vectors Pharma. (PPH)5.74%
[Benchmark] Vanguard 500 Index (VFINX)5.58%
LeatherBack L/S Alt. Yld. (LBAY)5.26%
Invesco CurrencyShares Euro (FXE)5.24%
Vanguard Communications ETF (VOX)5.14%
NightShares 2000 (NIWM)3.87%
UltraShort Bloom. Crude Oil (SCO)-2.03%
Proshares Short High Yld (SJB)-3.11%
Franklin FTSE Brazil (FLBR)-3.73%
ProShares Decline of Retail (EMTY)-6.26%
ProShares UltraShort QQQ (QID)-12.82%
Bond Funds1mo %
Vanguard Extended Duration Treasury (EDV)10.08%
Vanguard Long-Term Bond Index ETF (BLV)8.56%
iShares JP Morgan Em. Bond (LEMB)7.54%
Vangaurd L/T Treasury (VGLT)6.73%
[Benchmark] Vanguard Total Bond Index (VBMFX)3.69%