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November 2023 Performance Review

December 12, 2023

November was a month for the record books. The bond market abruptly reversed course as investors collectively decided that 5% on a ten-year government bond was about as high as we're going to see. With inflation continuing to decline to normal levels and all the money in cash looking to lock in higher rates for longer, investors engaged in an "everything everywhere all at once" rally in global investments. We never even hit 5% in October before rates plunged, sending bonds and everything else up in November.

Our Conservative portfolio gained 7.60%, and our Aggressive portfolio gained 6.93%. Benchmark Vanguard funds for November 2023 were as follows: Vanguard 500 Index Fund (VFINX), up 9.13%; Vanguard Total Bond Index (VBMFX), up 4.50%; Vanguard Developed Mkts Index (VTMGX), up 9.01%; Vanguard Emerging Mkts Index (VEIEX), up 6.76%; and Vanguard Star Fund (VGSTX), a total global balanced portfolio, up 8.27%.

While the Federal Reserve appears to have stopped raising short-term interest rates, longer-term rates were heading higher, leading to another bad year for the bond market. With inflation heading back to the Fed's target rate of 2%, it seems that rates, both short and long-term, won't go higher and may go lower, making all sorts of expensive assets seem less expensive. The hardest-hit rate-sensitive areas rebounded sharply.

While the bond index was up 4.5% last month, funds that owned longer-term bonds had one of the biggest moves up in history. Our rate-sensitive ETFs, Vanguard Extended Duration Treasury (EDV), Vanguard Long-Term Bond Index ETF (BLV), and Vangaurd L/T Treasury (VGLT), were up 14.03%, 9.97%, and 9.1% respectively, beating almost all of our stock funds. On the stock side (not including short funds), only China lagged with Franklin FTSE China (FLCH) up just 2.08%. Franklin FTSE Germany (FLGR) was up 12.78%, Franklin FTSE Brazil (FLBR) 14.44%, and Franklin FTSE South Korea (FLKR) 15%. Much of the big moves was in funds that have above-average dividend yields as investors rapidly decided it was time to lock in higher yields in case rates went back down. There seemed to be little concern that if rates go back down, we might be in a recession and stocks and higher-risk debt could slide. Utilities had a good month but are still down for the year, as are long-term bond funds.

We didn't just see big gains in higher-yield options – Cryptocurrencies and questionable growth stocks that crashed in 2022 continued on their big rebound year. All this euphoria may make the Feds stick with higher rates for longer. The Fed won't say it directly, but it is likely that rising house prices and crypto speculation are reasons not to lower rates.

Home prices are around 20% higher than the very peak in the 2007 era bubble, even adjusting for high inflation. One reason for inflation subduing may be that home ownership is consuming ever more of the household budget. Either way, the Fed doesn't want to create an even larger speculative bubble that could crash because rates followed inflation down. In this way, the return to risk-taking could risk the economy as it is easier to damage the real economy with high rates than speculation.

While the Fed is probably wary of repeating the 1929 mistake of using rates to slow speculation when inflation is tame, that doesn't mean the Fed is okay with home prices going up another 20% from here, much less seeing crypto and speculative stocks booming again.

Stock Funds 1mo %
Franklin FTSE South Korea (FLKR) 15.00%
Franklin FTSE Brazil (FLBR) 14.44%
Franklin FTSE Germany (FLGR) 12.78%
Vanguard FTSE Europe (VGK) 9.76%
Vangaurd All-World Small-Cap (VSS) 9.37%
[Benchmark] Vanguard 500 Index (VFINX) 9.13%
[Benchmark] Vanguard Tax-Managed Intl Adm (VTMGX) 9.01%
Vanguard FTSE Developed Mkts. (VEA) 8.81%
UltraShort Bloom. Crude Oil (SCO) 8.75%
Vanguard Communications ETF (VOX) 8.09%
Homestead Value Fund (HOVLX) 7.60%
[Benchmark] Vanguard Emerging Mkts Stock Idx (VEIEX) 6.76%
Vanguard Value Index (VTV) 6.68%
Franklin FTSE Japan ETF (FLJP) 6.03%
VanEck Vectors Pharma. (PPH) 4.25%
LeatherBack L/S Alt. Yld. (LBAY) 3.18%
Invesco CurrencyShares Euro (FXE) 3.08%
Franklin FTSE China (FLCH) 2.08%
Proshares Short High Yld (SJB) -4.21%
ProShares Decline of Retail (EMTY) -7.18%
Proshares Short Bitcoin (BITI) -8.43%
ProShares UltraShort QQQ (QID) -18.07%
Bond Funds 1mo %
Vanguard Extended Duration Treasury (EDV) 14.03%
Vanguard Long-Term Bond Index ETF (BLV) 9.97%
Vangaurd L/T Treasury (VGLT) 9.10%
iShares JP Morgan Em. Bond (LEMB) 4.62%
[Benchmark] Vanguard Total Bond Index (VBMFX) 4.50%
BondBloxx Six Month Treasury ETF (XHLF) 0.57%