Outlook for September 2016

Its been very quiet in the markets as more data is awaited before it can decide on a direction. The Fed has sent signals that rate rises are imminent, but there have also been reports that a move is very unlikely for political reasons. The Fed will not wobble the markets just before the US elections are over….so, the bond market is pricing in a 50-50 chance of a rate hike in December. Whether the Fed will raise or not, is anyone’s guess. It will depend on how well the Fed presidents sleep the night before the announcement.

The massaged data appears half decent, but scratch under the surface and its evident that all is not well with the world. The Fed may raise rates simply to give them room lower later. Meanwhile the rhetoric for negative rates and/or helicopter money continues. The Fed has indicated that they are looking at adding a debt of $2-$4T during the next crisis!! So, the Fed thinks all is well and still wants to look at easing options? Hmm those two things do not go together and just goes to show that the Fed has lost all credibility with the markets. The market volatility will return just as day follows night to the markets.

I continue to watch from the sidelines and hoard cash waiting for the fat pitches. I am the least bit interested in staying fully invested here and continue liquidating more of my assets and purchase hard assets instead which should provide some shelter and see benefit during the coming downturn.

Outlook for September 2016

As things stand, there are a lot of headwinds facing the economy. Potential recession/depression troubles still exist. The stock market continues flying high thanks to a handful of stocks and investors continue ignoring all warnings. If there is any doubt, simply compare the market caps of the largest 5 tech giants: Apple, Alphabet, Amazon, Facebook and Microsoft. Together they comprise $2.2T in market cap! These five companies make 10% of the whole US stock market!! That is an astounding number and a very high percentage. History has shown that these kind of dependencies on a handful of stocks to support the whole market have never ended well. It is for this reason that gold and silver, typical safe havens, continue to be my focus. Generally speaking, things haven’t changed much since my Outlook for 2016 (from January) post. Be sure to check it out for further investment ideas.

Portfolio-Aug312016

Portfolio Considerations

I recently decided to liquidated 1/3 of my portfolio and move to cash. I still continue to hold DGI stocks, and am focused on reducing the overall number of holdings. The reasons have been shared in this post. As I already discussed in that article, I want to concentrate on a smaller number of holdings and the only sector that I am bullish on is the precious metals space — gold and silver. Over the course of last couple of months, I have initiated new positions in Silver Wheaton (SLW.TO), Pan American Silver (PAA.TO) and B2Gold Corp (BTO.TO) and will be looking for any weakness to add more.

As it stands, our current portfolio diversification is as shown below:

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Dividend Increases

September is expected to be another slow month when it comes to dividend increase announcements. I am expecting only two companies to announce an increase our portfolio.

  • Realty Income Corp (O) – last increase was 1% in Jul 2016
  • Ventas Inc (VTR) – last increase was 10% in Sep 2015

What are your thoughts on the stocks mentioned here? Do you own them or are they on your watchlist? What do you think of the current market levels and buying here? Make sure to leave a comment below as I value reading your questions and comments.

Disclosure: Our full list of holdings is available here.

10 thoughts on “Outlook for September 2016

  1. I’m 15% in cash at the moment, but for another reason… I’m consolidating my positions for option trading. One reason is to boost dividend income. Another is to earn premium income while waiting for the market to match the prices I’m willing to pay. With few exceptions, the stocks in my portfolio are trading at a premium to fair value.

    Its good to see you still have some solid dividend growth stocks in your portfolio. I think it is important to stay diversified.

    Take care and happy investing!

    • I hear you, FerdiS. I have been writing some options as well and collecting some premiums over the past couple of months.

      Also, agreed that its better to stay invested in some DGI stocks and hedge the bets.
      R2R

  2. JC says:

    I just closed a position today and have a few more on the potential chopping block. I’m hoping to get a chance to add another VIX option at a decent level to get a bit of time arbitrage and take advantage of the volatility that I expect we’ll start to see. It’s crazy to look back at how quiet and boring of a month August was for the markets. I’m bullish on volatility although it’ll be interesting to see how the powers that be approach things given lots of conflicting data and likely not wanting to rock the boat right before the election. I think the economy on its own can easily absorb another hike in interest rates, but I’m curious how much of a complicit agreement they have with the government to delay it as long as possible. When/if rates reset to “normal” levels the US government and governments around the world are going to be in big trouble and will be left with few options: raise taxes (likely), decrease spending (doubtful because they rarely do), inflate their money or hope that actual economic growth can bail them out.

    Should be an interesting month.

    • Agreed. The economy itself will be able to digest a 0.25% rate hike without too many issues. But the markets are indeed too quiet and I really like your take on things – going the route of VIX. Market volatility will return sooner or later…the chips are stacking up. The recent bankruptcy filing form Hanjin is another big news — the collapse in trade will have repurcussions elsewhere in the economy. Perhaps once the market volume gets up after summer ends, we might see a spike?

      Should be an interesting month indeed.
      Best
      R2R

  3. I can’t give you much of my thoughts as I don’t know much about the ones you mention. The tech companies do seem to be off the scale in terms of normal investing. I do remember reading an article recently where in the 90s people were saying Buffett style investing was over and then what happened?

    These tech giants could easily become undone.

    Tristan

    • Hi Tristan,
      Yes, the tech companies could become undone…although things are looking pretty good for them. As far as revenues go, all of them are brining in some serious cash each quarter. Earnings look good too, perhaps not so much for AMZN (who’s margins are thin) but the other companies are doing great.

      We’ll have to wait and see how things unravel.
      R2R

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