The third quarter for 2016 finally comes to an end and it will be interesting to note how companies have performed. Most companies have had falling earnings for a few quarters now, but the stock buybacks have kept the stock prices buoyant, portraying a better than actual EPS number. However, the buybacks appear to have peaked and slowed down a bit according to research from FactSet. This, and when you consider that the earnings numbers put forward by companies do not even conform to standard accounting practices just stinks of an massive con in the equity markets. Income Surfer has already brought our attention to this fact last quarter, so I will point you to the post “This Quarter Has Been Adjusted” instead of repeating it all here. Whether this will translate to the fireworks we’ve been expecting now or will we have to wait a few more months? I have no idea…but I remain hopeful that the market will provide some great opportunities in the coming weeks/months.
On the central banks front, its business as usual. Lots of circular reasoning and lost credibility from the Broken Fed as they fail to raise rates again while passing hawkish and dovish comments every other day. In Yellen-Wonderland things appear to be awesome. Current expectations remain that the Fed will raise the rates in December (based on bond market probability matrix). Other central bankers are going the other way, most of them cutting interest rates as the economies are anemic. All eyes will be on the central banks to get a glimpse of future expectation.
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 make a measly 1% or 2%. I continue liquidating more of my riskier assets and purchase hard assets instead – which should provide some shelter and see benefit during the coming downturn.
Outlook for October 2016
As things stand, there are a lot of headwinds facing the economy. Potential recession/depression troubles still exist. German and Italian banks are on the verge of collapse, barring a massive bailout from their governments. However, 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.
I recently decided to liquidated 1/3 of my portfolio and moved to cash. However, I have continued selling after that as I want to shed the weaker names in my portfolio. 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 few months, I have initiated new positions in Silver Wheaton (SLW.TO), Pan American Silver (PAA.TO) and B2Gold Corp (BTO.TO). Those have grown into sizeable positions now and I am comfortable with my overall portfolio.
As it stands, our current portfolio diversification is as shown below:
October 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.
- Omega Healthcare Investors Inc (OHI) – last increase was 3.45% in Jul 2016
- Starbucks Corp (SBUX) – last increase was 25% in Oct 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.