The Economy and Interest Rates
There continues to be significant discussion regarding the impact of slower auto sales and a housing market in near recession. Namely, can consumer spending hold up in the face of these headwinds. Recent oil price declines and to a lesser extent, natural gas price declines have helped consumer sentiment. However, we suspect this will not be enough to prevent the economy from slipping lower over the next several quarters. One confirmation of this was the recent dramatic reported drop in the business price index falling from 72.4 to 56.7. The Fed does not seem concerned about any pain currently being felt by house flippers or speculators. Don't look for short rates to drop over the next several months.
The above chart shows ten-year treasury rates over the past three years. In this context, the recent rally from 5.25% to 4.60% in yield has been typical. We think yields continue to trend lower but the easy money has been made here.
Strategy Update: We swapped another 10% out of high yield closed-end funds in the Dynamic High Yield Strategy. That brings us up to 42% treasuries. We continue to think this makes sense in light of not only the recent drop in interest rates but also the drop in credit spreads, as well. YTD performance through 9/30 is 14.22%, providing some room for profit-taking.
We moved to a fully invested position in the Dynamic Commodity Strategy adding a small position in silver and adding to a general commodity ETF. We think we are at the tail end of mutual fund realignment into finance and tech, etc. and away from commodity related stocks. As such, it looks like a solid contrarian bet for the next quarter or two. We also went to a barbell position in the Dynamic Global Macro Strategy, utilizing commodity and international equity exposure. Our international positions are focused on Asia, small-cap Japan, emerging markets and a little Latin America. In general, these have some correlation to rising commodity prices, but also think some of the U.S. market's recent strength will spill over into international markets.
The above chart shows ten-year treasury rates over the past three years. In this context, the recent rally from 5.25% to 4.60% in yield has been typical. We think yields continue to trend lower but the easy money has been made here.
Strategy Update: We swapped another 10% out of high yield closed-end funds in the Dynamic High Yield Strategy. That brings us up to 42% treasuries. We continue to think this makes sense in light of not only the recent drop in interest rates but also the drop in credit spreads, as well. YTD performance through 9/30 is 14.22%, providing some room for profit-taking.
We moved to a fully invested position in the Dynamic Commodity Strategy adding a small position in silver and adding to a general commodity ETF. We think we are at the tail end of mutual fund realignment into finance and tech, etc. and away from commodity related stocks. As such, it looks like a solid contrarian bet for the next quarter or two. We also went to a barbell position in the Dynamic Global Macro Strategy, utilizing commodity and international equity exposure. Our international positions are focused on Asia, small-cap Japan, emerging markets and a little Latin America. In general, these have some correlation to rising commodity prices, but also think some of the U.S. market's recent strength will spill over into international markets.
posted by WRA Strategy Group at 9:55 AM
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