June 18, 2017 Inconsequential

Risk/Reward Vol. 356

THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.

The biggest news this week was how inconsequential the eventful action taken by the Federal Reserve proved to be. Eventful because it laid out a detailed plan on how the Fed intends to reduce its $4.5 billion balance sheet over the next 4 or 5 years. Initially, it will allow $10billion per month of mortgages and bonds to mature without replacement with the amount rising to $50billion per month over time. Inconsequential, because once unveiled, this news did not cause interest rates to increase as one might have expected. Credit Chair Yellen and the Fed for conditioning the market for this plan. She wants the Fed to fade into the woodwork and to have its doings be as exciting as watching paint dry. Wednesday's news conference was a good first step.

Thanks to Goldilocks and TINA (discussed last week http://www.riskrewardblog.blogspot.com ) Mr. Market kept trading at historic highs. Traditional metrics such as price to earnings ratios just don't matter anymore because There Is No Alternative to stocks. Will this change someday? No doubt, but who knows when. One of my favorites, Jeffrey Gundlach, this week advised short term traders to sell in advance of what he believes will be a mid summer correction. His belief is based upon what he perceives to be stretched valuations. But what valuations are to be considered stretched today? Markets have been wildly distorted by a decade of artificially depressed interest rates (e.g. the Fed's quantitative easing). And the recent implementation of the "fiduciary rule" could operate to distort markets even more. The details of that rule are beyond the scope of this publication but no doubt it will push more and more money managers into low cost index funds. Active management has been and will continue to be replaced by group think and herd mentality. Think not? Ask your money manager.

I continue to hold pat with my income producing portfolio. Finding gems is becoming harder given the stable and slightly downward trend dominating the yield on the US Ten Year Treasury to which much of my strategy is correlated. I did add some more municipal bond closed end fund positions to my taxable account. Their value continues to hold steady, and I should see decent monthly dividends from these. Oil continues to be a drag with its price hitting year to date lows this week. And lastly, talk about a disrupter! I continue to marvel at Jeff Bezos. How would you like to be in the grocery business now that Amazon has purchased Whole Foods? The number one logistics company in the world now owns the number one store in the hottest grocery store segment---natural and organic foods. Yikes.