Market insight and a highlight of Cabana’s year-to-date performance
Cabana’s six portfolios range from “Conservative” to “Aggressive” and include an income strategy portfolio. Performance is as of market close October 30, 2017 and is presented net of maximum advisory fees and commissions.
Cabana’s primary portfolios were up for the week, ranging from +0.22% (Aggressive) to +0.37% (Conservative). The Alpha Income portfolio was down -0.48%.
We saw blow-out tech earnings late last week offset a pronounced jump in bond yields and lift the broad equity markets to new highs. As we discussed last week, rising yields can be either a harbinger of future growth or a sign that money supply is going to become restricted. The key is whether earnings support the growth story and longer term rates can keep up with shorter term rates, which are dictated by the Federal Reserve. Banks borrow from customers and the Fed at short term rates. They then turnaround and lend to business and consumers at long term rates. The greater the spread or difference in these rates, the more money banks can make. The more money they can make per loan, the more risk they are willing to take and the more liquidity is available within the system. If long term rates don’t keep up due to lackluster earnings (growth), the spread narrows and banks stop lending. That ends bull markets. So, where do we stand today? At the beginning of the month the spread between the three month note and the 10 year bond was 1.33 percent. Today the spread is 1.23 percent. Interestingly, the 10 year fell from 2.46 percent last Wednesday (before the tech earnings) to 2.38 percent today. That tells us that longer term rates are not keeping up. Caution should therefore be advised. If I was on the Federal Reserve Board, I would be very reluctant to raise the short end of the curve much more until I saw the back end of the curve catch up. We remain bullish for now.
Year-to-date net-of-fees performance:
ALPHA INCOME: +4.64%
Performance is presented net of advisory fees and commissions (Conservative – Aggressive is presented net of 3% fees from January 1, 2017 – February 28, 2017 and 2% beginning March 1, 2017; Alpha Income is presented net of 2% fees)
-G. Chadd Mason, CEO
*Performance numbers indicated with (+) for positive return and (-) for negative return.
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