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How the Market Works


Posted by kdadmin on September 7th, 2013.

One of my clients asked about Syria’s potential impact on the economy / stock market through the end of the year. It is a timely concern and I thought the rest of you might like to know how it relates to your portfolios. Thank you to this astute client for bringing it up, you know who you are.Historically, wars and skirmishes tend to be initially bad for the economy / stock market, then either fade into the background, or stimulate it. The initial spike has passed (a couple of weeks ago when I wrote my “Yikes” email). It’s not politically smart for the USA to play world police when our allies are not yet willing to participate. Where is the U.N. report? However, that doesn’t mean that the USA will do the smart thing, or that we’ll even know what our government actually did.

In any case, in our portfolios we’re already quite defensive (holding a significantly larger cash stake than normal) in order to avoid the September Fed influenced market gyrations and the bond yield volatility. Currently, I’m waiting for an entry point back into the market. If you recall from this summer, I planned to buy back into short term high yield bonds but have wanted to avoid the majority of the yield volatility. This has been a good call, as your portfolio returns indicate. Those of you following our models have outperformed your benchmarks in the last month. My hesitation to buy back in, however, comes from the fact that the short term high yield bond funds are near their all time highs.

So, for now, it’s a wait and see environment, probably for much of September. At this point, Syria seems to be a lot of smoke, but not much fire, and the market has already had its seizure about it. I’m watching it, as are the economists, but nobody currently thinks it’s going to derail the economy / stock market as much as, say, Obamacare. What a cluster THAT is. More on that later.

For those of you who would prefer Poetics over Politics (thank you Aristotle), I direct you to a primer on the remarkable Syrian culture.


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