Our accounts have been performing very well this year largely due to two of our major holdings, Amazon and Oclaro. While these began as quite modest positions, they have grown sufficiently that they are both quite large in our standard portfolio. Consequently, as a caution, there may be some volatility in your account valuation month to month at least until we find an appropriate time to lighten the weight of each in our accounts. That time does not seem to be just yet.
The Presidential election seems to have everyone’s attention, especially at this time of an election year. In my experience and in my view, elections rarely if ever have had much impact on the financial markets. Having said that, both of the major party candidates have abandoned the usual talk of balancing the budget and have begun the discussion of extending or increasing either deficits or debt in order to rebuild our aging infrastructure, airports, seaports, roads, bridges, and communications. This is long overdue and will provide a measure of stimulus to the so far mediocre economic growth. Although unemployment may not drop much further, these policies could easily expand the workforce participation and provide a counterbalance to the strong U.S. dollar and trade imbalances. These effects are positive and long overdue.
The global economy, including the U.S. economy continue to grow moderately and with sufficient strength to weather the usual and unpredictable disruptions (armed conflict, Brexit, exchange rates etc.) The U.S. is performing sufficiently well that the Fed is increasingly likely to raise interest rates in December again for the second time in the past decade of near zero interest rates. In addition, the prospective fiscal stimulus described above would add an additional impetus to growth. The economy has sufficient slack and excess resources that the threat of inflation remains in the distant future. Lurking deflation is becoming less of a threat and a period of significant solid growth is becoming a serious possibility.
We remain cautious and constantly vigilant. We are always monitoring developments for indications that would call for us to modify our outlook. Please remember that because these quarterly thumbnail sketches are very brief, please do not hesitate to call me if you wish to discuss your account or our outlook in greater detail.
Very Best Regards,
Joseph L. Toronto, CFA