My columns this year have been a rolling series of observations concerning the macroeconomic environment. They have specifically focused on the disconnect, as I saw it, between the comments from FOMC members concerning the need for rate hikes in anticipation of inflationary pressures and the preponderance of evidence in substantive indicators of real economic activity suggesting that the Fed should be preparing for more stimulus required by growing deflationary forces.
That backdrop informed the investment positions I discussed and will review here.
The first group I suggested this year for income investors was the mortgage real estate investment trusts, which was a continuation of a theme from the year before.
The income stream from the REITs has remained stable so far, but the principal value has slid steadily all year by far more than I anticipated, between roughly 20% and 30%, which is also two to three times the income stream they've generated.
Investors appear to have decided that no matter what the Fed or economy does, all potential outcomes are negative for the REITs.
If any of the REITs cut payouts, it is probable that the entire sector will follow suit and sell off further, even though they are already priced for the assumption that is going to happen.
I still like them for income.
One of the groups I've been relentlessly negative on this year has been the homebuilders.
The performance of this group has been very wide, with D.R. Horton (DHI) leading with 27% positive equity return, Hovnanian Enterprises (HOV) lagging with the loss of 58%, the rest scattered between these two extremes, and SPDR S&P Homebuilders ETF (XHB) posting a positive 2% return.
I continue to believe this sector should be avoided.
I've also been very critical of each of the money centers for different reasons, but with the one commonality they all have being the reliance upon commercial and industrial (C&I) loan growth to make up for lacking growth in the other loan sectors.
All four of them are near where they started the year, with Bank of America (BAC) down 4%, Citigroup (C) down 2.5%, Wells Fargo (WFC) off by 1% and JPMorgan Chase (JPM) up 5%.
I continue to believe the downside risks caused by the fallout from a Fed rate hike are greater than the upside potential caused by the same, and that this group should be avoided.
One of the sectors I switched from bullish to bearish on from a cyclical perspective this year was biotechnology, which I wrote about in the November 2014 column, "Biotechnology Is Ripe for a Correction."
The cyclical correction in these stocks that began last summer will probably continue with the prospect for much lower prices over the next 12 months being greater than the opposite. From a long-term perspective, 10 years or longer, I think they will perform very well, though.
I advised that the government contractors should perform well as government spending increases were required.
Although the spending increases have not been as large as I thought was probable, the stocks have performed very well, with six of the seven positive for the year and five of those six positive by between 13% at CACI International (CACI) and 27% for Northrop Grumman (NOC).
I still expect that government spending will have to increase further.
I last addressed the water stocks in March as part of my expectation of the past few years that the drought in California and lack of potable water globally would finally resonate with investors and politicians.
This, however, did not happen, as is most broadly evident in the negative performance of Guggenheim S&P Global Water ETF (CGW) being down 1%, and PowerShares Global Water ETF (PIO) down 8%.
In May, I suggested the gold mines represented a store of value with gold having fallen to its long-term real return of 0%.
Since then, Market Vectors Gold Miners ETF (GDX) has declined by another 31%.
That's brutal, but I think at current prices this sector represents the best long-term potential available today and is an excellent value play.
Also in May, I continued a trend from the previous year, buying the discount retailers and selling the premium stores.
That's been a big winner, as I last addressed earlier this week, and it's a trend I think will continue.
Lastly, on the global front, I continued my multiyear negative assessment of China ADRs and ETFs and cautioned against buying into their pop in prices earlier this year.
I continue to be negative on China.
All told, I award myself a "C" for this year's performance.
Let me know what you think.