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Three out of four apocalyptic horsemen made their market appearance.  Energy’s freefall, China’s slowdown, and the specter of higher rates constrained the S&P 500’s yearly gain to only +1.38%.  For the year, the energy sector declined -23.6%.  Materials and industrials, reflecting Chinese gloom, were down -10.4% and -4.7%, respectively.  Utilities and financials, the most interest rate sensitive sectors, both posted losses.  What gains the market did have were narrowly focused (not a broad based rally) and were concentrated in a few tech names.  For 2015, our holdings’ performance mirrored the overall market; most energy and multinationals were down across the board while Cedar Fair, Phillips 66 (a refiner benefitting from lower oil), and Service Corp were all up in the mid teens.

More importantly, December’s ¼ point rate hike signaled a Fed milestone.  For seven long, long years (the longest stretch of central bank yield suppression in history), we have kept clients assets in cash/short term bond funds not wanting to get in front of a rate hike and suffer immediate losses.  But because the economy is far from overheating, because the strength of the US dollar is killing US multinationals, we think the Fed may be done.  Consequently, we deployed in the 4Q a large amount from our cash/short term bond funds into an array of preferred issues which are very stable and generate yields-to-maturity greater than 5.50%.  And starting back in November, where appropriate, we executed a variety of tax trades buying and selling to lower taxable, realized gains.

Looking to the stock market, we agree entirely with Vitaliy Katsenelson, CIO at Investment Management Associates, “During the past six years, the Federal Reserve neatly groomed, manicured and then finely polished investment slopes for all asset classes by lowering interest rates to unprecedented levels – providing a substantial accelerant that indiscriminately drove valuations of all assets higher.”

Having said that, Warren Buffett says to buy when there is blood in the streets.  As we look forward, we are currently researching energy stocks examining those with strong balance sheets and sustainable cash flows.  Just as it is the most damaged sector, it is also most likely the sector with the greatest opportunity.  We are also looking into some biotechs with intriguing clinical trials.

Gold Leaf is an independent Registered Investment Advisor that buys stocks/bonds in cash positive companies with sustainable competitive advantages.  As an independent firm, Gold Leaf provides objective investment management.  Our goal is to protect client assets on the downside while participating in most of the market’s upside.

January 1, 2016                                                                            Paul F. Rodgers, CFA

Gold Leaf does not provide legal, accounting, or tax advice.  Please consult your personal                    lawyer or accountant.  Previous blogs are at

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