The 3^rd quarter was in many ways a continuation of the downward tilt to the U.S. economy.  It now appears that 2016 will be the worst year economically since the financial crisis.  The GDP is now edging closer to a 1% annual rate than the hoped for 2%.  The stock market itself has entered a narrow trading range as companies have drastically reduced the buyback of their own stock.  Stock buyback was a primary driver in market returns through much of the year.  Meanwhile, we are entering the 6^th straight quarter of companies reporting declining revenues and earnings.  The Fed had hinted of an August rate increase but then declined to take that step as the wait continued for the inflation rate to hit 2% (the Fed’s inflation target) and for the employment picture to further strengthen.  The Fed’s indecision created uncertainty for the bond markets through the first 3 quarters of the year.  It is now expected that the Fed will move to raise rates by .25% at its December meeting.

The 3^rd quarter ended on a sour note in anticipation of action by the Fed.  The expected rate increase led to a strengthening of the dollar which negatively affected commodity prices (our gold position).  Treasuries, real-estate and utilities also pulled back in anticipation of an interest rate hike.

Should the Fed raise rates in December it is likely that the market will go through a correction like the pull back at the beginning of this year.  A strengthening dollar means exports from the U.S. become more expensive and imports become less expensive.  In effect, importing deflation into the U.S. market.  Central banks in Europe, Japan and China have slowed their quantitative easing but they are not discussing a rate increase.

The Oak Springs portfolio maintained a 15% exposure to the equity market during the 3^rd quarter in the belief that a market correction is looming.  The 20% exposure to U.S. treasuries has been reduced by selling the short-term treasuries and selling half of the long treasury position.  We are maintaining treasury proxies in the real-estate and utility ETFs for the dividend income.  Most of the gain in our portfolio for the 3^rd quarter came from dividends.  In other words, should the market suffer a correction, the growth from the dividend income will not be lost.