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August turned out to be a month where a tug-of-war continued to play out between those who view strong economic growth as bad for markets because it implies more imminent Fed tapering, and those who view tapering as something that will only happen once the economy is strong enough to be self-sustaining, which in turn, would be good for equity markets.

A collection of Fed statements including meeting minutes, speeches and Jackson Hole interviews and presentations did little to settle the conflicting views, despite the fact that the Fed has been remarkably consistent in specifying that tapering will only begin when the economy can handle it. The prevailing strength in that tug-of-war seemingly appears to be with the "tapering is bad" camp. This negative reaction to imminent tapering certainly took its toll on the bond markets as yields ratcheted up further, at one point bringing the US 10yr Treasury yield close to 3%.

As I've indicated many times in my daily blog on Soos Global Market Musings, the most deleterious impact of tapering tantrums has played out in Emerging Market (NYSE:EM) countries, where capital, that had been there for some time enjoying higher yields on local debt and rallying stock markets, turned tail and headed out of those countries in the face of tapering's likely impact on raising rates in the US and in other developed nations in Europe.

The EM currency bashing that has taken place in the past month in particular is most notable in India, Indonesia and other similar countries that face large current account deficits. The weakened currencies in such countries have the effect of making it difficult to fund those deficits, and where imports are a major factor, make inflation on imported goods run up pretty quickly. This has forced many of those countries' central banks to raise rates, a counter cyclical policy response that while aiming to thwart inflation and capital flight, also has the effect of slowing growth just when those economies are most in need of more stimulus! On my "risk-ometer", this situation ranks very high! These types of situations have historically been the early warning signs of a currency and/or debt crisis in the making.

Overall, August was a month of heightened geopolitical risks, starting with the closing of 22 US embassies for several days due to intercepted Al Qaeda communications indicating an imminent attack, continuing with the re-set of the 'cold war button (if not cool, at least!)' with Russia over the Ed Snowden affair, and ending with the use of chemical weapons in Syria and, in turn, US plans to strike selected targets in retaliation.

Economically, the month started with the worse-than-expected employment report in the US, followed by other data essentially confirming an ongoing uninspiring pace of growth in the US, along with some concerns that the recent spike in rates could already be negatively impacting the housing recovery.

In Europe, some signs of 'green shoots' have emerged, but more in the form of "less bad" rather than a torrent of "genuinely good" data. The Eurozone, however, did emerge from recession in Q2. And in Asia, while China continues to battle its housing and shadow banking bubbles, trying to defuse both without systemic catastrophic consequences, many other countries in emerging markets have been plagued with the currency, current account, inflation and growth problems mentioned above.

So overall, a global economic picture that is 'blah' at best and facing many headwinds that could turn 'blah' into 'uggh'! (pardon the editorial license on the use of such technical terms!)

From a portfolio positioning point of view, I have been out of direct ownership of Emerging Markets for some time. I've taken "indirect" ownership of EM by buying US based companies with large global businesses. It's proven to be a safer and more rewarding way to capture growth opportunities in the EM countries without as much exposure to the capital flight predicament that has hurt EM equity and fx markets.

The 'defensive' posture that I spoke about last month still exists with cash levels historically high at close to 30%. The remainder of the portfolios in our two strategies is currently in equities, mostly US-based companies with our largest sector weightings in Consumer Discretionary, with names such as Nike (NYSE:NKE), McDonalds (NYSE:MCD) and Cinemark (NYSE:CNK), and in Information Technology, with names such as Intel (NASDAQ:INTC), Qualcomm (NASDAQ:QCOM), EMC (NYSE:EMC) and Paychex (NASDAQ:PAYX). We still remain very light in financials with the exception of Citigroup (NYSE:C) where we view the global opportunity of the firm under the new management to outweigh the headwinds faced by the sector overall.

Among the biggest positive contributors to performance in August was Yamana Gold (NYSE:AUY), benefiting from the run up in gold prices in the face of the heightened geopolitical risks around the world.

Qualcomm also contributed nicely on a strong end-of-July earnings report and several industry conferences where the company cited positive outlooks for mobile processor demand.

Dragging on performance were the 'bond substitute' type of stocks, those that have particularly high dividends and have been in demand by traditional bond investors as a substitute in the low interest rate environment that has existed for some time. With the 'tapering' driven selloff in bonds and the subsequent rise in yields, investors were heavy sellers of the likes of our Utilities ETF (NYSEARCA:XLU) and our senior-care REITs, Senior Housing (NYSE:SNH) and Omega Healthcare (NYSE:OHI), in many cases moving the money back into bonds at now higher yields. This pushed the dividend yield on these holdings to higher levels, and in the context of my overall positive view on their earnings potential, I used some of our cash hoard to add to positions.

One new holding that's entered the lineup is DaVita HealthCare Partners (NYSE:DVA). I've written about this in my series on investing in "The Obesi-fication of America" which I'd urge you to read. I initiated a position with 1.5% of the portfolio and would look to add, though watching the sequestration and ongoing budget talks in Washington for clues as to how much impairment to sales and earnings will ultimately come out of the Medicare cuts being discussed.

I'd be delighted to field questions on any of our holdings and on what's on our radar screen. Much of that information I post on our Soos Global Market Musings blog, but for more detailed 'uncut' information, please feel free to reach out to me directly.

(Please note: This article is solely meant to be thought provoking and is not in any way meant to be personal investment advice. Each investor is obligated to opine and decide for themselves as to the appropriateness of anything said in this article to their unique financial profile, risk tolerances and portfolio goals).
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Additional Disclaimer: currently long many stocks/ETFs including but not limited to stocks mentioned in this article. Positions may change at any time without notice.

Source: Not An August August For Markets-Why? (Portfolio Winners, Losers & New Position)

Additional disclosure: Positions may change at any time without notice.