Quarterly Outlook Summary

The past quarter (and year) has been fairly brutal to portfolio returns due to high volatility stemming from factors I’ll discuss below. Immediately following the end of September, the market staged a surprising rally that at present appears to have legs. If it continues, this year will produce good returns after having been stagnant all year.

Much of the recent volatility stems from a lack of leadership from the Fed and Congress together with abundant speculation about what they will ultimately do in the form of interest rates and fiscal stimulus. Interestingly, a much anticipated interest rate hike will only further strengthen the dollar hurting exports and earnings. This in turn also puts downward pressure import prices and energy with the consequence of defeating in part the Fed’s goals of killing deflation and stimulating inflation closer to its goals.

The economy really can’t expect any further help from Congress in the form of fiscal stimulus as the deficit continues to fall and Congress seems intent of further budget cuts. Absent the necessary leadership from the Federal fiscal and monetary authorities, the private sector investment and credit creation will continue to be tentative, the economy will grow slowly, employment will continue to remain stable without much impetus to further expand the workforce. In other words, more of the same slow growth with investment volatility as private sector investment and credit growth continues to look and wait for more economic certainty for the future in the form of leadership from the monetary and fiscal authorities.

We continue to hold investments that we believe will outperform the overall market, but in light of the above, we remain cautiously optimistic. Given the above, the market’s driving force is dependent upon private sector lending and growth.

Please remember that because these quarterly thumbnail summaries 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

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