2015 Year-end Summary

Last year was a difficult year for the markets, but we were able to eke out some positive returns due to a late December surge. That surge quickly melted in early January due to perceived economic weakness in overbuilt China and by a free fall in oil prices. The oil price decline is a short term detriment to the economy as oil investment quickly evaporates. It should also be a net positive in the long term as consumers and business acquire more spending cash together with lower prices of goods and services.

Oil is the single most important raw material input to nearly all economic goods, but more importantly because oil producing countries rely upon the revenue for their national needs. In the face of the present oil glut, oil producers have continued their high production in an effort to preserve their market share, but, at this point the financial pain is becoming unbearable. It is expected the OPEC and other producers will come to some form of production quota arrangement…. that they will all promptly violate. However, the markets will recover and oil prices will stabilize but will remain low for the foreseeable future.

In the face of these volatile markets, it has become painfully apparent that with interest rates at zero percent for the last eight years, that monetary policy alone has used up its effectiveness as economic stimulus. There is no more ammunition left. Consequently, the U.S. and Europe are now beginning to discuss fiscal stimulus which is otherwise known as deficit spending. The recently passed omnibus budget package in the U.S. is a notable example as the bipartisan compromise threw overboard the economically disastrous budget sequester package that was originally designed to balance the budget. Federal spending is now set to increase eighty billion per year. More fiscal stimulus and spending will follow as the deficit/inflation ideology continues to lose credibility in the face of serious deflationary pressures, not only in oil, but in all commodities. It may be another difficult coming year as the markets try to work through these issues and stabilize in a moderate growth trajectory.

Because these quarterly thumbnail summaries are very abbreviated, 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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