Quarterly Outlook Summary

The economy remains sufficiently weak that the Federal Reserve has postponed any further interest rate increases until at least next year. One of the complicating factors was the recent vote in the U.K. to leave the European Trade Union. The vote to leave was expected to be close, but few thought it would succeed. The mechanics of exiting that will take place over the next several years and no one can realistically predict what the economic consequences will be. It is safe to say however, that the vote has introduced uncertainty and risk to the global economy which will affect many investments. We will monitor this closely.

The U.S. economy continues to struggle along with sub-par growth even with interest rates hovering near zero for nearly eight years. Corporations and consumers alike continue to shun borrowing in favor of paying down debts. This is a tremendous headwind to the economy that should be easily remedied with government fiscal stimulus. The upcoming election that stands a good chance of removing the blockade in Congress to fiscal deficit spending stimulus. One can only hope.

In that regard, Japan has been in a slow to no-growth recession for nearly 25 years and is about to embark on a radical new form of quantitative monetary easing. Japan having been in the clutches of deflation and a strong currency during that time will attempt to fund government deficits by printing money. It will be the proverbial helicopter money drop. If this gambit does not work, it will solidify the notion that the remedy to deflation is more elusive than ever thought and that it is far more dangerous than inflation. At least we discovered decades ago how to cure inflation.

Our individual holdings continue to perform well despite these market and economic uncertainties. In June of this year, the buyout and merger of Sandisk, one of our largest holdings, was completed. It was a part cash and part stock buyout. Consequently, you will be seeing some substantial capital gains and the related taxes at tax time next year. There are many opportunities in which to re-invest the proceeds. We are constantly sniffing around and typically do not move hastily. Stay tuned for future updates.

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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