Third Quarter 2017 Economic & Capital Market Summary

We are nearing a crossroad that will likely define what our capital markets will look like over the next several years. The path we take as a country, as we approach this proverbial fork-in-the-road, is marked by three critical issues: the Federal Reserve’s stated intention to reduce its asset portfolio which it built as part of a monetary experiment following the Financial Crisis, the growing public and private debt levels, and the inability of Congress to pass meaningful legislation that helps sustainable economic growth. Our thesis is that we are not moving back to the way things were pre-Financial Crisis. In fact, we are in a new paradigm for investors, including a new central bank paradigm that impacts investment decisions and portfolio structure.

Ultimately, we believe that the large portfolio of securities resting of the Federal Reserve’s balance sheet are a permanent fixture and will prove difficult to reduce in a significant amount. Similarly, the large amount of debt, which is in essence subsidizing our quality of life and muting the effects of any economic deterioration, is also a permanent fixture waiting for the economy to grow into. At the root of the disorder is a government that has lost its sense of direction and unable to pass meaningful legislation that improves the quality of life for the middle class.

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