Quarterly Letter

Putting aside the constant negative drumbeat of turmoil in Washington, which seems to be overshadowing the multitude of good, solid economic news, we believe there will continue to be significant positive factors for investors.

American factories are humming, many at full capacity, with employment at historic highs, including Hispanic and African Americans at all-time highs in employment. Jobless claims are at a 49-year low. Corporate profits and the stock market are at all- time highs. American home equity is now over $6 trillion dollars, and consumer and business confidence near all-time highs. A vast number of regulations, which have crippled or discouraged many business plans, have been eliminated to lift these burdens and encourage new businesses. The current Administration’s cutting of corporate and individual taxes has created a vast number of new jobs, business spending, and increased take home pay for millions of Americans.

The American economy should be able to continue tolerating global trade and tariff related uncertainties as long as both consumer and business confidence remains so highly positive, as it is currently. We do anticipate that long benign inflation will begin to move higher in the face of higher wage levels along with increases in rates by the federal reserve. It now appears that the Administration’s intentions with respect to tariffs is progress on policy and not protectionism.

As far as the upcoming midterm elections, key issues of concern are immigration, tariffs, and cultural issues. Hopefully voters will appreciate jobs and the booming economy. Typically, the midterm elections do not significantly influence the financial markets, as they tend to do with presidential elections.

Turning to the tariff and global trade status, as of October 1st, the U.S. and Canada have reached agreement on a trade deal. Along with deals that have been successfully closed with the European Union, Mexico, Japan, and South Korea, the only remaining nation to make a trade deal is China. The United States, along with the European Union and Japan is applying pressure on China to come to the table and abandon some of their well-known unfair trade practices along with their questionable practices of stealing tech innovation from those who do business with them. China is currently having an economic slowdown. Their stock market is down 25% this year and many Chinese banks have had to be bailed out by the government. Chinese companies and people are overleveraged. China loans money to third world countries to build infrastructure and these countries eventually relinquish ownership of these projects when they have no way to pay China back. Perhaps this is part of the Chinese government’s plan to be the dominant global economy by 2025. However, our bargaining power with a weaker China is significant and we anticipate that China will eventually come around and agree on a fair-trade deal that will help them and other nations restore an equitable trade balance.

As we discussed in our last quarterly letter, we have been very active in two huge global addressable markets, water and diabetes, and have made several investments in these two areas. Very few investment sectors have the obvious visible current need and future growth as water and diabetes.

Given the recent robust economy, full employment, and favorable international trade deals, we are positive on the stock market for the balance of 2018.

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