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Quarterly Investment Review Letter 2017 Q1

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Zombie Show Closing

From saving face, creating a fictitious front, falsifying forward progress, playing politics locally and globally … finally Chinese Zombie companies are being faded out.

Like a GDP Ponzi scheme the People’s Bank of China (PBOC) and China Communist Party (CCP) have played with money, lives and illusion for years by pretending all remains well on track until now.

The National People's Congress has been in session recently. In Canada, we call it Parliament and say, “The House is sitting”.

Instead of horns, the 2017 CCP congress has decided to grab the bull by the nose. In fulfilling this massive mandate, the PBOC intends to push these debt-ridden Zombie companies, those who no longer have a market for their production, into bankruptcy. Sound familiar? The familiar term in capitalism is layoffs. The reason is the same though – to manage burdensome debt. Yes, China too must pay the piper and count her beans. 

Not wanting to provoke a crisis, Beijing has funnelled some $62.5 billion into equity swaps. Layoffs are expected to hit 500,000 this year and more are expected ahead.

Uncertainty is now daily entertainment in China. The same can be said in the US circuit. The President's strategy seems to be to daily provide “enough bread and circuses” to “distract his supporters from the real direction his administration is possibly taking.” (E.Drew, The Straits Times, Dec 15, 2016.)

As Royal Bank of Scotland Chairman, Howard Davies, describes it, “financial regulation has entered a period of high uncertainty – and high anxiety for policymakers as they await an announcement from Mar-a-Lago.”

Regardless of US and Chinese economic issues one string remains steadfast in your portfolio.  This is the consistency of Monthly High Income (MHI) fund and the Strategic Dividend Bundle (SDB). They have delivered Value Style with unparalleled preservation of capital, consistent ROI – MHI 2.89%; and SDB 3.56% year-to-date – and all at only moderate risk to you the investor. (Figures provided by Globe and Mail Prostation as of close of day Apr 10, 2017)

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