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Quarterly Investment Review Letter 2015 Q3

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Chinese manufacturing’s Purchasing Mangers’ Index (PMI) activity fell to its lowest in more than six years in the latest sign of the slowdown in the world's second largest economy, according to a survey released Wednesday, September 23.

Prospects for growth in China are clearly deteriorating more than economists had expected, thus unsettling global financial markets. Uncertainty about the extent of China's slowdown has been on the radar of investors, particularly after the US Federal Reserve mentioned China as one of its reasons for not raising interest rates in their mid-Sept statement by Fed Chair Yellen.

The U.S. economy is expected to grow in a narrow range between 2.4% and 2.6% between 2015 and 2017. Growth will be led by domestic sectors, bolstered by robust job growth, rising wages, and low energy prices. This is set against a weak global backdrop, especially within emerging markets, and a rising dollar that will keep pressure on the nation’s exporters. TD Economics, September 21, 2015

At US$45 per barrel in August, the price of West Texas Intermediate is 54% lower than it was one year ago. Poor economic results in China, the world’s second largest oil consumer, fuelled expectations of a global contraction in oil demand. In addition, the global supply continues to be in a surplus, which also puts downward pressure on the price of black gold. The supply issues are such that Shell abandoned its Arctic search "for the foreseeable future" after spending about US$7 billion exploring the Chukchi and Beaufort seas.

All these projections merely mask the significant and, in some cases, widening divergences among the world’s major economies. Emerging economies too, such as Russia and Brazil, find themselves at present in recession with at best uncertain prospects for recovery.

While most of the Federal Open Market Committee (FOMC) members expect to raise interest rates before the end of this year, global developments have increased the risks to the US outlook for growth and inflation in the near term. Time now to chat.

Returns for MHI Fund: 5yrs 8.59%; 3yrs 10.93%;  Yr to date -.97%; Inception 8.78% (Jan 2001).

Current and ongoing research suggests opportunities are present to discuss the US Monthly High Income (US MHI) Value fund. Returns for US MHI are:  1yr 4.93%; Yr to date 1.78%; Inception 7.8% (Dec 2013).

We welcome your conversation.