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2017-Q1 Quarterly Update

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Dear Mr. and Mrs. Smith,

Here we are in April and the nation is emerging from a period of partisan arguments, disappointing choices, anguish over the results and a promise that it will be different next time. And all that over a basketball tournament!

Somehow, it seems that our national events fit into the same context. The election of Donald Trump was like a Cinderella team winning its conference championship to go to the "big dance." Soon thereafter, all the alums started claiming that this team would be as good as the last great team of the 80's and lead us to greatness. A groundswell of anticipation started to build, and pre-game ticket sales (the stock market) rose tremendously. The coach laid out a vague strategy and tried to get the players aligned with his game plan while the cheerleaders urged the crowd into a fever pitch and ticket sales (the stock market) rose more. As the first round (inauguration) neared, the ticket sales were still strong. The first game started with a full court press to shut down the other team's star (Obamacare) but the players were a little rusty from their long (8 year) layoff from planing hard. Soon some were asking for substitutes (Ryan's plan) while others thought they should play more aggressively (repeal). The first half wound down with the coach yelling at the officials (executive orders) to attempt to motivate his team and ended with the players looking winded with some doubts if they have the stamina for the rest of the game (tax reform and deregulation).

But, remember, this is just halftime of the first game. Tournaments are not won in one game, but they can be lost. Your tickets still have value, but the type of game you see from here forward is less obvious. The stock market looks highly valued by any fundmental metric at this point. Earnings remain the basis for stock market performance, which we see increasing on a global basis. Political programs can help or hinder earning's effect on stock prices and remain the source of undertainty in this market. This quarter, the S&P 500 index rose about 5.5% to close at 2362.72, while the 30-year US Treasury yileds went from 2.41% to 2.39% on March 31. This movement in bond yields supports our Preferred Income Product (PIP) as we continue to have higher than 6% annualized income with relatively steady value in the underlying securities. We continue to believe that stocks stay higher longer and interest rates stay lower longer than in previous credit cycles. How high and how long they remain will be influenced by both earnings and the political agenda. Right now, the ball is in their court.

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