Glen Ellyn Wealth Advisors



FORD WEALTH MANAGEMENT LLC

Integrity•Independence•Insight

536 Pennsylvania Avenue

Glen Ellyn, IL 60137

630.545.2800



Erik G. Ford, CRPC®, AIF®, CFP®

Principal Partner

erik.ford@

July 8, 2016

“The first difficulty which meets us in the attempt to apply experimental methods for ascertaining the laws of social phenomena, is that we are without the means of making artificial experiments…..We can only watch those which nature produces, or which are produced for other reasons.” John Stuart Mill in A System of Logic.

Fellow Investors,

All in all, the quarter ended June 30 was rather mundane. We did have the excitement of the Brexit vote in the last week, which settled out quickly, but promises more to come. The S&P 500 ended 1.9% higher for the quarter and up 2.6% from the beginning of the year. Market volatility, as measured by the VIX index finished at the low end of its long term range. However, that doesn’t mean the quarter did not provide us with moments of doubt and concern. Risk avoidance continues to be a theme, putting additional pressure on interest rates. The number of bonds yielding negative rates continued to increase and the 10 year US treasury yield in approaching 1.00% (1.4% as of this writing). Central banks are a big part of this as they gobble up bonds in order to push cash out into the system, but that cash is not having the effect they would like.

The concerns we have for our investment future is the continued trip into unchartered territory. What makes this unchartered are many of the themes we have discussed in previous letters. Uncharted does not mean a lack of opportunity, but does require care and patience. What we see is a basically sound US economy, described by David Kelly, chief global strategist for JPMorgan Asset Management, as a “healthy tortoise”. Things have been frustratingly slow and the question becomes what is behind this and what can be done, or should anything be done?

We have explored the theme of an economy in transition before, but it is worth revisiting. A lot of ink and discussion is spent on the employment rate, labor participation and incomes. There is clearly a demographic component to this as the population ages, but also as industries and required job skills change rapidly, some workers are left behind.

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July 8, 2016

Further, the productivity wave that swept through the economy with the computer revolution has naturally slowed down. Perhaps the error in prediction was assuming the productivity gains would continue at the same rate forever, a common error in data analysis. We also offer the proposition that some of these productivity gains may have worked against income gains as human productivity was replaced with lower cost technology and some jobs simply disappeared. There are additional factors at play, but we try to leave politics out of our letters.

With a slower level of growth and a transition into an unknowable future, the market tends to react abruptly to new information, whether fact or speculation. We saw this most recently with the Brexit vote. We had a sharp run up the day before as speculation ran toward a “No” vote on British exit. As the “Yes” vote became clear, we had two days of very sharp declines and then recovery. A typical roller-coaster ride where after a lot of screaming and perhaps some nausea, we end right back where we started. These events will repeat and we must be prepared for them and more importantly not over-react.

As stated, the economy is sound, although plodding. Our banking system is in very good shape, employment levels are good, although not everyone may be employed up to their potential, and there is ample capital available to pursue opportunities. What is not happening is the economy meeting its potential due to risk aversion. Uncertainty leads to risk aversion. Central banks have run out of tools. They have not experienced the reaction they had hoped for to the massive amount of liquidity injected and record low interest rates they have orchestrated. Oil prices seem to have stabilized near $50/bbl, which will help, but we are still facing global terrorism, cyber-warfare, trade disputes, a raucous political season and the actual mechanics of Britain leaving the EU, among others. These are all survivable and we have thrived through much worse, but it is the unknown that keeps us in check. When expected returns are lower, as they are now, the potential impact of events is proportionally greater, leading to greater hesitation.

We do see returns below long-term levels for the near future, a result of many of the factors cited above. We also expect to see the periodic bouts of volatility reappear. However, much as the productivity boom fostered by the jump in technology really caught the markets by surprise in the ‘90s and ‘00s, we will see other developments come along. Whether in healthcare, another advance in technology, energy, agriculture or a field yet defined, growth opportunities will surface.

The frustration for investors is that we are trying to reach long term goals or ongoing income needs, as the case may be, in an environment that does not provide either. The natural tendency is to exhibit caution as the perceived margin for error is smaller. We cannot emphasize enough our long-standing view that investors need to look beyond the immediate noise. There will always be noise and surprises and markets will always react and have historically recovered. Prediction is less than reliable as we learn time and

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July 8, 2016

again. Some say that economists use decimals in their forecasts to show that they have a sense of humor. The truth is we cannot know the future and we do have to rely on the past to some extent to have the confidence to invest for the future. We believe that confidence will ultimately be rewarded.

Sincerely,

Erik G. Ford

The Standard and Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

VIX is a trademarked symbol for the CBOE Volatility Index, a popular measure of the implied volatility of S&P 500 index options; the VIX is calculated by the Chicago Board Options Exchange (CBOE). Often referred to as the fear index or the fear gauge, the VIX represents one measure of the market's expectation of stock market volatility over the next 30-day period.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine

which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

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