Investment Update - July 2017

While stock market indexes have made nominal new highs in recent weeks, many individual stocks are trading well below their highs for the year. Indexes are being propped up for now by the so-called "FANG" stocks - Facebook, Amazon, Netflix, and Google. In a broader sense, we are in the midst of a so-so earnings season, with emerging evidence of company insider selling, which began in mid-May.

All of this is unfolding in what is historically the weak season for stocks in general (May-October), and for tech stocks in particular (July-November). Taken together with an increasingly negative political backdrop, we see the path of least resistance for the coming months as sideways-to-negative for stocks and stock-based mutual funds.

On the fixed-income side, government bonds are recovering from last fall's sell-off. Our long-dated treasury fund (TLT) has provided a 7% total return, year-to-date. We believe the Federal Reserve and other global central banks are increasingly finding themselves painted into a corner with regard to monetary policy; that being, the economy is addicted to ZIRP (Zero Interest Rate Policies) and raising rates would increase our already growing deficits through the resulting higher interest payments on US debt.

Our gold positions have responded well to the political uncertainty, up over 8% year-to-date. We continue to believe gold is in a secular bull market, having experienced a significant correction from August of 2011 to December of 2015. We believe that correction for gold was completed in 2015 and view reasonable exposure to the precious metals space as an appropriate component of portfolio strategy in today's environment, especially as we enter what is historically Gold's strongest three months of the year (August-October). Underscoring this thesis on precious metals, we are seeing insiders beginning to add to positions in silver, which we are watching closely as well.

In summary, we see mid-term challenges as we await the enactment of health-care reform or tax reform in that we believe passage of these pieces of legislation have at least partially been accounted for in the post-election rally. In our opinion, a failure of tax reform would be particularly negative for equities. When added in with the expanding probe of the President and a challenging geopolitical front, we need to see some legislative break-through to give this market the energy it needs for the next leg up.

Gary W. Wood, CFP®
President, BDC Capital Management, Inc.

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BDC Capital Management, Inc. is an Independent Financial Advisory Firm.

**The information contained in this newsletter does not purport to be a complete description of the securities, markets, or developments referred to in this material.  The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Any opinions are those of BDC Capital Management, Inc.  Expressions of opinion are as of this date and are subject to change without notice.  BDC Capital Management may in the normal course of business have a position in any securities mentioned in this newsletter.  Any stock price mentioned is quoted as of the date of this newsletter.  This information is not intended as a solicitation or an offer to buy or sell any security referred to herein.  Investments mentioned may not be suitable for all investors.  Past performance may not be indicative of future results.  Keep in mind that individuals cannot invest directly in any index.  Gold is subject to the special risks associated with investing in precious metals, including but not limited to:  price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated.  There is no assurance that technical analysis or any strategy will ultimately be successful or protect against loss.

* The Dow Jones Industrial Average (DJIA) commonly known as "The Dow ", is an index representing 30 stocks of companies maintained and reviewed by the editors of the Wall Street Journal.

* The S&P 500 is an unmanaged index of 500 widely held stocks that's generally considered representative of the U.S. Stock Market.

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For I know the plans I have for you," declares the LORD, "plans to prosper you and not to harm you, plans to give you hope and a future.  Jeremiah 29:11 (NIV)