Stimulus²

1. In December, we opined that equities markets were overvalued and suggested that the slow pace of global
growth and struggling energy industries would cause a market sell-off and potentially push the U.S. into a
recession.
After dropping 10.5% by February, the S&P 500 recovered these losses by mid-March with many of the
most beaten down Sectors: Energy and Commodity stocks leading the way. Currently, we believe that
recessionary concerns have abated and offer the following regarding future market directions and
opportunities for investors. Why the change?
We underestimated the lengths that Central Banks, including our own, would go to prop up their
country’s economies and the massive amounts of stimulus they stood willing to inject:
U.S. Fed Reserve Board:
Announced that negative Interest Rates for the U.S. “are not off the table”
Signaled on Mar. 29 that interest rate hikes in 2016 are to be considered cautiously
Note: Denmark, Sweden, Switzerland and Japan have negative interest rates
The European Central Bank:
Reduced the rate on overnight bank deposits to minus 0.4 percent
Increased monthly bond purchases from $60 to $80 billion Euros
Will provide long-term loans to banks beginning in June
May pay banks to borrow money in the future
Peoples Bank of China:
China’s central bank injected CNY 100 billion ($15.2 bil.) in reverse repos on Feb. 2
Market observers question whether these actions have:
a. Saved the world from recession and put the economy on course for economic growth?
b. Distorted the course of natural market activity for a more dramatic future reckoning?
c. Put us on course for stagflation, low returns and high volatility?
Nevertheless, despite central bank interventions, Economic Data remains mixed and markets appear to be
in a general malaise.
The Good
Oil rebounded from $30 per barrel in January to $39 in March driven by: a) An implied agreement
amongst OPEC and non-OPEC producers to limit production; b) Significant decline in domestic Drilling
Rigs leading to expected future declines in U.S. production growth
Emerging Markets rebounded and have outperformed Developed Markets (+2.3% vs. -1.3% using MSCI
indices)
U.S. employment growth remains steady with the three-month average of non-farm payroll growth
through February at 238K and 242K over the past 24 months

2. Q4 2015 GDP revised from .7% to 1.4% with the consumption component rising 2.4% to offset a
negative manufacturing read (Assuming 1.4% Growth is considered positive)
The US Dollar weakened against the Euro, Yen and Renminbi, thereby decreasing the cost for U.S.
exported goods and services
The Bad
Durable goods fell 2.8% in February, the 3rd
decline in four months
Profits of U.S. Companies fell 7.8% in Q4 2015 and 11.5% overall in 2015. However this included a $21
Billion settlement of the Gulf oil spill and the impact of energy sector declines
Shipping volume growth as forecasted by Maersk Lines will grow 0% - 1% in 2016
Recent reports indicate that Subprime car loans have fueled a portion of the auto recovery and
delinquencies are at extremely high rates
Some forecasts suggest that 50% of U.S. Oil Exploration Companies will file for bankruptcy
The Dilemma
Raising U.S. interest rates could upset a fragile recovery by strengthening the dollar and causing outflows
of capital form Europe, China and Emerging markets, pushing them into recession.
Thus, investors should expect periods of volatility followed by range bound trading and should utilize
swings to selectively: (i) acquire stocks that have overshot on the downside, and (ii) sell into rallies on the
upside.
The preceding represents the views and opinions of The Stanley-Laman Group, Ltd., a Registered
Investment Advisor, and is not intended to be investment advice suitable for all investment
objectives. Investment strategies involve the risk of loss of principal. Investors are advised to consult
with qualified investment professionals relative to their individual circumstance and objectives.