Dear fellow investors,

As we have been holding calls with prospective and current investors of our firm, we have been arguing that the stock market is underwhelming the success of the economy. The lift off in economic activity could be far more troubling to stock market investors than their giddiness merits. The song that continues to come to my mind is David Bowie’s “Space Oddity” as we believe that today, unlike the past 10 years, is an economic oddity.

Ground Control to Major Tom Ground Control to Major Tom Take your protein pills and put your helmet on Ground Control to Major Tom (ten, nine, eight, seven, six) Commencing countdown, engines on (five, four, three) Check ignition and may God's love be with you (two, one, liftoff)

In 2007, the household debt service ratio struck the highest level recorded by the US Federal Reserve, since they began tracking this data in 1980. Americans had never had such a large percentage of their gross income going to debt payments of any form. Further, personal savings rates when I entered the investment business (2006) were negative. We were borrowing more than we made. Luckily, the drastic psychological and interest changes since then caused us to move to the opposite end of the room. Below is the household debt service ratio since 1980:

Like Bowie sings, we’ve taken our “protein pill and put your [our] helmet on.” We did what was necessary in US households to free our income from debt, but at these levels our ability to borrow for purchases like homes, cars, home improvement and home goods is legendary! The strong economy of the mid-1980’s and the 1990’s were set up by other low points in the household debt service ratio. However, those numbers make the current depressed level of borrowing relative to income look like a dream.

This is Ground Control to Major Tom You've really made the grade And the papers want to know whose shirts you wear Now it's time to leave the capsule if you dare "This is Major Tom to Ground Control I'm stepping through the door And I'm floating in a most peculiar way And the stars look very different today For here Am I sitting in a tin can Far above the world Planet Earth is blue And there's nothing I can do

American households have “made the grade” more than at any point over the last 40 years. As investors can see from the US housing starts chart below, we are at a different point in this economy than we’ve been for a long time.

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