HOUSE OVERSIGHT 014526 high yield problems, and U.S. consumers who might never spend their savings at the pump. All these worries hit at once in January and February, prompting the S&P 500 to fall over 10% from its 2015 closing level of 2043. The year, at that point, appeared bleak. Our view was to maintain a balanced and diversified position throughout the downturn, particularly for the long haul, due to our belief that the major concerns, although understandable, were simply not going to fully develop and asset prices would begin to track fundamentals more effectively through the remainder of the year. The potential for risk assets to climb higher was there but a catalyst was needed. For our full view on the year ahead, please read our December 2016 Monthly Letter. Exhibit 1: Mid-Cycle Slowdown Ended In Early 2016, When Oil and Dollar Stabilized) 120 Spot 01 Price: West Texas Incernwdlate _.(6-Alowth Moving erage. Left Scale! e 60— . 40 _____ Rea Broad Trade-Weighted Eachawr Value of theuss 20 46-14ontre Moving Average Right SCale Illy0eSiouidown ..................................................................103 06 07 08 09 10 11 12 13 14 15 16 Source: EINCME; FRB/Haver Anatytics. Data as of December 5, 2016. 96 92 88 84 Past performance is no guarantee offuture results. Our core belief was centered on healthy consumers who would indeed pick up their spending from savings at the pump and become more confident as job growth continued and real incomes increased. We also believed U.S. financial conditions and the economic backdrop would improve in the second half of the year as the pressure from the strong dollar subsided and the deflationary effects of the collapse in oil prices began to fade. In other words, we were witnessing evidence that the mid-cycle slowdown that had hurt economic growth and corporate earnings was ending. [See Exhibit 1] Based on this core belief, the "grind it out" year for risk assets would be back on