Tis the Season?

Under normal circumstances the markets do well in November and December.  Since 2009, we have not seen normal economic circumstances, and we are playing catch up in uncharted waters.  Normally, in the wake of a recession we see three major strategies taken by Washington to reduce the recession's severity, but after the great recession, we saw just two of the three strategies implemented.  Washington increased spending and lowered interest rates; now, nine years later, we are seeing the results of the third strategy with tax cuts finally getting implemented.  The length of the recovery, and the significant increase in growth have the markets questioning the future.

Looking back, we believe the economy would have been greatly helped by a tax cut in 2009 and 2010, but it did not happen.  Instead, we got a tax increase and health care reform.  The Federal Reserve wanted to keep the economy growing, so they decided to institute an unprecedented  policy of quantitative easing (effectively causing negative real interest rates).  With this strategy, the Treasury printed more money, and Federal Reserve in turn bought Treasury and mortgage backed bonds to hold on their balance sheet.  What this strategy did for the Federal Reserve was keep the bond market rally going (keeping both short and long-term interest rates low), and it helped create anemic economic growth to keep us from falling into recession again.

Fast forwarding to December 2017, tax relief was finally passed, and the economy hit on all cylinders again.  Economic growth in the US finally returned to more normal rates of 3 to 4 percent annually.  In accordance with the economy's growth returning to more normal rates, the Federal Reserve felt the need to normalize interest rates and decided to broadcast its rate hikes (because clear and open guidance worked to keep the economy going over the last few years).  So, with all the good economic data, why aren't the markets on fire like the economy is? Is the Federal Reserve causing a stall in market growth?  We will look at some of the facts below.

The economy, and the markets, have had spurts of growth, but the economy only grew by 1 to 1.5% per year from 2010 to 2017.  Washington and market pundits alike declared this was the new normal, with some even venturing to state the economy would never grow at 4% again.  Washington and the Federal Reserve told us they were doing everything they could to foster growth in our economy, and growth was unlikely to achieve levels above 2%.  The Federal Reserve was truly committed to fostering growth, walking a high wire act trying to revive the economy with its quantitative easing without going too far. In doing so, their balance sheet went from approximately $700 billion in assets to more than $4.5 Trillion.  The debt the Federal Reserve was taking on was unsustainable.

With growth finally returning, the Federal Reserve decided now is the time to unwind its over-bloated balance sheet.  The task ahead of the the Federal Reserve is significant.  They are reducing their balance sheet $50 billion each month by selling bonds while they are raising short-term interest rates 0.25% each quarter.  Because there are no strong signs of inflation, the Federal Reserve's actions are causing uncertainty; historically, the Federal Reserve only raised rates to slow inflation.  With the Fed's new behavior, the markets are taking a pause, like they did in 2011 and again in 2015, to evaluate the expected economic impact of the Fed's actions. In 2011, the Federal Reserve announced its quantitative easing strategy, and the markets did not know how to take the news.  GDP was positive (barely), and companies were making money.  However, the markets had never seen quantitative easing and did not know what to expect, so the markets paused to evaluate. Then in 2015, as the Fed began winding down its easing programs (which the markets had grown accustomed to), the markets paused to evaluate the uncharted waters ahead. Today, we are again seeing the markets pause and evaluate.  The Federal Reserve tightening rates at the same time it is reducing its balance sheet is uncharted territory.

The President has been saying that the Fed is raising rates too fast, and they are stalling growth. What we believe he should be saying is that the Fed is tightening too fast.  Not just by raising rates, but also buy selling bonds in the open market (forcing market interest rates higher).  The Fed is actually tightening twice as fast as they are saying, and the markets are not buying this strategy.  So, just like in 2011 and 2015, the markets have decided to pause and evaluate.  So far, it appears that the markets believe rates are going up too quickly, and unnecessarily so without any evidence of inflation.

So what might the Fed to do?  We believe the Fed will raise rates in December, but then they will make an adjustment.  We think they will either pause raising rates or stop reducing their balance sheet until they see signs of true inflation.  Once this happens, we think the markets will reflect the current strong economic growth.  Until then, we think the economy and corporate earnings will continue their strong growth, but that markets may not keep up in the short-term.  There are signs that if the Fed does not slow its tightening, growth may subside, which is what the markets are currently reflecting.

We do not think the Fed wants to be a party pooper and ruin our current growth environment.  However,  if they do not slow their tightening that is exactly what they may do.

The good news is the holidays are finally here, and we think we will see record spending this holiday season because most American’s have more money in their pocket.  Hopefully the markets will appreciate this and show us a little holiday cheer before year's end.

Source: Pacific Global Investment Management Company

Chart reflects price changes, not total return.  Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

 


 

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Brian Amidei is Coachella Valley's only Barron's Magazine Top 1,000 Advisor in 2013 and 2014!

Brian Amidei, along with Partners Joseph Romano and Brett D'Orlando have also been named *2014, 2015, 2016, 2017 Five Star Wealth Managers!

Disclosures:

Awards and recognitions by unaffiliated rating services, companies, and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if Fortem is engaged, or continues to be engaged, to provide investment advisory services; nor should they be construed as a current or past endorsement of Fortem or its representatives by any of its clients. Rankings published by magazines and others are generally based on information prepared and/or submitted by the recognized advisor. Awards may not be indicative of one client?s experience or of the Firm?s future performance.  Neither Fortem nor the recognized advisor has paid a fee for inclusion on a list, nor purchased any additional material from the award provider. The criteria for each award is listed below:

Barron's Disclosure:

The Barron's award is is based on the recognized adviser's assets under management, contribution to the firm's revenues and profits, and quality of practice.  Investment performance is not an explicit criteria.  Additional information about this award is available at http://online.barrons.com/report/top-financial-advisors. 

Five Star Professional Disclosure:

The Five Star Wealth Manager award is based on 10 eligibility and evaluation criteria: 1) Credentialed as an investment advisory representative (IAR) or a registered investment advisor; 2) Actively employed as a credentialed professional in the financial services industry for a minimum of five years; 3) Favorable regulatory and complaint history review; 4) Fulfilled their firm review based on internal firm standards; 5) Accepting new clients; 6) One-year client retention rate; 7) Five-year client retention rate; 8) Non-institutionalized discretionary and/or non-discretionary client assets administered; 9) Number of client households served; and 10) Educational and professional designations. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine. The award methodology does not evaluate the quality of services provided.  Additional information about this award is available at: fivestarprofessional.com/2016FiveStarWealthManagerMethodology.pdf

Fortem Financial 2016. All rights reserved. 

Data Sources:  News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations.  Market Data: Based on reported data in WSJ Market Data Center (indexes); U.S. Treasury (Treasury Yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates).  All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. 

Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice.  The opinions expressed are solely those of the author, and do not represent those of Fortem Financial, LLC or any of its affiliates.  Past performance is no guarantee of future results.  All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.  Forward looking statements are based on current expectations and assumptions, the economy, and future conditions.  As such, forward-looking statements are subject to inherent uncertainty, risks, and changes in circumstance that are difficult to predict.  Actual results may differ materially from the anticipated outcomes.  Carefully consider investment objectives, risk factors and charges and expenses before investing.  Fortem Financial is a registered investment adviser with the SEC.  Advisory services are offered through Fortem Financial.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks.  The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy.  The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange.  The Russell 2000 is a market-cap weighed index composed of 2,000 U.S. small-cap common stocks.  The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide.  Market indices listed are unmanaged and are not available for direct investment.

A matter of perspective

When looking at the market, and its reaction to some of today's news stories, we're compelled to share some perspective.  There is so much talk about the length of the Bull Market and when the next recession will come that it appears some investors may not be able to see the forest for the trees.  

One of the TOP TRENDING STORIES today was, Retail disappointments, energy decline hit Wall Street. (1)   "Target Corp said on Tuesday that third-quarter profit missed estimates as investments in its online business, higher wages in a tight labor market and price cuts hurt margins and a big jump in inventories ahead of the critical holiday season worried investors.  Target shares tumbled as much as 15 percent as the retailer also reported that comparable sales missed expectations." (1)  

The selling pressure on Target suggests investors may be missing the bigger story here.  First, as was stated above, Target has been INVESTING HEAVILY IN ITS ONLINE BUSINESS,  and second, Target expects to have a good holiday shopping season, so they have INCREASED their inventory quite substantially.  In going through Target's numbers, we see that their 2018 3rd Quarter results are actually quite healthy.  Their year-over-year comparable store sales growth is +5.1%, and their adjusted earnings-per-share are +20% as compared to 3rd Quarter 2017.  

Interestingly, the results that Target achieved were very much in line with what its management had expected.  However, they fell short of consensus expectations.  With respect to the inventory build, Target increased its inventory +18% higher than it was in the 3rd Quarter of 2017.  Perhaps the +49% increase in their digital sales last quarter has Target preparing for a robust holiday shopping season.  Similar positive trends have been seen in other retailers like Walmart and Macy's.  

Despite the continued strength in the US economy and the healthy economic data that persists, many investors attention returns to the question of whether or not now is the beginning of the next bear market.  We continue to find little evidence to suggest the bull market is over.  The data indicates the US economy will continue its growth, and that despite the current volatility, equities continue to be attractive. 

1.  Reuters news - 11/20/2018 Caroline Valetkevitch

 


 

Brian Amidei is Coachella Valley's only Barron's Magazine Top 1,000 Advisor in 2013 and 2014!

Brian Amidei, along with Partners Joseph Romano and Brett D'Orlando have also been named *2014, 2015, 2016, 2017 Five Star Wealth Managers!

Disclosures:

Awards and recognitions by unaffiliated rating services, companies, and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if Fortem is engaged, or continues to be engaged, to provide investment advisory services; nor should they be construed as a current or past endorsement of Fortem or its representatives by any of its clients. Rankings published by magazines and others are generally based on information prepared and/or submitted by the recognized advisor. Awards may not be indicative of one client?s experience or of the Firm?s future performance.  Neither Fortem nor the recognized advisor has paid a fee for inclusion on a list, nor purchased any additional material from the award provider. The criteria for each award is listed below:

Barron's Disclosure:

The Barron's award is is based on the recognized adviser's assets under management, contribution to the firm's revenues and profits, and quality of practice.  Investment performance is not an explicit criteria.  Additional information about this award is available at http://online.barrons.com/report/top-financial-advisors. 

Five Star Professional Disclosure:

The Five Star Wealth Manager award is based on 10 eligibility and evaluation criteria: 1) Credentialed as an investment advisory representative (IAR) or a registered investment advisor; 2) Actively employed as a credentialed professional in the financial services industry for a minimum of five years; 3) Favorable regulatory and complaint history review; 4) Fulfilled their firm review based on internal firm standards; 5) Accepting new clients; 6) One-year client retention rate; 7) Five-year client retention rate; 8) Non-institutionalized discretionary and/or non-discretionary client assets administered; 9) Number of client households served; and 10) Educational and professional designations. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine. The award methodology does not evaluate the quality of services provided.  Additional information about this award is available at: fivestarprofessional.com/2016FiveStarWealthManagerMethodology.pdf

Fortem Financial 2016. All rights reserved. 

Data Sources:  News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations.  Market Data: Based on reported data in WSJ Market Data Center (indexes); U.S. Treasury (Treasury Yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates).  All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. 

Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice.  The opinions expressed are solely those of the author, and do not represent those of Fortem Financial, LLC or any of its affiliates.  Past performance is no guarantee of future results.  All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.  Forward looking statements are based on current expectations and assumptions, the economy, and future conditions.  As such, forward-looking statements are subject to inherent uncertainty, risks, and changes in circumstance that are difficult to predict.  Actual results may differ materially from the anticipated outcomes.  Carefully consider investment objectives, risk factors and charges and expenses before investing.  Fortem Financial is a registered investment adviser with the SEC.  Advisory services are offered through Fortem Financial.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks.  The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy.  The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange.  The Russell 2000 is a market-cap weighed index composed of 2,000 U.S. small-cap common stocks.  The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide.  Market indices listed are unmanaged and are not available for direct investment.

Markets are starting to reflect the pain of rising interest rates and trade uncertainty

Following a strong earnings season, several factors, including falling oil prices, Brexit, Italy’s controversial budget, tariffs and the Federal Reserve’s likely rate increase, continued to dampen investor sentiment.  All of the major indices fell for the week, the Russell 2000® declined 1.42%, followed by the S&P 500® Index (-1.61%), the Nasdaq (-2.15%), and the Dow Jones Industrial Average (-2.22%).  The decline in oil prices into bear market territory created additional concerns that the commodity might repeat its extended bear market which began in 2014 when the Iranian sanctions were lifted.  The factors behind this current bear market though, are considerably different. Saudi Arabia and Russia temporarily increased production to offset the early November restart of the embargo on Iranian oil; however, oversupply resulted when the U.S. extended the cutoff date for several major countries by six months.  Futures, options and seasonal refinery maintenance shutdowns each contributed to volatility in oil prices and the Energy sector.  In addition, some, but not all, analysts suggest that demand for oil may decline next year.  A steadying factor is the on-going, and diverse, demand for oil-based products in manufacturing, chemicals and automotive industries.

The Energy sector is only now in the early stages of recovery; investors are unnerved by the threat of another bear market.  Most production remains comfortably profitable at current oil prices; yet, the diminished prices may stress the governments which depend on oil production as a major revenue source.  Looking ahead, OPEC countries must factor the emergence of the U.S. as the world’s largest oil producer; at the December meeting, OPEC will likely decide to curb production to restore a supply/demand balance.  Stabilization in oil prices, as well a possible easing of trade tariffs and progress on Brexit, will be important influences on market sentiment heading into the final month of 2018.

The National association of home builders (NAHB) housing market index showed a sharp decline in Nov, dropping -8 points m/m to 60.  The decline was broad-based across regions. This matters because a broad-based housing decline is likely not weather-related, and more closely tied to rising interest rates & affordability. Even though rates are still historically low, there’s evidence increased U.S. borrowing costs are starting to bite. Bottom line, we continue to look for a Fed pause in the U.S. rate-hike cycle in 2019.

A long-awaited, but still preliminary, Brexit deal was unveiled this week; its future in the British parliament is uncertain, but the deal’s failure increases the likelihood of a hard Brexit.  Meanwhile, the U.S. and China are quietly negotiating tariffs; commentary from President Trump and other U.S. officials hint that the parties may agree at the G20 meeting later this month to a tariff cease fire.  Italy’s unwillingness to yield to European Union’s budget rules continues.  Here at home, the market expects the Federal Reserve to raise rates again in December, yet Fed Vice Chairman Clarida commented today that the timeline may be flexible as they assess economic data and analyze the impact of tariffs on global growth and the U.S. economy.

Very gradual monetary policy tightening (Interest rate tightening) against a backdrop of easier fiscal & regulatory policy has a chance of achieving the seldom-seen “soft landing” for the economy.  True, mixed government in the U.S. could continue to contribute to market volatility (political investigations set to go, a debt-ceiling fight, angst over eventual USMCA approval). Despite the 2018 blue wave, there is must-pass legislation that has to get done.

Any “soft landing” should be accompanied by the US$ peaking, in our opinion. That’s not happening yet, and may not happen until after the Dec Fed rate hike (depending on the language used around such a move).  But if there’s a 2019 Fed pause accompanied by stimulus abroad (including fiscal policy in China) & some removal of trade uncertainty, the ingredients are in place.

A U.S./China trade deal could be another factor. To be fair, there are long-standing issues between the U.S. and China (intellectual property, etc). But we believe President Trump wants a deal in the near-term (even if it is temporary).

A soft landing in the economy is not always accompanied by a soft landing in the stock market. Equities and corporate earnings are frequently more volatile.  But we do have a list of items to watch: oil, China and the Fed remain the key global macro factors driving markets currently. We continue to believe that the path forward for global risk assets likely is dependent on: 1) a Fed pause in 2019, 2) a U.S./China trade deal (even if short-term) & China stimulus, and 3) oil prices remaining stable.

Source: Pacific Global Investment Management Company

Chart reflects price changes, not total return.  Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.
 


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Brian Amidei is Coachella Valley's only Barron's Magazine Top 1,000 Advisor in 2013 and 2014!

Brian Amidei, along with Partners Joseph Romano and Brett D'Orlando have also been named *2014, 2015, 2016, 2017 Five Star Wealth Managers!

Disclosures:

Awards and recognitions by unaffiliated rating services, companies, and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if Fortem is engaged, or continues to be engaged, to provide investment advisory services; nor should they be construed as a current or past endorsement of Fortem or its representatives by any of its clients. Rankings published by magazines and others are generally based on information prepared and/or submitted by the recognized advisor. Awards may not be indicative of one client?s experience or of the Firm?s future performance.  Neither Fortem nor the recognized advisor has paid a fee for inclusion on a list, nor purchased any additional material from the award provider. The criteria for each award is listed below:

Barron's Disclosure:

The Barron's award is is based on the recognized adviser's assets under management, contribution to the firm's revenues and profits, and quality of practice.  Investment performance is not an explicit criteria.  Additional information about this award is available at http://online.barrons.com/report/top-financial-advisors. 

Five Star Professional Disclosure:

The Five Star Wealth Manager award is based on 10 eligibility and evaluation criteria: 1) Credentialed as an investment advisory representative (IAR) or a registered investment advisor; 2) Actively employed as a credentialed professional in the financial services industry for a minimum of five years; 3) Favorable regulatory and complaint history review; 4) Fulfilled their firm review based on internal firm standards; 5) Accepting new clients; 6) One-year client retention rate; 7) Five-year client retention rate; 8) Non-institutionalized discretionary and/or non-discretionary client assets administered; 9) Number of client households served; and 10) Educational and professional designations. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine. The award methodology does not evaluate the quality of services provided.  Additional information about this award is available at: fivestarprofessional.com/2016FiveStarWealthManagerMethodology.pdf

Fortem Financial 2016. All rights reserved. 

Data Sources:  News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations.  Market Data: Based on reported data in WSJ Market Data Center (indexes); U.S. Treasury (Treasury Yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates).  All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. 

Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice.  The opinions expressed are solely those of the author, and do not represent those of Fortem Financial, LLC or any of its affiliates.  Past performance is no guarantee of future results.  All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.  Forward looking statements are based on current expectations and assumptions, the economy, and future conditions.  As such, forward-looking statements are subject to inherent uncertainty, risks, and changes in circumstance that are difficult to predict.  Actual results may differ materially from the anticipated outcomes.  Carefully consider investment objectives, risk factors and charges and expenses before investing.  Fortem Financial is a registered investment adviser with the SEC.  Advisory services are offered through Fortem Financial.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks.  The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy.  The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange.  The Russell 2000 is a market-cap weighed index composed of 2,000 U.S. small-cap common stocks.  The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide.  Market indices listed are unmanaged and are not available for direct investment.

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Any rating referenced herein may not be representative of any one client's experience. Further, the Firm's receipt of any rating is not indicative of the Firm's future performance. The Charles E. Merrill Circle of Excellence award is granted by Merrill Lynch for outstanding client service and satisfaction. The award is granted based on annual criteria established by Merrill Lynch for its top decile advisors. The Barron's Top 1,200 Financial Advisors rating of the top financial advisors in the United States is based on data provided by participating firms. The following factors are included in the rankings: assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work. Investment performance is not an explicit component. The Five Star Professional award is granted by Five Star Professional and recognizes service professionals who provide quality services to their clients based on data provided by participating firms. The award is granted based on the following ten objective eligibility and evaluation criteria: credentialed as an investment advisory representative (IAR) or a registered investment advisor; actively employed as a credentialed professional in the financial services industry for a minimum of five years; favorable regulatory and complaint history review; fulfilled their firm review based on internal firm standards; accepting new clients; one-year client retention rate; five-year client retention rate; non-institutionalized discretionary and/or non-discretionary client assets administered; number of client households served; and educational and professional designations. Feedback from consumer surveys will augment a regulatory history review. Firms have the option to provide input on award candidates from their firm, regardless of the nomination source. The Palm Springs Life's "40 Under 40" Rising Young Professionals to Watch in the Coachella Valley is based upon nominations from the local business community and selected by the staff of Palm Springs Life.

For information pertaining to the registration status of Fortem Financial, please refer to the Investment Adviser Public Disclosure website, operated by the U.S. Securities and Exchange Commission, at www.adviserinfo.sec.gov., which contains the most recent versions of the Firm's Form ADV disclosure documents.

ACCESS TO THIS WEBSITE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND WITHOUT ANY WARRANTIES, EXPRESSED OR IMPLIED, REGARDING THE ACCURACY, COMPLETENESS, TIMELINESS, OR RESULTS OBTAINED FROM ANY INFORMATION POSTED ON THIS WEBSITE OR ANY THIRD PARTY WEBSITE REFERENCED HEREIN.