tfj: wealth decline nearly reaches 40 percent since 2007
TRANSCRIPT
WEEK ENDED JUNE 15 2012
Thoughts
from Joe
Steppin’ Out
Wealth decline nearly reaches 40 percent since 2007
The median net worth of families dropped from $126,400 in 2007 to $77,300 in 2010, or about the level
last seen in 1992.
You might think this is driven primarily by the drop in home prices, however they were only down 42
percent during the period, implying investments and other assets declined by approximately the same
ratio.
The fact is, the U.S. – and indeed, the world – has experienced a tremendous setback in terms of
economic well-being. And this cuts across all measures, including activity, joblessness, and even the
desire to participate in the economy.
Yet high expectations are built for seemingly every summit, every central bank action, every legislative
endeavor, and at times even every leader’s speech that a simple solution is right around the corner.
It’s not.
The excesses of the last decade or so have been reversed harshly. Getting beyond yesterday’s problems
mostly by writing off bad debts is the first step toward sustainable growth. But instead, debt burdens
are shifted from the private sector to the public, and back again.
I will look for global economic growth to gain solid footing once the pain of past follies has been fully
felt.
Top Eight
1. Germany’s Merkel signals the break-up of the eurozone. Well, ok, that’s my interpretation, but
when she states “we must be able to realistically size up our powers,” my skepticism can only
increase.
2. Credit Agricole making plans to exit Greece if the country leaves the eurozone. Sunday’s
Greek elections are shaping up to be a trigger for a possible exit from the union. The financial
system is built on confidence. Once confidence fades, the system quickly collapses. Europe’s
goal is to ring-fence Greece as much as possible and slow any contagion to other countries.
Credit Agricole’s actions speak to their confidence in Greece remaining in the eurozone and the
next item speaks to a much more important constituent’s confidence regarding the entire euro
experiment.
3. The Bank of England readies a flood of cash should the eurozone break. The new lending
programs will be offered in coming weeks to help insulate UK-based bank funding from regional
turmoil. Further evidence of confidence in the eurozone slipping more aggressively.
4. The U.S. still looks like the best place to invest. Foreign direct investment into the United
States has grown significantly over the decade with recent flows likely driven by turmoil in
other lands. The tenets of education, rule of law, and free flow of capital along with the
dollar as the world’s reserve currency are driving growth in the U.S.
5. The U.S. consumer continues its coffee break. Retail sales declined for the second straight
month after a fairly strong first quarter likely driven by better weather. In all the economic
analysis covering the U.S., never forget that our economy is 70 percent consumption. Any small
change in this activity reverberates loudly here and around the world.
6. Spain got its bailout, but Moody’s and the markets express concerns. Moody’s downgraded
the country three notches to Baa3 noting the country’s “very limited financial market access.”
Also, just after its bailout investors fled Spanish debt driving 10-year bond yields up 69 basis
points to 6.88 percent, their highest level since last November. It certainly feels like opinion is
shifting toward an eventual breakup of the currency union.
7. Jamie Dimon went to Washington to discuss a write-down of 0.1 percent of the company’s
total assets. The fact JP Morgan’s CEO was called to the carpet in Washington over such a
tiny intra-quarter loss that: 1) put zero taxpayer dollars at risk, and 2) won’t even drive
overall profitably for the quarter negative, helps confirm any suspicions of the movement to
turn the banks into government-driven utilities.
8. Inflation is nowhere to be found. Prices at both the producer and consumer level turned
downward in May as energy prices are dropping. Over the last twelve months, the cost of living
is up just 1.7 percent. Lower inflation measures will allow the Fed to consider more stimulus in
the form of asset purchases or QE3 to promote growth without risking price pressures.
Key Indices
Return
6/15/2012 1 week YTD Treasury 6/15/2012 6/8/2012 Change
Dow
12,767 1.7% 4.5% 30yr 2.69% 2.74% -0.05%
S&P 500
1,343 1.3% 6.8% 10yr 1.58% 1.63% -0.05%
Nasdaq
2,873 0.5% 10.3% 5yr 0.67% 0.71% -0.04%
Euro Stoxx
2,181 1.7% 5.8% 2yr 0.28% 0.27% 0.01%
Nikkei
8,569 1.3% 1.4% 1yr 0.17% 0.17% 0.00%
Hang Seng
19,234 4.0% 4.3% 3mo 0.09% 0.08% 0.01%
Source: Bloomberg
Looking Ahead
• The markets expect some further monetary policy easing at next week’s FOMC meeting
ending Wednesday, however Bernanke’s recent public statements have not been encouraging
of this action. My guess is if we don’t get it next week, it will come in the next f
• Economic data will be in the background of the Fed next week and focused primarily on the
housing market.
• Earnings announcements next week include:
o Tuesday: Jabil Circuit, Adobe Systems
o Wednesday: Micron Technology, Red Hat
• The IPO market will essentially remain closed next week in continuation of the overhang since
Facebook came out one month ago.
JOE MORGAN, CFA Chief Investment Officer SVB Asset Management 555 Mission St., Suite 900 San Francisco, California 94105 PHONE 415.764.3149 [email protected] svb.com Profile
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obligations of Silicon Valley Bank, and may lose value. This material, including without limitation to the statistical
information herein, is provided for informational purposes only. The material is ba
third-party sources that we believe to be reliable, but which have not been independently verified by us and for
this reason we do not represent that the information is accurate or complete. The information should not be
viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decision.
You should obtain relevant and specific professional advice before making any investment decision. Nothing
relating to the material should be construed as
investment or to engage in any other transaction.reliable, but we cannot guarantee their accuracy or
The markets expect some further monetary policy easing at next week’s FOMC meeting
however Bernanke’s recent public statements have not been encouraging
of this action. My guess is if we don’t get it next week, it will come in the next f
Economic data will be in the background of the Fed next week and focused primarily on the
Earnings announcements next week include:
Tuesday: Jabil Circuit, Adobe Systems
Wednesday: Micron Technology, Red Hat
essentially remain closed next week in continuation of the overhang since
Facebook came out one month ago.
and Twitter
SVB Financial Group. All rights reserved. Silicon Valley Bank is a member of FDIC and Federal Reserve
Find a way, SVB Financial Group, and Silicon Valley Bank are registered trademarks. SVB Asset
Management, a registered investment advisor, is a non-bank affiliate of Silicon Valley Bank and member of SVB
Financial Group. Products offered by SVB Asset Management are not FDIC insured, are not deposits or other
obligations of Silicon Valley Bank, and may lose value. This material, including without limitation to the statistical
information herein, is provided for informational purposes only. The material is based in part on information from
party sources that we believe to be reliable, but which have not been independently verified by us and for
this reason we do not represent that the information is accurate or complete. The information should not be
wed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decision.
You should obtain relevant and specific professional advice before making any investment decision. Nothing
construed as a solicitation, offer or recommendation to acquire or dispose of any
investment or to engage in any other transaction. The rates and yields have been obtained from sources we believe to be
reliable, but we cannot guarantee their accuracy or completeness.
The markets expect some further monetary policy easing at next week’s FOMC meeting
however Bernanke’s recent public statements have not been encouraging
of this action. My guess is if we don’t get it next week, it will come in the next few months.
Economic data will be in the background of the Fed next week and focused primarily on the
essentially remain closed next week in continuation of the overhang since
SVB Financial Group. All rights reserved. Silicon Valley Bank is a member of FDIC and Federal Reserve
Find a way, SVB Financial Group, and Silicon Valley Bank are registered trademarks. SVB Asset
bank affiliate of Silicon Valley Bank and member of SVB
ement are not FDIC insured, are not deposits or other
obligations of Silicon Valley Bank, and may lose value. This material, including without limitation to the statistical
sed in part on information from
party sources that we believe to be reliable, but which have not been independently verified by us and for
this reason we do not represent that the information is accurate or complete. The information should not be
wed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decision.
You should obtain relevant and specific professional advice before making any investment decision. Nothing
a solicitation, offer or recommendation to acquire or dispose of any
The rates and yields have been obtained from sources we believe to be