Market Insights – June 15, 2012
Brad Hamilton (Judge Reinhold): Why don’t you get a job, Spicoli?
Jeff Spicoli (Sean Penn): What for?
Brad Hamilton: Because you need the money.
Jeff Spicoli: All I need are some tasty waves, a cool buzz, and I’m fine.
(From the movie: Fast Times at Ridgemont High, 1982)
Dear Clients and Friends,
I am pretty sure that you and I have grown weary of hearing about the seemingly endless fiscal trouble of the Euro Zone and their stubbornly piecemealed approach to the problems. I live in Colorado and unlike Jeff Spicoli; I can’t find many “tasty waves” here in the Mile High state to help me “feel fine”. Jack Albin who is the Chief Investment Officer at Harris Trust evidently feels the same way when he says, “The markets are tired of this and there is only so much plaster you can put on a crumbling wall.” While I promise not to dwell on the obvious headlines for more than a paragraph, I think Tom Graff of Brown Advisory Group is right when he says that there is the only solution to the problem and everything else is noise. Graff says,”Good public policies are nurtured by engineering confidence and the key point here is confidence. In order for the EU to solve its debt crisis, it must figure out a way to restore confidence. The first step in restoring confidence is to consider why the market lost confidence in the first place. In the case of the EU, it was the realization that once a given country loses access to the bond markets, it loses its ability to fund itself.” In the US and other countries, this function is performed by the FED and other central banks. Europe’s counterpart, the ECB (European Central Bank) has up until now, been explicit that this is not their role. Graff goes on to say that, “Once the market realizes that there is no backup option for a nation to get funding, a bank run mentality sets in (not unlike the fall of 2008 here in the United States). The prevailing thought becomes something like ‘maybe everything will be o.k. but I don’t want to be the last one out.’ In other words, a lack of confidence begets even less confidence.” For Europe to begin the task of rebuilding global confidence, there must be an agreement establishing an EU-wide fiscal and banking union that will guarantee to a certain level, bank deposits in all of the banks of the EU (similar to FDIC in the U.S.). This is the only way to restore the faith in a badly fractured European Union. Without this type of an agreement and subsequent guarantee, the costs of ongoing “bailouts” will become prohibitive and the EU will come apart. As we look for headlines going forward, it is not the Greek elections that matter, but rather the headline hoped for above.
There, as promised, only one paragraph on the problems from “old” country. Summer is upon us and watching the Colorado Rockies pitch themselves to the bottom of the National League West has become too painful to take so I figured…..why not instead chill at the beach, on the porch or the patio with these fun facts:
- From 2001 to 2011, the number of companies listed on our domestic stock exchanges has decreased by 2,863. Fewer companies want the hassle of being public.
- Number of Americans seeking to renounce their citizenship in 2011 – 1,712 (More than twice the rate of 2009).
- Number of Americans who have expatriated in the 1st quarter of 2012 – 465.
- Cost to become a citizen of St. Kitts and Nevis — $250,000.
- Number of U.S. citizens who have disclosed offshore accounts under the IRS amnesty program since 2009 – 33,000.
- Percent of all wealth in the U.S. that is controlled by people age 42 and over – 90%
- Average cost of a wedding in the U.S. — $25,631.
- Total advertising revenue generated by all U.S. newspapers in 2011 — $23.9 billion.
- Total advertising revenue generated by Google in 2011 — $34.6 billion.
- Percent of Americans who say they “certainly cannot get their hands on $2,000 in 30 days” – 26%
- Cost of an overnight’s stay on this year’s New Year’s Eve at the Four Seasons in Paris, France — $1,250.
- Cost of an overnight’s stay on this year’s New Year’s Eve at a 5-star hotel in Bangkok, Thailand — $254. / In Las Vegas — $375.
- Cost per BTU for natural gas in Europe — $9. / In the U.S. — $2 per BTU.
- Net worth of the wealthiest member of Congress, Rep. Michael McCaul (R-Texas) — $294.2 million.
- Estimated inflation adjusted net worth of George Washington today — $525 million.
- Age in years of the average car on the road in America today – 10.8.
- Percentage by which the population of Japan will shrink by 2060 – 32%
- Average domestic airline fare in the fourth quarter of 2011 — $368.
- The average number of days that mortgage loans from $250,000 to $1 million were in default before banks repossessed the homes – 703.
- Number of American homes with a “for sale” sign in April 2012 – 2.5 million (lowest since 2006).
- Number of newly constructed American homes for sale in April 2012 – 46,000 (lowest number since the Census Bureau began keeping track since 1973).
- Average interest rate nationwide on a 30 year fixed rate mortgage on 5-31-2012 – 3.75%
- Average interest rate nationwide on a 30 year fixed rate mortgage from January 1978 thru September 1991 – 9.2%
- Monthly payment (P&I) on $100,000 at 9% — $805.
- Monthly payment (P&I) on $100,000 at 3.75% — $463.
- Fed funds target rate today – 0.00 to 0.25% / In January 1981 – 19% to 20%
- Percentage of corporate profit growth from December 2008 to the present – 125% / Over the last 20 years – 380%
- Percentage of investor portfolios in cash today and earning a 0.125% return – 5.9% (the highest level since January 2009 when the DJIA hit a generational low of 6,465).
- Percentage of market capitalization represented by cash — of the top 25 companies in the S&P 500 – 49.7% ($4.3 trillion earning a 0% rate of return).
- Chances of an Obama victory in November as of last week (from realclearpolitics.com) – 53.2% / Chances of an Obama victory in November as of 2 months ago – 62.8%
Sources: CNBC, Fortune, Wealth Advisor, RMEB, Los Angeles Times, Doug Kass, Tabb Group, Harvard Law School, U.S. Treasury, U.S. Census Bureau, Forum on Corporate Governance, Pew Research Group, Newspaper Association of America, The Wedding report, Google, National Bureau of Economic Research, Roll Call, The Wall Street Journal, Ministry of Health/Labor/Welfare of Tokyo, Bloomberg, Lender Processing Services, U.S. Bureau of Transportation Statistics, St. Kitts and Nevis Citizenship Unit
Ken Beach, President of Cascade Investment Group, member FINRA & SIPC. Cascade Investment Group is not a tax or legal advisor. You should always consult with your tax advisor or attorney before taking any actions that may have tax consequences.