3rd Quarter 2006

Gregory A. Kummer

Security Bank & Trust Company is proud to announce that Greg Kummer, who was with our organization until January of 2002, has returned and is the new manager of the Trust Department.  During the last five years Greg has been the regional trust manager for Wells Fargo in St. Cloud .  Greg has over 16 years in the trust and investment management business.  He has provided wealth management services for clients in St. Cloud , Glencoe and Fargo , North Dakota .  Over the last 27 years, Security Bank & Trust has built their business on estate and financial planning.  Greg brings a similar in-depth knowledge of estate and financial planning to our organization.  He will provide the continuity and integrity of the department for decades to come. 

Gus Grell, who has been the head of the department since its inception in 1979, will continue on a full-time basis for the next couple of years.  This organizational change will allow him to focus his attention as senior portfolio manager.  He will continue to oversee the investment portfolios of the accounts as well as administer those account relationships he has built over the years.

The Economy

The economic outlook over the last three mont hs has improved dramatically.  Two catalysts to this optimism are the decline in oil prices and the Federal Reserve putting a halt to the consecutive interest rate increases that had occurred at their 17 previous meetings.  When we have been paying around $3 per gallon for gas, $2.20 per gallon seems like a bargain.  Don’t get too optimistic about the cheaper gas as a colder winter may be upon us and it is very easy for OPEC countries to reduce production, which could send the price back up as fast as it came down.

The Stock Market

After six years of roller coaster rides, the Dow Jones Ind ustrial Ave rage on October 3^rd finally closed at an all-time high.  The price of oil and the interest rates have been the catalysts that are stimulating the market.  The S & P and NASDAQ ind exes have not gotten back to their all-time highs.  Barring any unforeseen calamity, the equity market, using the S & P Index, should turn in a 10% plus return for 2006. 

The Bond Market

As previously stated, the Federal Reserve ceased increasing the interest rates after 17 consecutive meetings.  The concern with inflation getting too high has lessened.  If we look back three mont hs, the yield on a 10-year Treasury note was 5.51% and it is now down to 4.56%.  Bond yields do not move in conjunction with what the Federal Reserve does.  At this point, we do not anticipate the Federal Reserve making any changes in the discount rate probably until the middle of 2007.  In the meantime, we anticipate the shorter term interest rates, 10 years or less, will decline slightly and the longer term rates will probably move up.  Currently, the shorter term interest rates are still higher than longer term rates.

A Closing Thought

“One way to maximize one good from oil’s present price plunge is to slap on – right away – a per-barrel import fee of no less than 10 bucks a barrel.  Not just $5 to equal the immediate price decline, but at least a $10 fee on imported barrels.  Not only would that cover some probable near–future price erosion, but, of far greater significance, it would preserve the incentive to keep drilling for new domestic oil sources.  And maybe make us more hesitant to abandon all of the many well–along undertakings to develop alternative energy sources.”

- Malcolm S. Forbes (1983)