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Trust Department Quarterly Newsletter 2nd Quarter 2011
Governments: You better learn to balance your budget … Or? What can the U.S. and other countries learn from the financial crisis facing Greece? What are the citizens of Greece protesting about? The International Money Fund and Banks have placed stipulations on the extension of further loans to the country and the taxpayers who in essence owe the national debt. The multibillion Euro question is: How did Greece get themselves into this problem? The answer to the last question is simply, that Greece has been spending more for years than they have been receiving in revenue. The answer to the second question is, the people are mad because the government is taking away or reducing entitlements the citizens have received for years. Their standard of living is being threatened because of the austerity program they are now facing in order to bring expenses more in line with revenues. Greece’s problems have caused their credit rating to diminish. They were paying 16% interest on their 10 year bonds as of the first of June (The U.S. current rate on 10 year debt is around 3%). There is concern that Ireland, Spain, and Portugal may also be facing similar problems. At this time it appears the additional loan to Greece will probably only delay the ultimate default of the countries sovereign debt. The default will have a significant negative affect on the banks that hold the loans of Greece, much of which is believed to be in foreign banks. Greece in now in its third year of recession and their unemployment rate is about 14%. From the outside you have to question if the Greek society that has enjoyed entitlement programs for years is willing to make a 180 degree turn and pay in more to the government than what they get. Does this sound like any other country we know and love? The U.S. is not to the debt level that Greece is as a percentage of our economy but our politicians need to learn from Greece and stop the huge budget deficits that have occurred over the last 12 years. When revenues (tax payments) are high as they were in the last five years prior to the turn of the century politicians got very liberal in their spending. Since the year 2000 revenues in the U.S. have not come close to expenditures. During that time our national debt has doubled in size. The U.S. needs to face some austerity now (this probably means a combination of some program cuts and increases in taxes) or 20 years from now this article may be about us (The United States). The Stock Market During the first eleven trading days of June the stock market as measured by the S&P 500 index lost 5.93%. During the last eleven trading days of the month it recovered most of this loss and was down 1.83% for the month. For the quarter the S &P lost .39%. We anticipate the equity markets will continue to be volatile during the third quarter. The health care sector has had a very strong return on a year to date basis. Financials continue to lag as the concern for credit quality such as issues with Greece continue. We still anticipate the markets will turn somewhere between an 8% and 10% return for the year. The Bond Market Interest rates declined to some extent as money drifted out of the stock market during the middle of June and looked for the safety of the bond market. The 10 year treasury got down as low as 2.93% in the latter days of June. The Federal Reserve continues to hold tight on its lending rate and mortgage loans continue to be very attractive. We anticipate that interest rates will remain low through the balance of this year and that our projection of a 4 percent interest rate on a ten year treasury by the end of the year is too high. The Newsletter…RIP After almost 30 years of publishing this newsletter it has been decided this will be the last letter. We hope that you have enjoyed our thoughts and commentary about the market over the past years. We continue to look forward to providing our clients with the quality of service that we have achieved throughout the years. As always we thank you for the opportunity to serve you. |
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