Wealth Management Weekly Update August 9, 2013

house_door_250pxU.S. and World News

  • President Obama came out this week to propose the winding down of Fannie Mae and Freddy Mac, the two giant mortgage-finance companies that were taken over by the government when they nearly failed five years ago. Under Obama’s plan, Fannie and Freddie would further shrink their portfolios and lose the implicit guarantee of a federal bailout. Instead, private investors would be most at risk, with the government acting as a secondary guarantor. Despite the presidential push, it’s not likely that Congress would approve a bill before 2015. Further, complicating matters is the $10.1 billion earned in 2nd quarter profit by Fannie Mae which goes entirely into the government coffers. The government will also get $4.4 billion from Freddie Mac this quarter, making the government’s profit on these two entities higher than the tax receipts of many of the top corporate taxpayers combined. Should these sorts of returns continue, it’s unlikely that the government will be in too big of a hurry to sever its ties with the largest mortgage lenders in the country.
  • Mexican President Enrique Pena Nieto presented a plan to Congress that would overhaul the country’s energy sector as part of a wider economic revamp. Nieto wants to allow private companies to produce oil and gas via profit-sharing deals and joint ventures with state-owned companies. The reforms would also open power generation to more private participation in Mexico.

 

Markets

  • Stock markets fell this week after setting all-time high last week. The S&P 500 Index fell by 1.07%, closing at 1,691. The Dow Jones Industrial Average was down 1.49% to close at 15,425. The S&P and the Dow respectively are up 18.60% and 17.71% year to date.
  • Treasury yields fell a bit this week with the 5 year and 10 year treasury finishing at 1.36% and 2.58% respectively.
  • The spot price of WTI Crude Oil fell a bit this week, declining by 0.86%, and closing at $106.02 per barrel. Year to date, oil is up 13.12%.
  • The spot price of Gold rose modestly this week, increasing by 0.04% and closing at $1,313.27/ounce. Gold is now down 21.61% this year.

 

Economic Data

  • Weekly Initial Jobless Claims rose slightly, climbing by 7,000 and coming in at 333,000 vs. expectations of 335,000. The Labor Department did not note any special factors distorting the data as they have in the last several weeks. The 4-week moving average of jobless claims moved down to 336,000, a new post-recession low.
  • Economic data was positive out of China this week and added evidence that the country’s economy is stabilizing. Industrial production rose 9.7% year over year in July vs. expectations of 9%. Meanwhile, inflation stayed tame at 2.7% which analysts say provides room for the country to provide stimulus without inflation getting out of control.

Fact of the Week

  • Japan’s national debt has passed ¥1,000,000,000,000,000 (¥1 quadrillion) for the first time, increasing by 1.7% in the 2nd quarter. The debt level is equivalent to $10.46 trillion and is larger than the combined economies of Germany, France and the United Kingdom.

Please contact a member of the Wealth Management Department if you have any questions about this information.

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Jean Van Keppel CFA® – (630) 906-5489 jvankeppel@oldsecond.com
Brad Johnson – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg – (630) 966-2462 jrunnberg@oldsecond.com

Visit Old Second Wealth Management

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