Wealth Management Economic Update June 8, 2015

U.S. and World News

  • After another week of back and forth negotiations between Greece and its international creditors, Greece delayed a key debt payment to the IMF that was to be due on Friday. While this does not signal a formal default, the decision to postpone payment of €300 million is an unusual step. Prime Minister Alexis Tsipras claims Greece still intends to repay the debt, saying it will bundle the four payments due this month into a single €1.5 billion lump sum to be paid on June 30. A cash-for-reforms deal between Greece and its creditors still looks like somewhat of longshot, with the two sides at odds over issues like state pensions and a value-added tax.
  • Members of OPEC met this week in Vienna, Austria and again decided to leave its current production ceiling of 30 million barrels per day unchanged therefore keeping the market oversupplied. With oil prices having rebounded roughly 33% from its six-year low of $45/barrel in January, OPEC officials see little reason to deviate from its course that has seemed to resurrect oil consumption and dealt a powerful blow to the U.S. shale boom.
  • water_hands_320The EPA released a report this week based on five years of analysis of U.S. water pollution risks that concluded that there is no evidence that fracking for oil has had a “widespread, systemic impact on drinking water.” While there have been cases of spills and leaking wells, the rise of fracking has not caused extensive damage to groundwater resources according to the agency.

Markets

  • Equity markets continued their trend down this week. The S&P 500 lost 0.69%, closing at 2,093. Similarly, the Dow Jones fell by 0.90% and closed at 17,849. Year to date, the S&P is up 1.65% and the Dow is up 0.15%.
  • Yields in the Treasury markets ticked up this week. The 10 year Treasury bond now yields 2.41% and the 5 year Treasury bond yields 1.74%.
  • The spot price of WTI Crude Oil fell 1.94% this week, closing at $59.13 per barrel. In 2015, WTI Oil prices are now up 5.10%.
  • Once again, the spot price of Gold fell this week by 1.57% and closed at $1,171.94 per ounce. Year to date, gold prices down 1.05%.

Economic Data

  • Initial jobless claims declined a bit from last week and remain quite low, coming in at 276,000, below consensus expectations of 278,000. The Labor Department noted that no special factors affected claims this week. The four week moving average for claims now stands at 274,750.
  • The monthly employment report showed better than expected job gains with 280,000 added during the month vs. expectations of 226,000. With the 32,000 jobs that were added in back revisions, the three month average of job gains rose to 207,000.
    • The headline unemployment rate rose by 0.1% to 5.5%, though this was the result of a 0.1% increase in the labor force participation rate to 62.9%.
    • Average hourly earnings rose 0.3% during the month, beating consensus expectations of 0.2%. Wages have now grown 2.3% over the last 12 months.
  • The PCE price index (Federal Reserve’s preferred measure of inflation) was unchanged in April, vs. expectations of a 0.1% gain. Core PCE (excludes food and energy) rose only 0.1% vs. expectations of 0.2%. Over the last year, core prices are up only 1.2%, representing a very subdued inflation situation.

Fact of the Week

  • 48 years ago, Warren Buffett’s Berkshire Hathaway went public with the A shares that ended 1967 at a price of $20.50. Today, those shares are worth an astonishing $212,000/share. This represents a total return of 1,034,146% which is an annual rate of return of 21.45%.

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 CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Tamara Wiley, CFP® – (630) 844-3222 twiley@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management

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