tfj: wealth decline nearly reaches 40 percent since 2007

WEEK ENDED JUNE 15 2012

Thoughts

from Joe

Steppin’ Out

Wealth decline nearly reaches 40 percent since 2007

The median net worth of families dropped from $126,400 in 2007 to $77,300 in 2010, or about the level

last seen in 1992.

You might think this is driven primarily by the drop in home prices, however they were only down 42

percent during the period, implying investments and other assets declined by approximately the same

ratio.

The fact is, the U.S. – and indeed, the world – has experienced a tremendous setback in terms of

economic well-being. And this cuts across all measures, including activity, joblessness, and even the

desire to participate in the economy.

Yet high expectations are built for seemingly every summit, every central bank action, every legislative

endeavor, and at times even every leader’s speech that a simple solution is right around the corner.

It’s not.

The excesses of the last decade or so have been reversed harshly. Getting beyond yesterday’s problems

mostly by writing off bad debts is the first step toward sustainable growth. But instead, debt burdens

are shifted from the private sector to the public, and back again.

I will look for global economic growth to gain solid footing once the pain of past follies has been fully

felt.

Top Eight

1. Germany’s Merkel signals the break-up of the eurozone. Well, ok, that’s my interpretation, but

when she states “we must be able to realistically size up our powers,” my skepticism can only

increase.

2. Credit Agricole making plans to exit Greece if the country leaves the eurozone. Sunday’s

Greek elections are shaping up to be a trigger for a possible exit from the union. The financial

system is built on confidence. Once confidence fades, the system quickly collapses. Europe’s

goal is to ring-fence Greece as much as possible and slow any contagion to other countries.

Credit Agricole’s actions speak to their confidence in Greece remaining in the eurozone and the

next item speaks to a much more important constituent’s confidence regarding the entire euro

experiment.

3. The Bank of England readies a flood of cash should the eurozone break. The new lending

programs will be offered in coming weeks to help insulate UK-based bank funding from regional

turmoil. Further evidence of confidence in the eurozone slipping more aggressively.

4. The U.S. still looks like the best place to invest. Foreign direct investment into the United

States has grown significantly over the decade with recent flows likely driven by turmoil in

other lands. The tenets of education, rule of law, and free flow of capital along with the

dollar as the world’s reserve currency are driving growth in the U.S.

5. The U.S. consumer continues its coffee break. Retail sales declined for the second straight

month after a fairly strong first quarter likely driven by better weather. In all the economic

analysis covering the U.S., never forget that our economy is 70 percent consumption. Any small

change in this activity reverberates loudly here and around the world.

6. Spain got its bailout, but Moody’s and the markets express concerns. Moody’s downgraded

the country three notches to Baa3 noting the country’s “very limited financial market access.”

Also, just after its bailout investors fled Spanish debt driving 10-year bond yields up 69 basis

points to 6.88 percent, their highest level since last November. It certainly feels like opinion is

shifting toward an eventual breakup of the currency union.

7. Jamie Dimon went to Washington to discuss a write-down of 0.1 percent of the company’s

total assets. The fact JP Morgan’s CEO was called to the carpet in Washington over such a

tiny intra-quarter loss that: 1) put zero taxpayer dollars at risk, and 2) won’t even drive

overall profitably for the quarter negative, helps confirm any suspicions of the movement to

turn the banks into government-driven utilities.

8. Inflation is nowhere to be found. Prices at both the producer and consumer level turned

downward in May as energy prices are dropping. Over the last twelve months, the cost of living

is up just 1.7 percent. Lower inflation measures will allow the Fed to consider more stimulus in

the form of asset purchases or QE3 to promote growth without risking price pressures.

Key Indices

Return

6/15/2012 1 week YTD Treasury 6/15/2012 6/8/2012 Change

Dow

12,767 1.7% 4.5% 30yr 2.69% 2.74% -0.05%

S&P 500

1,343 1.3% 6.8% 10yr 1.58% 1.63% -0.05%

Nasdaq

2,873 0.5% 10.3% 5yr 0.67% 0.71% -0.04%

Euro Stoxx

2,181 1.7% 5.8% 2yr 0.28% 0.27% 0.01%

Nikkei

8,569 1.3% 1.4% 1yr 0.17% 0.17% 0.00%

Hang Seng

19,234 4.0% 4.3% 3mo 0.09% 0.08% 0.01%

Source: Bloomberg

Looking Ahead

• The markets expect some further monetary policy easing at next week’s FOMC meeting

ending Wednesday, however Bernanke’s recent public statements have not been encouraging

of this action. My guess is if we don’t get it next week, it will come in the next f

• Economic data will be in the background of the Fed next week and focused primarily on the

housing market.

• Earnings announcements next week include:

o Tuesday: Jabil Circuit, Adobe Systems

o Wednesday: Micron Technology, Red Hat

• The IPO market will essentially remain closed next week in continuation of the overhang since

Facebook came out one month ago.

JOE MORGAN, CFA Chief Investment Officer SVB Asset Management 555 Mission St., Suite 900 San Francisco, California 94105 PHONE 415.764.3149 [email protected] svb.com Profile

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You should obtain relevant and specific professional advice before making any investment decision. Nothing

relating to the material should be construed as

investment or to engage in any other transaction.reliable, but we cannot guarantee their accuracy or

The markets expect some further monetary policy easing at next week’s FOMC meeting

however Bernanke’s recent public statements have not been encouraging

of this action. My guess is if we don’t get it next week, it will come in the next f

Economic data will be in the background of the Fed next week and focused primarily on the

Earnings announcements next week include:

Tuesday: Jabil Circuit, Adobe Systems

Wednesday: Micron Technology, Red Hat

essentially remain closed next week in continuation of the overhang since

Facebook came out one month ago.

and Twitter

SVB Financial Group. All rights reserved. Silicon Valley Bank is a member of FDIC and Federal Reserve

Find a way, SVB Financial Group, and Silicon Valley Bank are registered trademarks. SVB Asset

Management, a registered investment advisor, is a non-bank affiliate of Silicon Valley Bank and member of SVB

Financial Group. Products offered by SVB Asset Management are not FDIC insured, are not deposits or other


information herein, is provided for informational purposes only. The material is based in part on information from

party sources that we believe to be reliable, but which have not been independently verified by us and for


wed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decision.


construed as a solicitation, offer or recommendation to acquire or dispose of any

investment or to engage in any other transaction. The rates and yields have been obtained from sources we believe to be

reliable, but we cannot guarantee their accuracy or completeness.

The markets expect some further monetary policy easing at next week’s FOMC meeting

however Bernanke’s recent public statements have not been encouraging

of this action. My guess is if we don’t get it next week, it will come in the next few months.

Economic data will be in the background of the Fed next week and focused primarily on the

essentially remain closed next week in continuation of the overhang since

SVB Financial Group. All rights reserved. Silicon Valley Bank is a member of FDIC and Federal Reserve

Find a way, SVB Financial Group, and Silicon Valley Bank are registered trademarks. SVB Asset

bank affiliate of Silicon Valley Bank and member of SVB

ement are not FDIC insured, are not deposits or other


sed in part on information from

party sources that we believe to be reliable, but which have not been independently verified by us and for


wed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decision.


a solicitation, offer or recommendation to acquire or dispose of any

The rates and yields have been obtained from sources we believe to be

tfj: wealth decline nearly reaches 40 percent since 2007

Economy & Finance