Vorisek Financial Weekly Market Update for June 13, 2018

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Good morning!

In 1983, Alan Greenspan had yet to begin his 18 ½ year run as Fed Chairman (that started 4 years later in August 1987).  Yet it was in 1983 (35 years ago), that Greenspan first left his financial footprint when he chaired a committee that recommended changes to Social Security that were successfully passed in Congress.  The modifications – pushing back the “normal retirement age” and raising the payroll tax rate – saved the Social Security program from looming insolvency and added a projected 75 years to its lifespan.  Greenspan-type leadership is needed again in 2018.  Last week’s release of the annual Social Security Trustees report stated that “if substantial actions are deferred for several years, the changes necessary to maintain Social Security solvency would be concentrated on fewer years and fewer generations” (source: Social Security Trustees 2018 Report).         

The US trade deficit, i.e., imports exceeding exports, was $46.2 billion in April 2018, our smallest monthly deficit since September 2017.  What’s driving the shrinking deficit – rising exports.  US corporations exported $211.2 billion of goods and services in April, an all-time monthly record for the United States (source: Commerce Department).      

Conventional Wall Street wisdom says that stocks suffer during rising interest rate periods.  The Federal Reserve has raised short-term interest rates 6 times since 12/16/15 (i.e., over the last 30 months), for a total increase of 1.5 percentage points.  Yet over that 2 ½ year period (12/16/15 to last Friday 6/08/18), the S&P 500 has gained +41.1% (total return), an average return of +14.9% per year (source: BTN Research).  

Notable Numbers for the Week:

  1. MORE AND MORE OF THE STATE BUDGET - The 5 retirement systems supporting defined benefit pension plans for state workers in Illinois will require a fiscal year 2019 (i.e., the 12 months that begin 7/01/18) contribution of $8.5 billion, more than triple the $2.8 billion contributed in fiscal year 2009 (source: State of Illinois).  

  2. FIND A NEW BUYER – Since Janet Yellen announced on 9/20/17 a plan to shrink the Fed’s balance sheet by having bonds mature without reinvesting the principal into newly issued bonds, the “securities held outright” by the Fed have declined by $117 billion to $4.1 trillion (source: Federal Reserve). 

  3. NOT SO GOLDEN - 46% of the San Francisco Bay Area residents surveyed plan to move from California within the “next few years” primarily due to the cost of housing and traffic (source: Bay Area Council poll). 

  4. EMAIL – If passed, HR 4610 (“Receiving Electronic Statements to Improve Retiree Earnings Act”) would eliminate the 1974 ERISA requirement to deliver hardcopy retirement plan documents to participants (source: House).

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