D6T4J0 USA, California, El Segundo, Portion of Chevron's El Segundo refineries, after sunset

34 Year Chevron Employee Retires to Pursue Passion

 

Len HansonWarren Street Wealth Advisor welcomes Len Hanson, a 34 year Chevron veteran, to the team.

Lenny began working with Warren Street Wealth Advisors in 2012 on a part time basis while still remaining full-time at the Chevron oil refinery in El Segundo. Over his 34 year span at Chevron, Len managed his own 401(k) and soon co-workers began coming to him for guidance. 

Len has since retired from Chevron in the Spring of 2016 after 34 years and is an expert of their employee benefits package. His new career is fueled by his passion for financial advice and his first hand knowledge of Chevron’s retirement benefits.

Having Len in a full-time capacity as a Wealth Advisor will be a great asset for our current and future clients as we continue to help those in the oil & gas industry retire with Warren Street Wealth Advisors.

 

 

Len Hanson is an Investment Advisor Representative of Warren Street Wealth Advisors LLC, a Registered Investment Advisor. The information posted here represents his opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional.  Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.

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SCE Medical Benefit Breakdown

In the 12 Keys to Retiring from SCE with Confidence, #5 states “Take Advantage of Your Medical Subsidy”. If you are retiring from Southern California Edison you might be eligible for a retiree medical benefit. This will be a new expense you should budget for in retirement. Here are the two common retiree medical benefits and how they work…

85% Subsidy

“Retirees selecting a higher cost option pay 15 percent of the lowest cost option’s price tag for their coverage (20 percent of that cost for dependent coverage) plus the entire difference in cost between the lowest cost option and the option they select.”*

In short, this benefit provides 85% of the lowest cost medical plan available for your to use towards any plan of your choice. Here’s an example: If the lowest cost medical plan is $1,000 per month, then Edison would provide you $850 (85% of $1,000) to use towards any plan you choose, your out of pocket would be $150. This is the difference between the total plan cost of $1,000 and the subsidy benefit provided to you of $850 in retirement.

Using the same scenario above: If you choose a more expensive medical plan in retirement, let’s say the total cost is $1,500, your 85% subsidy would still provide you the same $850 benefit (85% of the lowest cost plan) towards the plan of your choice. Meaning your portion would then be $650 per month ($1,500 – $850).

This scenario is for retirees who became retirement eligible by 12/31/2008 or who had completed at least 25 years of service, known as “grandfathered”.

50% Subsidy

“Future retirees (after 2008) who are not ‘grandfathered’ [still pay more] for coverage if they retire before age 60 and/or with less 15 years of service. For retirees not meeting this age and service requirement, 50 percent retiree contributions are applicable…”*

This benefit will cover 50% of the lowest plan available in 2008, which is the 2008 Kaiser Health Plan. This benefit is not as rich as the 85% benefit, but it’s very important to note that this retiree medical benefit could save you a lot of money in retirement.

In practice, if the 2008 Kaiser plan costs $1,000, then SCE will contribute 50%, or $500, to any plan you are enrolled in.


Also important to note is how long the coverage will last:
“…new medical options were implemented for the employee population effective January 1, 2010. These same medical options were made available to the Flex retirees who were not eligible for Medicare coverage. For Flex retirees and their spouses covered by Medicare, medical options designed specifically to work with Medicare coverage were included. Once retirees or their spouses become Medicare eligible, their primary source of medical benefits is through their Medicare coverage. The benefits from the SCE sponsored medical plans are secondary to Medicare’s benefits.”*

Finally, in order to combat increasing costs, Southern California Edison has also included language on adjusting their contribution toward plan costs: “For future retirees, the Company’s contribution toward their medical plan costs will be subject to an overall limit or cap, established based upon the costs of the medical plans in 2008 and adjusted by factors tied to the rate of general (not medical) inflation.”*


Key takeaway: Both of these options are continuation benefits. The amount you’re currently paying every two weeks from your paycheck will be the same amount you’d pay in retirement if you continue with the same coverage. Take a look at your paystub and use this amount to figure out a monthly estimate for retirement and add that amount to your budget.

 

Contact Us or attend one of our Edison Retirement Workshops to learn more tips like these and how to best plan your retirement.

 

 

 

*2015 General Rate Case Vol. 2, Pt. 1

Information subject to change based on employee benefit agreements, please confirm with Edison Human Resources. The information above is not considered personalized actionable advice, individuals should confirm their benefits with Edison Benefits Department and their professional advisor(s). Warren Street Wealth Advisors offers this article for educational purposes only.

 

This article is for informational purposes only and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional.  Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in this literature and due to the static nature of content, those securities held may change over time and current holdings or trades may be contrary to outdated posts. Warren Street Wealth Advisors, LLC is a Registered Investment Advisor.

 

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Why Aren’t Interest Rates Going Up?

Interest Rates, Inflation, and Monetary Policy: Why aren’t U.S. interest rates going up?

Our topic today is interest rates, inflation, and monetary policy. The question we will attempt to answer is: When are interest rates in the United States finally going to rise?

 

Defensive Strategies Depress Returns

If you’re like most bond investors, you’ve been expecting interest rates to rise for over 2 years now. As a prudent investor, you’ve been holding the duration, or interest rate risk, of your portfolios shorter than usual to protect against falling prices when rates rise. Unfortunately, the result of your prudent behavior has been to underperform standard indexes such as the Barclays U.S. Aggregate Bond index. And if your portfolio is focused primarily on safe assets such as U.S. Treasuries, all but the longest maturity funds struggled to provide a return even modestly better than inflation.

Capture1

Source: http://news.morningstar.com/fund-category-returns/ and https://fred.stlouisfed.org
1Author’s calculations

While short-term rates have indeed risen with the Federal Reserve rate hike in December 2015, interest rates for Treasuries maturing in 10 years and beyond have actually fallen by an average of more than -0.50% over the past 3 years. Granted, this article was written the day after the British referendum to exit the European Union, which caused global stock markets to tumble and U.S. Treasury yields to fall. If we measure the change in yields as of June 23, 2016 when most experts expected the British to vote to remain in the E.U., long term interest rates have still fallen an average of -0.37% since January 2013.

Capture2Source: www.treasury.gov

In contrast to the lack of upward movement in nominal interest rates, real yields – nominal yields adjusted for inflation – have risen across all maturities in recent years, albeit from an extremely low starting point. As of January 2, 2013 real yields for 5-year Treasury bonds were nearly -1.50%, whereas by June 24, 2016 5-year real yields are only negative -0.50%. And if you were willing to invest for 20 or 30 years, you could earn the princely sum of approximately +0.35% to +0.75% real yield as of January 2013 and June 2016, respectively.

If we take a longer term perspective and look back 10 years, we observe an enviable real rate of approximately 2.5% across maturities from 5 years to 30 years! At today’s paltry real yields of less than 1%, it seems unsustainable to invest hard-earned funds for 5 years or more and barely keep up with inflation. Surely interest rates must return to more normal levels eventually.

But when will that long-awaited time finally arrive?

Building Blocks of Interest Rates

To gain some insight into the drivers of interest rates, let’s take a moment to review the building blocks using what I like to call my ‘interest rate birthday cake’.

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Theory would have us believe that the minimum return investors will accept is a modestly positive ‘real return’, historically between 1.0% and 2.5%. If you add a maturity term premium and inflation expectations to the real rate, the result is the ‘risk free’ rate of interest, which we typically consider the U.S. Treasury yield curve.

The average annual inflation rate from 2006 to 2016 was 1.93%¹, so we could expect the risk free rate of interest over that time period to be approximately 3% to 4.5%. And yet 10-year Treasury yields are currently hovering below 2%, while 30-year yields stand at approximately 2.5%. In fact, 10-year Treasury rates have been falling ever since the ‘taper tantrum’ in mid-2013 as the U.S. economy continues to struggle to sustain momentum after the financial crisis of 2008-2009.

¹Source: U.S. Bureau of Labor Statistics

 

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Let’s not forget the aggressive monetary policy actions of the Federal Reserve bank since the financial crisis. The unprecedented amount of monetary stimulus has long been expected to cause inflation, and yet the only result to date has been to keep the U.S. economy from stalling.

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Source: http://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm

Why Has Aggressive Monetary Policy Not Sparked Inflation?

In times past economists observed a fairly reliable relationship between ‘easy money’ and the ‘velocity of money’, or the amount of times a single dollar changes hands. It is the velocity of money that traditionally puts pressure on prices of goods and services.

But as bank lending standards and capital requirements remain strict, consumer debt levels low, and with the ‘shadow banking system’ taking the place of traditional lenders, the velocity of money has been on a steady decline. Consequently, the impact of monetary policy on the economy has diminished.

Capture7

So if yields on Treasury securities remain stagnant, where else can we look for pressure on interest rates? One answer is the market appetite for risk – what Keynesian economists term ‘animal spirits’. The layers of my ‘interest rate birthday cake’ related to market risk appetites are default risk, liquidity risk, call risk, and others.Capture8

The term ‘animal spirits’ is used to describe human emotions that drive consumer confidence. Rising consumer confidence can increase the general level of economic activity if individuals feel wealthier and purchase more goods and services. If consumer demand grows sufficiently, prices of goods and services will increase, as will the general level of interest rates.

Chasing Yield – Investors Look to Corporate Bonds

If we look to Treasury yields for the risk-free interest rate, corporate bond yields should reflect a risk-adjusted rate of interest for various levels of default risk. In recent years, investors with an appetite for risk had found opportunities in low-quality corporate bonds, only to be traumatized in late 2015 and early 2016 as the precipitous drop in oil and gas prices put extreme pressure on the profitability of the energy sector of the U.S. economy. Because the credit quality of many smaller oil and gas producers was below investment grade, the high-yield sector of the bond market was particularly hard hit.

Option-adjusted yield spreads for BBB-rated corporate bonds – the additional yield above the yield of a matched-maturity Treasury – averaged approximately 1.75% in 2006-2007, prior to the financial crisis. In 2015-2016, BBB spreads averaged 2.31%. It seems investors are being fairly compensated for default risk at the current level of yields, despite a rather bumpy ride along the way.

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Traditional Drivers of Inflation Are Absent

So with this understanding of the building blocks of interest rates, can we answer the question of why Treasury yields remain stubbornly at levels barely above inflation?

The answer lies in the middle block of the interest rate pyramid: inflation. More precisely, the market’s expectation for future levels of inflation.

As you may recall from your Econ 101 course in school (assuming our readers stayed awake during class!), inflation typically occurs when either, 1) input prices are rising, causing manufacturers and service providers to increase their finished goods prices to the extent possible, or 2) consumer demand for goods and services exceeds the current supply, enabling manufacturers and service providers to increase their prices.

Though employment and consumer sentiment in the U.S. have certainly improved since the financial crisis of 2008-2009, the persistent trend of lower employment participation is thought to dampen the impact of the current, nominally low, unemployment rate relative to previous economic cycles.

Capture10

Even though the recent drop in oil and gas prices has stabilized, these essential commodities remain at historically low levels enabling manufacturing, transportation, and leisure travel firms to keep prices low.

Capture11 Capture12

Source: futures.tradingcharts.com

So when are these competing forces going to settle out and the long-awaited inflation pressures manifest themselves? Not any time soon, if the forward inflation rate expectations published by the Federal Reserve Bank of St. Louis are any guide.

Capture13

If inflation pressures are indeed muted on both the supply and demand fronts, and risk appetites are being satisfied with the current level of yield spreads, it is difficult to see where inflation pressures, and therefore interest rate increases, are likely to arise in the near term.

And yet investors cannot endure miniscule real yields indefinitely. Surely there must be something else keeping interest rates low?

As Long as U.S. Treasury Bonds Remain a Safe Haven, Treasury Yields will Remain Low

The final piece in the interest rates puzzle comes from outside the ‘birthday cake’; in fact, outside the U.S. entirely. The final piece is the capital ‘flight to safety’ as international investors seek positive returns amid a global economic slowdown and negative interest rates elsewhere in the world.

Capture14Source: U.S. Bureau of Labor Statistics

Given the economic uncertainty caused by the British referendum to leave the European Union, and the dearth of alternative ‘safe haven’ investments, we should expect demand for U.S. securities to remain strong over the near term. Continuing demand for U.S. Treasuries, even at historically low yields, coupled with muted economic activity dampening inflation pressures, means U.S. interest rates can remain low for the foreseeable future.

Eventually, foreign economies should recover and demand for U.S. Treasury securities should fall, pushing yields up to more normal levels as global economic activity strengthens.

But as long as the U.S. is ‘the only game in town’, prudent investors can legitimately maintain the maturities of their portfolios near- to above the standard market index to capture a positive inflation and term premium while awaiting calmer global markets sometime in the intermediate future.

 

Marcia Clark is an Investment Advisor Representative of Warren Street Wealth Advisors, a Registered Investment Advisor. The information posted here represents her opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional.  Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.

football-chalkboard

Retirement Planning Isn’t Just For “Retirees”

Retirement Planning Isn’t Just for “Retirees”
By: Joe Occhipinti

 

When people discuss the topic of saving or planning for retirement, the picture that often comes to mind is that of an employee that has been working for the same company for 20+ years and is on the verge of retirement.

When I hear about planning and saving for retirement, I find myself thinking about those who are 20+ years away and need to make the most of one variable that cannot be replaced – time.

Time is precious, and when it comes to preparing for retirement making up for lost time is one of the most difficult things to do. One of the most basic ways we see this is employees missing out on years of 401(k) matching contributions from their employer. A match can be a 100% return on your investment, assuming you are fully vested. That’s a tough return to beat in any financial market.

Too often financial planning and saving for retirement gets thrown to the wayside as something that can be put off for another year. For some, that could be an additional 6% of their salary they are choosing to forgo in their 401(k). If you got an additional 6% of your salary per year added to your retirement account, then how much sooner do you think you’ll be able to retire? How much stronger would your retirement look?

The other key piece of a strong retirement is a financial plan. A sound financial plan should you help surface all facets of your financial picture and ultimately how each piece helps or hinders you from achieving your long term goals. This includes budgeting, savings, investing, and managing risk.

Debt is probably the most often overlooked and underestimated piece of planning. Holding on to excessive debt during your working years can really put a damper on your ability to retire, especially if you have a large amount prior to retirement. Don’t let lack of planning be the sole reason for you to not get the retirement you’ve been dreaming of.

The final thoughts I will leave you with are: 1) Do I want to retire? 2) If I begin contributing to my 401k today, then how much do my chances of a successful retirement increase? 3) Am I managing debt appropriately? 4) Have I put enough time into financial planning to build a strong retirement?

Take the necessary steps to put you on track for retirement, whether that’s 2 or 20 years away.

 

 

warrenstreetadvisors006

Joe Occhipinti
Wealth Advisor
Joe@Warrenstreetwealth.com
714.823.3328

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor.
The information posted here represents opinions and is not means as personal or actionable advice to any individual, corporation, or other entity, Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this presentation is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the presentation and due to the static nature of content, those securities help may change over time and trade may be contrary to outdated posts.

ThankALineman_1028x1028_IG

National Lineman Appreciation Day

We at Warren Street Wealth Advisors want to personally thank all of the lineman out there in the world.

These brave people are on call 24/7, 365 to make sure that we still can still have power in all of our house, along with all the other luxuries we enjoy in our home.

From all of us at Warren Street, thank you for all that you do. We greatly appreciate it.

At Last, a Greek Debt Deal

A look at the winners, losers & terms. 

Provided by Warren Street Wealth Advisors

 

It looks like Greece will stay in the euro. After eurozone finance ministers pulled an all-nighter, negotiating for 17 hours into early Monday morning, the government of the beleaguered nation accepted the latest bailout terms offered by its creditors. The deal was unanimously approved by the eurozone’s 19 member countries.1

 

This third bailout agreement contains the harshest austerity measures yet. There was no debt haircut for Greece, and this latest round of relief comes at a remarkable price. In exchange for another $95 billion worth of aid over the next three years, Greece agreed to more than just sales tax hikes and cuts in pension payments – it also agreed to sell off state assets.1

    

To explain this a bit further, Greece will transfer about $50 billion worth of “valuable” assets into a “guarantee fund”. (This was Germany’s idea.) These assets – likely bank shares that the Greek government will buy up with bailout money in order to recapitalize its banks – will be used as collateral on the latest bailout package. The mission is to sell them in reasonable time, with half the cash going toward repayment of the bailout funds, a quarter toward investment, and another quarter applied to Greece’s national debt.2,3

 

This yet-to-be-named privatization fund will be based in Greece and run by Greek authorities, but Greece’s creditors will supervise its actions. Greece might have until the mid-2020s (or longer) to sell these assets, as the new bailout loans may have long maturities.3

   

In the words of French President Francois Hollande, Europe had “a good night, and a good day” – and no Grexit. Who won and lost most in this new deal? 1

 

The winner: Angela Merkel. Germany is the premier economy in the eurozone and Greece’s biggest creditor, and its chancellor decided enough was enough. Merkel took a very hard line in the negotiations; in fact, Germany, along with Finland, ardently supported throwing Greece out of the eurozone and letting the country take care of its financial problems without any further loans.1,4

 

Merkel looks very good even after Germany’s apparent conciliation to the pleas of France, Italy and other European Union members that argued for the necessity of a third Greek bailout. As she commented, “The advantages [of the deal] far outweigh the disadvantages.”2

 

The loser: Alexis Tsipras. Tsipras and his left-wing Syriza party have all but written themselves out of Greece’s future. After disparaging the austerity measures Greeks live with and praising the Greek people for the “very brave choice” they made in voting against another bailout, Tsipras signed off on austerity cuts that were even deeper.

 

In the end, he simply had to; for all his posturing, two financial shocks would have occurred if he had refused. Without a deal in place, Greece’s banking system could have collapsed this week. Greece also could have found itself out of the eurozone – a danger signal for institutional and retail investors.

 

Global markets started the week with a relief rally. Monday’s trading day found the Dow, Nasdaq and S&P 500 all rising 1.1% or higher; the STOXX Europe 600, FTSE 100 and Nikkei 225 were also up from 1.0-2.0%. The deal is not set in stone yet – eurozone parliaments must approve it – but the accord just reached relieves much uncertainty.5

 

Warren Street Wealth Advisors

190 S. Glassell St., Suite 209

Orange, CA 92866

714-876-6200 – office

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – usatoday.com/story/money/2015/07/13/greek-bailout-talks/30068857/ [7/13/15]

2 – time.com/3955221/greece-bailout-marathon/ [7/13/15]

3 – blogs.wsj.com/briefly/2015/07/13/how-will-the-greek-privatization-work-the-short-answer/ [7/13/15]

4 – reuters.com/article/2015/07/06/us-eurozone-greece-idUSKBN0P40EO20150706 [7/6/15]

 

 

 

5 – markets.wsj.com/us [7/13/15]

 

Quarterly Review 2Q 2015

A review of 2Q 2015

THE QUARTER IN BRIEF
A 2.10% June retreat left the S&P 500 down 0.23% for Q2 2015, putting an end to its 9-quarter winning streak. The quarter’s biggest economic events occurred in late June – Greece defaulted on its debt, the commonwealth of Puerto Rico said a default was imminent, and China’s stock market plunged. The Federal Reserve seemed committed to raising interest rates before the end of the year, even as it lowered its 2015 economic forecast. Spring brought more home buying, higher oil prices, improved hiring, and a number of encouraging signs that the economy was pulling out of a winter slump. Even with all those positives, the headwinds in the stock market were too strong to allow a broad advance.1,2

 

DOMESTIC ECONOMIC HEALTH
The second quarter saw the Federal Reserve revise its projections for 2015 GDP downward; the spring forecast of 2.3-2.7% growth was reduced to 1.8-2% growth. Its June 17 policy statement also signaled at least one interest rate hike later this year – but perhaps only one, as more Fed officials now believed the central bank should raise rates only once in 2015 with two calling for no move until 2016. It has long been thought that the Fed might raise rates starting in September, but futures markets disagreed as the quarter ended, envisioning the first move coming in December.3

 

With revisions included, Labor Department reports showed the economy adding 187,000 jobs in April, 254,000 jobs in May, and 223,000 jobs in June. The unemployment rate fell to 5.3% in June, a low unseen since April 2008; the U-6 rate measuring the unemployed and underemployed declined to 10.5% in June, down half a percent from a year earlier. Wages were up 2% in a year as of June.4

 

Two other key indicators showed continued growth for America’s factory and services sectors. While the Institute for Supply Management’s manufacturing PMI slipped to a 2-year low of 51.5 in April, it rose to readings of 52.8 and 53.5 in May and June. The ISM service sector PMI (which has averaged a robust 57.2 in the last 12 months) showed readings of 57.8 for April, 55.7 for May and 56.0 for June.5,6

 

Consumer confidence readings were higher by the quarter’s end. The University of Michigan’s consumer sentiment index posted final April, May, and June marks of 95.9, 90.7, and 96.1; that June reading was the best since January. The Conference Board’s respected survey jumped to 101.4 in June after coming in at 94.3 in April and 94.6 in May.7,8

 

Consumer inflation remained but a minor threat, even as the Consumer Price Index put up its largest monthly gain since February 2013 in May. (The 0.4% May rise was largely due to a 10.4% increase in retail gas prices.) Year-over-year, the headline CPI was flat while the core CPI was up just 1.7%.9

 

Personal spending was up just 0.1% in April, then soared 0.9% for May. Retail sales experienced the same “spring thaw,” advancing 0.2% in April and 1.2% in May.10,11

 

Headline durable goods orders sank 1.5% in April, then 1.8% in May; without volatile transportation orders, there was an 0.3% April loss and an 0.5% May gain. Producer prices jumped 0.5% in May after a 0.4% dip for April.10,12

 

As Q2 went on, the Bureau of Economic Analysis improved what was a dismal Q1 GDP reading. In the second BEA Q1 GDP estimate, the economy contracted 0.7%; in its third and final estimate, the contraction was 0.2%.10

 

Finally, Puerto Rico Governor Alejandro García Padilla told the world on June 28 that the commonwealth could not pay its $72 billion in public debt, shocking many investors but not many economists. Padilla’s administration is exploring a Chapter 9 bankruptcy as an option, but under current federal law that option is only available to U.S. cities, not territories.13

 

GLOBAL ECONOMIC HEALTH
As early as April, there were indications that Greece might default on its debt. Then it missed a June 30 deadline on a €1.5 billion debt repayment, triggering a global stock selloff as investors glimpsed a crack in the framework of the European Union. The quarter ended with Prime Minister Alexis Tsipras and the ruling Syriza party announcing a July 5 national vote on whether Greece should accept further austerity measures as a condition of additional financial aid; 61% of the electorate voted no, opening the door to Greece’s exit from the EU and leaving EU leaders with a hard choice for July – either play hardball with Greece and risk a humanitarian crisis, or play softball with Greece and placate its people in a last-ditch effort to keep it in the eurozone. On July 6, the Guardian reported that the Greek banking system held only about €500 million, or about €45 per person. This was the last development the eurozone needed as it tried to mount an economic recovery from its recent recession.14,15

 

The Greek debt crisis did not wholly distract investors from troubles in China – namely, the panic in its stock market. The Shanghai Composite fell 24% between June 12 and July 4 (prior to that, it was up 149% YTD). More than $2.4 trillion in wealth evaporated in this sudden bear market. China’s major brokerages actually formed a $19.4 billion rescue fund to buy up shares in major companies listed in the index, while the Chinese government encouraged its citizens to purchase stock. China’s annualized growth slowed to 7.0% in Q1, its poorest GDP reading since 2009; on June 29, the People’s Bank of China made its fourth interest rate cut in eight months.16,17

 

WORLD MARKETS
While many European indices suffered heavy Q2 losses, the picture was a bit brighter in other parts of the world. The damage in Europe was certainly severe: the CAC 40 sank 4.84%, the FTSE MIB 3.01%, the DAX 8.53%, the IBEX 35 6.52%, and the FTSE 100 3.72%. Russia’s RTS index and Ireland’s ISEQ were notable exceptions, posting respective quarterly gains of 6.76% and 2.42%.2

 

In the Asia Pacific region, the Shanghai Composite went +14.12% for the quarter even after all that slipping and sliding. Pakistan’s KSE 100 rivaled that performance, going +13.78%. Other quarterly gains and losses from the east: Sensex, -0.63%; Nikkei 225, +5.36%; Kospi, +1.63%; S&P/ASX 200, -7.34%; Hang Seng, +5.42%; Jakarta Composite, -11.02%. Looking at the Americas, we see gains of 7.56% for Argentina’s Merval, 3.04% for Mexico’s IPC All-Share, and 3.77% for Brazil’s Bovespa; Q2 brought a loss of 2.34% for Canada’s TSX Composite.2

 

The major multi-country benchmarks all went red in the quarter, registering the following losses: Global Dow, 0.19%; Asia Dow, 0.54%; Europe Dow, 1.95%; Dow Jones Americas, 0.38%; STOXX 600, 4.02%; MSCI World Index, 0.30%; MSCI Emerging Markets Index, 0.24%.2,18

 

COMMODITIES MARKETS
The second quarter of 2015 was noticeably better than the first in the commodities sector: the Thomson Reuters/Jefferies CRB Index rose 7.23% as the U.S. Dollar Index fell 2.92%.19,20

 

Oil staged a major rally in the quarter, rising 24.9% on the NYMEX as it rebounded from a 6-year low. WTI crude settled at on $59.04 on June 30. Cocoa futures also had a fine quarter, gaining 21.3%. Sugar futures rose 2.9%, lumber futures 3.6%.21,22

 

Metals, on the other hand, did not gain ground in Q2. Gold wrapped up June at a COMEX price of $1,171.80, down 1.0% for the quarter and 1.0% YTD. After stumbling 6.7% for June, silver settled at $15.58 on the COMEX June 30 yet was just -0.1% YTD. Platinum fell 5.6% in Q2 and palladium sank 8.5%; the end of Q2 found platinum at -10.8% YTD, palladium -15.8% YTD. A dip in demand from China influenced copper’s 4.5% Q2 loss.21,23

 

REAL ESTATE
What had been a lukewarm housing market transformed into a hot one. The National Association of Realtors provide ready evidence of that: after slipping 3.3% in April, existing home sales improved 5.1% in May to a seasonally adjusted annual rate of 5.35 million, the best pace in almost six years and up 9.2% year-over-year.  New home sales rose 8.1% in April and another 2.2% in June according to the Census Bureau; that put their annualized sales rate at 546,000 (the best in seven years) and their year-over-year increase at 19.5%.24,25

 

This happened even with mortgage rates on the way up. In the March 26 Freddie Mac Primary Mortgage Market Survey, interest rates on assorted mortgages were as follows: 30-year FRM, 3.69%; 15-year FRM, 2.97%; 5/1-year ARM, 2.92%; 1-year ARM, 2.46%. By June 25, those percentages had changed markedly: 30-year FRM, 4.02%; 15-year FRM, 3.21%; 5/1-year ARM, 2.98%; 1-year ARM, 2.50%.26

 

Now to the other key real estate indicators during the quarter. Housing starts climbed 22.1% in April, then faltered 11.1% during May; they were still up 5.1% annually after the May drop. With an 11.8% May boost, building permits hit their highest level in almost eight years and registered a 25.4% 12-month gain by Census Bureau calculations. The overall April S&P/Case-Shiller home price index displayed a yearly gain of 4.2% in housing values, ticking down from 4.3% in March. The NAR’s pending home sales index rose but 0.9% in May after an April advance of 2.7%.27,28

 

LOOKING BACK…LOOKING FORWARD
As the quarter ended, the four most important U.S. indices settled as follows: DJIA, 17,619.51; Nasdaq, 4,986.87; S&P, 2,063.11; RUT, 1,253.95. June was the worst month for both the Dow and the S&P since January, and that is reflected in the Q2 performance noted below. Like the Nasdaq, the Russell 2000 advanced for Q2, albeit just 0.09%. The quarter’s best-performing stateside index was the CBOE VIX: ending June at 18.23, it advanced 19.23% in three months. The Nasdaq Bank Index finished second with a gain of 7.57%, the Nasdaq Biotechnology Index third with a rise of 7.44%.2

 

% CHANGE Y-T-D Q2 CHG 1-YR CHG 10-YR AVG
DJIA -1.14 -0.88 +4.71 +7.15
NASDAQ +5.30 +1.75 +13.13 +14.24
S&P 500 +0.20 -0.23 +5.25 +7.32
REAL YIELD 6/30 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO
10 YR TIPS 0.48% 0.27% 1.15% 1.67%

Sources: wsj.com, bigcharts.com, treasury.gov – 6/30/152,29,30

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

 

In July, we have some relative calm on Wall Street; at this writing, the selloff of June 29 has fortunately not been replicated. It looks as though Greece’s creditors may just have to take a haircut – since Greece cannot hope to function without access to credit, negotiations to either restructure its debt repayments or lessen the principal seem a given. So far, U.S. stocks have come through this crisis with far less damage than European shares – and hopefully that continues with eurozone finance ministers seeking an expedient solution and a new earnings season providing a diversion. Perhaps the third quarter will bring relative calm and renewed confidence for consumers and investors.31

Warren Street Wealth Advisors
190 S. Glassell St., Suite 209
Orange, CA 92866
714-876-6200 – office
714-876-6202 – fax
Investment Advisor Representative, Warren Street Wealth Advisor, LLC., a Registered Investment Advisor.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. MarketingPro, Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The FTSE MIB (Milano Italia Borsa) is the benchmark stock market index for the Borsa Italiana, the Italian national stock exchange. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The IBEX 35 is the benchmark stock market index of the Bolsa de Madrid, Spain’s principal stock exchange. The FTSE 100 Index is a share index of the 100 most highly capitalized companies listed on the London Stock Exchange. The RTS Index (abbreviated: RTSI, Russian: Индекс РТС) is a free-float capitalization-weighted index of 50 Russian stocks traded on the Moscow Exchange. The ISEQ Overall Index is a capitalization-weighted index of all official list equities in the Irish Stock Exchange, excluding U.K.-registered companies. The SSE Composite Index is an index of all stocks (A and B shares) that are traded at the Shanghai Stock Exchange. Karachi Stock Exchange 100 Index (KSE-100 Index) is a stock index acting as a benchmark to compare prices on the Karachi Stock Exchange (KSE) over a period. BSE Sensex or Bombay Stock Exchange Sensitivity Index is a value-weighted index composed of 30 stocks that started January 1, 1986. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. The Korea Composite Stock Price Index or KOSPI is the major stock market index of South Korea, representing all common stocks traded on the Korea Exchange. The S&P/ASX 200 is Australia’s “premier” share market index. The Hang Seng Index is a freefloat-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The IDX Composite or Jakarta Composite Index is an index of all stocks that are traded on the Indonesia Stock Exchange (IDX). The MERVAL Index (MERcado de VALores, literally Stock Exchange) is the most important index of the Buenos Aires Stock Exchange. The Mexican IPC index (Indice de Precios y Cotizaciones) is a capitalization-weighted index of the leading stocks traded on the Mexican Stock Exchange.  The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The Global Dow (GDOW) is a 150-stock index of corporations from around the world, created by Dow Jones & Company.  The Asia Dow measures the Asia equity markets by tracking 30 leading blue-chip companies in the region. The Europe Dow measures the European equity markets by tracking 30 leading blue-chip companies in the region. The Dow Jones Americas Index measures the Latin American equity markets by tracking 30 leading blue-chip companies in the region. The Dow Jones STOXX 600 Index captures more than 90% of the aggregate market cap of European-based companies. The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results.  Investments will fluctuate and when redeemed may be worth more or less than when originally invested. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

 

 

Citations.

1 – marketwatch.com/story/us-stocks-end-higher-sp-500-breaks-9-quarter-win-streak-2015-06-30 [6/30/15]

2 – online.wsj.com/mdc/public/page/2_3022-quarterly_gblstkidx.html [6/30/15]

3 – washingtonpost.com/blogs/wonkblog/wp/2015/06/17/federal-reserve-rate-hike-likely-before-year-end/ [6/17/15]

4 – forbes.com/sites/samanthasharf/2015/07/02/jobs-report-u-s-added-223000-jobs-in-june-as-unemployment-rate-moved-down-to-5-3/ [7/2/15]

5 – tinyurl.com/q587x8b [5/1/15]

6 – instituteforsupplymanagement.org/ISMReport/NonMfgROB.cfm [7/6/15]

7 – briefing.com/Investor/Calendars/Economic/Releases/mich.htm [7/2/15]

8 – briefing.com/Investor/Calendars/Economic/Releases/conf.htm [7/2/15]

9 – nytimes.com/2015/06/19/business/economy/us-consumer-prices-post-largest-gain-in-more-than-2-years.html [6/19/15]

10 – briefing.com/investor/calendars/economic/2015/06/22-26 [6/26/15]

11 – briefing.com/Investor/Calendars/Economic/Releases/retail.htm [6/11/15]

12 – fxstreet.com/news/forex-news/article.aspx?storyid=76e5529c-495c-41db-89b8-0b5f68acfe40 [7/6/15]

13 – fortune.com/2015/06/29/puerto-rico-economy-crisis/ [6/29/15]

14 – tinyurl.com/os2pwyh [7/5/15]

15 – theguardian.com/business/2015/jul/06/greek-referendum-what-happens-now-after-the-no-vote [7/6/15]

16 – theatlantic.com/international/archive/2015/07/chinas-nervewracking-stock-market-collapse/397724/ [7/4/15]

17 – fxstreet.com/analysis/flash-comment/2015/06/29/ [6/29/15]

18 – msci.com/end-of-day-data-search [6/30/15]

19 – investing.com/indices/thomson-reuters—jefferies-crb-historical-data [7/5/15]

20 – online.wsj.com/mdc/public/npage/2_3050.html?mod=mdc_curr_dtabnk&symb=DXY [7/5/15]

21 – tinyurl.com/nf463kq [7/1/15]

22 – money.cnn.com/data/commodities/ [6/30/15]

23 – coinnews.net/2015/06/30/gold-silver-dive-in-quarter-us-coin-sales-surge-in-june/ [6/30/15]

24 – housingwire.com/articles/34260-first-time-buyers-boost-existing-home-sales-51-in-may [6/22/15]

25 – nasdaq.com/article/us-new-home-sales-climb-to-sevenyear-high-in-may-20150623-00645 [6/23/15]

26 – freddiemac.com/pmms/archive.html [7/6/15]

27 – tradingeconomics.com/united-states/housing-starts [6/16/15]

28 – marketwatch.com/economy-politics/calendars/economic [6/30/15]

29 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F30%2F14&x=0&y=0 [6/30/15]

29 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F30%2F14&x=0&y=0 [6/30/15]

29 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F30%2F14&x=0&y=0 [6/30/15]

29 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F30%2F05&x=0&y=0 [6/30/15]

29 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F30%2F05&x=0&y=0 [6/30/15]

29 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F30%2F05&x=0&y=0 [6/30/15]

30 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [7/6/15]

31 – tinyurl.com/qhe9pqc [7/6/15]