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June 17, 2013

Economic themes: Fed Meeting, HMI, PPI, Industrial Production, Consumer Sentiment, Retail Sales

  • Fed Meeting: The FOMC meeting begins Tuesday, with an announcement expected Wednesday, as bulls are saying equity markets tend to rise as the Fed eases monetary policy, based on the economy being able to expand on its own; though bears fear that tapering and sequestration could be more than the economy could handle.
  • HMI: The NAHB housing market index increased 8 points to a 52 level, representing the highest reading since March 2006.  The 6-month outlook and current sales figures posted very positive reports, though buyer traffic reflected a lack of buyers in the market.  Regardless, the active buyers have a high sense of urgency due to low inventories, and are motivated by low interest rates and an improving job market.
  • PPI: The producer price index increased 0.5% in May, and is up 1.8% year-over-year, led by higher food, energy, and light truck prices.  While prices increased more than forecasted, it was somewhat narrowly based, which should not have a notable impact on Fed policy.
  • Industrial Production: Production in May was unchanged, with capacity utilization off slightly to 77.6%, and manufacturing slightly up 0.1%, reflecting continued soft figures.
  • Consumer Sentiment: The Reuters/University of Michigan consumer sentiment index posted an 82.7 reading, below estimates of 84.5, with a slightly higher outlook on the economy, though showed weakness in the current conditions component.  Manufacturing is slowing, but the consumer is feeling a boost from rising home prices, and an improving labor market.
  • Retail Sales: May retail sales increased 0.6%, and increased 4.3% year-over-year, led by autos, building materials, food and sporting goods, though held back by home furnishings and appliances.
  • Economic highlights for the week ahead:
    • Tuesday, 6/18/2013: CPI, Housing Starts.
    • Wednesday, 6/19/2013: FOMC Meeting Announcement.
    • Thursday, 6/20/2013: Jobless Claims, Existing Home Sales.

Municipal market themes: California, Redevelopment, Stockton, Detroit

  • California: Continuing to be bolstered by the passage of Prop 30, Lawmakers passed a $96.3 billion budget, including setting $1.1 billion aside for reserves, while using conservative revenue forecasts.
  • Redevelopment: S&P released a report stating most California redevelopment agencies continue to pay debt service in full and on time, though a minority of agencies continue to struggle, and ambiguity remains among certain legislative issues.  The key for investors is to ensure that agencies produce sufficient tax increment revenue to cover debt service, utilize good management practices, and proactively plan to ensure continued success.
  • Stockton: The bankrupt city reached a settlement with health benefit claims for 1,100 retirees in the amount of a one-time lump sum payment of $5.1 million, to cover a liability in the hundreds of millions.
  • Detroit: The distressed city has planned to halt payments on unsecured bonds, including pension obligations, and is proposing paying 10 cents on the dollar.  The City begins negotiations with creditors, which should conclude on or around July 12th, with emergency manager Kevin Orr saying the city has a 50/50 percent chance of declaring bankruptcy.  Of note, much of the Detroit debt is insured.


This report is prepared for informational purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument or service.  Market prices and other data may be obtained from outside sources and is not warranted as to completeness or accuracy. Any comments, statements and/or recommendations made herein are subject to change without notice, and may not necessarily reflect those of Alamo Capital.  Past performance does not guarantee future results.  Alamo Capital has no affiliation with any political party. Investing involves risk. Consult with a Financial Professional for additional information to determine the suitability of this or any other financial product or issue as it relates to your particular situation.

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