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Economic Update

October 21, 2013

Economic themes: Washington, S&P 500, Housing,

  • Washington: Paralysis by polarysis has been delayed for three months, as politicians were able to reach an agreement to reopen the government until 1/15/2014, and raise the debt ceiling until 2/07/2014.  A consensus among economists believes that the more than two week shutdown hurt Q4 QDP growth by 0.3%.  It would be nice to see politicians have substantive discussions over the next three months surrounding entitlements, tax reform, sequestration and health care reform, among several other topics, which will hopefully be achieved through the newly formed Congressional Budget Conference Committee, though very few are optimistic.  The unnecessary threat of economic Armageddon caused Fitch Ratings to place a negative outlook on U.S. debt.
  • S&P 500: With earnings season underway, and coming off its strongest week since July, the S&P 500 closed at a new all-time high on Friday.  The Federal Government shutdown, the nomination of Janet Yellen to succeed Bernanke, continued slow GDP growth, and continued slow employment growth, have combined to give investors more belief that tapering will be delayed until at least March.  Economists have revised earnings forecasts up to 2.5%, from 1.7% at the beginning of the month.  As a reminder, the economy is not the stock market, and the stock market is not the economy.
  • Housing: Existing home sales fell 1.9% in September to a 5.29 million annual pace, though is up 10.7% year-over-year, as homebuyers assess higher mortgage rates matched with higher home prices.  Housing starts data was not released last week due to the government shutdown.
  • Economic highlights from the week ahead:
    • Tuesday, 10/22/2013: Employment Situation.
    • Thursday, 10/24/2013: Jobless Claims, New Home Sales.
    • Friday, 10/25/2013: Durable Goods Orders, Consumer Sentiment.

Municipal market themes: San Bernardino, Puerto Rico, Stockton

  • San Bernardino: As mayors across California are working to put pension reform on the November 2014 ballot, CalPERS is making plans to appeal the decision that San Bernardino is eligible for bankruptcy.  They are working to claw back $13 million in back payments owed to the pension fund.  It may be more beneficial for them to consider the numbers, and work to make the pension system sustainable for the long term while continuing to provide essential services to residents, but that would require taking a bigger picture approach.
  • Puerto Rico: The commonwealth said they may postpone borrowing plans, scheduled for later in the year, as the island’s borrowing costs have surged over the past five months.  The key for the success of the commonwealth will be to create economic growth, while striving to reduce budget deficits.
  • Stockton: Moody’s downgraded the city’s pension obligation bonds to Ca from Caa3, as the proposed restructuring could create losses of 50-65%, though insurer Assured Guaranty is scheduled to stomach the brunt of those.  The outlook on the city’s lease revenue bonds have been changed to developing, as they consider how well the City will be able to make the lease payments.


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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