• Social Security Board of Trustees: Projected Trust Fund Exhaustion – Three Years Sooner Than Last Year Valeo Financial Advisors

Markets

• See the 11 biggest Internet IPOs in U.S. history Yahoo! Finance
• Trading Time: 220 Years at the New York Stock Exchange. Slide-show: Securities Technology Monitor

U.S. Economy

• Retail Sales Slow; Consumer Prices Flat NPR
• Capacity utilization rises to 79.2 percent, the highest level in four years Chart: St. Louis Federal Reserve

U.S. Dollar

• Where Dollar Bills Come From, and the declining use of cash and checks Planet Money
• With 11 straight up days in a row, the Dollar index is tied for its longest winning streak ever. Bespoke

Europe

• The German economy is “responsible for 65% of the region’s growth in output on average since 2007″ The Economist

Below you will find a press release from the Social Security Administration which highlights some of the key statistics in this year’s annual report. Important to note are the acceleration of several depletion dates (e.g. combined Trust Fund exhaustion in 2033, DI Trust Fund exhausted in 2016, etc.) and growing deficit rates under the status quo. We believe it is very important to consider how this may impact your retirement planning.

Monday, April 23, 2012

SSA Press Office

Social Security Board of Trustees: Projected Trust Fund Exhaustion Three Years Sooner Than Last Year

The Social Security Board of Trustees today released its annual report on the financial health of the

Social Security Trust Funds.  The combined assets of the Old-Age and Survivors Insurance, and

Disability Insurance (OASDI) Trust Funds will be exhausted in 2033, three years sooner than

projected last year.  The DI Trust Fund will be exhausted in 2016, two years earlier than last year’s

estimate.  The Trustees also project that OASDI program costs will exceed non-interest income in

2012 and will remain higher throughout the remainder of the 75-year period.

In the 2012 Annual Report to Congress, the Trustees announced:

• The projected point at which the combined Trust Funds will be exhausted comes in 2033 – three

years sooner than projected last year.  At that time, there will be sufficient non-interest income

coming in to pay about 75 percent of scheduled benefits.

• The projected actuarial deficit over the 75-year long-range period is 2.67 percent of taxable

payroll — 0.44 percentage point larger than in last year’s report.

• Over the 75-year period, the Trust Funds would require additional revenue equivalent to $8.6

trillion in present value dollars to pay all scheduled benefits.

“This year’s Trustees Report contains troubling, but not unexpected, projections about Social

Security’s finances.  It once again emphasizes that Congress needs to act to ensure the long-term

solvency of this important program, and needs to act within four years to avoid automatic cuts to

people receiving disability benefits,” said Michael J. Astrue, Commissioner of Social Security.

 Other highlights of the Trustees Report include:

 • Income including interest to the combined OASDI Trust Funds amounted to $805 billion in

2011.  ($564 billion in net contributions, $24 billion from taxation of benefits, $114 billion in

interest, and $103 billion in reimbursements from the General Fund of the Treasury—almost

exclusively resulting from the 2011 payroll tax legislation)

• Total expenditures from the combined OASDI Trust Funds amounted to $736 billion in 2011.

• Non-interest income fell below program costs in 2010 for the first time since 1983.  Program

costs are projected to exceed non-interest income throughout the remainder of the 75-year

period.

• The assets of the combined OASDI Trust Funds increased by $69 billion in 2011 to a total of

$2.7 trillion.

• During 2011, an estimated 158 million people had earnings covered by Social Security and paid

payroll taxes.

• Social Security paid benefits of $725 billion in calendar year 2011.  There were about 55 million

beneficiaries at the end of the calendar year.

• The cost of $6.4 billion to administer the program in 2011 was a very low 0.9 percent of total

expenditures.

• The combined Trust Fund assets earned interest at an effective annual rate of 4.4 percent in

2011.

 The Board of Trustees is comprised of six members.  Four serve by virtue of their positions with the

federal government: Timothy F. Geithner, Secretary of the Treasury and Managing Trustee;

Michael J. Astrue, Commissioner of Social Security; Kathleen Sebelius, Secretary of Health and

Human Services; and Hilda L. Solis, Secretary of Labor.  The two public trustees are Charles P.

Blahous, III and Robert D. Reischauer.

 The full report can be found at www.socialsecurity.gov/OACT/TR/2012/

• In 1981 household debt was 47% of U.S. GDP, in 2007 it was 96%. A look back at The Great Credit Boom that Was Valeo Financial Advisors
• Consumer credit in the U.S. rose in March by the most in over 10 years Bloomberg
• U.S. trade deficit widened in March to $51.8 billion from February’s revised $45.4 billion Chart: St. Louis Fed

Financial Planning

• According to Freddie Mac, fixed mortgage rates set new record lows. Chart of the last 5 years: Valeo Financial Advisors
• Get your social security statement online by setting up a my social security account. U.S. Social Security Administration

The Dismal Science (aka Economics)

• Simon Johnson on Why Economic History Matters. 5 books from The Browser
• Stumped by an economics term? Check out the new glossary from Page One Economics St. Louis Fed

Miscellaneous

• Are Smart Phones Spreading Faster than Any Technology in Human History? MIT

The average rates include an average fees and points paid that typically range from 0.5 to 1 point. The most recent rates included 0.7 points for the 30-year fixed and 15-year fixed and 0.5 points for the 5/1 ARM.

Data Source: Freddie Mac

The great credit boom in the U.S., that came to a halt during the latter part of the past decade, has its roots in the early 1980s. Following a double dip recession in 1980 and 1982, the U.S. economy began to expand. Double digit interest rates and inflation subsided and interest rates would begin a slow, secular decline that would span over three decades. While the economy grew in the middle part of the ’80s, all sectors of credit market, both private and public, increased their debt load.

The great expansion in credit took a pause in the late 1980s and early ’90s as the U.S. suffered through a savings and loans crisis, followed by a recession. By the mid ’90s, however, the second leg of the credit boom took hold and credit expanded further, this time for a prolonged period of time. Consumers, corporations and financial institutions all took on more debt as the ’90s progressed. Even as the recession of 2001 hit, the only private sector to see a reduction in its credit to GDP ratio was non-financial corporations.

By the fourth quarter of 2007, just prior to the U.S heading into recession, household debt stood at 97% of GDP, non-financial corporate debt was 75%, financial institution debt 62%, state and local government debt 20% and federal government debt 36%. As the economy shrunk, all of these percentages rose as GDP contracted. Total U.S. credit market debt eventually peaked at 309% of GDP during the first quarter of 2009.

As of the end of last year, each segment of the credit market has seen a decline in the amount of debt relative to GDP, except the federal government. The financial sector has contracted the most on a relative and absolute basis. By the end of 2011, the size of the total U.S. credit market relative to GDP declined to 289%. Interestingly, this is the same level as it was just prior to the Great Recession.

Data Source: Federal Reserve

Note: U.S. government agency securities, government sponsored enterprise (GSE), debt is not included in the total. GSE debt includes Fannie Mae, FHLB, Freddie Mac, Farm Credit System, Sallie Mae, REFCORP, FICO and Farm Credit System.  The majority of GSE debt is in the form of home mortgages and student loans. This debt is owed by households and non-financial corporations and, therefore already captured.

• 50 Years of Growth: Comparing the U.S. economy to the troubled European nations and large emerging economies Valeo Financial Advisors
• Transaction costs are 10-15% of the price of a house in Greece, Italy & Spain, compared with 5% in US The Economist
• See how the dollar is faring against currencies of a broad group of U.S. trading partners St. Louis Federal Reserve

U.S. Economy

• Consumer spending in U.S. increases as incomes rise Bloomberg
• Businesses added only 115,000 jobs in April, but the unemployment rate came down from 8.2% to 8.1%: USA Today

Housing

• Fixed Mortgage Rates Average New All-Time Record Lows Freddie Mac
• Homeownership rate in U.S. falls to lowest since 1997 Bloomberg

Markets

• A simple explanation of credit default swaps and their impact on Europe’s debt crisis St. Louis Federal Reserve

Financial Planning

• Will Medicare Costs Outpace Social Security Benefits? The Wall Street Journal
• How Soon Will States Close Their Estate Tax Loopholes? Financial Planning

Miscellaneous

• Canada Prepares to Go Penniless The Wall Street Journal

Follow us on Twitter @valeofinancial

Over this fifty year period, the United States was the largest economy, typically by a wide margin. Relative to the U.S. though, nations grew at a different rates with some gaining on the U.S. for periods of time.

One way to gauge the economies of the world relative to the U.S. is to use gross domestic product (GDP). GDP measures the size of a nations economy by totaling all final goods and services produced within a country’s borders.

Further dividing GDP by the total population of a nation is useful for understanding the economic output of a country per citizen. This is called GDP per capita.  While GDP per capita does not reflect the differences in the cost of living or a standard of living, increases in GDP per capita can indicate increased productivity within a country and the economic progress of a nation.

In 1960, merely 15 years after the end of World War II, GDP per capita in the U.K., France and Japan was far less then it is today.

The most remarkable improvement over the fifty year time period, below, was in Japan. In 1960 GDP per capita in Japan was only 17% of the U.S. By 1972 it was 50%, 1987 equal and then peaked in 1995 at 147%. Today the figure stands at 91%.

GDP per capita, relative to the U.S., for the troubled nations of Europe (Portugal, Ireland, Italy, Greece and Spain) declined during the global recession of 2009. Increadibly each of these nations had a GDP per capita that was only a fraction of the U.S.’s in 1960. Relative gains were made throughout the second half of the 20th century with great improvements coming during the 1985-1995 period and immediately after the formation of the European Monetary Union in 1999. The GDP per capita in Ireland, relative to the U.S.,  reached a surreal figure of 128% in 2007, right before the world plunged into a recession.

In 2001, Jim O’Neil, of Goldman Sachs, created the acronym BRIC to easily identify a sub-set of emerging economies; Brazil, Russia, India and China. GDP per capita in India and China, relative to the U.S., never climbed above 3% throughout the final forty years of the last century. While India’s relative GDP per capita stands at 3% today, China’s relative GDP per capita has more than doubled to 8% in 2010. While GDP per capita in both nations is low compared to the U.S., it should be noted that the populations of India and China are 4.3 and  3.8 times larger, respectively, then the United States.

• Unemployment in America: How Is Your State Faring? Valeo Financial Advisors
• U.S. consumer confidence edged up to 76.4 in April, according to the University of Michigan sentiment index Moody’s
• Q1 2012 GDP +2.2%: Growth slows on inventories and weak business spending Yahoo! Finance
• Orders for U.S. goods decrease by the most in three years Bloomberg
• Why American house prices have corrected more than those in Europe The Economist

Foreign Economies

• U.K. slides into first double-dip recession since 1970s Bloomberg
• Japan extends its quantitative easing program The Financial Times

Investing

• Costs matter (always have, always will): Investors are still voting with their feet Vanguard
• The Cost of Bad Buy/Sell Decisions Visual News

Follow us on Twitter @valeofinancial

The national unemployment rate, while helpful in assessing the economic conditions of the U.S. as a whole, does not account for the differing economic environments around the country. By focusing on the unemployment rate in each of the 50 states plus the District of Columbia it is easier to appreciate the job prospects for people in different parts of the nation.

In the chart below, current state unemployment rates are plotted against the spectrum of unemployment rates each individual state has experienced since 1976. This allows for perspective on today’s unemployment rate. For example, the current unemployment rate in Alabama is 7.3%, while the peak, since 1976, was 14.3% and the bottom was 3.2%.

 Highlights:

• During 2009 and 2010, ten states experienced their highest unemployment rate since 1976. These peaks were California 12.4%, Colorado 9.0%, Connecticut 9.4%, Florida 11.4%, Georgia 10.5%, Kansas 7.6%, Nevada 14%, North Carolina 11.4%, Rhode Island 11.9% and South Carolina 12%.
• North Dakota’s current unemployment rate of 3.0% is not only the lowest in the country but also close to the states record low rate of 2.6% enjoyed during July 2001.
• Only four states currently have an jobless rate of less than 5%; North Dakota, Nebraska, South Dakota and Vermont. (Alaska is the only state, since 1976, that has never had less than a 5% unemployment rate. The lowest for the state since 1976 was 5.9% in April of 2007).
• The unemployment rates in California, Colorado, Georgia, Nevada and Rhode Island all remain elevated and near record highs.
• As grisly as the Great Recession was, peak unemployment of 10.0% was not the highest that the national unemployment rate has been in recent history (1976 to present). The figure stood at 10.8% in November 1982. On the opposite end of the spectrum, the lowest national rate achieved since 1976 was 3.8% in April 2000, the height of the tech bubble.

• The Influence of Boomers: The Baby Boom Generation at Retirement Valeo Financial Advisors
• How baby boomers are picking a retirement age Yahoo! Finance

Markets

• The S&P 500 Adjusted for Dividends and Inflation Crossing Wall Street

Taxes

• 10 Things the IRS Won’t Tell You Wall Street Journal
• Taxes in America, in 2 graphics. Planet Money
• The average tax rates for America’s middle-income and rich households The Economist

Miscellaneous

• Management Tip: Run a Decisive Project Meeting Harvard Business Review

Follow us on Twitter @valeofinancial