A low yield environment is plaguing bond investors, but housing markets are benefitting. Read more in our Economic Outlook, a monthly newsletter authored by Greg Sweeney, CFA, chief investment officer at Bell State Bank & Trust. Sweeney holds a bachelor’s degree in business from the University of North Dakota, is a CFA charter holder, and is a 27-year veteran of the Investment Management team.

Federal Reserve Monetary Policy

• At the next Federal Reserve meeting on June 20, we expect the Fed to leave rates unchanged between zero and 0.25%. The Fed continues to indicate rates would remain near these lows until 2015, but dissension remains among the Fed members on this subject.

Inflation

• The year-over-year consumer price index (CPI) released in April shows inflation at 1.5%. April’s 0.5% decline from the previous month was aided by lower energy, apparel, transportation and commodity costs.

Economic Activity

• The Affordable Care Act (Obamacare) is looking like it will be anything but affordable, with healthcare rates projected by the industry headed noticeably higher than promised. It appears this has not been figured into forward corporate earnings projections yet. Politicians up for election in 2014 who voted for the program are scrambling to figure out how to distance themselves from it.
• Surveys show over half of Americans once again believe housing prices are headed higher over the coming year. Home sales are up, home prices are up, unsold inventories have declined and more new homes are being built. Housing is benefitting from the low yield environment that is plaguing bond investors who are looking for higher interest income.
• A survey of 60 central banks by the Central Banking publication and Royal Bank of Scotland show that 23% of central banks intend to acquire stock or increase stock positions they have already started. This action would be a blinking light on our fourth rule of successful investing: Never let the market force you to do things you would not normally do. Low rates are forcing central banks to drink their own Kool-aid.
• Gross domestic product (GDP) is the measure of domestic production, and its change reflects growth (or shrinkage) in the U.S. economy. There is a lot of consensus (or hope) around 2.5% GDP growth expectations for 2013, but we would not be surprised if that rate is less than that by year-end. First, it does not appear that the foundation is in place to support a 2.5% growth rate without lots of government stimulus, and second, the government is changing the way it calculates GDP – presumably to make the GDP reflect better numbers.

Fixed Income

• Treasury bond yields began to move lower in March and continued their progress through April. The 10-year Treasury yield is 1.66% at this writing.
• Yields are lower, because the economy is not performing in line with rosy growth expectations.
• Job opportunities are still scarce, taxes are rising, personal income is still flat, Europe is lagging and Japan is attempting their own monetary easing program.

Stock Market

• The stock market does not appear to see the same information that bothers the bond market. The Dow and S&P are near record highs in spite of nearly flat top-line revenue in first-quarter earnings reports and declining forward growth estimates for earnings.
• This suggests that the influence of the Federal Reserve’s money printing is still the main market theme. The Nikkei Index in Japan is a perfect Petri dish for watching how stock markets respond to central bank open market purchase operations. After about three years of generally declining trends, the Nikkei reversed course like a rocket and is up about 60% in the last four months on news that the Bank of Japan will be implementing Ben Bernanketype QE programs.
• It is fine for the markets to act this way, but it will take a good foundation of fundamentals to keep them there.

View previous Economic Outlook newsletters.

Talk to a banker with your banking questions 7 days a week, early or late. We are ready to help you with answers to your questions about many banking services including:

• Personal and business online banking
• Mortgage servicing
• Pay cards
• Debit card inquiries
• Rate inquiries
• Account opening
• General banking questions, as well as balance inquiries and other account-specific information

You can call our customer service department from Sunday through Saturday, 7 a.m. to 11 p.m., at 701-298-1550 or toll-free 800-450-8949.

The Wahpeton bank moved from its previous location at 209 Dakota Avenue. Wahpeton customers will be able to enjoy drive-up service and an ATM at the new bank, which also features amenities including a fireplace faced with North Dakota fieldstone.

Grand Opening Events:

• Register each week for a chance to win $1,000 Cash – 1 prize given away each week for 4 weeks
• Register for a chance to enter the money booth between 10 am – 2 pm daily
• Presidential Dollars will be given away
• Receive $50 when you open a new personal checking account (We’ll deposit the $50 after your account has been open 60 days and a direct deposit or automatic payment has occurred.)
• Ribbon Cutting Ceremony is Wednesday, May 1, at 2 p.m. with cake and refreshments

Marv was known to so many for his integrity, kindness and wit. He will be greatly missed by our bank family and the community. Our thoughts go out to Betty and the Bossart family.

Funeral services for Marv will be held Saturday, April 27, at 11 a.m. at Nativity Church in Fargo.

To learn more about Marv visit The Forum.

You can help protect yourself by being cautious and exercising due diligence before clicking on links, visiting websites or making donations. If you decide to donate to a cause, you might want to donate to a well-known and reputable organization to protect yourself and to ensure the donation actually goes to the cause of your choice.

Most SPAM or phishing emails are normally an invitation from someone you don’t know and contain Web links that look legitimate, but actually take you to a malicious website that infects your computer with malware.

Here are several ways you can help prevent cyber security attacks:

• Do not open attachments or click on Web links within emails unless you are sure the message is from someone you know and trust. Doing these things with unsolicited email is often the key method for attackers to gain control of your computer or infect it with a virus or other malware.
• Only go to reputable or “known” websites.
• In most cases, the best approach to dealing with suspicious messages is simply to delete them.
• Do not click on Web links from unknown senders.
• Make sure your antivirus program is up to date and that you have current patches for your computer system.
• Never reply to unsolicited emails or pop-up websites asking for sensitive personal information.
• If you are uncertain about an email you received from a company, protect yourself by going directly to the company’s website or contacting the company directly via phone rather than using a link provided in the email.

Remember: The integrity of your privacy and computer security depends on your judgment in these types of situations. To read more about how to protect yourself online please visit the Department of Homeland Security website labeled “Stop.Think.Connect” at http://www.dhs.gov/stopthinkconnect.

A native of Sioux City, Iowa, and a graduate of Arizona State University, Christensen has more than 20 years of experience in private banking, managing the banking relationships of high income/high net worth clients. She previously worked at U.S. Bank and Private Bank Minnesota and was with M&I Wealth Management prior to joining Bell State Bank & Trust. Christensen and her husband, Anders, live in Minneapolis.

Each year the Business Journal recognizes 50 women for their professional achievements, leadership qualities, and contributions to the Twin Cities community. Chris will be recognized at an award luncheon on May 23. Congratulations, Chris!

Where would the economy be if it progressed naturally? “Don’t be fooled by the radio, the TV or the magazines … they’re just someone else’s fantasies.” Maybe those lyrics are familiar to you from “Grand Illusion,” a popular ’70s song by the band Styx, from an album of the same name. “Join us in our blind ambition,” the lyrics continue.

Today we have the radio, TV and magazines telling us about economic growth, rising corporate profits, stock market advancement, improving housing markets, the wealth effect created by these moves and other happy notes about the economy. Don’t get us wrong: this is all great news. But is it an illusion? There seems to be more than a casual connection between news stories, the Federal Reserve’s money-printing programs and our huge federal deficits. Where would the economy be if it were progressing on its own accord? What will happen if these programs are scaled back or go away? Perhaps there is a “grand illusion” as they remain in place. After all, the most recent Federal Reserve quantitative easing program was unlimited.

Let’s not kid ourselves. Unemployment is still elevated, per capita earnings are still flat, GDP growth without federal deficit spending is flat at best, core consumer costs are rising faster than tracking data suggests, and savers are not able to earn any returns. A heavy dose of market manipulation remains in place to stimulate economic progress, and this makes it very difficult to judge the economy and markets, allocate assets and select securities. It’s like preparing a gourmet meal for dinner without a recipe, an oven thermometer or a cooking timer. The dish might turn out as anticipated, but the odds are not as good.

So what do we do?

• Your first order of business should be to know where you are going (your goal).

• Second, determine how long it will take to get there (how much time before you need the money);

• Third, decide how much to save along the way (how much you currently have saved and invested and how much more will you be adding to it).

After those parts of your plan are in place, select investment allocations based on long-term average return history, since recent return history for many asset classes is outside long term averages. Put those asset allocations together to form your portfolio and check it regularly to see if it is progressing as expected. Re-evaluate if there are material changes in your plans.

Yes, in these economic conditions, this can be a bit like cooking without a recipe, thermostat or timer. When it is done, the dish might be undercooked or overcooked, or perhaps it will come out just right. An old Chinese proverb says, “When is the best time to plant a tree? Ten years ago. When is the second best time to plant a tree? Today.”

If you’d like to talk more about investment scenario planning, call Greg Sweeney to start the conversation.

208-345-1196

800-709-5781

Continue reading the Financial FOCUS newsletter or view previous Financial FOCUS newsletters.

This is a monthly newsletter by Greg Sweeney, CFA, Chief Investment Officer, at Bell State Bank & Trust. Sweeney holds a bachelor’s degree in business from the University of North Dakota, is a CFA charter holder, and is a 27-year veteran of the Investment Management team.

Federal Reserve Monetary Policy

• At the next Federal Reserve meeting on April 25, we expect the Fed to leave rates unchanged between zero and 0.25%. The Fed continues to indicate rates would remain near these lows until 2015, but dissension remains among the Fed members on this subject.

Inflation

• The year-over-year consumer price index (CPI) released in March shows inflation at 2.0%. It turns out the increase in energy costs found its way into the calculation after all. April’s release is not likely to drift far from this level, but the following couple of months could see upward pressure.

Economic Activity

• The big news over the last few weeks has been the confiscation of depositor money on the island nation of Cyprus to make up for capital lost on bad loans made by banks. This is a perfect reminder that bank deposits beyond the limits of deposit insurance are a loan to a bank. This puts the burden of verifying the strength of banks on the depositor. Be assured that the capital adequacy at Bell State Bank & Trust is fine.
• The Federal Reserve makes the argument that it needs to keep rates artificially low to stimulate the economy. One of the reasons the economy is in its current condition is that there is already too much excess. There is no reason to build more tanker ships, more autos, more refrigerators or other goods. There is already enough capacity. If cheap borrowing is invested into more production and more efficiencies, the result is even more downward pressure on prices (due to increased production) and/or fewer jobs (due to increased efficiencies).
• The money-printing announcements continue – first by the U.S. Federal Reserve, then by Mario Draghi at the European Central Bank announcing he will do “whatever it takes.” The most recent country to announce its money-printing intent is Japan. It looks like the world is working through a remonetization process. If the past is an indication, this process goes on for about 20 years. That leaves 15 years of the process remaining.
• One theme continues to come into sharper focus: an elevated desire to avoid any indication of the potential for deflation.

Fixed Income

• Low volatility in the stock market, low interest rates, and more appetite for leverage are a good start to the formula for merger and acquisition (M&A) activity.
• M&A activity has the potential to turn a good bond into a questionable bond. Dell is a recent example of this situation. In January, long dated Dell bonds lost 20% of their value nearly overnight when discussions about a leveraged buyout began.
• These situations can be disruptive to good quality bonds that we like to focus on.

Stock Market

• Fear and greed play a big role in stock market performance. It appears that frustration may be a new ingredient in the mix. Investors remain fearful of the market, while upward movement makes them increasingly greedy for their share of the gains. Greed is not quite enough to offset fear, which is now creating frustration about entering the market near new highs.
• The stock market shrugged off the Cyprus bank news, perhaps because it means continued Federal Reserve intervention in the economy. It would be better to see consumer incomes rising, corporate revenues increasing to better support profits, stable geopolitical environments and an end to annual federal deficits.
• If frustration about the current market remains, perhaps there is a good reason. The best defense is a financial plan that fits your investment profile.

View previous Economic Outlook newsletters.

Wahpeton-Breckenridge location president Rick Steckler says Bell State Bank & Trust is pleased to be expanding service in Wahpeton-Breckenridge. In January, the bank opened a new location at 214 Fifth Street North in Breckenridge.

“Our new locations in Wahpeton and Breckenridge position us for growth to better serve both communities and the surrounding area,” said Steckler. “We are very excited to have this opportunity to show our commitment to the communities we serve.”

A grand opening will be held April 29 – May 4 at the Wahpeton bank, with a ribbon cutting on Wednesday, May 1, including cake and refreshments, and prizes including a $1,000 cash giveaway.