Weekly Economic and Market Review

The purpose of this weekly update is to provide our clients and prospective clients with a brief summary of market conditions and an update on how the Trust Division views these economic and market activities. Anxiety about the markets is understandable given the great volatility and difficult economic conditions. Our hope is that we can provide information and understanding concerning how assets held with the Trust Division are being protected and managed. If you are interested in learning more about asset management at Union First Market Bank, please contact us.

- The Trust Division's Investment Strategy Committee

(Figures as of 5-14-12)

Economy:

Europe's debt-heavy banking system was headline news again last week. A TARP-like program in Europe is called LTRO or Long-term Refinancing Operation. The European Central Bank (ECB) is in its third year of LTRO and is lending money to banks at low rates to facilitate their recovery. More loans made last week ignited fears in the markets. Domestically we had jobless claims drop (367,000 which met expectations) and Consumer Sentiment rise (which should relate to higher consumer spending).

Markets:

A 6-day equity market losing streak ended last Thursday. However for the week, domestic markets contracted modestly with the S&P 500 down 1.06%. Across the oceans, the international markets were hit hard with concerns over growth in emerging markets and debt in Europe. The broad EAFE (Europe, Australasia, & Far East) was down 2.42%, with the emerging markets and Japan all down over 4%. From a style perspective, large growth is heavily outperforming large value YTD (13.08% versus 4.41%).

Investment focus:

The "Too Big to Fail" debate is back. It is ironic that the $2Bil. trading loss reported last week occurred at JP Morgan, which has been one of the principal firms opposing the Volker Rule. It also ignites the debate as to whether there has been meaningful reform in the financial markets. Regulators have been accused of watering down the reform measures under great pressure from the financial institutions that caused the problem in the first place. What is the Volker Rule? It is a part of the larger Dodd-Frank financial reform bill. The "rule" was supposed to prohibit banks from taking large risks, particularly on their proprietary trading desks. Because of the vast interconnectedness of the banking system, a single large trade could possibly place the whole banking system at risk of failure. The final version of the Volcker Rule has not been agreed upon yet, but there are hopes that the completed version will be ready this summer.