Wealth Management Weekly Update August 23, 2013

safemoneybwU.S. and World News

  • The Nasdaq stock exchange, which controls the trading of most of the biggest technology companies like Apple and Google, suffered a three hour outage on Thursday which saw all trading in stocks listed on that exchange grind to a halt. Nasdaq cited “connectivity issues” as the reason for the “Flash Freeze”, but no other details have been made available. Trading resumed later in the day without incident but SEC boss Mary Jo White says the exchanges need extra scrutiny and will push to implement rules that would require them to add testing requirements and safeguards for their trading software.
  • Federal Open Market Committee minutes from this week confirmed the Federal Reserve’s intention to start winding down its QE program, but provided little clarity about the timetable and scale of the tapering of asset purchases. Some committee members appear to favor beginning this process next month, while others state that they’d like to see more economic data confirming the U.S. recovery before pulling back.
  • Labor unions, pension funds and individuals have submitted their objections to Detroit’s request for bankruptcy protection. Notably missing from the groups submitting an objection were Detroit bondholders and bond insurers who have billions of dollars at stake. The arguments against the city’s Chapter 9 filing are that it breaches state and national constitutions, that the city didn’t negotiate in good faith and that it hasn’t proven that it’s insolvent.

Markets

  • Stock markets were mixed this week on light trading volume, Fed tapering concerns and unrest in the Middle East. The S&P 500 Index rose by 0.46%, closing at 1,663. The Dow Jones Industrial Average was down 0.47% to close at 15,010. The S&P and the Dow respectively are up 16.64% and 14.55% year to date.
  • Treasury yields were volatile this week with the 10 year treasury ending the week where it did last week at 2.82% but not before climbing to a high of 2.92% in the middle of the week. Meanwhile, the 5 year treasury continued to rise and ended the week at 1.63%.
  • The spot price of WTI Crude Oil dipped this week by 0.91%, and closing at $106.31 per barrel. Year to date, oil is up 13.58%.
  • The spot price of Gold continued its recent climb higher this week, increasing by 1.49% and closing at $1,397.14/ounce. Gold is now down 16.61% this year.

Economic Data

  • Weekly Initial Jobless Claims rose a bit this week, increasing by 16,000 and coming in at 336,000 vs. expectations of 330,000. Despite the uptick in claims this week, the 4-week moving average of jobless claims moved down to 331,000, a new post-recession low.
  • New home sales numbers strongly disappointed as they dropped 13.4% in July vs. expectations of a decline of only 2.0%. This was the largest single month drop since the end of the first-time homebuyer tax credit in 2010. Based on contract signings instead of closings, new home sales are a more timely indicator of activity than the stronger than expected existing home sales figure from July also released this week. This steep drop is concerning in light of the rise in mortgage rates in recent months and the drop in new purchase mortgage applications.
  • The value of U.S. petroleum and coal exports has more than doubled to $110 billion year over year as of June 2013 from $51.5 billion three years ago. This makes the category the fastest growing in U.S. for sales abroad. Oil and gas exports showed the second fastest expansion with an increase of 68.3%, further demonstrating how the country’s energy boom is boosting the economy.

Fact of the Week

  • According to a study by the Department of Agriculture, a child born in 2012 will cost a higher-income family (defined as pre-tax household income of at least $105,000) $399,780 in unadjusted 2012 dollars and $501,250 in inflation adjusted dollars over the first 17 years of the child’s life (ie. not including any college costs).

Please contact a member of the Wealth Management Department if you have any questions about this information.

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Jean Van Keppel CFA® – (630) 906-5489 jvankeppel@oldsecond.com
Brad Johnson – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg – (630) 966-2462 jrunnberg@oldsecond.com

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Wealth Management Weekly Update August 19, 2013

sphinx_pyramids_300pxU.S. and World News

  • Violence in Egypt has returned as citizens protested the actions of the country’s military. Egypt has been plagued by unrest since widespread demonstrations prompted the Egyptian army to oust the country’s elected president, Mohamed Morsi, from power and install a provisional government in July. In the weeks since, Morsi supporters have taken to the streets protesting these actions and calling for Morsi’s reinstatement. The military, struggling to contain the demonstrations, have cracked down violently, reaching new levels this week as it is reported that the civilian death toll has topped 600. Stock markets and oil markets have been reacting negatively to the bloodshed in the embattled region.
  • With the September Federal Reserve meeting fast approaching and speculation of an announcement of tapering of asset purchases growing, some Fed members are voicing their concerns that it may be too soon. St. Louis Fed’s Jim Bullard argued that the Fed needs more data before deciding whether to begin a reduction of purchases. His argument was that while unemployment is down and payroll growth is generally strong, other measures such as GDP are weak and inflation expectations are tame.

 

Markets

  • Stock markets continued to sell off this week on light trading volume, Fed tapering concerns and unrest in the Middle East. The S&P 500 Index fell by 2.10%, closing at 1,656. The Dow Jones Industrial Average was down 2.23% to close at 15,082. The S&P and the Dow respectively are up 16.10% and 15.09% year to date.
  • Treasury yields spiked up this week on continued tapering concerns with the 5 year and 10 year treasury finishing at 1.57% and 2.83% respectively.
  • The spot price of WTI Crude Oil rose on the violence in Egypt this week, increasing by 1.62%, and closing at $107.69 per barrel. Year to date, oil is up 14.91%.
  • The spot price of Gold jumped higher this week, increasing by 4.58% and closing at $1,373.44/ounce. Gold is now down 18.02% this year.

 

Economic Data

  • Weekly Initial Jobless Claims fell to a new post-recession low, declining by 13,000 and coming in at 320,000 vs. expectations of 335,000. The Labor Department did not note any special factors distorting the data as they have in the last several weeks. The 4-week moving average of jobless claims moved down to 332,000, also a new post-recession low.
  • Housing starts rose by less than expected in July at a rate of 5.9% vs. expectations of 7.7%. Over the past 12 months, total housing starts are up 20.9% and building permits are up 12.4%.

Fact of the Week

  • Since the S&P 500 hit its bottom on 3/9/09, the bull market has entered its 54th month and the index has gained 175% in total return through the close of trading last Friday 8/9/13. The average bull market for the stock index since 1950 has lasted 57 months.

Please contact a member of the Wealth Management Department if you have any questions about this information.

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Jean Van Keppel CFA® – (630) 906-5489 jvankeppel@oldsecond.com
Brad Johnson – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg – (630) 966-2462 jrunnberg@oldsecond.com

Visit Old Second Wealth Management

Wealth Management Weekly Update August 9, 2013

house_door_250pxU.S. and World News

  • President Obama came out this week to propose the winding down of Fannie Mae and Freddy Mac, the two giant mortgage-finance companies that were taken over by the government when they nearly failed five years ago. Under Obama’s plan, Fannie and Freddie would further shrink their portfolios and lose the implicit guarantee of a federal bailout. Instead, private investors would be most at risk, with the government acting as a secondary guarantor. Despite the presidential push, it’s not likely that Congress would approve a bill before 2015. Further, complicating matters is the $10.1 billion earned in 2nd quarter profit by Fannie Mae which goes entirely into the government coffers. The government will also get $4.4 billion from Freddie Mac this quarter, making the government’s profit on these two entities higher than the tax receipts of many of the top corporate taxpayers combined. Should these sorts of returns continue, it’s unlikely that the government will be in too big of a hurry to sever its ties with the largest mortgage lenders in the country.
  • Mexican President Enrique Pena Nieto presented a plan to Congress that would overhaul the country’s energy sector as part of a wider economic revamp. Nieto wants to allow private companies to produce oil and gas via profit-sharing deals and joint ventures with state-owned companies. The reforms would also open power generation to more private participation in Mexico.

 

Markets

  • Stock markets fell this week after setting all-time high last week. The S&P 500 Index fell by 1.07%, closing at 1,691. The Dow Jones Industrial Average was down 1.49% to close at 15,425. The S&P and the Dow respectively are up 18.60% and 17.71% year to date.
  • Treasury yields fell a bit this week with the 5 year and 10 year treasury finishing at 1.36% and 2.58% respectively.
  • The spot price of WTI Crude Oil fell a bit this week, declining by 0.86%, and closing at $106.02 per barrel. Year to date, oil is up 13.12%.
  • The spot price of Gold rose modestly this week, increasing by 0.04% and closing at $1,313.27/ounce. Gold is now down 21.61% this year.

 

Economic Data

  • Weekly Initial Jobless Claims rose slightly, climbing by 7,000 and coming in at 333,000 vs. expectations of 335,000. The Labor Department did not note any special factors distorting the data as they have in the last several weeks. The 4-week moving average of jobless claims moved down to 336,000, a new post-recession low.
  • Economic data was positive out of China this week and added evidence that the country’s economy is stabilizing. Industrial production rose 9.7% year over year in July vs. expectations of 9%. Meanwhile, inflation stayed tame at 2.7% which analysts say provides room for the country to provide stimulus without inflation getting out of control.

Fact of the Week

  • Japan’s national debt has passed ¥1,000,000,000,000,000 (¥1 quadrillion) for the first time, increasing by 1.7% in the 2nd quarter. The debt level is equivalent to $10.46 trillion and is larger than the combined economies of Germany, France and the United Kingdom.

Please contact a member of the Wealth Management Department if you have any questions about this information.

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Jean Van Keppel CFA® – (630) 906-5489 jvankeppel@oldsecond.com
Brad Johnson – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg – (630) 966-2462 jrunnberg@oldsecond.com

Visit Old Second Wealth Management

Wealth Management Weekly Update August 2, 2013

U.S. and World NewsHousehold-04

  • The Fed slightly downgraded its view of the U.S. economy during this week’s policy meeting, saying it’s expanding at a “modest” pace vs. the “moderate” pace it claimed last month. However, the Fed didn’t provide any hints about any alteration to the future course of Quantitative Easing.
  • President Obama revived a plan to cut the corporate tax rate to 28% from 35% and to overhaul the tax code. The plan would generate funds that would be used to finance infrastructure, education and promoting manufacturing. To limit tax evasion and the use of tax havens, Obama proposed a minimum tax on foreign earnings. Republicans are reportedly unimpressed with the plan, so it remains to be seen if it will make much headway in the House.

Markets

  • Stock markets set new all-time highs this week as the S&P 500 Index rose by 1.07%, closing at 1,709. The Dow Jones Industrial Average was up 0.64% to close at 15,658. The S&P and the Dow respectively are up 19.88% and 19.49% year to date.
  • Treasury yields rose a bit this week with the 5 year and 10 year treasury finishing at 1.37% and 2.60% respectively. Rates were volatile this week, rising substantially on Fed tapering fears before subsiding after a less than stellar employment report.
  • The spot price of WTI Crude Oil resumed its climb higher, rising by 1.95%, and closing at $106.74 per barrel. Year to date, oil is up 13.89%.
  • The spot price of Gold declined this week, falling by 1.87% and closing at $1,308.23/ounce. Gold is now down 21.91% this year.

 Economic Data

  • Weekly Initial Jobless Claims fell to a new post-recession low, declining by 17,000 and coming in at 326,000 vs. expectations of 345,000. However, the Labor Department continues to note that seasonality factors may have distorted the data. The 4-week moving average of jobless claims moved down to 341,000.
  • The July employment report was on balance disappointing as payrolls, income and hours worked grew less than expected. Payrolls grew by 162,000 vs. consensus expectations of 185,000 in July and the prior two months figures were revised down by a combined 26,000. There continued to be little impact from the sequester on federal jobs despite all of the commotion raised by the White House prior to its implementation.
    • The headline unemployment rate did decline more than expected, to a level of  7.4% from 7.6%. However, the decline in the unemployment rate was due in part to declining labor force participation as 240,000 people left the workforce.
  • ISM manufacturing data came in much stronger than expected in July with the index rising to 55.4 vs. expectations of 52. The details of the report showed even stronger improvement with indications of future growth in production.
  • Real GDP grew a stronger than expected 1.7% in the 2nd quarter vs. expectations of 1.0%. The report was neither particularly good nor bad with the current quarter exceeding expectations but the 1st quarter’s figure being revised down to 1.1% from 1.8%.

Fact of the Week

  • The average cost of winning a Senate race in 2012 was $10.35 million, while the average cost of winning a House race was $1.60 million. Both figures are all-time records on both a nominal and inflation adjusted basis. The largest amount ever spent on a congressional race was the $63.2 million spent by Jon Corzine during his successful senatorial race in New Jersey in 2000.

Please contact a member of the Wealth Management Department if you have any questions about this information.

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Jean Van Keppel CFA® – (630) 906-5489 jvankeppel@oldsecond.com
Brad Johnson – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg – (630) 966-2462 jrunnberg@oldsecond.com

Visit Old Second Wealth Management