Wealth Management Weekly Update March 31, 2014

ukraine_moscow_mapU.S. and World News

  • World leaders met in the Netherlands this week to discuss a wide range of issues, but probably most notably the situation with Russia and Ukraine. The leaders barred Russia’s participation from the scheduled G-8 meeting, making it instead a G-7 conference with the United States, Britain, France, Germany, Italy, Canada and Japan participating. The group reaffirmed that Russia’s actions will have significant consequences, declaring Russia’s annexation of Crimea as a clear violation of international law.
  • The International Monetary Fund (IMF) has agreed to provide Ukraine with $14-18 billion as part of an economic reform program that will enable the country to tap into a total of $27 billion of international support over the next two years. In the U.S., Congress has overwhelmingly approved an aid package for Ukraine that includes $1 billion in loan guarantees and $150 million in direct assistance.

Markets

  • Stock markets were mixed this week. The S&P 500 was down 0.45% for the week, closing at 1,858.The Dow Jones edged up 0.12%, closing at 16,323. So far in 2014, the S&P is up 1.00% and the Dow Jones is now down 0.97%.
  • Short maturity issues saw their yields rise again this week, continuing last week’s trend following Janet Yellen’s hints that rate hikes may be coming sooner that expected. The     5 year and 10 year U.S. Treasury Notes are now yielding 1.75% and 2.72%, respectively.
  • The spot price of WTI Crude Oil ended the week up 2.06%, closing at $101.53 per barrel.  Year to date, Oil prices have risen 3.61%.
  • The spot price of Gold fell by 3.03% this week, closing at $1,293.85 per ounce. Year to date, Gold prices are up 7.67%.

Economic Data

  • Initial jobless claims dropped by 10,000 from last week, coming in at 311,000 vs. consensus estimates of 323,000. The four week moving average for claims fell to 318,000 continuing the positive trend in this timely employment indicator.
  • The Case-Schiller home price index rose a solid 0.8% in January vs. expectations of 0.6%. All 20 cities in the index saw price increases and prices nationally have risen 13.2% over the past year.
  • Chinese factory activity has shrunk for the fifth straight month with manufacturing PMI slipping to a reading of 48.1 (a reading of 50 is breakeven). Analysts see weakness in the country being broadly based and expect the Chinese government to launch a series of policy measures in an effort to stabilize growth.

Fact of the Week

  •        According to Bloomberg, American corporations hold an estimated total of $1.95 trillion in foreign earnings that have not been brought back into the United States in order to avoid the taxation of repatriating these funds. This foreign cash is equal to 12% of the size of the U.S. economy.

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 March 17, 2014

U.S. and World News

  • Quickly condemned as an illegal referendum by the U.S., the overwhelming majority of Crimeans voted to secede from Ukraine and join Russia last Sunday. Russian President Vladimir Putin authorized the annexation despite warnings of economic sanctions from President Obama and European Union nations. Obama has since responded by imposing asset freezes and visa bans on some senior Russian officials and businessmen closely associated with Putin. Meanwhile, Ukraine plans to pull its troops out of Crimea, effectively accepting Russia’s annexation of the province and will now fortify its eastern border with Russia.
  • fed_000011172845SmallThe Federal Reserve board met this week and decided to continue on with the tapering of asset purchases, lowering monthly treasury purchases by another $10 billion to $55 billion per month. The Committee also provided an update to their forward guidance regarding raising short term interest rates from their near zero level. First, they have abandoned the use of a 6.5% unemployment rate threshold as a timing mechanism for raising rates. The unemployment rate has continued to fall, aided by a declining labor force, and was no longer useful to the policy makers as a true measure of labor market strength. Secondly, the Committee confirmed their use of a 2% inflation target when deciding on policy. Chairwoman Janet Yellen also made headlines when she estimated that rate hikes could come “around six months” after the Fed fully winds down its Quantitative Easing program. With the pace of tapering setting the course for an October end of asset purchases, higher rates could come in April of 2015, earlier than many expectations of late 2015/early 2016.

Markets

  • Despite the results of the Crimean annexation vote and an increase of international political tensions, stock markets rose this week. The S&P 500 was up 1.38% for the week, closing at 1,867. The Dow Jones climbed 1.48%, closing at 16,302. So far in 2014, the S&P is up 1.45% and the Dow Jones is now down 1.09%.
  • Treasury yields jumped higher this week, especially shorter maturity issues, after Janet Yellen’s hints that rate hikes may be coming sooner that expected. The 5 year and 10 year U.S. Treasury Notes yielding 1.71% and 2.75%, respectively.
  • The spot price of WTI Crude Oil ended the week up 1.04%, closing at $99.58 per barrel.  Year to date, Oil prices have risen 1.62%.
  • The spot price of Gold fell by 3.51% this week, closing at $1,334.32 per ounce. Year to date, Gold prices are up 11.04%.

Economic Data

  • Initial jobless claims edged up by 5,000 from last week, coming in at 320,000 vs. consensus estimates of 322,000. The four week moving average for claims fell to 327,000 continuing the positive trend in this timely employment indicator.
  • The Headline Consumer Price Index rose 0.1% in February, in line with expectations. Energy prices declined 0.5%, as a 3.6% increase in natural gas prices was offset by a 1.7% decline in motor fuel prices. Over the past year, headline CPI has increased 1.1%, consistent with a subdued inflationary environment.

Fact of the Week

  • According to a study by the National Institute on Retirement Security, 38 million of the 84 million American households (45%) that are headed by working-age people (ie. not retired) do not own any tax-advantaged retirement accounts like an IRA or 401(k).

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 March 17, 2014

iStock_000024203309Small_350U.S. and World News

  • Tensions continue to mount overseas as rhetoric and vague threats of economic sanctions from President Obama and John Kerry against Russian action in Ukraine have fallen on deaf ears. The citizens of the Ukrainian province Crimea are scheduled to hold a referendum vote on Sunday in regards to joining the Russian Federation. Russia has stated that they will honor the results of the vote by the Crimean people, while John Kerry has stated that an annexation of Crimea by Russia will not be recognized by the United States and would bring with it strong consequences.
  • A bipartisan group of senators has agreed on a proposal to renew long-term jobless benefits for five months. The payments would be made retroactively from December, when the previous extension expired. The measure, which would cost $10 billion, is expected to pass through the Senate, but is expected to meet significant opposition in the House, making ultimate passage a toss-up.

Markets

  • Stock markets fell this week amid disappointing economic data from China and intensified rhetoric leading up to the Crimean referendum vote. The S&P 500 fell 1.92% for the week, closing at 1,841. The Dow Jones dropped by 2.29%, closing at 16,066. So far in 2014, the S&P is up 0.07% and the Dow Jones is now down 2.53%.
  • Treasury yields came back down this week following the increasing of tensions overseas with the 5 year and 10 year U.S. Treasury Notes yielding 1.54% and 2.66%, respectively.
  • The spot price of WTI Crude Oil ended the week down 3.54%, closing at $98.95 per barrel.  Year to date, Oil prices have risen 0.52%.
  • The spot price of Gold increased this week, gaining 3.19% and closing at $1,382.72 per ounce. Year to date, Gold prices are up 15.07%.

Economic Data

  • Initial jobless claims dropped by 8,000 from last week, coming in at 315,000 vs. consensus estimates of 330,000. The four week moving average for claims fell to 330,500. The Labor Department noted that there were no special factors affecting last week’s claims.
  • Consumer inflation in India fell for the third consecutive month in February, dropping to 8.1% from 8.8% in January. The decline comes as the Reserve Bank of India considers setting an inflation target after having raised interest rates three times since September.

Fact of the Week

  • According to the National Institute on Retirement Security, in 1975 85% of American workers in the private sector (non-government jobs) were covered by a defined benefit pension plan. This compares to just 16% of private sector workers being covered by pensions today, highlighting the dramatic shift from defined benefit pensions toward defined contribution plans such as 401(k)’s.

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 March 10, 2014

U.S. and World Newsukraine_map

  • Russian forces took control of Crimea and threatened a full-scale invasion of Ukraine early this week, causing markets to fall drastically on Monday. Russian President Vladimir Putin then calmed markets by ordering some military units back to their bases and claiming that the country has no intention of using military force in the Ukraine. However, in a bit of a surprising twist, the Crimean parliament has voted unanimously for the province to become a part of Russia. The parliament’s vote is not binding in any way but this action will now go to a referendum vote by the citizens of Crimea that is scheduled for March 16th, where a “Yes” vote to join Russia could put the U.S. and the European Union in a bit of a democratic bind.
  • The crisis in Ukraine has renewed calls among Republicans and energy state Democrats for an easing of restrictions on foreign sales of natural gas. With Russia supplying Europe with 30% of its natural gas, there are many nations who are wary of imposing major sanctions on the country. By increasing U.S. gas exports, that sort of reliance on Russia could be reduced and give the U.S. and E.U. a freer hand when dealing with Russia, particularly in the long term.
  • President Obama unveiled his $3.9 trillion budget for fiscal year 2015 this week. His budget includes tax hikes for the wealthy and energy companies, as well as increased spending on infrastructure and education. Many of the proposals included in his budget stand little chance of passing but will provide fodder for the upcoming mid-term elections.

Markets

  • Stock markets shrugged off losses on Monday due to the tensions in Ukraine and rallied to end the week. The S&P 500 again closed at an all-time high, ending up 1.04% for the week, closing at 1,878. The Dow Jones rose by 0.82%, closing at 16,453. So far in 2014, the S&P is up 2.01% and the Dow Jones is now down 0.26%.
  • Treasury yields rose this week following an easing of tensions overseas with the 5 year and 10 year U. S. Treasury Notes yielding 1.64% and 2.79%, respectively.
  • The spot price of WTI Crude Oil ended the week flat, closing at $102.55 per barrel.  Year to date, Oil prices have risen 4.16%.
  • The spot price of Gold increased this week, gaining 1.05% and closing at $1,340.32 per ounce. Year to date, Gold prices are up 11.54%.

Economic Data

  • Initial jobless claims dropped by 26,000 from last week, coming in at 323,000 vs. consensus estimates of 335,000. The four week moving average for claims fell to 336,500. The Labor Department noted that there were no special factors affecting last week’s claims.
  • The monthly non-farms payroll employment figure came in higher than expected, showing a gain of 175k jobs vs. estimates of 149k. The negative impact from weather ended up being smaller than anticipated. The previous two months numbers were revised up by 25k, bringing the three month average gain to 129k.
    • The unemployment rate ticked up to 6.7% from 6.6%, while the labor force participation rate held steady at a very low 63.0%.
    • Also in the report, average hourly earnings unexpectedly rose 0.4% for the month, the strongest gain in eight months and have risen 2.2% over the last 12 months. This could perhaps be the early signs of a more normal inflationary environment.

Fact of the Week

  • Sunday marks the 5 year anniversary of the stock market recession low (3/9/2009), which was famously called by late CNBC anchor Mark Haines when he proclaimed, “I’m going to go out on a limb here…I think we are at a bottom. I really do.” On that date, the     S&P 500 traded at 676 and has since gained 208.75% total return (including dividends) to close today at an all-time high of 1,878. In that same time frame, the Dow Jones has risen from 6,547 to 16,453, a total return of 187.55%.

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 March 3, 2014

ukraine_moscow_mapU.S. and World News

  • Violent protests in Ukraine have escalated and the parliament has ousted President Viktor Yanukovych and put a warrant out for his arrest. Acting President Oleksandr Turchynov says that the country is close to default and is requesting $35 billion in foreign aid from the European Union, the United States and the International Monetary Fund over the next two years to say afloat. While they await response from these entities, Russian gunmen have reportedly seized government buildings in the Crimea region, including the two main airports, according to Ukraine officials. Russia is denying these reports.
  • Despite some opposition, the Japanese government disclosed in a draft regarding its long-term energy strategy that they intend to revive nuclear energy as a major source of electricity. Japan’s nuclear plants were idled following the Fukushima disaster that was caused by a tsunami almost three years ago. This has caused the country to significantly increase its energy imports and as a result, has been a drag on the country’s GDP.
  • Major bitcoin exchange Mt. Gox has gone offline and is filing for bankruptcy protection after the exchange said it may have lost 850,000 bitcoins due to hacking. The crypto-currency currently trades at around $575 per bitcoin, bringing the losses due to the bankruptcy and hacking to over $475 million.
  • David Camp, the Republican Chairman of the House Ways and Means Committee has introduced a proposal to overhaul and simplify the tax code. His plan reduces the seven individual tax brackets to two, a 10% and 25% bracket. The proposal also includes cutting the top corporate tax rate from 35% to 25%. Finally, the largest banks and insurers would have to pay a quarterly 0.035% tax on assets over $500 billion. The proposal faces many challenges before becoming a law.

Markets

  • Stock markets rose this week as the S&P 500 closed at an all-time high, ending up 1.30% for the week, closing at 1,859. The Dow Jones rose by 1.42%, closing at 16,322. So far in 2014, the S&P is now up 0.96% and the Dow Jones is now down 1.07%.
  • Treasury yields came down this week with the 5 year and 10 year U. S. Treasury Notes yielding 1.51% and 2.65%, respectively.
  • The spot price of WTI Crude Oil increased this week by 0.32%, closing at $102.53 per barrel.  Year to date, Oil prices rose 4.16%.
  • The spot price of Gold increased moderately this week, gaining 0.17% and closing at $1,326.26 per ounce. Year to date, Gold prices are up 10.37%.

Economic Data

  • Initial jobless claims rose by 12,000 from last week, coming in at 348,000 vs. consensus estimates of 335,000. The four week moving average for claims fell to 338,250. The Labor Department noted that there were no special factors affecting last week’s claims.
  • 4th quarter GDP growth was revised down to 2.4% from an initial estimate of 3.2%. Weather effects most likely had to do with the large negative revision. This revision brings total 2013 GDP growth down by 0.2% to 2.5%.
  • The Case-Shiller home price index rose 0.8% in December vs. consensus expectations of 0.6%. 19 out of the 20 cities part of the index saw price increases. In 2013, the index rose a strong 13.4%.
  • New home sales rose 9.6% in January vs. consensus estimates of them actually falling by 3.4%. This brings the level of new home sales up to a new post-recession high and is a positive surprise in light of recent downbeat data.

Fact of the Week

  • The average interest rate paid by the US government on the country’s interest-bearing debt has been more than cut in half over the last seven years. Benefitting from aggressive interest rate lowering policies by the Federal Reserve, the US government now pays an average of 2.406% on its debts, compared to 5.034% at the beginning of 2007.

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