Wealth Management Economic Update September 29, 2014

U.S. and World News

  • syria_000034095892SmallThe U.S., joined by five Arab allies, launched the first air strikes on Islamic State (ISIS) targets in Syria early this week. This marked the first U.S. military intervention in Syria since the start of the country’s civil war. About 190 air strikes have already been carried out in Iraq since August, so these new strikes open up a new front to this conflict. The strikes are on top of the extra funding approved by Congress last week to train Syrian rebels to combat Islamic State.
  • Treasury Secretary Jack Lew announced new rules this week that would deter U.S. companies from moving their country of domicile overseas to benefit from lower tax rates abroad. The changes to tax treatment make it harder for companies to complete these overseas mergers, and if they do decide to invert, new restrictions limit the use of untaxed cash that has been accumulated overseas to complete the transaction. The new rules are effective immediately and apply to all deals not yet closed. Despite the new rules, Lew warned that lawmakers will have to complete the job, “Administrative action cannot shut the door completely, and Congress will still need to act.”

Markets

  • Markets fell this week as the S&P 500 shed 1.36% and closed at 1,983. The Dow Jones Industrial Average followed suit and decreased 0.96% and closed at 17,113. Year to date, the S&P is up 8.88% and the Dow is up 5.01%.
  • Interest rates moved down modestly this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.80% and 2.53%, respectively.
  • The spot price of WTI Crude Oil climbed by 1.93% this week, closing at $93.42 per barrel. Year to date, Oil prices are virtually unchanged.
  • The spot price of Gold rose slightly by 0.16% this week, closing at $1,217.60 per ounce. Year to date, Gold prices are up 1.33%.

 Economic Data

  • Initial jobless claims rose from last week, coming in at 293,000 vs. consensus estimates of 296,000. The Labor Department noted no special factors affecting the report. The four week moving average for claims now stands at 299,000, near the post-crisis lows.
  • New home sales rose 18.0% in August (vs. consensus of 4.4%), the largest monthly gain since 1991. Although this economic data point is volatile and often significantly revised in later months, the report is a welcome surprise in the face of recent mixed housing data.

Fact of the Week

  • According to a report released by the Government Accountability Office, the total outstanding student loan debt held by seniors (65+) has risen from $2.8 billion in 2005, to $18.2 billion today. While around 20% of this outstanding debt was taken out for the benefit of their children or other dependents, the other 80% came from loans seniors took out for their own education. These older borrowers are more likely to hold defaulted loans and due to the fact that student loans can’t be discharged in bankruptcy like other debt, more and more seniors are seeing a portion of their Social Security benefits garnished to pay back the debt.

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 CFA® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Tamara Wiley, CFP® – (630) 844-3222 twiley@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management

Wealth Management Economic Update September 22, 2014

U.S. and World News

  • Following a two day policy meeting, the Federal Reserve announced another $10 billion reduction of its asset purchases and announced that they are on pace to completely end its quantitative easing purchases at its next policy meeting in October. Fed Chairperson Janet Yellen renewed her pledge to keep short term interest rates at zero for a “considerable time” after asset purchases have stopped, but did not provide any clarification as to how long of a time that would be. Yellen also made dovish comments regarding the labor market, saying that the slow increase in wages was indicative of labor market slack, laying the groundwork for delaying the raising of interest rates.
  • Ukraine and the European Union ratified their long awaited association and free trade agreement this week. This agreement was largely responsible for sparking the Ukrainian revolution last February. Ukrainian President Petro Poroshenko announced after the signing that by ratifying the agreement, the country is on course for membership in the EU. The deals implementation will be postponed until December 2015 however, as they are currently facing immense pressure from Russia and pro-Russian separatists in Ukraine.
  • Residents of Scotland have voted to remain a part of the United Kingdom. The independence referendum showed a very close race at times but with 55% of the vote, “No” to Scotland’s independence won out. UK Prime Minister David Cameron said that he was delighted by the referendum result and added that it was time for the UK to come together and move forward.
  • Stock_000001029623_320Today, the stock market closely monitored the biggest IPO in America’s history. Chinese internet retailer, Alibaba, made its debut today and closed at $93.89. This closing price was about a 38% increase from the original stock price of $68.

Markets

  • Markets improved this week as the S&P 500 gained 1.25% and closed at 2,010. The Dow Jones Industrial Average followed suit and increased 1.72% and closed at 17,280. Year to date, the S&P is up 8.77% and the Dow is up 4.24%.
  • Interest rates didn’t change much this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.81% and 2.58%, respectively.
  • The spot price of WTI Crude Oil climbed up slightly by 0.36% this week, closing at $92.60 per barrel. Year to date, Oil prices are down 1.49%.
  • The spot price of Gold continued its decline and fell by 1.06% this week, closing at $1,216.65 per ounce. Year to date, Gold prices are up 1.25%.

Economic Data

  • Initial jobless claims fell from last week, coming in at 280,000 vs. consensus estimates of 305,000. The Labor Department noted that claims are difficult to measure around the Labor Day holiday. The four week moving average for claims now stands at 300,000.
  • Housing starts fell 14.4% in August vs. consensus estimates of a drop of 5.2%. Most of the decline occurred in the more volatile multifamily category which fell 31.7%, while single family starts moved down a more moderate 2.4%. Building permits also disappointed, declining 5.6% vs. expectations of -1.6%, again mainly due to the multifamily category.
  • The headline consumer price index declined 0.2% in August vs. expectations of flat prices, due in part to a 2.6% decline in energy prices. Core CPI, which doesn’t include volatile food or energy prices, was flat for the month and was disappointing compared to expectations of +0.2%. Over the past year, headline and core consumer prices both rose at a subdued rate of 1.7%.

Fact of the Week

  • According to a Federal Reserve Economic Well-Being Survey, 34% of Americans surveyed said that they have gone without some form of medical care (i.e. medication, surgery, therapy) in the last 12 months because they could not afford to pay for the product or service.

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 CFA® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Tamara Wiley, CFP® – (630) 844-3222 twiley@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management

Wealth Management Economic Update September 15, 2014

U.S. and World News

  • President Obama announced his four pronged plan for dealing with terrorist group Islamic State (ISIS) in an address this week. The plan includes training Iraqi and Kurdish forces fighting ISIS, increasing counterterrorism efforts by working with allies to prevent foreign fighters from joining ISIS, humanitarian assistance to those in danger from ISIS and finally, ramping up airstrikes wherever the terrorists are, including in Syrian land. The four point plan has the objective to “degrade and ultimately destroy” ISIS. President Obama stressed in his address that this action was different from prior wars with Iraq and Afghanistan, and highlighted prior examples of Yemen and Somalia as successful operations that were similar in nature.
  • The European Union is set to implement new sanctions on Russia but officials say that they will determine the application of the sanctions based on Russia’s cooperation with the ceasefire agreement that was reached last week. The sanctions would hit Russia’s state-controlled banks and oil companies. In response to the new sanctions, Russia has indicated that it may ban Western airlines from flying over its territory. The U.S. announced its own new round of sanctions on Friday, which target Russian financial services, energy and defense and seek to further isolate Russia from the global financial system until they genuinely work towards a diplomatic resolution of the crisis.
  • bagpipe_333Residents of Scotland will go to the polls next Thursday to vote on a referendum that could make them an independent country, breaking up the United Kingdom. Polling has shown increasing support for independence, with several polls indicating it’s a 50-50 proposition. Several issues lie ahead for Scotland should they vote for their independence, including choosing a currency, whether to join the European Union, the sharing of North Sea oil revenue and its share of the British national debt. UK Prime Minister David Cameron made a plea to the Scots to vote down independence, saying “We do not want this family of nations to be ripped apart. If the U.K. breaks apart, it breaks apart forever.”

Markets

  • Markets lost ground this week as the S&P 500 fell 1.05% and closed at 1,986. The Dow Jones Industrial Average lost 0.81% and closed at 16,987. Year to date, the S&P is up 9.01% and the Dow is up 4.25%.
  • Interest rates rose again this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.82% and 2.61%, respectively.
  • The spot price of WTI Crude Oil continued its decline and fell by 1.19% this week, closing at $92.18 per barrel. Year to date, Oil prices have decreased 1.94%.
  • The spot price of Gold dropped by 3.04% this week, closing at $1,230.29 per ounce. Year to date, Gold prices are up 2.38%.

Economic Data

  • Initial jobless claims rose a bit from last week, coming in at 315,000 vs. consensus estimates of 300,000. The Labor Department noted that claims are difficult to measure around the Labor Day holiday. The four week moving average for claims now stands at 304,000.

Fact of the Week

  • According to the Federal Reserve Bank of New York, as of 6/30/12, 8.9% of student loan debt (measured by dollar amount outstanding) was at least 3 months delinquent or is in default. Two years later, the proportion of student loan debt that is delinquent or in default has risen to 10.9%. With an estimated $1.08 trillion of student loan debt outstanding, this leaves nearly $118 billion of delinquent or defaulting debt that isn’t dissolvable in bankruptcy.

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 CFA® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Tamara Wiley, CFP® – (630) 844-3222 twiley@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management

Wealth Management Economic Update September 8, 2014

U.S. and World News

  • The European Central Bank announced this week a series of surprising and aggressive policy moves intended to stimulate growth in the stagnated region. The ECB announced three rate cuts, lowering its main refinancing rate from 0.15% to 0.05%, lowering the marginal lending facility rate from 0.4% to 0.3% and lowering the deposit facility rate from -0.1% to -0.2% (banks have to pay to hold deposits with the central bank). ECB President Mario Draghi also announced that the central bank would begin to buy bonds (similar to the quantitative easing seen here in the U.S.), specifically covered and asset-back bonds. Draghi hopes the measures will boost inflation by keeping credit markets liquid and interest rates very low.
  • handshake_320Ukraine’s government and pro-Russian separatist leaders signed a ceasefire deal on Friday after talks in Belarus yielded an agreement. There is hope that the deal will bring peace to the eastern Ukraine region that has been embroiled in conflict for nearly five months. Separatist leaders were quick to point out that the ceasefire does not mean an end to the separatists groups like the Dontesk People’s Republic and the Luthansk People’s Republic. European leaders will wait and see how the situation progresses before implementing a new round of economic sanctions on Russia. Some of the proposed restrictions include banning Russian companies from accessing the European capital markets, denying use of European oil companies for deep-sea drilling and possibly boycotting Russia from hosting the 2018 World Cup.
  • The Federal Reserve is increasing its efforts to find an alternative to LIBOR (London Interbank Offered Rate), in a potential transition that would affect trillions of dollars in U.S. and worldwide contracts and derivatives. Many financial products use this rate as a benchmark in their structures and Fed Governor Jerome Powell warns that reliance on this one rate could result in a “horrible mess”. The Fed and large financial firms will meet and discuss this over the next year to work toward an alternative benchmark.

Markets

  • Markets were positive this week despite continued geopolitical turmoil. The S&P 500 closed at a new All-Time High on Friday, gaining 0.24% this week and closing at 2,008. The Dow Jones Industrial Average gained 0.25% and closed at 17,137. Year to date, the S&P is up 10.14% and the Dow is up 5.09%.
  • Interest rates rose this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.69% and 2.46%, respectively.
  • The spot price of WTI Crude Oil fell by 2.61% this week, closing at $93.46 per barrel. Year to date, Oil prices have decrease 0.57%.
  • The spot price of Gold decreased by 1.47% this week, closing at $1,268.46 per ounce. Year to date, Gold prices are up 5.56%.

Economic Data

  • Initial jobless claims rose a bit from last week, coming in at 302,000 vs. consensus estimates of 300,000. The level of claims remains near the pre-crisis lows. The Labor Department noted no special factors in the data. The four week moving average for claims now stands at 303,000.
  • The ISM manufacturing index increased to 59.0 in August vs. expectations of 57. This is close to the post-recession high of 59.3 set in February 2011. 17 of 18 manufacturing industries reported growth in August and most of the commentary in the report was very positive.
    • The ISM non-manufacturing index also beat expectations by rising to 59.6 in August vs. the consensus estimate of 57.7. This brings the ISM Composite Index, which incorporates both surveys, to near an all-time high.
  • Monthly non-farm payrolls increased by less than expected in August, rising by 142,000 vs. consensus estimates of 230,000. There were also net revisions of -28,000 applied to the prior two months.
    • The unemployment rate fell by 0.1%, down to 6.1%. This was aided by a 0.1% drop in the labor force participation rate, which now stands at 62.8%.
    • Average hourly earnings rose 0.2%, in line with expectations but still somewhat subdued by historical standards. Hourly earnings have increased by 2.1% over the past 12 months.

Fact of the Week

  • According to the Census Bureau, there are 76 million homeowners in the United States. Of the 76 million, 24 million have no housing debt (ie. own it free and clear). Of the remaining 52 million that do have housing debt, 9 million (12.5%) homeowners have mortgage debt that exceeds the value of their homes (ie. mortgage is underwater).

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 CFA® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Tamara Wiley, CFP® – (630) 844-3222 twiley@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management

Wealth Management Economic Update September 2, 2014

U.S. and World News

  • The hostilities between Ukraine and Russia continued this week on reports of Russian tanks, artillery and infantry being passed over the border of eastern Ukraine. This follows an in-person meeting between Ukrainian President Petro Poroshenko and Russia’s Vladimir Putin which failed to yield any substantial progress between the two nations as Putin claimed that it is ultimately up to Kiev to work out conditions for a ceasefire with separatist rebels. The United States and European Union are now considering another round of sanctions on Russia based on NATO reports that well over 1,000 Russian troops have breached the border. Despite the recent escalation, President Obama has ruled out military intervention in the region.
  • drone_000030705766_330The U.S. is preparing to expand its military air campaign beyond Iraq. This week, President Obama authorized surveillance flights to gather intelligence on Islamic State (formerly ISIS) targets in Syria. A decision to launch air strikes in Syria has not been made yet as the drones being utilized are just collecting information at this time.

Markets

  • Markets were positive this week despite continued geopolitical turmoil. The S&P 500 closed at a new All-Time High on Friday, gaining 0.79% this week and closing at 2,003. The Dow Jones Industrial Average gained 0.63% and closed at 17,098. Year to date, the S&P is up 9.87% and the Dow is up 4.84%
  • Interest rates dipped a bit this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.63% and 2.35%, respectively.
  • The spot price of WTI Crude Oil rose by 2.33% this week, closing at $95.84 per barrel. Year to date, Oil prices have increased 1.96%.
  • The spot price of Gold increased by 0.49% this week, closing at $1287.32 per ounce. Year to date, Gold prices are up 7.13%.

Economic Data

  • Initial jobless claims held steady from last week, coming in at 298,000 vs. consensus estimates of 300,000. The level of claims remains near the pre-crisis lows. The Labor Department noted no special factors in the data. The four week moving average for claims now stands at 300,000.
  • Several reports on housing data were released this week, showing a mixed but possibly improving picture:
    • New home sales declined by 2.4% in July vs. consensus estimates of a gain of 5.8%.
    • The Case-Shiller home price index declined by 0.2% in June vs. expectations of remaining flat. Over the past year, the home price index has risen 8.1%.
    • Pending home sales rose 3.3% in July vs. expectations of 0.5%. This number, which is based on contract signings instead of closings, is a good leading indicator of existing home sales one to two months in the future.

Fact of the Week

  • According to the Office of Management and Budget, the government is projecting a $525 billion deficit for fiscal year 2014 (the government’s fiscal year ends on September 30). If that amount comes to fruition, this would be the smallest national budget deficit since fiscal 2008.

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 CFA® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Tamara Wiley, CFP® – (630) 844-3222 twiley@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management