Greek reforms: Wealth Economic Update Oct 31, 2016

U.S. and World News

  • greece_52645812_360Eurozone officials have approved a €2.8 billion tranche of financial aid for Greece after the debt-laden country delivered the needed economic reforms to unlock the latest round of cash. The reforms included progress in pension restructuring, bank governance and revenue collection. So far, Greece has received €31.7 billion of its €86 bailout granted in July 2015, its third bailout since 2010.
  • The People’s Bank of China is making changes to its Macro Prudential Assessment risk program to broaden its regulatory oversight to include wealth management products sold by banks and not counted on their balance sheets. The move marks another step in the PBOC’s efforts to control rising leverage in China’s financial system and highlights the worries that many have that unsustainable debt levels could derail an already slowing economy.

Markets

  • This week the S&P 500 dropped 0.67% and closed at 2,126. The Dow Jones rose 0.09% and closed at 18,161. So far in 2016, the S&P is up 5.81% and the Dow is up 6.37%.
  • Interest rates climbed higher this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.33% and 1.85%, respectively.
  • The spot price of WTI Crude Oil was down 4.35% this week to close at $48.64 per barrel. WTI Crude is up 21.45% in 2016.
  • The spot price of Gold rose 0.71% this week, closing at $1,275.47 per ounce. Year to date, gold prices are up 20.20%.

 Economic Data

  • Initial jobless claims came in at 258,000, a decrease from last week’s reading of 260,000. The Labor Department noted that claims may have been distorted by a bounce back from the effects of Hurricane Matthew which led to closures of filing offices in affected regions in previous weeks. The four week moving average for claims moved up to 253,000.
  • The Case-Shiller home price index showed an increase of 0.2% for August, more than consensus expectations of 0.1%. Of the 20 cities included in the index, 15 showed higher prices in the month. Over the last 12 months, home prices have risen 5.1% as measured by the index.
  • Real Gross Domestic Product rose 2.9% (annualized) during the 3rd quarter, beating expectations of 2.6% growth.
  • The Employment Cost Index (ECI, measure of wage growth) increased by 0.6% in the 3rd quarter, in line with expectations. On a year over year basis, total compensation has risen by 2.2%

Fact of the Week

  • The U.S. economy has been growing for the last 87 months (ie. no recession), an expansion exceeded in length only 3 times since 1900. (Source: National Bureau of Economic Research)

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
Steve Meves, CFA® – (630) 801-2217 – smeves@oldsecond.com
Jean Van Keppel CFA® – (630) 906-5489 jvankeppel@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC; not a deposit of, or guaranteed by, the bank; may lose value.

 

Terms of Confusion: Straight Talk About Mortgages

Steve Weber, Executive Vice President—Residential Lending fullsizerender

It’s not you— it’s us, and we apologize. When it comes to talking about home loans, we sometimes forget that not everyone speaks the language of mortgages.

What sounds like code to you, often is—frequently it’s legal code. From 203 (k) loans to TRID, the mortgage process is riddled with references to the legal statures that lead to certain provisions, requirements or types of loan structures. To cope, we just start talking in shorthand. 

Deciphering Our Acronyms

Some of the most used terms within the industry are the hardest to understand. It’s not intentional. We just forget that we can lose you in the acronyms if you aren’t familiar with the language.

For instance…

APR (Annual Percentage Rate)

This is the total yearly cost of your mortgage, which is stated as a percentage of your loan’s amount. APR is not the same as your interest rate. The interest rate just refers to one expense. APR includes the cost of mortgage insurance (if you are paying it) and the loan origination fee or any points you paid. When you compare mortgage programs—or lenders’ rates—APR provides you with an apples-to-apples comparison to determine what will be most cost effective for you.

DTI (Debt-to-Income Ratio)

DTI is a key determinant in mortgage lending. We calculate it for every application. It’s used to qualify you for a mortgage by comparing your total monthly housing expense plus what you pay on your other debt obligations to the total amount of money you have coming in each month. The lower the DTI, the easier it will be for you to afford the mortgage amount you seek and typically, the easier it is for us to approve the request.

PMI (Private Mortgage Insurance)

Just for the record, PMI—which is also referred to as MIP under some loan programs—is the fee you pay if you buy a home with a down payment that is less than 20 percent of the purchase price, under most loan programs. The insurance is not on you, or your home, but on your ability to pay. What that means is that when a person puts down less than 20 percent, the loan is considered riskier for the lender. More risk means the higher the interest rate you are likely to be charged. But, mortgage insurance guarantees that the lender, or whoever ultimately holds your loan, will be paid even if the loan defaults. It also enables us to offer better terms than if you were to borrow without it.

These are just a few of the many terms and abbreviations that may crop up in a conversation during the mortgage application and approval process. As they do, please stop your lender. Call us out on our “secret” language and have us explain what we are talking about in plain terms. It’s your money and your home. You deserve explanations of the terms and conditions related to financing it.

When it comes to home loans, you can find your answers here. Contact us at 877-966-0202 with your questions or if you need an immediate definition, visit our online Mortgage Glossary. We can’t wait to talk to you about what we can do for you today.

EU/Saudi bonds: Wealth Economic Update Oct 24, 2016

U.S. and World News

  • The European Central Bank elected to take no further action following their policy meeting this week, disappointing investors who had hope for further clarification on the central bank’s plan of action. At a news conference, ECB President Mario Draghi said that policy maker’s hadn’t even discussed whether to extend its €80 billion per moth bond-purchase program which is due to end in March 2017.
  • saudi_arabia_riyhad_66106939_340Saudi Arabia tapped the global debt markets for the first time this week, selling $17.5 billion in sovereign bonds. The bond issue had high demand as banks and investors flocked to buy debt issued by the emerging market country. In fact, it’s reported that the country received orders totaling $67 billion. The sale of bonds is part of the Saudi’s plan to open up its $650 billion economy to global investment and reduce its over-reliance on oil in the face of lower prices.

Markets

  • This week the S&P 500 rose 0.41% and closed at 2,141. The Dow Jones rose 0.09% and closed at 18,146. So far in 2016, the S&P is up 6.52% and the Dow is up 6.28%.
  • Interest rates edged down slightly this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.24% and 1.74%, respectively.
  • The spot price of WTI Crude Oil was up 0.39% this week to close at $50.95 per barrel. WTI Crude is up 16.24% in 2016.
  • The spot price of Gold rose 1.23% this week, closing at $1,266.46 per ounce. Year to date, gold prices are up 19.35%.

Economic Data

  • Initial jobless claims came in at 260,000, an increase from last week’s reading of 246,000. The Labor Department noted that claims may have been distorted by a bounce back from the effects of Hurricane Matthew which led to closures of filing offices in affected regions in previous weeks. The four week moving average for claims moved up to 251,750.
  • The headline Consumer Price Index rose 0.3% in September, in line with expectations. This was boosted by a 2.9% increase in energy prices. Over the last year, headline prices have risen 1.5%.
    • Core CPI (excludes food and energy) rose 0.1% in September, below estimates of 0.2%. Over the last 12 months, Core prices are up 2.2%.
  • Housing starts declined -9.0% in September, substantially missing expectations of a 2.8% gain. The composition of the housing starts was less negative than indicated by the headline figure as the more volatile multifamily category declined 38.0% in the month while more stable single family home starts rose by 8.2%.
  • Existing home sales increased by 3.2% in September, beating expectations of a 0.4% increase. September saw a 4.1% increase in single family starts which more than offset the -3.2% decline in the volatile multi-family home sales category.

Fact of the Week

  • American families in the bottom 50% of pre-tax household income are expected to receive 17.7% of national income in 2017. American families in the top 1% of pre-tax household income are expected to receive 15.4% national income in 2017. (Source: Treasury Department)

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

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC; not a deposit of, or guaranteed by, the bank; may lose value.

 

Rate Hike?: Wealth Economic Update Oct 17, 2016

U.S. and World News

  • chart_78617071_360Minutes from the September Federal Reserve meeting showed growing support for a rate hike. Several voting members stated that they were anticipating an increase “relatively soon.” However, the committee remains divided as some members thought that there remains some slack in the labor market and think it appropriate to wait for more evidence that the economy was progressing toward the committee’s goals while other members believed the economy was at or near full employment and delaying a rate hike would jeopardize the Fed’s credibility. The Fed will be meeting next in November and then again in December. However, the odds of a November hike remain low due to the meeting being held just before the U.S. election, making the December meeting the primary focus for investors.

Markets

  • This week the S&P 500 dipped 0.95% and closed at 2,133. The Dow Jones fell 0.56% and closed at 18,138. So far in 2016, the S&P is up 6.09% and the Dow is up 6.19%.
  • Interest rates continued to climb higher this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.29% and 1.80%, respectively.
  • The spot price of WTI Crude Oil was up 1.04% this week to close at $49.63 per barrel. WTI Crude is up 25.67% in 2016.
  • The spot price of Gold declined 0.41% this week, closing at $1,251.98 per ounce. Year to date, gold prices are up 18.00%.

Economic Data

  • Initial jobless claims came in at 246,000, down from last week’s reading of 249,000. The Labor Department noted that claims may have been distorted by the effects of Hurricane Matthew which led to closures of filing offices in affected regions. The four week moving average for claims moved down to 249,000.
  • Retail sales increased by 0.6% in September which was in line with expectations. Sales were boosted by higher gas station sales during the month. However, core retail sales (excludes autos, gas and building materials) were weaker than expected, rising 0.1% against expectations for a 0.4% increase. For the 3rd quarter, core retail sales growth slowed, rising 1.1% on an annualized basis, coming down from a 6.7% pace in the 2nd quarter.
  • The University of Michigan’s consumer sentiment index showed a preliminary October reading of 87.9 which is a decline from last month’s figure and below expectations of 91.8. The report was mixed as consumers’ future expectations fell but consumers’ assessment of their current economic conditions improved.   

Fact of the Week

  • As of June 30, the total US bond market, which includes treasury, municipal, corporate, mortgage and asset-back debt, was worth $40.7 trillion. This amount has more than tripled over the last 20 years as the bond market was worth $12.4 trillion as of 12/31/96. (Source: Securities Industry and Financial Markets Association)

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

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC; not a deposit of, or guaranteed by, the bank; may lose value.

 

5 Things Small Business Owners Should Know Before Applying for a Loan

Travis Andry, First Vice President—Commercial Lendingandry_travis_2012

Applying for a loan shouldn’t be intimidating. After all, banks are in the business of making loans. Finding a way to say “yes” is as high a priority for us as being approved is for you.

To help you focus your energy on what matters most in a loan request, here are five things to have in mind before applying.

  1. Your bottom line is more important than your top line.

Many small business owners focus their time and energy—and base their request—on top-line growth. While revenue growth is important, the financial strength of your business is measured based on your net profit. During a review, we spend much of our analysis understanding how revenue flows through your company. The reason is simple: we need to determine if there will be sufficient net income to repay any loan we might approve. But, we also look to see if another solution or a different type of financing is needed to address any cash flow issues.

  1. Don’t just say it; prove it.

While poor financial reporting isn’t a sign of a bad company, it can diminish your ability to document and support a loan request. Bankers need good information in order to understand how the business is really doing and how a loan may help. Before applying, it’s a good idea to make sure your inputs are correct and you can verify the numbers you’re submitting to us.

  1. “Why” is usually more important than “what.”

Often, clients will come in and say, “I need $50,000 for working capital.” But in the absence of additional information, what we hear is, “I have a funding shortfall.” Shortfalls occur, for example when a manufacturer has to pay for inventory and labor before ever shipping the finished goods or being paid. Often buyers take 90 days to pay. Covering shortfalls implies a different type of credit risk for us than a request for financing to replace a piece of equipment—or to add one—in order to improve efficiency.

If that is the purpose of the request, say so up front. In this instance especially, the gain in efficiencies is likely to create a savings that could help offset the increase in your financing expense. This would make it much easier to approve your request, which is why knowing the “why” is so important for us.

  1. Having a business plan is good, but it needn’t be a work of art.

Much is made of having a formal business plan before asking for a loan. It is a good idea, but bankers don’t need anything elaborate. It can be a bullet-pointed summary since a plan consists of projections, not facts. Although, plans do help us understand how you see your business growing.

  1. Bankers are more useful as advisors than adversaries.

While there are many online financing options that eliminate the need to make a face-to-face request, it’s ultimately more beneficial for a borrower to know—and be known—by a banker. Today’s loan request isn’t likely to be the only one you ever make on behalf of your company. It means you have a point of contact throughout the borrowing and repayment process and an advocate when you need to borrow again.

To learn more about how we work with you to build a sustainable relationship that can contribute to the growth of your business, contact me at 630-264-3004. You can also visit us here. We can’t wait to talk to you about what we can do for you today.

Hurricane Matthew: Wealth Economic Update Oct 10, 2016

U.S. and World News

  • hurricane_43705814_360Hurricane Matthew has made its way to the United States after inflicting server damage and loss of life in the Caribbean where it has killed at least 339 people in Haiti. A state of emergency and an evacuation mandate has been issued for many areas in the East Coast. While the storm has been downgraded to a Category 3, the National Weather Service has used some of its strongest language since Hurricane Katrina in describing the strength and dangers of the storm.
  • New U.K. Prime Minister Theresa May has provided an updated timeline for Parliament to initiate the “Brexit” process. May stated that the country would invoke Article 50 by the end of next March, which would officially indicate their intent to leave the European Union. Though the vote took place in June, the March timeline for beginning a ‘hard Brexit’ comes earlier than many observers believed would be the case, causing some volatility in the Sterling currency.

Markets

  • This week the S&P 500 dipped 0.60% and closed at 2,154. The Dow Jones fell 0.31% and closed at 18,240. So far in 2016, the S&P is up 7.09% and the Dow is up 6.77%.
  • Interest rates climbed higher this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.26% and 1.72%, respectively.
  • The spot price of WTI Crude Oil was up 2.88% this week to close at $49.63 per barrel. WTI Crude is up 23.92% in 2016.
  • The spot price of Gold declined 4.50% this week, closing at $1,256.75 per ounce. Year to date, gold prices are up 18.44%.

Economic Data

  • Initial jobless claims came in at 249,000, down from last week’s reading of 255,000. The Labor Department noted no special factors in the data. The four week moving average for claims moved down to 254,000.
  • The monthly employment report showed an increase of 156,000 jobs in September, below expectations of 170,000. The prior two months had their figures revised down a combined 7,000 jobs, bringing the three month average of job gains to 192,000.
    • The headline unemployment rate ticked up 0.1% to 5.0%. This was largely due to a 0.1% increase in the labor force participation rate to 62.9% in September.
    • Average hourly earnings came in a bit below forecast, rising 0.2% in the month compared to the 0.3% being expected. Over the last 12 months, wages have risen 2.6%. 

Fact of the Week

  • The California Public Employees’ Retirement System projected back in 1999 that the investments backing state employees’ pensions would grow from $159.1 billion to $613.5 billion in 2016 due to an assumed 8.25% annual rate of return. In actuality, as a result of market downturns and lower interest rates, the actual fund size in 2016 was just $295.1 billion, representing an annualized 3.70% rate of return. (Source: CalPERS)

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

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC; not a deposit of, or guaranteed by, the bank; may lose value.

 

Oil price soar: Wealth Economic Update Oct 3, 2016

U.S. and World News

  • oil_440The price of oil soared this week reflecting a new cap on oil production of 32.5 million – 33 million barrels a day agreed upon by OPEC. That is a 750,000 barrel a day drop from August and the first time oil output has been capped since the financial crisis. This came as a surprise after most of the past OPEC meetings have resulted in no deal which also leads to some skepticism of the current deal.
  • In order to defend U.S. personnel overseas from the possibility of being sued by citizens of other countries, Barrack Obama has vetoed a bill that would allow Saudi Arabia to be sued for involvement in the September 11th terrorist attacks. The White House and Saudi Arabia have been lobbying to override the veto, but the effort did not pass congress.
  • After there were an insufficient amount of votes to pass a funding bill that would avoid a federal government shutdown, congress sent President Obama a bill to continue government operations until December 9th and $1.1 billion in long-delayed funding to help fight the Zika virus. Also included in the bill is $500 million to help restore Louisiana after they have endured mass flooding, and to assist the water crisis in Flint, Michigan.

Markets

  • This week the S&P 500 rose 0.20% and closed at 2,168. The Dow Jones rose 0.26% and closed at 18,308. So far in 2016, the S&P is up 7.73% and the Dow is up 7.10%.
  • Interest rates edged down slightly this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.15% and 1.60%, respectively.
  • The spot price of WTI Crude Oil was up 7.87% this week to close at $47.98 per barrel. WTI Crude is up 10.78% in 2016.
  • The spot price of Gold declined 1.54% this week, closing at $1,317 per ounce. Year to date, gold prices are up 24.12%.

Economic Data

  • Pending home sales fell 2.4% in August. Pending home sales by region were down in the West (-5.3%), the South (-3.2%), and the Midwest (-0.9%) while they were up in the Northeast (+1.3%).
  • New single-family home sales declined by 7.6% in August which was better than consensus expectations for a decline of 8.6%. New home sales by region were a decline in the South (-48k), Northeast (-12k), and Midwest (-2k), and an increase in the West (+12k).
  • Top-line Q2 GDP growth was revised up by 30 basis points to +1.4%, more than consensus estimates. The revision reflected a smaller drag from inventories and trade, and higher business fixed investment than previously estimated.
  • The headline PCE (Personal Consumption Expenditures) price index rose by 0.14% in August and the core PCE index (excluding food and energy) was up 0.18%. This was a lower increase than expected as food an energy prices continued to fall.

Fact of the Week

  • 24% of 1,000 pre-retirees surveyed in the first quarter of 2016 believe they will need to accumulate at least $1 million in order to “live comfortably” during their retirement years, up from 15% in 2005 (source: Employee Benefit Research Institute Retirement Confidence Survey).

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

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC; not a deposit of, or guaranteed by, the bank; may lose value.