Catalonia Independence, ECB: Wealth Economic Update Oct. 27, 2017

U.S. and World News

  • catalonia-659592784_360The Catalonia crisis intensified as the Catalan Parliament officially declared the region’s independence from Spain in a 70 to 10 vote on Friday, following weeks of demonstrations by its citizens. In response, Spanish Prime Minister Mariano Rajoy dismissed Catalonia’s president Carles Puigdemont and dissolved its Parliament hours after the independence vote. Rajoy called for new elections and fired the Catalan police chief as part of the series of measures aimed at seizing control of the revolting regime in Barcelona. Rajoy remarked, “In this moment, we need to be serene and careful, but we also need to have confidence that the state has the tools, backed by the law and reason, to peacefully and reasonably go back to legality and take away threats to democracy.”
  • The European Central Bank held a widely anticipated meeting this week. While there was no change in interest rates made, there was an announcement that the ECB’s bond buying program would be reduced by half to €30 billion per month starting in January. The ECB’s quantitative-easing program was also extended through September 2018 as anticipated. ECB President Mario Draghi emphasized the commitment to an “open-ended program” that will “not stop suddenly.”

Markets

  • Markets climbed higher this week with both the S&P 500 and Dow Jones Industrial Average setting new All-Time Highs on Friday. The S&P rose 0.23% and closed at 2,581. The Dow Jones rose 0.45% for the week and closed at 23,434. Year to date, the S&P is up 17.16% and the Dow is up 20.87%.
  • Interest rates rose marginally this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 2.03% and 2.41%, respectively.
  • The spot price of WTI Crude Oil increased by 5.29% this week, closing at $54.16 per barrel. Year to date, Oil prices have risen 0.89%.
  • The spot price of Gold ended the week lower by 0.56%, closing at $1,273.35 per ounce. Year to date, Gold prices are up 10.97%.

 Economic Data

  • Initial jobless claims increased by 10,000 from last week, coming in at 233,000 after reaching its lowest level since 1973 last week. The four week moving average for claims fell to 240,000.
  • New home sales increased 18.9% in September to a seasonally adjusted annualized rate of 667,000 units which represents a new cycle high. A rebound in home sales in the hurricane-affected South region contributed over 75% of the overall increase.
  • Real GDP increased by 3.0% in the 3rd quarter, above consensus expectations of 2.6%. The year over year rate of Real GDP growth now stands at 2.3%, the highest since 2015. The Bureau of Economic Analysis noted that the hurricanes that occurred during the quarter disrupted production activity and consumer spending but was unable to estimate the impact on growth.

Fact of the Week

  • The United States has suffered 218 weather and climate disasters since 1980 in which the cost of damages exceeded an inflation-adjusted $1 billion, which is an average of 6 separate $1 billion+ disasters per year. (Source: National Centers for Environmental Information)

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
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.

 

Fed Chair Finalists, Catalonia: Wealth Economic Update Oct. 20, 2017

U.S. and World News

  • fed_chair-104257649As Fed Chair Janet Yellen’s term expiration date nears, the finalists for the next Fed Chair are beginning to narrow. The decision between finalists Janet Yellen, Jerome Powell, Kevin Warsh, Gary Cohn, and John Taylor is expected to be made by President Trump before November 3rd. On Thursday, President Trump met with the five candidates and Fed Governor Jerome Powell is leading the pack as he appears to favor no change from current Fed policy and is favored by Treasury Secretary Steven Mnuchin.
  • The crisis in Catalonia rose to higher levels today as the possibility of the government losing power over the region has become very real after the process to suspend government powers in the region has made further progress and Regional President Carles Puigdemont continues his push for independence. The Regional President is persistently asking to meet with Prime Minister Mariano Rajoy to begin discussing the future of Catalonia while the Prime Minister has vowed to force the region to obey the law.

Markets

  • Markets surged higher this week with both the S&P 500 and Dow Jones Industrial Average setting new All-Time Highs once again during the week. The S&P rose 0.88% and closed at 2,575. The Dow Jones rose 2.04% for the week and closed at 23,329. Year to date, the S&P is up 16.75% and the Dow is up 20.10%.
  • Interest rates also dramatically increased this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 2.02% and 2.38%, respectively.
  • The spot price of WTI Crude Oil increased by 0.44% this week, closing at $51.96 per barrel. Year to date, Oil prices have fallen 3.28%.
  • The spot price of Gold ended the week lower by 1.75%, closing at $1,280.95 per ounce. Year to date, Gold prices are up 11.63%.

 Economic Data

  • Initial jobless claims decreased by 22,000 from last week, coming in at 222,000, reaching its lowest level since 1973 and no state’s claims increased by more than 1,000. The decline in claims in hurricane affected states attributed to the overall decline in the month. The four week moving average for claims fell to 248,000.
  • Housing starts fell by 4.7% in September to 1,127k while August’s numbers were revised up. The decline affected both single-family and multi-family homes and the month’s weakness is likely to be explained by the hurricanes in the South region.
  • Existing home sales increased by 0.7% in September to a seasonally adjusted rate of 5.39 million units versus consensus expectations of a -0.9% decline. Declines in the South region were more than offset by other regions in the country.

Fact of the Week

  • The New York stock market crash of 1987 happened 30 years ago this week, on October 19, the Dow Jones Industrial Average (DJIA of the Dow) plunged by a then-record 508 points-a 22% decline in the index.
    • Currently, a 500-point down day would only amount to a 2.2% drop in the Dow Jones Industrial Average. It has happened 17 times since 1987.
    • Today, it is not uncommon for 1-1.5 billion shares to be traded on a given day.
    • On October 19, 1987, Apple was only 6% of the size of IBM, then the largest company in the nation. Presently, Apple Inc.’s market capitalization is 6X (or 600%) that of IBM’s.

(Source: Oppenheimer)

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
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.

 

Interest Rates, Catalonia, Hurricanes: Wealth Economic Update Oct. 13, 2017

U.S. and World News

  • Minutes from the September Federal Reserve meeting were released this week and included comments about the near-term effects from Hurricanes Harvey, Irma and Maria but generally expressed unchanged views on underlying growth and inflation conditions. Many participants thought that another rate increase this year was likely warranted “if the medium term outlook remained broadly unchanged,” and consensus views continue to call for three rate hikes in 2018. The Fed will meet twice more in 2017, in November and in December, and the market is currently pricing in a 73% probability of a rate hike in December.
  • Catalonia-579153418_360The Catalonia saga continued on this week, though tensions have somewhat eased. Catalan President Carles Puigdemont, declared independence for the region but then halted the separation process to instead propose talks with the Spanish government. With the act, Puigdemont and his team remain in danger of being arrested for sedition, and Spanish President Mariano Rajoy had previously rejected any talks until secession plans were abandoned. Spanish and other European markets experienced a relief rally as a result of Catalonia choosing the more diplomatic option.

Markets

  • Markets grinded higher with both the S&P 500 and Dow Jones Industrial Average setting new All-Time Highs during the week. The S&P rose 0.17% and closed at 2,553. The Dow Jones rose 0.43% for the week and closed at 22,872. Year to date, the S&P is up 15.86% and the Dow is up 17.92%.
  • Interest rates pulled back this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.90% and 2.27%, respectively.
  • The spot price of WTI Crude Oil increased by 4.20% this week, closing at $51.36 per barrel. Year to date, Oil prices have fallen 4.26%.
  • The spot price of Gold ended the week higher by 2.09%, closing at $1,303.41 per ounce. Year to date, Gold prices are up 13.59%.

 Economic Data

  • Initial jobless claims decreased by 15,000 from last week, coming in at 245,000, only modestly above its pre-hurricane level. Jobless claims continued to normalize in the hurricane-affected states. The four week moving average for claims fell to 258,000.
  • The headline Consumer Price Index (measure of inflation) rose 0.5% in September, slightly missing expectations of 0.6%. Headline CPI was boosted by a 6.1% increase in energy prices during the month. Over the last 12 months, the CPI is up 2.2%.
    • Core CPI (excludes food and energy prices) increased 0.1% in the month, missing forecasts of 0.2%. Over the last year, core inflation has risen 1.7%.
  • Retail sales rose 1.6% for September, just below the forecast of 1.7%. After seeing weakness in August due to the hurricanes, September’s sales bounced back with auto sales rising 3.6% and gas station sales rising 5.6%.

Fact of the Week

  • It was 10 years ago this week (10/9/07) that the S&P 500 peaked at a then all-time high of 1,565. The very next day, the index began a substantial 17 month slide that dragged the S&P down 57%, its worst bear market loss in the last 80 years. With the S&P closing at 2,553 on Friday, even if an investor had bought the 2007 market top on 10/9/07, they would have still experienced a 7.3% annualized total return (includes dividends) over the last 10 years. (Source: BTN 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
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.

 

Mortgage Tips for the Self-Employed

David Kozuh, First Vice President—Residential Lending David Kozuh, Vice President—Residential Lending   Things have changed. But, not in the way many potential borrowers think. Many still think it’s harder to get a mortgage than it used to be. Not necessarily. Despite the Financial Crisis of 2007–2008, banks have been helping homebuyers and owners take advantage of the low interest-rate environment all along. Even Millennials, despite their student debt loads, have been getting approved for mortgages. It’s also still possible to get a mortgage with a down payment of less than 20%. And, first-time homebuyer programs that provide money for down payments may even make it a little easier to afford a new home than in 2008. What Has Changed Since the crisis, the process of applying for a loan has improved. Many lenders, Old Second included, have made initiating a loan request even easier, leveraging online and mobile technology for applications, document gathering and communication. But, the biggest change involves the way an application is now processed. It takes longer…much longer. What could be done inside of 30 days in 2008, may now take longer. No home loan lender is immune—we are all subject to the same regulations. And, it’s about to get a little worse. It’s Not You, It’s the New Federal Regulations Whether you are a first-time homebuyer or an experienced homeowner, in the aftermath of the financial crisis there has been a return to the kind of lending standards—operational checks and balances—that most of us have used to apply to loans for decades. Those standards require time to analyze and verify that each mortgage applicant is qualified for and entering into the right type of loan for their financial circumstances. As of Oct. 3, a new rule from the Consumer Financial Protection Bureau, “Know Before You Owe,” will take effect. It is intended to offer additional protection by ensuring you understand the terms and consequences of your loan agreement at closing. This new rule will add a few more days to the closing process for all mortgage lenders no matter how automated their internal processes are. While a degree of patience has re-entered the mortgage process, we believe it ultimately ensures that you’ll gain full advantage of our expertise. Whether it’s a 30-year fixed mortgage, an adjustable rate, a line of credit for remodeling or a refinancing into a 15-year loan that will help you retire mortgage-free, our goal is—as it’s always been—to make sure you enter into the right financing structure.

Being self-employed and in control of your professional life is empowering. However, when it comes to borrowing money to purchase a personal residence, it can also put you at a disadvantage, if you are not properly prepared.

The Challenge

The main issues for self-employed mortgage applicants arise from proving income is sufficient and consistent enough to support a mortgage payment and supplying the “correct” version of income on the application.

When you are an employee, reporting your earned income is straightforward. You state your salary and bonuses and back up the amounts for verification purposes with W-2 forms and tax returns. The lender can easily call your employer as a final check.

When you work for yourself, you may have an accumulation of 1099s and invoices if you have a variety of clients or gigs. Some self-employed borrowers may own and run multiple businesses, which means the only way a lender can verify income is to pour through dense tax return schedules. It is a much messier and time-consuming process.

Even then, the income many self-employed individuals report on their tax returns may differ from their actual take-home pay. One of the advantages of being self-employed is taking more expenses as business deductions to minimize tax bills. This is great at tax time, but it can diminish your borrowing power.

When Income Isn’t Income

Some self-employed borrowers report gross receipts as income. However, this is business revenue. Income is found on line 38 of the federal tax return. It is a much lower number.

Working With You

While income qualification is essentially a standard requirement, it can help to work with a lender that has the flexibility to customize a mortgage to your circumstances. For instance, Old Second doesn’t package all of its mortgages for resale, the way many larger banks and online mortgage firms do. We hold a collection of mortgages for our own portfolio. This gives us the flexibility to customize more of our mortgages to our clients’ circumstances. We can take the time to understand your situation and even talk to your accountant to develop a more accurate assessment of your household’s cash flow.

What You Can Do

For some practical tips on how to improve your mortgage application’s appeal, click here for our infographic of suggestions. To learn more about how Old Second can help you qualify for a mortgage, give us a call at 1-877-866-0202 or start the application online at oldsecond.com.

Whether you are a serial entrepreneur or a member of the gig economy, knowing what to expect when applying for a mortgage and preparing accordingly can enable you to exercise more control over how lenders perceive and process your application.

Vegas shooting, Catalonia, Hurricane Maria: Wealth Economic Update Oct. 6, 2017

U.S. and World News

  • mandalay_bay_360During a country music concert in Las Vegas, Stephen Paddock perpetrated the deadliest mass shooting in U.S. history from his hotel suite at the Mandalay Bay hotel, killing 58 people and wounding more than 500 more. Paddock had a large cache of rifles, thousands of rounds of ammunition and two ‘bump-stocks’ that convert semi-automatic firearms into fully automatics. Police are still seeking clues to explain Paddock’s motives and legislators are reviewing current gun laws and how he was able to assemble such a deadly arsenal. Gun stocks rallied following the massacre on reports of people stocking up on firearms ahead of potential legislation.
  • Catalonia is once again pushing for its independence from Spain as more than 90% of Catalan voters favored breaking off in a referendum deemed by Spanish officials as illegal. Catalan leader Carles Puigdemont is calling for international mediation for the dispute with Madrid, stating its referendum was valid and must be implemented. Puigdemont is also calling for a removal of Spanish security forces that have been clashing with citizens for weeks and has said that the Catalonia region will declare independence within a “matter of days.”
  • According to the island’s treasury secretary, Puerto Rico will need “tens of billions” of dollars in aid from the U.S. as it struggles to bounce back from the devastation of Hurricane Maria. President Trump visited the island this week to assess the recovery efforts. While Trump said early in the visit, “I hate to tell you, Puerto Rico, but you threw our budget a little out of whack,” he also implied that there would be an easing of Puerto Rico’s massive debt load stating, “They owe a lot of money to your friends on Wall Street and we’re going to have to wipe that out. You’re going to say goodbye to that.”

Markets

  • Markets rallied this week with both the S&P 500 and Dow Jones Industrial Average setting new All-Time Highs during the week. The S&P rose 1.25% and closed at 2,549. The Dow Jones rose 1.70% for the week and closed at 22,774. Year to date, the S&P is up 15.67% and the Dow is up 17.42%.
  • Interest rates continued to push higher this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.97% and 2.37%, respectively.
  • The spot price of WTI Crude Oil decreased by 4.68% this week, closing at $49.25 per barrel. Year to date, Oil prices have fallen 8.32%.
  • The spot price of Gold ended the week lower by 0.24%, closing at $1,276.68 per ounce. Year to date, Gold prices are up 11.26%.

 Economic Data

  • Initial jobless claims decreased by 12,000 from last week, coming in at 260,000. Jobless claims pulled back in hurricane-affected states. The four week moving average for claims fell to 268,000.
  • The September employment report showed a loss of 33,000 jobs during the month, widely missing expectations of an 80,000 payroll increase. The miss appears to be completely related to distortions caused by the multiple hurricanes that hit the country during the month. The prior two months figures were revised down a combined 38,000, bringing the three month average of job gains down to 91,000.
    • The headline unemployment rate fell to 4.2%, beating expectations of 4.4%. It doesn’t appear as though the hurricanes had an effect on the unemployment rate and the labor force participation rate increased from 62.9% to 63.1%.
    • Average hourly earnings rose by 0.5% in September, better than forecasts of 0.3%. Over the last 12 months, average wages have increased 2.9%.

Fact of the Week

  • Harvard University’s $37.1 billion endowment fund, which is the largest university endowment fund in the world, gained just 8.1% in the 12 months ending on June 30th. This compares to a 17.9% return for the S&P 500 over the same time period; a performance that the CEO of Harvard’s management company called “disappointing”. (Source: Harvard Management Company)

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
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.