Tax Reform, Pay-Go Waiver: Wealth Economic Update Dec. 26, 2017

U.S. and World News

  • capitol-588594274_360President Trump has signed the Tax Cut and Reform Bill after the measure passed through both the House and Senate this week. On the business side, the sweeping bill will slash taxes for corporations, revamp how multinational companies are taxed (including a repatriation provision), and create a deduction for the owners of “pass-through” businesses. Most individuals and families will see their tax rates cut, in addition to a doubled standard deduction and increased child care credit. Also included in the bill was the repeal of the individual mandate which was the provision of Obamacare that required Americans to carry a certain level of health insurance or else face a fine.
  • Also in Washington D.C., Congress has passed a stopgap spending bill that keeps the government funded through mid-January. This will push contentious policy debates into next year, in particular surrounding what is called a “pay-go” waiver. This provision suspends rules that bar the government from deficit creating new programs unless there is enough money in the current year’s budget to pay for them.

Markets

  • Markets were up this week as the tax reform bill was finalized and signed by President Trump. The S&P gained 0.30%, closing at 2,683. The Dow Jones rose 0.42% for the week and closed at 24,754. Year to date, the S&P is up 22.23% and the Dow is up 28.28%.
  • Interest rates moved higher on the heels of the tax reform bill passage. The 5 year and 10 year U.S. Treasury Notes are now yielding 2.25% and 2.48%, respectively.
  • The spot price of WTI Crude Oil rose by 1.80% this week, closing at $58.33 per barrel. Year to date, Oil prices have risen 8.57%.
  • The spot price of Gold ended the week up by 1.46%, closing at $1,274.72 per ounce. Year to date, Gold prices are up 11.09%.

Economic Data

  • Initial jobless claims rose 20,000 from last week, coming in at 245,000. The largest increases were in New York (4k), Pennsylvania (3k) and California (2k). The four week moving average for claims rose to 236,000.
  • Housing starts rose 3.3% in November, beating expectations for a -3.1% decline. Single family housing starts rose by 5.3% in the month, while multi-family starts edged down -1.6%.
  • The headline PCE index (measure of inflation) rose 0.2% in November, slightly below expectations of 0.3%. Over the last 12 months, headline PCE has risen 1.8%.
    • Core PCE (excludes food and energy, Fed’s preferred inflation metric) rose 0.1% in the month, in line with expectations. Over the last 12 months, Core PCE has risen 1.5%.

Fact of the Week

  • Every Christmas Eve and New Year’s Eve (or the trading day prior if they fall on a weekend) traders on the floor of the New York Stock Exchange take some time out of their schedule to gather and sing “Wait Till the Sun Shines, Nellie.” With a theme of optimism coming from waiting for the rain to pass, the song has been a tradition on the NYSE floor dating back to the years following the crash of 1929 and the Great Depression.

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 Rates, Net Neutrality: Wealth Economic Update Dec. 18, 2017

U.S. and World News

  • The Federal Reserve raised the Fed Funds rate by 0.25% to a target range of 1.25-1.50% at its last policy meeting of 2017 as had been widely expected. The Committee continues to project three rate hikes in 2018 as current Fed Chair Janet Yellen will be handing off her seat to the recently confirmed Jerome Powell who will take over in February. In Janet Yellen’s final press conference, she included a modest upgrade of economy but continued to note the sluggish pace of inflation below the Fed’s 2% target. The market is currently pricing in a 69.8% probability of a rate hike in March.
  • web-619748812_360The FCC has voted to repeal the United States’ net neutrality rules requiring internet providers to treat all traffic on the web equally. The federal government will also no long regulate delivery of the internet as a utility as it had been since 2015. FCC Chairman Ajit Pai, said the rollback of the net neutrality rules would eventually help consumers because providers could offer people a wider variety of service options.

Markets

  • Markets were up this week on continued progress toward a final tax reform bill. The S&P gained 0.95%, closing at a new All-Time High of 2,676. The Dow Jones rose 1.34% for the week and closed at 24,652, also a new All-Time High. Year to date, the S&P is up 21.86% and the Dow is up 27.75%.
  • Interest rates were mostly unchanged from last week, despite the Fed Funds rate being hiked by 0.25%. The 5 year and 10 year U.S. Treasury Notes are now yielding 2.16% and 2.36%, respectively.
  • The spot price of WTI Crude Oil was little changed this week, closing at $57.36 per barrel. Year to date, Oil prices have risen 6.74%.
  • The spot price of Gold ended the week off by 0.84%, closing at $1,258.40 per ounce. Year to date, Gold prices are up 9.66%.

Economic Data

  • Initial jobless claims dropped 11,000 from last week, coming in at 225,000. The largest declines were in Texas (-5k) and California (-4k), where filings had been elevated in recent weeks. The four week moving average for claims fell to 235,000.
  • Retail sales rose 0.8% in November, soundly beating expectations of a 0.3% increase. The rise in the headline figure was driven by a 2.8% increase in gas station sales. Core retail sales also surprised to the upside, increasing 0.8% in the month vs. 0.4% expected.
  • The Headline Consumer Price Index (measure of inflation) rose 0.4% in November, in line with expectations. Over the last 12 months, headline CPI has risen 2.2%, also in line with expectations.
    • Core CPI (excludes food and energy) increased only 0.1% in November, below expectations of 0.2%. This brings the Core CPI increase to 1.7% over the last 12 months.

Fact of the Week

  • An estimated 35% of the jobs to be created in the next decade (4 million of the 11.5 million projected new jobs) will be in health care and “social assistance.” An estimated 91% of the total new jobs will be in “service-providing” jobs as opposed to “goods-producing” jobs. (Source: Bureau of Labor Statistics)

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.

 

Tax Reform, CA Wildfires: Wealth Economic Update Dec. 11, 2017

U.S. and World News

  • Washington D.C. was squarely in focus this week. First, the U.S. Senate narrowly passed its version of the tax reform bill last weekend, sending stock markets decidedly higher. Republicans still need to overcome some obstacles between the House and Senate versions to craft a joint bill, which will then be brought to President Trump. Meanwhile, the White house announced that it will move forward with a massive infrastructure program in 2018. Then, the Senate Banking Committee approved the nomination of Jerome Powell as Janet Yellenís successor as the Fed Chair. Finally, a stop-gap spending measure has been signed which continues funding the federal government for two weeks, at least temporarily preventing a government shutdown.
  • fire-157384116_360 Wildfires raging across Southern California have caused massive amounts of damage to a region that has been hit extremely hard by fires this year and has forced thousands of residents to evacuate. Affecting industries from technology to oil fields to winemakers, the massive fires are still burning and this will go down as one of the most devastating fire seasons ever for insurance losses, which are estimated to have reached $10 billion in 2017.

Markets

  • Markets were up this week following news of the tax reform bill passing the Senate. The S&P gained 0.39%, closing at a new All-Time High of 2,642. The Dow Jones rose 0.46% for the week and closed at 24,232, also a new All-Time High. Year to date, the S&P is up 20.72% and the Dow is up 26.07%.
  • Interest rates were slightly higher for the week. The 5 year and 10 year U.S. Treasury Notes are now yielding 2.15% and 2.38%, respectively.
  • The spot price of WTI Crude Oil dipped by 1.77% this week, closing at $57.33 per barrel. Year to date, Oil prices have risen 6.72%.
  • The spot price of Gold ended the week off by 2.55%, closing at $1,247.9 per ounce. Year to date, Gold prices are up 8.75%.

Economic Data

  • Initial jobless claims dropped 2,000 from last week, coming in at 236,000. The level of claims remains elevated in Puerto Rico, as the labor department notes that the claims filing process continues to be disrupted in the Virgin Islands. The four week moving average for claims was unchanged at 242,000.
  • The November payrolls report showed a gain of 228,000 jobs, better than consensus expectations of 195,000. It appears that Novemberís figure received at least some boost from post-hurricane normalization. With the prior two monthsí figures being revised down a combined 4,000 jobs, the three month average for job gains now stands at 170,000.
    • The headline unemployment rate remained at 4.1%, in line with expectations. The labor force participation also held steady at 62.7%, consistent with expectations.
    • Average hourly earnings rose 0.2% in the month, lower than the 0.3% that was expected. Wage growth over the last 12 months has totaled 2.5%.
  • The University of Michiganís consumer sentiment index declined 1.7 points to 96.8 in the preliminary December reading, lower than expectations but still near the post-crisis highs. The report was mixed, with the assessment of current conditions improving but the expectations of the future component falling.

Fact of the Week

  • For the 7 years from 2010 to 2016, the S&P 500 experienced 417 trading days in which the index gained or lost at least 1% for the day, an average of 60 trading days per year. So far in 2017, the S&P 500 has only had 9 trading days of +/- 1% movement. (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.

 

Tax Reform, Flynn, North Korea: Wealth Economic Update Dec. 1, 2017

U.S. and World News

  • iStock-610688960_360After the House passed its tax reform bill, the Senate has been at work crafting their own version of the bill. Progress was seemingly smooth as several procedural hurdles had been cleared with most of the GOP on the same page with the details and a vote on the bill was anticipated by the end of this week. However, some last minute road blocks have delayed any vote this week. With some Senate members concerned over the deficit, it’s now possible that the level of tax cuts might have to be moderated, future tax increases might be built in and some members may seek to attach spending cuts to the bill in order to win their support. Markets had rallied on increased optimism of passage but pulled back a bit later in the week as these obstacles arose.
  • Temporarily sending markets sharply down on Friday, former national security adviser Michael Flynn pleaded guilty to lying to the FBI about conversations with Russia’s ambassador and disclosed that he is cooperating with the special counsel Robert Mueller’s probe. Flynn is the first person inside President Trump’s administration to be reached by the probe and the latest developments are a sign that the investigation is intensifying. According to an FBI statement, Flynn communicated with Russian officials at the request of Trump transition team officials to influence foreign policy. In a statement, the White House said that “nothing about the guilty plea or the charge implicates anyone other than Mr. Flynn.”
  • North Korea fired another test missile this week, this time a new ICBM that was launched to a high enough altitude that it would put all of the U.S. mainland within range. North Korean officials said that with the launch, which reached a height of 2,780 miles, they achieved the country’s long held goal of becoming a nuclear power. In response, the U.S. is calling on all countries to suspend diplomatic ties with North Korea and has asked China to stop crude oil trade with North Korea or it will “take the oil situation into our own hands.”

Markets

  • Markets were up this week, setting new All-Time Highs along the way. The S&P gained 1.60%, closing at 2,642. The Dow Jones rose 3.00% for the week and closed at 24,232. Year to date, the S&P is up 20.25% and the Dow is up 25.49%.
  • Interest rates were slightly higher for the week albeit in more volatile trading. The 5 year and 10 year U.S. Treasury Notes are now yielding 2.12% and 2.36%, respectively.
  • The spot price of WTI Crude Oil dipped by 1.04% this week, closing at $58.34 per barrel. Year to date, Oil prices have risen 4.51%.
  • The spot price of Gold ended the week off by 0.65%, closing at $1,279.96 per ounce. Year to date, Gold prices are up 11.54%.

 Economic Data

  • Initial jobless claims dropped 2,000 from last week, coming in at 238,000. Filings continued to fall from 10 year highs in Puerto Rico, which continues to deal with the aftermath of Hurricane Maria.  The four week moving average for claims rose to 242,000.
  • The headline PCE index (measure of inflation) rose by 0.1% in October, in line with forecasts. Headline inflation as measured by the PCE index has risen 1.6% over the last 12 months.
    • Core PCE (excludes food and energy, Fed’s preferred inflation measure) rose 0.2% in October, also in line with expectations. Over the last 12 months, Core PCE is up 1.5%, still short of the Federal Reserve’s long range target of 2%.
  • The Case-Shiller home price index rose by 0.5% in September, beating consensus expectations of 0.4%. Prices rose in all 20 cities measured, with Atlanta (+1.3%), San Francisco (+1.1%), Las Vegas (+1.0%) and Tampa (+1.0%) showing the largest monthly increases. Home prices as measured by the index have risen 6.2% over the last 12 months.

Fact of the Week

  • Adobe Analytics reports that U.S. retailers saw record online sales to start the holiday shopping season. The totals for Thanksgiving and Black Friday are reportedly $7.9 billion in sales, a 17.9% increase from a year ago. Cyber Monday sales also impressed, coming in at $6.6 billion and becoming the largest U.S. online sales day ever.

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.

 

Borrower Assets: How Much Is Enough When Buying Real Estate?

Jeri Ott, Vice President/Mortgage Loan Originator 

While most discussions about purchasing real estate focus on having sufficient funds to make a down payment, there is more to save for than just this amount. Borrowers are required to show proof that they have sufficient additional funds saved to cover any closing costs and an amount equal to at least two months of future loan payments. This is true whether the purchase involves a primary residence or a vacation home.

Joint Ownership

Buying a property in partnership with someone else can make it more affordable. However, the reserve requirement will be the same as it would be if either individual alone made the purchase. For instance, in the case of a vacation home owned by two families, each may agree to split all expenses and payments evenly. However, the underwriting standards necessary to approve the mortgage will view each owner from the perspective of whether they could carry the entire debt on their own. Each will also be required to have sufficient reserve assets to cover two months of full payments.

A Higher Standard for Income-Producing Properties

When it comes to being approved for a mortgage against investment properties, the liquid asset reserve requirement rises to the amount needed to cover six months of mortgage and tax payments. Even though this type of property typically has rental income that will help cover the mortgage expenses, lenders are required to verify that assets exist to cover the loan should an interruption in occupancy occur.

This need to demonstrate a more substantial cash reserve—which can include bank and brokerage accounts, as well as retirement savings—can also impact homebuyers who aren’t purchasing a home for investment purposes but who are buying a property that is considered income producing. This is a common occurrence in the areas served by Old Second.

Many of our borrowers purchase homes situated on farmable land with acreage rented out to farmers. Others may be looking to acquire a horse farm with the intent of renting out the stalls they won’t be using. More recently, some of our home-buying clients have applied for mortgages on properties that have cell towers on them.

In these cases, not only are higher reserves required, the mortgages themselves may have different requirements, including a need for higher down payments and nonconventional loan structures.

Understanding Before Making an Offer

Whether the property you want to buy is your first home, an investment property or offers the potential for a steady stream of income that will help offset your mortgage payment, talking through the nuances of underwriting requirements with a lender as experienced in nonconforming home loans as they are with conventional requests is beneficial. Higher reserves, different expectations regarding debt-to-income ratios and other considerations—including how much of a down payment you need to gain access to a better interest rate—ultimately affect the amount of liquid assets you will need to have on hand and the interest rate you may be charged.

To discuss your best options for borrowing to fund your real estate purchases, call me at 630-365-5190. Let’s sit down and talk about the best loan structure for your situation.