US-North Korea relations, China tariffs, California split: Wealth Economic Update June 15, 2018

U.S. and World News

  • US-NK-830925980_380On Tuesday night, the United States and North Korea signed a historic document that included establishment of new US-DPRK relations, building a lasting and stable peace regime, reaffirming commitments to work toward complete denuclearization and recovering POW/MIA remains. The United States will keep in place its tough sanctions on North Korea and keep U.S military forces on the Korean peninsula until there is a complete, verifiable, and irreversible dismantlement of the nuclear weapons program. Secretary of State Mike Pompeo stated that the United States would resume joint military exercises with South Korea if the talks stall.
  • The United States announced today that it will move forward with $50 billion in tariffs on a range of Chinese products, $34 billion of that amount going into effect on July 6th. Shortly afterwards, China responded stating, “We will immediately introduce taxation measures of the same scale and with the same intensity”. The imposed tariffs do not include commonly purchased goods by Americans such as cell phones and TV’s. This was announced following months of trade negotiations between the two countries.
  • The plan to split California into three separate states, also known as the Cal3 initiative, has gained enough votes to make it onto the November 6th ballot. The new states would be named North California, California, and South California. Political experts say that Congress is unlikely to approve this plan.

Markets

  • After rising for much of the beginning of June, the markets fell slightly this week. The S&P 500 gained 0.06% this week and closed at 2,779.42. The Dow Jones fell 0.84% and closed at 25,090.48. Year to date, the S&P is up 4.89% and the Dow Jones is up 2.61%.
  • Yields were mixed this week with shorter term yields rising more than longer term yields (yield curve flattening) after the FOMC raised the fed funds rate. The 5 year and 10 year U.S. Treasury Notes are now yielding 2.80% and 2.92%, respectively.
  • The spot price of WTI Crude Oil fell 1.81% this week and closed at $64.55 per barrel. Year to date, Oil prices are up 7.39%.
  • The spot price of Gold fell 1.39% this week, closing at $1,280.13 per ounce. Year to date, Gold prices are down 1.74%.

Economic Data

  • Initial jobless claims fell 4,000 this week to 218,000. The largest declines were in California and Florida. The four-week moving average moved lower by 1,000 to 224,000. The pace of layoffs still remains very low.
  • Retail sales rose by 0.8% in May versus consensus expectations of a 0.4% increase. The increase reflects an increase in gas station sales and an increase in auto sales. The largest increases were from miscellaneous retailers and building materials and supply dealers.
  • Import prices rose 0.6% in May versus consensus expectations of a 0.5% increase. The increase reflects an increase in fuel prices.
  • The consumer price index (CPI) increased by 0.21% in May versus expectations of a 0.2% increase. The increase largely reflected a rise in energy prices. The year-over-year rate rose 0.1% to 2.2%
    • Core CPI (ex-food and energy) rose by 0.17% in May versus expectations of a 0.2% increase.
  • The producer price index (PPI) rose by 0.5% in May versus expectations of a 0.3% increase. The increase reflects higher energy prices and higher retailer margins.
    • PPI (ex-food and energy) rose by 0.3% in May versus consensus expectations of a 0.2% increase.
  • Industrial Production fell 0.1% in May versus expectations of a 0.2% increase. The decline was led by a sharp drop in motor vehicle output.
  • The Federal Open Market Committee raised the target policy rate range to 1.75-2% on Wednesday. The meeting had a hawkish tone versus what expectations were and rate hike projections were increased to 4 this year, 3 next year, and 1 in 2020. The previous estimate was 3 this year, 3 next year, and 2 in 2020.

Fact of the Week

  • 22% of Americans at least age 85 need help with “personal care” daily. The number of Americans at least age 85 is projected to more than double from 6.4 million in 2016 to 14.6 million in 2040 (source: Administration for Community Living).

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
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz – (630) 906-5467 ejgorenz@oldsecond.com
Mike Demski – (630) 966-2430 mdemski@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.

Are You Ready for Prime Time?

Denise Rogers, Assistant Vice President—Senior Director

Being a community bank, we’re able to offer services that are just more personal. Offering our customers membership into our Prime Time Club is one of them. The membership not only provides access to a variety of free or discounted services, it can be your ticket to some truly memorable experiences.

Oh, the Places You’ll Go

We try to keep a balance in our group travel experiences. In addition to the trips that involve relying on coach services and flying, we accommodate members who are only interested in day trips and those who want to drive places on their own.

The Prime Time Club brings you together with others in the community who share similar financial, social and travel interests. We’re able to buy tickets and arrange transportation at group discount rates to and from a variety of local venues: Broadway show performances at the Paramount Theatre here in Aurora to baseball games in Chicago, Wisconsin and St. Louis, Mo.

Among our more popular events are the FREE Rules of Road refresher courses, which help members prepare for their written driver’s test, and our two-day, AARP Smart Driver program. This longer course leads to a certificate you can present to your insurance company in exchange for a discount on your premiums.

Where many of our members see the greatest value, however, is in the longer trips we plan. For instance, in 2019, we will be heading East for a weeklong “Chesapeake Bay Getaway” (April 24–May 1, 2019). The Prime Time Club will also be traveling to Iceland next summer (July 27–August 2, 2019) and in the fall experience a “Pacific Coastal Cruise” (October 12–21, 2019). As with the day trips, we make all the arrangements, including booking the transportation, accommodations and day tours. For members, it’s a worry-free way of seeing the best of what the world has to offer.

Fellow Travelers

For me, one rewarding aspect of being the director of the program goes beyond interacting with the travelers; also watching everyone enjoying themselves is fulfilling. It’s seeing those who’ve joined us for the first time without knowing anyone return home having made new acquaintances and connections within the community. Traveling beyond their daily routines literally makes the world a little smaller.

Whether you would benefit from the discounted banking services, are transitioning toward a life of increased leisure time or find yourself at a time in your life where you would like to meet new people, consider joining the Prime Time Club. The Club has been offered to customers for 36+ years. Currently, we are 6,200 members strong, and there is always room for one more.

Membership Details

  • Membership is open to any Old Second customer who:
    • Is 55 years or better.
    • Has a checking or Money Manager account
    • Has combined balances of $10,000 in Old Second Bank or trust accounts.
  • Prime Time checking with interest.
  • Debit card with rewards.
  • Free services include:
    • Money orders and cashier’s checks.
    • Signature guarantees and notary services.
    • A financial counseling session.
    • ATM withdrawals at all O2 ATMs and MoneyPass® ATMs (up to three free withdrawals at non-O2 and non-MoneyPass® ATMs).
    • No fee on gift cards.
    • Newsletter regarding upcoming events.
    • Annual member luncheon.
  • Discounts include:
    • Safe deposit box rental.
    • Extended tours and one-day trips.

To learn more about how Prime Time Club membership would benefit you, visit our website or give me a call at 630-365-5193. For an idea of what we’ve been up to and to review upcoming performances, seminars and road trips, check out our calendar.

China tariffs, Social security, Dimon & Buffett: Wealth Economic Update June 8, 2018

U.S. and World News

  • SHANGHAI-623208766_360The White House plans to move ahead with its goal of reducing the trade deficit with China by $200 billion by introducing trade tariffs by June 15th. In May, China’s trade surplus with the United States rose by 11.7% in the midst of tense trade negotiations, which is expected to increase Washington’s efforts with regard to trade with China. Trade tensions eased on Thursday after the U.S. decided to end the ban on Chinese company ZTE Corp’s ability to access U.S. companies.
  • Social Security will have to reach into its $3 trillion trust fund to cover benefits for the first time in 36 years. Income to fund these benefits comes from tax revenue and interest earned off of the trust fund. The program was not expected to tap into its trust fund for another three years, but as a result of economic projections, it was forced to do so sooner. The Trustees Report projects the trust fund balance will run out in 2034.
  • JPMorgan CEO Jamie Dimon and renowned billionaire investor Warren Buffett are forming a joint effort to convince public company CEO’s to stop providing quarterly earnings-per-share guidance. They stated that “It leads to an unhealthy focus on short-term profits at the expense of long-term strategy, growth, and sustainability”. Another point made was that as a result, corporations “frequently hold back on technology spending, hiring, and research and development” in order to meet guided earnings estimates.

Markets

  • The markets surged higher this week. The S&P 500 gained 1.66% this week and closed at 2,779.03. The Dow Jones rose 2.79% and closed at 25,316.53. Year to date, the S&P is up 4.82% and the Dow Jones is up 3.47%.
  • Yields rose slightly higher this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 2.78% and 2.94%, respectively.
  • The spot price of WTI Crude Oil fell 0.24% this week and closed at $65.65 per barrel. Year to date, Oil prices are up 9.22%.
  • The spot price of Gold increased 0.43% this week, closing at $1,298.97 per ounce. Year to date, Gold prices are down -0.29%.

Economic Data

  • Initial jobless claims fell 1,000 this week to 222,000. The largest decline of 6,000 in Michigan was offset by declines of a 6,000 increase in California and a 2,000 rise in Tennessee. The four-week moving average moved higher by 3,000 to 226,000. The pace of layoffs still remains very low.
  • Factory orders fell 0.8% in April versus expectations of a 0.5% decline.
  • The ISM non-manufacturing index rose 1.8 points to 58.6 versus expectations of 57.6. The increase was led by business activity, new orders, and employment.
  • The trade deficit fell to -$46.2 billion versus expectations of -$49 billion. Exports were slightly weaker than expected.
  • Wholesale Inventories rose 0.1% in April versus expectations of no change.

Fact of the Week

  • Next year an estimated 45% of 176.1 million tax returns (about 80 million) projected to be filed will legally pay zero federal income tax. (source: Tax Policy Center)

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
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz – (630) 906-5467 ejgorenz@oldsecond.com
Mike Demski – (630) 966-2430 mdemski@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.

Italy, China tariffs, North Korea: Wealth Economic Update June 4, 2018

U.S. and World News

  • italy-469253936_360Italian President Sergio Mattarella blocked the formation of an anti-establishment government earlier this week, sparking fears of a snap election and roiling European markets. The left-wing 5-Star Movement and the right-wing League tried to appoint economist and anti-European Union politician Paolo Savona as finance minister. The two eventually formed an agreement to form a new coalition government, appointing economics professor Giovanni Tria as finance minister. Italy’s departure from the European Union remains a possibility in the future as the 5-Star Movement and the League both want to leave the European Union.
  • Washington has moved forward with its proposal of 25% tariffs on $50 billion of Chinese goods and restrictions on Chinese investment in U.S. high-tech industries. The United States has also announced import tariffs on steel and aluminum from the European Union, Mexico, and Canada, which will be met with retaliatory tariffs on various U.S. goods including jeans, bourbon, motorcycles, whiskey, orange juice, metals, and other food products. Canada is challenging the U.S. tariffs under NAFTA Chapter 20 and the dispute settlement process through the World Trade Organization, which threatens the success of NAFTA negotiations.
  • President Trump stated that a summit with North Korean leader Kim Jon Un will take place, as previously scheduled, on June 12th in Singapore after a high level official from North Korea visited the White House today for the first time since 2000. The goal of the summit will be to rid North Korea of its nuclear arms, and what will be provided in exchange is up for negotiation. President Trump stated that he expects a number of summits to take place before all of the issues are settled.

Markets

  • The markets ended mixed this week. The S&P 500 gained 0.54% this week and closed at 2,734.62. The Dow Jones fell 0.38% and closed at 24,635.21. Year to date, the S&P is up 3.12% and the Dow Jones is up 0.69%.
  • Yields also experienced above average volatility this week and ended the week slightly lower. The 5 year and 10 year U.S. Treasury Notes are now yielding 2.75% and 2.90%, respectively.
  • The spot price of WTI Crude Oil fell another 3.26% this week and closed at $65.67 per barrel. Year to date, Oil prices are up 9.25%.
  • The spot price of Gold fell by 0.66% this week, closing at $1,293.77 per ounce. Year to date, Gold prices are down -0.70%.

Economic Data

  • Initial jobless claims fell 13,000 this week to 2221,000. The largest declines were in California and Kentucky. The four-week moving average moved higher by 2,000 to 222,000. The pace of layoffs still remains very low.
  • Personal income rose 0.3% in April, meeting expectations• Consumer spending rose 0.6% in April, exceeding expectations of a 0.3% increase.
  • Consumer confidence rose to 128.0 in May, matching expectations.
  • Pending home sales fell 1.3% in April versus expectations of a 0.4% increase. The decline was led by sales in the Midwest region.
  • Nonfarm payroll growth rose by 223,000 in May versus expectations of a 190,000 increase. Job gains were led by the retail, construction, and leisure and hospitality sectors.
    • The unemployment rate ticked lower to 3.8% from 3.9%.
    • The labor force participation rate fell to 62.7%
    • Average hourly earnings increased 0.30% in May versus expectations of a 0.20% increase and the year-over-year rate increased to 2.7%.

Fact of the Week

  • 58 publicly-held US companies produced at least $1 billion of sales per week in 2017, up from 39 companies that accomplished that level of weekly sales in 2007. Just 1 domestic company generated more than $1 billion of sales per day during 2017 (source: Fortune).

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
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz – (630) 906-5467 ejgorenz@oldsecond.com
Mike Demski – (630) 966-2430 mdemski@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.

China, Trade, Korea: Wealth Economic Update May 25, 2018

U.S. and World News

  • cars-695675608_400Another round of trade negotiations will take place from June 2nd until June 4th as a U.S. delegation travels to China. China has pledged to reduce the import tariff on passenger vehicles to 15% from 25%. Another factor has been added to the trade negotiations after President Trump has announced an investigation under section 232 of the Trade Expansion Act of 1962 which would allow the president to restrict imports or levy tariffs on foreign goods that excessively displace domestic goods or cause substantial unemployment. China responded by expressing their opposition to the abuse of national security clauses, but will firmly defend their rights and interests.
  • President Trump canceled the planned June 12th meeting in Singapore between himself and Kim Jong-Un yesterday after a nasty war of words took place over its nuclear weapons program. This morning, foreign journalists watched as North Korea blew up tunnels leading to its nuclear facilities and President Trump expressed optimism about the summit between the two leaders taking place in the near future. North Korea remains under extremely tough international sanctions to pressure the country to end its nuclear weapons program.

 

 

Markets

  • The markets rose slightly higher this week. The S&P 500 gained 0.33% this week and closed at 2,721.33. The Dow Jones rose 0.18% and closed at 24,753.09. Year to date, the S&P is up 2.57% and the Dow Jones is up 1.07%.
  • Yields dropped significantly this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 2.77% and 2.93%, respectively.
  • The spot price of WTI Crude Oil plummeted 5.31% this week and closed at $67.58 per barrel. Year to date, Oil prices are up 12.43%.
  • The spot price of Gold increased by 0.62%, closing at $1,301.09 per ounce. Year to date, Gold prices are down -0.13%.

Economic Data

  • Initial jobless claims rose 11,000 once again this week to 234,000, a seven-week high. The largest increases were in California and Pennsylvania. The four-week moving average moved higher by 6,000 to 220,000. The pace of layoffs still remains very low.jobless claims rose 11,000 once again this week to 234,000, a seven-week high. The largest increases were in California and Pennsylvania. The four-week moving average moved higher by 6,000 to 220,000. The pace of layoffs still remains very low.
  • Sales of new single family homes declined by 1.5% in April to a seasonally adjusted rate of 662,000 units, below expectations of 680,000. The prior 3 months were revised lower by a net 41,000.
  • New orders for durable goods declined by 1.7% in April versus expectations of a 1.3% drop led by defense aircraft orders.
    • Durable goods ex-transports rose 0.9% versus expectations of a 0.5% increase.
  • Core capital goods rose 1.0% in April, exceeding expectations of a 0.7% increase.
  • The University of Michigan index of consumer sentiment fell by 0.8 points versus expectations of an unchanged reading.

Fact of the Week

  • In 1954, economist Armen Alchian was able to figure out the secret materials being used to create the hydrogen bomb. While working at RAND, Alchian observed the stock performance of many different marterials companies, and noticed that the Lithium Corp. of America had significantly outperformed other material names in the six months leading up to the successful test of the H-bomb. Alchian wrote an internal memo at RAND announcing his discovery, and was told to withdraw the memo two days after its publication. (Source: Library of Economics and Liberty)

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
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz – (630) 906-5467 ejgorenz@oldsecond.com
Mike Demski – (630) 966-2430 mdemski@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.

Why Volunteering Matters to Us

Old Second’s Carrie Niesman receiving the Oswego Chamber of Commerce 2017 Volunteer of the Year award from Cory Holstead- Chairman of Board – Oswego Chamber

Carrie Niesman, Vice President—Regional Manager

Recently, I had the honor of being recognized by both the Oswego Chamber of Commerce and the Illinois State Senate as a 2017 Volunteer of the Year. It’s the third time I’ve received this distinction, which just further motivates me to keep contributing toward the enhancement our communities.

How We Pay It Forward

Being an agent for positive change is important to me. I grew up here, I live and work here, and I’m raising my family here. Volunteering is my way of ensuring that everything my family and I have received from and enjoy about our area remains available to help future generations flourish. I believe in paying it all forward.

As important as community involvement is to me, I appreciate that it is also a priority to my employer. Being involved in the communities we serve is part of what makes us Old Second bankers—and an aspect of the job I thoroughly embrace.

Old Second has deep roots in this area. It has been instrumental in the development of the neighborhoods and businesses that make up our communities. The bank sponsors a number of events, supports fundraising for organizations and accommodates employees like me so we can donate our time and energy to causes and activities that benefit customers and community members. This commitment lies at the heart of our company’s core values.

It’s the bank’s support that enables me to hold a variety of board positions in the areas served by the branch offices I manage. As a member of the Chamber of Commerce in Oswego, for instance, I’m able to meet regularly with many area business owners. These relationships help me understand the current challenges and opportunities local businesses face, which enables me to customize solutions to meet their needs and be a better banker.

Passion Gets Things Done

I am as passionate about being a representative of a community bank as I am about fulfilling the missions of the organizations on whose boards I serve to make positive impacts on our communities.

To learn more about what Old Second can do for you, and how we are involved in your community, contact me at 630-385-6697. I can’t wait to discuss what we can do together.

Carrie Niesman is currently:

  • 2017–2016 Past President/Club Advisor of the Oswego Junior Women’s Club  
  • Vice Chairman of the Board of Directors for the Oswego Chamber of Commerce
  • Co-chair for the Ambassador Committee for the Oswego Chamber of Commerce
  • Ambassador for the Yorkville Area Chamber of Commerce
  • Committee Member for the W2W (Women in Business) group of the Yorkville Area Chamber of Commerce
  • Secretary on the Board of Directors for Oswego Panther Youth Basketball Association
  • Member of the Oswego Police Commission

 

Korea, Iran: Wealth Economic Update May 21, 2018

U.S. and World News

  • radiation-856884068_380After witnessing ongoing joint military drills between South Korea and the United States, North Korea has cancelled planned discussions with South Korea and threatened to cancel the scheduled meeting with the United States on June 12th. Kim Jong-un expressed displeasure with having to unilaterally abandon its nuclear program. Vice Foreign Minister Kim Kye-gwan stated “If the U.S. is trying to drive us into a corner to force our unilateral nuclear abandonment, we will no longer be interested in such dialogue and cannot but reconsider our proceeding to the North Korea-U.S. summit”. The United States has stated that it continues to plan for the scheduled meeting on June 12th.
  • UAE Energy Minister Suhail bin Mohammed al-Mazroui stated that OPEC has the ability to produce enough oil to cushion oil prices if the United States re-imposes sanctions on Iran. The Energy Minister told reporters that OPEC is familiar with situations like these and there is no reason to worry about supply. The IEA cut its global demand growth for oil to 1.4 million barrels per day in 2018, lower than a previous estimate of 1.5 million barrels per day.

Markets

  • The markets ended the week slightly lower. The S&P 500 fell 47% this week and closed at 2,712.97. The Dow Jones lost 0.36% and closed at 24,715.09. Year to date, the S&P is up 2.24% and the Dow Jones is up 0.89%.
  • Yields moved higher this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 89% and 3.06%, respectively.
  • The spot price of WTI Crude Oil rose 89% this week and closed at $71.33 per barrel. Year to date, Oil prices are up 18.66%.
  • The spot price of Gold decreased by 05%, closing at $1,292.29 per ounce. Year to date, Gold prices are down -0.81%.

Economic Data

  • Initial jobless claims rose 11,000 to 222,000 for the week. The largest increases were in Missouri, Kentucky, and California. The four-week moving average moved lower 3,000 to 213,000. The pace of layoffs still remains very low.
  • The Philadelphia Fed manufacturing index rose by 11.2 points in May to 34.4 versus expectations of 21.0.
    • The  new orders component rose 22.2 points to 40.6 to the highest level since 1973.
  • Housing starts fell by 3.7% in April to a seasonally adjusted rate of 1,287k which was below expectations of a -0.7% decline. The decline was led by the multi-family category while single family homes moved higher by 0.1%.
    • The largest  declines were in the Northeast and Midwest , reflecting unseasonable weather.
  • Building permits fell 1.8% in April to an annualized rate of 1,352k in April compared to expectations of a 2.1% decline.
  • Industrial production rose 0.7% in April versus expectations of a 0.6% increase. Industrial production was led by utilities and mining output in April.
  • Retail sales rose by 0.3% in April, matching expectations. The figure was led higher by an increase at gas stations.
    • Retail sales ex-autos rose 0.3% in April versus expectations of a 0.5% increase.

Fact of the Week

  • The royal wedding between Prince Harry and Meghan Markle is estimated to cost around $45.8 million. This is well over 1000 times the cost of the average marriage in the US and UK at $34,000. Almost all of the $45.8 million budget is for security, which is estimated to cost $43 million. (Source: Business Insider)

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
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz – (630) 906-5467 ejgorenz@oldsecond.com
Mike Demski – (630) 966-2430 mdemski@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.

Iran, CA Solar Homes, Korean Hostages: Wealth Economic Update May 11, 2018

U.S. and World News

  • The United States has withdrawn from the nuclear deal with Iran, sending the price of crude oil up over 3% to $71 a barrel. President Trump announced that he will impose the “highest level” of sanctions on Iran starting August 6th which would include restrictions on exports of airplanes and parts, dollar transactions, trade in gold and other metals, sovereign debt and the auto industry. On November 4th, additional sanctions will include a ban on oil purchases and transactions with the central bank. The withdrawal from the deal has been condemned by European countries, particularly France whose Foreign Minister said European companies should not have to pay for the US decision. Iran is now calling on Airbus, a plane manufacturer based in Europe, to continue to sell it planes.
  • solar-687096836_370California has voted unanimously to require that nearly all new homes and residential buildings smaller than four stories built after January 1st 2020 have solar panels. This is estimated to add between $8,000 and $12,000 to building a home. The CEC also estimated that mortgages will increase on average by $40 per month and savings on utility bills will be $80 per month.
  • Three Americans that were held as prisoners in North Korea for months were returned to the United States this week with Secretary of State Mike Pompeo. The meeting between President Trump and Kim Jong Un will take place on June 12th in Singapore. The location of Singapore symbolizes the desire to no longer utilize South Korea as an intermediary between the United States and North Korea, and also is a big step for Kim Jong Un to gain credibility as a leader.

Markets

  • AThe markets surged higher this week. The S&P 500, rose 2.49% this week and closed at 2,727.72. The Dow Jones rose 2.51% and closed at 24,831.17. Year to date, the S&P is up 2.71% and the Dow Jones is up 1.26%.
  • Yields rose higher this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 2.84% and 2.97%, respectively.
  • The spot price of WTI Crude Oil rose this week by 1.23% and closed at $70.58 per barrel. Year to date, Oil prices are up 17.42%.
  • The spot price of Gold rose this week by 0.35%, closing at $1,319.04 per ounce. Year to date, Gold prices are up 1.25%.

Economic Data

  • Initial jobless claims were flat at 211,000 for the week. The largest increase was in Ohio and the largest decline was in Wisconsin. The four-week moving average moved down 5,000 to 216,000, a 49 year low. The pace of layoffs still remains very low.
  • The consumer price index (CPI) rose 0.22% in April versus expectations of a 0.3% increase and the year-over-year rate remains unchanged at 2.1%. The increase was led by a rise in energy prices.
    • Core CPI (ex-food and energy) rose 0.1% in April versus expectations of a 0.2% increase.
  • The producer price index (PPI) rose 0.1% in April, below expectations of a 0.2% rise. The figure was held lower due to a 1.1% decline in food prices.
    • PPI ex-food and energy rose 0.2% in April, in line with expectations.
  • In the University of Michigan’s index of consumer sentiment May preliminary report, the index was unchanged at 98.8 versus expectations of a modest decline.

Fact of the Week

  • The individual stock that was the top performing stock within the S&P 500 YTD through 4/30/18 with a gain of +62.8% was also ranked as the #1 stock within the index for all of calendar year 2013 and again in calendar year 2015. But the stock was also ranked #430 in 2014 and #278 in 2016 (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
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.

The Game-Changing Benefits of Predictable Cash Flow

David Mottet , First Vice President—Commercial Lending 

To understand the dynamics of small business management, you need to look beyond your revenues and focus on how quickly cash flows through your organization. Because, if your company comes up with insufficient cash to operate at the end of the month, it really won’t matter that your business’ earnings hit a new high the month before. That’s why you need to keep your eye on your operating cash cycle to get a better gauge on the health of your cash flow.

The Lifeblood of Your Organization

The operating cash cycle represents the length of time your cash is tied up in working capital, including the inventory cycle and the accounts receivable cycle. For most businesses, it takes somewhere between 40 and 60 cents in working capital investment to generate one dollar in new revenue. This is the basic premise behind achieving sustainable growth.

Your growth capacity is determined by your working capital surplus. But the “timing of cashis also a factor. Operating cash cycles are the circulatory system of your business. If cash is not flowing smoothly through the system, the patient weakens. If cash flow stops all together, the patient’s viability is at risk.

Assessing Predictability

To gauge the strength of your current operating cash cycle, ask yourself the following questions:

  • How would your day-to-day operations be impacted if your clients made their payments within 24 hours of receiving your invoice?
  • How would truly predictable cash flow affect the ability of your company to add staff or other resources?
  • How would paying all accounts within five business days impact your ability to negotiate better prices and discounts with your vendors?

If you are like most managers, answering these questions led you to a better place than you are right now. Once you know when you will receive payment, you no longer need to juggle payables and other business obligations. You begin to control your cash flow rather than being controlled by it. That’s where the value of having a predictable cash flow leads.

The Benefits of a Predictable Cash Flow

Business owners typically realize five major benefits from achieving a predictable operating cash cycle.

  1. Reduce managerial stress. Just as with personal finances, a lack of money can lead to stress in a business. You start to worry about your employees just as you would your family.
  2. Build stronger business relationships. Once you take control of your operational cash cycle, you can begin to nurture valuable relationships with both vendors and clients. This can often lead to earning better pricing through prompt payment.
  3. Experience debt reduction. Predictable cash cycles in a business enable you to pay down term debt more quickly, as well as other short-term obligations. In time, your business can become totally debt free, and, as an owner, you become an investment and cash management client rather than strictly a borrower.
  4. Improve staffing flexibility. During times of uncertainty, the last thing a business owner wants to do is commit to paying annual salaries for new employees. Predictable operational cash flow enables you to hire with confidence as growth opportunities arise.
  5. Realize growth in sales. Businesses must have working capital to support expansion. By making operational cash cycles more predictable, one key barrier to growth is removed. Consistent cash cycles provide you with the opportunity to expand your sales more easily, given market demand.

To gain firm control of your operational cash flow and the resulting benefits of predictable payments, Old Second offers business clients access to the BusinessManager® program. This online program allows you to get cash for your accounts receivable deposited directly into your bank account by selling them to the bank at a discount. Essentially, it allows you to quickly turn your invoices into cash, makes your cash flow more predictable and enables you to negotiate better terms from your suppliers. The result is a much stronger operating cash cycle and healthier finances.

To learn more about this game-changing program and the other cash management strategies available at Old Second Bank, contact your lender to set up an appointment. We can’t wait to show you the difference it can make.

China, Hawaii Volcano: Wealth Economic Update May 4, 2018

U.S. and World News

  • A United States delegation traveled to China this week to negotiate on trade. Ahead of the meeting, Chinese Foreign Ministry spokeswomen Hua Chunying stated that it is not realistic to expect to have all the issues resolved in one meeting. It has been rumored that the United States requested China to reduce its trade surplus by at least $200 billion by 2021, cease government support for advanced technologies, cut tariffs on American products, and to agree not to retaliate. The United States has not made an official statement on the results of the meeting yet, however, China’s official news agency announced that the two countries agreed in some areas and would set up a “working mechanism” to keep trade negotiations going.
  • Kilauea-157649787_370Earlier in the week, a series of earthquakes on Hawaii’s Big Island sparked the eruption of the Kilauea volcano on Thursday evening. Nearly 1,500 people were forced to evacuate the area and lava is flowing through the streets of the Leilani Estates subdivision while residents are being sheltered at two community centers. On a Honolulu television station, a resident stated that “It sounded like if you were to put a bunch of rocks into a dryer and turn it on as high as you could.” The fire department has detected sulfar dioxide gas in the evacuation are at extreme levels. Kilauea is 212 miles southeast of Honolulu and is considered the most active volcano in Hawaii.

Markets

  • After The markets ended the week slightly lower. The S&P 500, lost 0.21% this week and closed at 2,663.42. The Dow Jones fell 0.19% and closed at 24,262.51. Year to date, the S&P is up 0.24% and the Dow Jones is down 1.20%.
  • Yields also moved lower this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 2.79% and 2.95%, respectively.
  • The spot price of WTI Crude Oil rose this week by 2.50% and closed at $69.80 per barrel. Year to date, Oil prices are up 16.12%.
  • The spot price of Gold fell this week by 0.67%, closing at $1,315.11 per ounce. Year to date, Gold prices are up 0.95%.

Economic Data

  • Initial jobless claims rose 2,000 to 211,000 for the week. The largest increases were in New York and California. The four-week moving average moved down 7,000 to 222,000. The pace of layoffs still remains very low.
  • The trade deficit fell $8.8 billion to $49.0 billion in March led by the decline of goods and services imports and real imports of nonpetroleum goods.
  • Nonfarm payrolls growth came in at 164,000 for the month of April, below expectations of a 193,000 increase. Growth in prior months was revised up by a netted 30,000. Unseasonable weather in the Midwest was partly to blame for the weaker than expected number.
    • Average hourly earnings rose by 0.15%, missing expectations of a 0.20% increase and the year-over-year rate remained stable at 2.6%.
    • The unemployment rate fell to 3.9% in April versus expectations of 4.0%.
  • Private payrolls increase by 204,000 versus expectations of a 198,000 increase.
  • The ISM non-manufacturing index fell by 2 points to 56.8, missing expectations of 58. The decline was led by the business activity index and the employment index.
  • Factory orders rose by 1.6% in March, exceeding expectations of a 1.4% increase.
  • The core PCE price index excluding food and energy increased 0.15% in March and the year-over-year rate increased to 1.88%. Expectations were for a 0.20% increase.
    • Personal income rose 0.3% in March versus expectations of a 0.4% increase.
    • Personal spending rose 0.4% in March, in line with expectations.

Fact of the Week

  • The total return for the S&P 500 over the last 10 years (2008-2017) was a gain of 8.5% per year (total return). If you avoided the 10 worst percentage days over the 10 years (10 trading days in total, not 10 days per year), the +8.5% annual gain rises to an annual gain of 16.8% (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
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.