Stock Markets, Govt Shutdown: Wealth Economic Update Dec. 21, 2018

U.S. and World News

  • stocks-1023759644_370Equity markets continued their extended slide this week which is largely being attributed to the actions and commentary coming from the Federal Reserve. As mostly expected, the Fed raised interest rates another 0.25% this week, the fourth rate hike of 2018. Markets appear to take issue with comments made in the post-meeting press conference in which Fed Chair Jerome Powell downplayed the implications of market volatility and said that runoff of the Fed’s balance sheet is on ‘auto-pilot’. Despite taking projected rate hikes for 2019 down from 3 to 2, many fear the comments are indicative of a Fed that is steadfast in its plan to continue to raise rates regardless of the data both domestically and globally. For further information on the market action as of late, please see the note Old Second Wealth Management Comments on Market Volatility sent on December 20.
  • Also weighing on markets is an impending government shutdown, which is scheduled to take place unless an agreement is reached by midnight Friday. President Trump has refused to sign a stop-gap spending bill and threatened that the shutdown would last “for a very long time” unless there are provisions for funding the border wall along the Mexican border, something that Democrats appear unwilling to budge on. Government shutdowns have historically not been market moving events, but this time around it appears to be adding extra uncertainty to a market that is already dealing with very poor sentiment.


Markets

  • Stocks fell further this week amid global uncertainty, Federal Reserve concerns and a looming government shutdown with major averages suffering their worst weekly declines in 10 years. The S&P 500 fell 7.03% and closed at 2,417. The Dow Jones dropped 6.87% and closed at 22,445. Year to date, the S&P is down 7.64% and the Dow Jones is down 6.89%.
  • Bonds rallied this week with yields dropping along with stock prices. The 5 year and 10 year U.S. Treasury Notes are yielding 2.63% and 2.79%, respectively.
  • The spot price of WTI Crude Oil continued its precipitous slide this week on forecasts of record U.S. and Russian output combined with the sharp selloff in the equity markets. Prices fell 11.81% and closed at $45.39 per barrel. Year to date, Oil prices are down 24.48%.
  • The spot price of Gold rose 1.37% this week and closed at $1,255.84 per ounce. Year to date, Gold prices are down 3.59%.

Economic Data

  • Initial jobless claims increased by 8,000 to 214,000 this week. The four-week moving average of claims fell by 3,000 to 222,000. Claims rose by 2,000 each in Pennsylvania, California, and New York.
  • Existing home sales increased 1.9% in the month of November, beating expectations of a -0.4% decline. Sales rose in the Northeast (+7.2%), Midwest (+5.5%), and South (+2.3%) and declined in the West (-6.3%).
  • The PCE Price Index (measure of inflation) rose by 0.06% in November, slightly higher than expectations of flat prices. Over the last 12 months, the headline PCE index has risen 1.8%.
    • The Core PCE Price Index (excludes food and energy prices) rose 0.15% in November, a bit below expectations of 0.2%. Over the last 12 month, Core PCE prices have risen 1.9%.

Fact of the Week

  • Last year, there were twice as many home owners created as were created in the previous 10 years combined. The number of U.S. homeowners grew by 1.8 million in the 12 months ending 6/30/2018, double the 900,000 new homeowners over the 10 year period ending 6/30/2017. (Source: Census Bureau)

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
Mike Cava – (630) 281-4522 mcava@oldsecond.com

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC nor any govt agency; not a deposit of, or guaranteed by, the bank; may lose value.

Special Market Update: Dec. 20, 2018

While some view market volatility as a regrettable aspect of investing, it is a welcome phenomenon for active portfolio managers.  The key word here is “phenomenon”, that is, a situation that has been observed and whose cause is in question.  In other words a reaction in search of a cause.

That is where we find ourselves today.  Markets are down 15.5% since October 3rd, yet economic data remains supportive of a growing economy with Leading Economic indicators outpacing estimates this morning with a 4.4% increase since May.  Additionally, earnings growth for U.S. companies during the quarter was over 8%.  When markets fail to follow the data, investors become uncertain of the causes of those market reactions.

Enter FEAR and GREED.  Bear market proponents have warned the recent yield curve inversion is a precursor to an imminent recession.  Continued tightening by the Fed yesterday, increasing the Fed Funds rate to 2.5%, has further stoked the FEAR trade.  While others have looked to trade wars as the cause for a potential slowdown and recently cited the increase in volatility as evidence that an end is near.

First, we have never had an economic recession without a marked increase in inflation.  Yesterday, the Fed commented that inflation remains low at 2% with little change in expectations going forward. Next, we should recall that through 2017, volatility remained near record lows and provided no insight to the correction in January of 2018.  In fact, the only predictive power of volatility is that it is best to invest (though more difficult) when volatility is high.

Benjamin Graham, the father of value investing, personified these market reactions by using an allegory with Mr. Market as an investor. Graham wrote that most prices that Mr. Market quotes are reasonable.  Yet, when Mr. Market is overcome by boundless optimism or bottomless pessimism, he will quote you a price that Graham noted, “seems to you a little short of silly.”

In consideration of recent market movements, we will be ensuring equity allocations are consistent with targeted objectives; as at this time we find this bottomless pessimism “short of silly.”

As we close out the year of 2018, we would like to thank you for your trust through the year and wish you

Happy Holidays!

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
Mike Cava – (630) 281-4522 mcava@oldsecond.com

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC nor any govt agency; not a deposit of, or guaranteed by, the bank; may lose value.

New Year Review: 10 Tips for Prepping Your Finances for 2019

Jacqueline Runnberg CFP®, First Vice President Wealth Advisor 

The new year is here, and it’s time to start looking ahead. Whether your hope for 2019 includes a new home, vacation, retirement or a new addition to the family, it’s a good time to pause and make sure your finances are aligned with your plans.

Financial Actions to Take Now

Each year, we work through a checklist with our wealth management clients to make sure whatever the new year brings, they’re financially prepared for it. Here’s what’s on the list.

#1: Check your emergency savings balance. Since this money is used now and again, it may need replenishing. Also, if your family’s situation and expenses have changed over the past year, revisit your target balance to make sure it’s sufficient.

#2: Compare expected income to expenses. Examine your household’s expected monthly income for 2019 in relation to your anticipated expenditures to see if any adjustments are needed. With the increases in inflation and real estate taxes in many area suburbs, it’s a good time to review the family budget.

#3: Look at your account statements. Volatility in the investment markets during 2018 could have caused your asset allocations to shift. Make sure your portfolio reflects your long-term needs and your tolerance for risk. If it doesn’t, rebalance it to a point where you can sleep comfortably at night.

#4: Preview your 2018 tax bill. The best time to think about the taxes you’ll be paying in 2019 is in 2018 while you still have an opportunity to reduce them. See if you can harvest tax losses in order to offset any capital gains you’ve taken throughout the year. Also, check to make sure you’ve been withholding enough to cover what you will owe in April to avoid penalties.

#5: Calculate your net worth. Knowing where you stand today and comparing that to where you want to be next year, in five years or by the time you reach retirement helps you assess your progress toward your goals. Adding up assets while subtracting liabilities is the quickest way to develop a financial road map.

#6: Reevaluate retirement plan contributions. Speaking of retirement, as you start 2019, look at where your retirement plan stands. Depending on how much longer you’ll be contributing toward this goal, you might want to make adjustments.

#7: Review estate plans, account titles and beneficiaries. Family circumstances can change from year to year. Make sure your estate plans and the titling on your assets—including 401k, brokerage and bank accounts—continues to reflect your ultimate wishes.

#8: Price shop insurance policies. Insurance is an area where needs and rates can change over time. Request new bids on your auto, life and homeowners’ policies to ensure you’re not paying more than you need to for the coverage you require today.

#9: Revisit your charitable giving strategy. Tax changes that took effect in 2018 may impact when you make gifts to charities. Review your strategy with your tax advisor to make sure you’re being generous as well as tax-smart.

#10: Verify that your legal documents are current. Make sure your will, trust, health care directives and power of attorney documents are current, both in terms of who they name and to reflect changes in the legal and tax codes.

Annually reviewing your finances lets you head into the new year with a better idea of what you want to accomplish and how you will do it. If we can be of any help as you do this or if you want to discuss how to develop a plan for achieving your life goals, give us a call at 630-906-2000 or visit us at https://www.oldsecond.com/wealth-management/wealth-management/. Here’s wishing you a prosperous and joyous 2019!

 

 

Not insured by the FDIC nor any govt institution; Not a deposit or other obligation of, or guaranteed by, the depository financial institution; Subject to investment risks, including possible loss of principal amount invested.

China Tariffs, Brexit: Wealth Economic Update Dec. 14, 2018

U.S. and World News

  • Trade tensions with China have eased after some constructive talks between Chinese Vice Premier Liu He, Treasury Secretary Steven Mnuchin, and Trade Representative Robert Lighthizer earlier this week. China has begun purchasing soybeans from the United States again and has announced that the retaliatory tariffs put on U.S. autos will be suspended until March 1st. The tariff rate on autos exported to China will now be reduced from 40% to 15%. March 1st remains the deadline for the trade truce established between President Trump and Chinese President Xi Jinping in Buenos Aires on December 1st. The recent development is a sign that the arrest of Huawei CFO Meng Wanzhou has not derailed trade negotiations.
  • Theresa May delayed the House of Commons vote on her Brexit deal earlier this week, as it was expected to fail with near certainty. As a result of the delay, 48 Conservative lawmakers called for her ouster. Theresa May then when on to survive the no-confidence vote and travel to Brussels to hear the European Union’s concerns regarding the deal. The Irish backstop, which is the plan to prevent a hard border in Northern Ireland, continues to be the point of disagreement. Theresa May’s own members of parliament are concerned that the Irish Backstop could keep the United Kingdom tied to the European Union’s policies and would prevent them from making trade deals.


Markets

  • Stocks fell further this week amid global uncertainty. The S&P 500 fell 1.22% and closed at 2,600. The Dow Jones declined 1.17% and closed at 24,101. Year to date, the S&P is down 0.81% and the Dow Jones is down 0.20%.
  • Yields rebounded slightly this week. The 5 year and 10 year U.S. Treasury Notes are yielding 2.73% and 2.89%, respectively.
  • The spot price of WTI Crude Oil erased its gains from last week, losing 2.79% and closing at $51.14 per barrel. Year to date, Oil prices are down 14.92%.
  • The spot price of Gold fell 0.87% this week and closed at $1,238.47 per ounce. Year to date, Gold prices are down 4.94%.

Economic Data

  • Initial jobless claims fell by 27,000 to 206,000 this week. The four-week moving average of claims fell by 4,000 to 225,000. Claims fell by 5,000 in Pennsylvania, 3,000 in California, 3,000 in Texas, and 2,000 in Georgia.
  • Import prices fell by 1.6% in November month-over-month versus expectations for a decline of 1.0%.
  • Import prices ex-petroleum fell by 0.3% in November versus expectations for a 0.1% decline.
  • The producer price index (PPI) rose by 0.1% in November month-over-month versus expectations for no change.
  • PPI ex-food and energy rose by 0.3% in November versus expectations for a 0.1% increase.
  • The consumer price index (CPI) rose by 0.02% in November versus expectations for no change. The year-over-year rate came in at 2.18%, in-line with expectations.
  • Core CPI rose by 0.21% in November, in-line with expectations. The year-over-year rate came in at 2.21%, in-line with expectations.
  • Retail sales rose by 0.2% month-over-month in November versus expectations for a 0.1% increase.
  • Retail sales core/control rose by 0.9% in November versus expectations for a 0.4% increase.
  • Industrial production rose by 0.6% in November versus expectations for a 0.3% increase.

Fact of the Week

  • 30 years ago (1988), the Chinese economy was just 6% of the U.S. economy. 10 years ago (2008), the Chinese economy grew to 31% of the U.S. economy. Today, the Chinese economy is 63% the size of our economy. (Source: Trading Economics)

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
Mike Cava – (630) 281-4522 mcava@oldsecond.com

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC nor any govt agency; not a deposit of, or guaranteed by, the bank; may lose value.

China Tariffs, Gas Prices/Canada: Wealth Economic Update Dec. 7, 2018

U.S. and World News

  • china-943639230_370.jpgFollowing the meeting in Buenos Aires between President Trump and President Xi Jinping of China, President Trump agreed to delay a planned increase in the tariff rate on $200 billion of Chinese goods by 90 days while China agreed to begin purchasing agricultural, energy, and industrial commodities from the United States. The deal was initially met with skepticism by markets, however, China has begun preparations to begin importing soybeans and liquefied natural gas. Yesterday, the CFO of Chinese company Huawei was arrested for a violation of United States sanctions that prohibit doing business with Iran. The incident is not estimated to have any effect on trade negotiations between the United States and China.
  • In an effort to combat rapidly falling oil prices, Canada has unexpectedly announced an output cut of 325 thousand barrels per day, setting the precedent for other major oil producing nations to follow suit. Later in the week, Saudi Energy Minister Khalid al-Falih stated that no OPEC deal was a real risk, just before Russia and OPEC members were to meet to discuss further production cuts. After Thursday’s summit concluded with no deal, OPEC met again to agree on 1.2 million barrels per day of production cuts. The deal is viewed as a victory United States oil producers as they are able to enjoy rising oil prices without having to cut production.


Markets

  • In another volatile week, stocks reversed course and headed sharply lower. The S&P 500 plummeted 4.55% and closed at 2,633. The Dow Jones lost 4.44% and closed at 24,389. Year to date, the S&P is up 0.40% and the Dow Jones is up 0.95%.
  • Yields continued their slide this week. The 5 year and 10 year U.S. Treasury Notes are yielding 2.70% and 2.86%, respectively.
  • The spot price of WTI Crude Oil rose higher this week, gaining 2.75% and closing at $52.33 per barrel. Year to date, Oil prices are down 12.94%.
  • The spot price of Gold rose 1.46% this week and closed at $1,248.60 per ounce. Year to date, Gold prices are down 4.16%.

Economic Data

  • Initial jobless claims fell by 4,000 to 231,000 this week. The four-week moving average of claims rose by 4,000 to 228,000. Claims rose by 4,000 in California, 2,000 in Illinois, 2,000 in Iowa, 2,000 in Texas, and 2,000 in Wisconsin.

     

  • Private sector employment rose by 179,000 in November versus expectations for a 195,000 gain.

     

  • The trade deficit rose $0.9 billion to -$55.5 billion in October versus expectations for a reading of $-55 billion.

     

  • The ISM manufacturing index rose by 1.6 points to 59.3 in November versus expectations for a reading of 57.5.

     

  • The ISM non-manufacturing index rose by 0.4 points to 60.7 versus expectations for a reading of 59.0.

     

  • Factory orders fell by 2.1% month-over-month in October versus expectations for a 2.0% decline.

     

  • Construction spending fell by 0.1% in October versus expectations for an increase of 0.4%.

     

  • Nonfarm payrolls rose by 155,000 in November month-over-month versus expectations for an increase of 198,000. The lower-than-expected reading was led by slower growth in construction, leisure, and hospitality.

     

    • The unemployment rate held steady at 3.7%, in-line with expectations.

       

    • The labor force participation rate remained at 62.9%

       

    • Average hourly earnings rose by 0.2% month-over-month in November versus expectations for an increase of 0.3%.

Fact of the Week

  • Credit card debt in the US peaked in May 2008 before the global real estate crisis at $1.02 trillion. It then hit a low of $832 billion in April 2011. As of August 2018, US credit card debt climbed back to a record level of $1.04 trillion. (Source: Federal Reserve)

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
Mike Cava – (630) 281-4522 mcava@oldsecond.com

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC nor any govt agency; not a deposit of, or guaranteed by, the bank; may lose value.

Special Market Update: Dec. 6, 2018

The market reversal that began on Tuesday has carried over into today’s trading as stocks continue to exhibit a high level of volatility. At the time of this writing, the markets are down 2.3% as measured by the S&P 500.  The Dow is off 2.8% while international markets are down 1.2% and the Shanghai composite closed down 1.8%.

iStock-874979248Stocks experienced a relief rally last week and into early this week on Fed Chair Jerome Powell’s more dovish comments indicating a more measured approach to interest rate hikes in 2019. This was followed by optimism on progress regarding the trade issues between the U.S. and China last weekend at the G-20 meeting in Buenos Aires. Initial reports stated that there was somewhat of a ‘trade truce’ reached between the two countries that would delay the escalation of tariffs for 90 days and include Chinese purchases of agriculture and liquid natural gas. Markets turned on Tuesday when the validity of those initial reports were called into question, something of which we have not seen any hard evidence.

The catalyst for today’s drop seems to be the arrest of the CFO of Chinese tech giant Huawei in Canada on charges that the firm violated U.S. sanctions by selling to Iran. This has been an issue with Chinese firms in the past, notably the recent fines levied against ZTE for similar allegations. Chinese officials are reportedly outraged by the detainment of Meng Wanzhou, daughter of the prominent CEO of the Chinese tech giant. The arrest, which occurred on the same day (December 1) as the Xi-Trump dinner, has stoked fears of an escalation of the trade tensions between the U.S. and China and that any progress that may have been made last weekend at the G-20 has been negated.

It is unclear what the ramifications of the arrest will have on the big picture trade negotiations but the United States’ handling of it will be a near term focus of markets given the prominence of Huawei (comparable to Apple in the U.S.) and the existing controversy of the firm’s development of 5G networks around the world. Old Second Wealth Management’s investment professionals will continue to monitor the situation and provide pertinent updates.

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
Mike Cava – (630) 281-4522 mcava@oldsecond.com

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC nor any govt agency; not a deposit of, or guaranteed by, the bank; may lose value.

Brexit, China Tariffs, Ukraine: Wealth Economic Update Dec. 1, 2018

U.S. and World News

  • iStock-815062310The House of Commons will vote on Theresa May’s new Brexit withdrawal agreement on December 11th, which calls for London to follow many of the European bloc’s rules in an effort to keep trade agreements intact. Meanwhile, people in the “Remain” group are hopeful that the European Union’s top court will determine that the U.K. can unilaterally cancel Brexit after it has been completed. European Union Brexit negotiator Michel Barnier has advised Britain that this agreement is “the only one possible”.
  • President Trump has threatened to raise tariffs to 25% from 10% on $200 billion of Chinese goods effective January 1st and institute tariffs on $267 billion more Chinese imports that would include iPhones and laptops. The announcement preludes the G20 summit in Argentina taking place this weekend that will be attended by President Trump, Xi Jinping. President Trump and the Chinese President are expected to have a dinner meeting on Saturday night to discuss trade.
  • Tensions are rising between Vladimir Putin and Ukraine after Russia captured and fired upon three Ukrainian navy vessels that had entered the Kerch strait near Crimea last weekend. Russia is now planning to deploy more surface-to-air missile systems to the area. Ukraine is calling for NATO to deploy warships to the sea of Azov, between the two countries.


Markets

  • Stocks rebounded this week. The S&P 500 gained 4.91% and closed at 2,760.16. The Dow Jones rose 5.52% and closed at 25,538.46. Year to date, the S&P is up 5.10% and the Dow Jones is up 5.54%.
  • Yields dropped again from last week. The 5 year and 10 year U.S. Treasury Notes are yielding 2.82% and 2.99%, respectively.
  • The spot price of WTI Crude Oil rose slightly this week, up 0.36% and closing at $50.60 per barrel. Year to date, Oil prices are down 16.17%.
  • The spot price of Gold fell 0.07% this week and closed at $1,222.12 per ounce. Year to date, Gold prices are down 6.19%.

Economic Data

  • Initial jobless claims rose by 10,000 to 234,000 this week. The four-week moving average of claims rose by 4,000 to 223,000. Claims rose by 5,000 in New York, 3,000 in Pennsylvania, and 2,000 in Georgia.
  • The core PCE price index ex-food and energy rose by 0.10% month-over-month in October versus expectations for a 0.2%. The year-over-year rate fell 0.2% to 1.8% versus expectations for 1.9%.
  • Personal income rose by 0.5% month-over-month in October versus expectations for a 0.4% increase.
  • Consumer spending rose by 0.6% in October versus expectations for a 0.4% increase.
  • Pending home sales fell by 2.6% in October versus expectations for a 0.5% increase. Declines were led by the West region.
  • Sales of new single-family homes fell by 8.9% in October to a seasonally-adjusted annualized rate of 544k versus expectations of 575k. This is the lowest level since March 2016.
  • Second-quarter GDP growth was unrevised and remained at 3.5% versus expectations for a revision to 3.6%.
    • The October goods trade deficit increased by $1.2 billion to $77.2 billion, versus expectations for a reading of $77.0 billion.
    • Wholesale inventories rose 0.7% in October versus expectations for a 0.4% increase.
  • The Conference Board index of consumer confidence fell 2.2 points to 135.7 in November, in-line with expectations.

Fact of the Week

  • Outstanding student loan debt in the US doubled from $360 million to $720 billion from 3/31/05 to 12/31/09. It double again to $1.44 trillion as of 9/30/18.

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
Mike Cava – (630) 281-4522 mcava@oldsecond.com

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC nor any govt agency; not a deposit of, or guaranteed by, the bank; may lose value.

5 Myths That Keep Millennials From Becoming Homeowners

Frederick Nosal — First Vice President, Residential Lending

Though most Millennials are already well down the path of “adulting,” with careers, car and student loan repayments, and even starting to save for retirement, many haven’t taken a critical next step in their financial lives: homeownership.

Behind this hesitation are a handful of persistent myths.

Myth# 1: Renting saves me money.

Rent is an expense you pay to live in someone else’s real estate investment. If you were spending that same amount on a mortgage payment, you would actually be investing in an asset you own. It would be yours to sell and borrow against. It could even appreciate over time, which would help you build long-term wealth. Here’s a calculator that can help you put this in dollars—potentially your own.

Myth#2: I don’t make enough to buy a home.

You may not be able to buy your dream home right away, but the odds are good you can find one you’d be comfortable owning and can already afford. After all, you won’t be paying for your home all at once. While you can try different scenarios online to see what’s affordable, we recommend first-timers talk to an Old Second Mortgage banker. Not all mortgages are alike. Some lenders, like Old Second, participate in a variety of programs for first-time buyers that make affordability easier. 

Myth# 3: I still have student loans, so I can’t get a mortgage.

While your student loan balance may seem high, just focusing on how much you owe can be misleading. The amount you are required to pay back each month is what influences your mortgage approval. Also, federal student loan programs offer numerous options to ensure your payments are affordable, even with a car loan and mortgage payment. Many borrowers are able to make adjustments that allow them to comfortably repay their debt and make a housing move.

Myth# 4: It’ll be years before I can afford a down payment.

While experienced homebuyers typically make a larger down payment, first-time mortgage programs can require far less. Some are available with as little as a $1,000 investment. Depending on where you live, you may be able to access grants that cover a portion or all your down payment. This is where working with an Old Second Mortgage banker comes in handy. We can help you access the right programs for your situation. 

Myth# 5: Owning a home is a big responsibility.

While having a big property can mean a lot of yardwork and maintenance, you have options that reduce the “sweat equity” associated with homeownership. From new construction to high-rise condos or townhomes with shared maintenance costs, you can own without giving up your weekends to home maintenance chores.

Myth #6: Getting a mortgage is complicated.

You don’t have to do this alone. Talk to us. We listen and are always ready to answer questions. The only dumb question is the one you don’t ask, so ask us anything. We’ll help you understand what’s affordable, calculate how much different types of properties will cost and prequalify you so it’s easier to work with a real estate agent.

We’re here—online, by phone and in person. As your community bank, we aren’t going anywhere. So, ready when you are. After all, you may not do this every day, but we do.

Brexit, China Tariffs, CA Wildfires, Saudis: Wealth Economic Update Nov. 23, 2018

U.S. and World News

  • Brexiteers had warned of “Judgement Day,” but opponents of British Prime Minister Theresa May are reportedly six letters short of the 48 threshold needed to trigger a no confidence vote on her leadership. May said on Sunday that toppling her would risk delaying Brexit and she would not let talk of the challenge distract her from getting the support of the U.K. business community ahead of a critical week of Brexit negotiations.

  • “We put tariffs on $250B in Chinese goods, and we could more than double that number,” Vice President Mike Pence told the APEC summit, stating the “U.S. will not change course until China changes its ways.” The warning follows remarks made by President Trump that helped the Dow close higher on Friday. The U.S. “may not” need to impose more tariffs after China sent over measures it was willing to take to resolve trade tensions, he said, adding that “we’ll probably get to the four or five big things that were left off” the list.

  • The current wildfires in California could pressure insurers operating in the state given underwriting losses have the potential to approach around $6.8B. “They are not permitted to take all the given year’s losses and cram them into next year’s rates,” California Insurance Commissioner Dave Jones told CNBC. A state ordinance instead spreads repayment of property and casualty insurance payouts over the next twenty years

  • President Trump has called the CIA assessment blaming Saudi Crown Prince Mohammed bin Salman for the killing of Saudi journalist Jamal Khashoggi “very premature” and said he will receive a complete report of the case on Tuesday. Saudi Arabia plays an important role in the oil markets, counters Iran’s influence in the region, and President Trump has repeatedly said he doesn’t want to harm U.S. defense contractors by blocking U.S. arms sales to the kingdom.


Markets

  • Stocks retreated again this week. The S&P 500 fell 3.76% and closed at 2,632.56. The Dow Jones dropped 4.39% and closed at 24,285. Year to date, the S&P is up 0.26% and the Dow Jones is up 0.32.
  • Yields dropped slightly from last week. The 5 year and 10 year U.S. Treasury Notes are yielding 2.87% and 3.04%, respectively.
  • The spot price of WTI Crude Oil fell sharply this week, losing another 11.10% and closing at $50.39 per barrel. Year to date, Oil prices are down 16.17%.
  • The spot price of Gold rose 0.05% this week and closed at $1,223.93 per ounce. Year to date, Gold prices are down 6.06%.

Economic Data

  • Housing starts increased 1.5% in October to 1,228k, and September starts were revised up 9k to 1,210k. The composition of the report was somewhat softer, as the volatile multi-family category increased 10.3% but single-family starts declined 1.8%. Housing starts declined in the Northeast (-34.1%) and West (-4.6%), and increased in the Midwest (+32.9%) and in the South (+4.7%), where there is potential scope for further recovery as the rebound from Hurricane Florence was likely offset by a drag from Hurricane Michael..
  • Existing home sales increased 1.4% month-over-month in October to a seasonally adjusted annualized rate of 5.22 million units, above expectations and the first increase in 6 months. October home sales increased among single-family units (+0.9%) and among condos and co-ops (+5.3%). Sales rose in the West (+2.8%), South (+1.9%), and Northeast (+1.5%) regions and declined in the Midwest (-0.8%).
  • The University of Michigan’s index of consumer sentiment declined 0.8pt to 97.5 in the final November report from the preliminary report. The survey’s current conditions (-0.9pt to 112.3) and expectations (-0.6pt to 88.1) components both moved down from their preliminary readings. The report’s measure of 5- to 10- year inflation expectations remained unchanged at 2.6%.
  • In the week ended November 17, initial jobless claims increased by 3k to 224k—the highest level since June—against expectations for a decrease. The four-week moving average of claims increased by 2k to 219k. Jobless claims increased by 3k in California and Texas, and by 2k in Illinois. Claims declined by 2k in New York. Nationwide continuing claims—the number of persons receiving benefits through standard programs—declined 2k to 1,668k in the previous week. The insured unemployment rate remained unchanged on a rounded basis at 1.2%.

Fact of the Week

  • The S&P 500 has gone 46 trading days (as of 11/23) since it last closed at an all-time high. Since a record close on 3/28/13, the longest that the S&P 500 has gone between record closes is 286 trading days, between 5/21/15 and 7/11/16. (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 – (630) 906-5467 ejgorenz@oldsecond.com
Mike Demski – (630) 966-2430 mdemski@oldsecond.com
Mike Cava – (630) 281-4522 mcava@oldsecond.com

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