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.

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.

What You Should Know About Retirement

Jacqueline Runnberg, CFP®, Vice President/Wealth Advisor

Runnberg_2015 (1)For most, retirement is what you save for. It’s an activity that keeps you focused on accumulating assets and making long-term investment decisions. But, it’s hard to know how much to save and if you’ve saved enough. To do that, you need to know what your retirement will look like and when it will begin—things that are different for everyone.

To help you gain clarity, here are some factors to consider as you think about what you want to happen next, after the saving stops.

➢ Be realistic: Age 62 might be a little premature for retirement.
Although the age of 62 is still associated with retirement, if your birthday is between 1943 and 1954, your full retirement age for Social Security purposes is actually 66. The age increases gradually for those born in subsequent years, until it tops out at 67 for those born in 1960 or later.

While you can still initiate benefits at age 62, they will be seriously discounted (between 25% and 32.5%) from your full retirement age benefit for those born after 1942.1

This is why retiring early may not make financial sense—quite a bit of money could be left on the table, unless you’ve saved enough to cover expenses in the early years of your retirement without Social Security benefits.

➢ Think long term: Savings (and benefits) need to last longer than ever before.
According to the Social Security Administration, a man who reaches age 65 can expect to live, on average, until age 84.3. A woman can expect to see age 86.6. But, these are just averages. One-fourth of 65-year-olds will live past 90 and one-tenth can expect to live past 95.2 This means you’ll need a strategy for how your savings can be invested (and withdrawn) in a way that lasts your lifetime, a period that could rival the number of years you spent working.

➢ Rethink expenses: Your retirement spending level may not change as much as you think.
It’s entirely possible your expenses in retirement won’t change so much as what you spend your money on. And, that is likely to keep changing. For instance, in early retirement more of your budget will probably be devoted to entertainment and travel than in the past. If your health needs change, entertainment and travel expenses may fall as home care and medical needs rise.

➢ Sweat the details: It’s what you can’t control that you most need to plan for.
Both inflation and health care costs can seriously impact your financial footing in retirement. Any financial strategies you develop will need to be flexible enough to accommodate these factors. They are also the reason you can’t afford to be a conservative investor—you will need to keep a portion of your assets growing if these factors are to be addressed. You’ll also need a withdrawal strategy that can tolerate the unknowns as well as the knowns.

Retirement Is Another Beginning
Retirement is really more like the last quarter of a game that is likely to see multiple overtimes. That’s why envisioning what your retirement will look like and how you will sustain it over three to four decades is so critical while it’s still early in the game.

This is something our wealth management professionals can assist you with. Working together, we can create a plan that helps ensure what you save over your working life will support the retirement you envision and deserve.

 

1 Social Security Administration website, retrieved November 3, 2015.
2 Social Security Administration website, retrieved November 3, 2015.

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