Category Archives: Economy

Confessions of A Federal Reserve Official

Posted on February 23, 2012 by | Comments Off

As mentioned in an earlier post, Dr. Harvey Rosenblum was the keynote speaker at the Texas Investment Symposium Event (Tips). Dr. Rosenblum, a very candid speaker with a knack for making complex subjects understandable, (economics can be very confusing) said something during his speech, very matter-of-factly that I have not heard before from a Fed official.

Dr. Rosenblum confessed that the FOMC’s current interest rate policy no longer has the teeth prior policy makers had available them.  Long suspicious of this fact by many, including myself, it was interesting to hear Dr. Rosenblum so casually mention this fact.

Why is current interest rate policy less effective?

The following chart is of the FOMC target interest rate policy. Notice how this last cycle we have moved to zero and are holding.

Where can you go from here ?

Fed Target Rate: New York Fed.org

There are no more bullets in the gun! Notice in prior years there was room to move down (turn the heat up on the economy) and have an effect on the economy. Since we currently have a close to zero interest rate policy, it makes sense that the latest changes have had a much slower result in changing the direction of our current economic situation.

Other Operations Necessary

Dr. Rosenblum mentioned over a half of dozen NEW economic stimulus plans that were established during the 07-09 crisis, many of which are now closed, as the new open market operations (economic stimulus) levers of the future.  While there may be many new future tools for the FED to embrace our bet is an eventual return to normalcy.

What is old is New Again

Similar to that old phrase of what is old is new again, we are wishful of an eventual rising of short-term rates that will allow Fed policy makers to “re-load” the gun for the eventual next economic downturn.

Have a Great Day!

JK

214-706-4300

www.jkfinancialinc.com

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Posted in Economy, Interest Rates, Investing/Financial Planning

The FOMC Mistake; Calling it as We See it !

Posted on January 26, 2012 by | Comments Off

Yesterday the FOMC released their regular statement regarding policy and actions at 11:30 AM central time followed by an extended live Q&A with the Fed Chief,  Bernanke. We feel the FOMC has made a mistake with their statement.

Here is the specific sentence in the release that has us concerned

“In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.”

As is often the case when we have a strong opinion, we have made it a point to not read the various analysis before voicing our thoughts.

Here are the reasons we feel this statement was a mistake:

  1. There was nothing gained by pushing the time line out another year right now. Keeping that statement in the hat for this time next year (if necessary) would have been a much safer way to go.
  2. It is too hard to predict what the economic situation is going to be that far in the future (We liked the original runway of time as it pushed any fed decision out-of-the-way of the election.)
  3. Investor  confidence (domestic and more importantly internationally) is paramount in retaining control of US interest rates. In investment professionals minds, holding rates low until next year, no matter the economic situation was feasible. Extending the stated term another year slightly cheapens this statement AND their original statement of low rates until 2013.

“Hot on the Long End”

Ultimately what we will now even more closely watch for is longer termed bonds rates rising.  In Wall Street lingo, it is called getting “hot on the long end.”  Rates have a funny way of making officials and investors eat their words. The FOMC changing their minds in the future would not be the worst thing that has ever happened.

Have a Great Day!

JK

214-706-4300

www.jkfinancialinc.com

PS We are not being Zaggers, but do call it as we see it !

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Posted in Economy, Interest Rates, Investing/Financial Planning, Market Comments

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Q1 2012 Newsletter is Posted for Your Perusal, Little Brother Gets a Confidence Vote

Posted on January 18, 2012 by | Comments Off

Our Digital Q 1, 2012, professionally espoused coming year forecast Newsletter has been posted to our Website on our Newsletter Page. We question forecasts from any professional, but work hard to give you our best thoughts and ideas.

Q1 2012 Newsletter

For now, our internal list of very important items concerning capital markets has seen EU worries drop in importance, as China economic growth, and US earnings climb the rungs of importance.

Little Brother countries are having confident government bond auctions resulting in lower interest rates (See: “What Happens When Investors Lose Confidence in Your System” in our Latest Newsletter), and that is relieving investor concerns, which has resulted in a more positive capital market.

Starting tomorrow, the 90 day treadmill really kicks into high gear. With our ears to the conference call line grindstones, we look forward to bringing you varous managers outlooks soon!

Have a Great Day!

JK

214-706-4300

www.jkfinancialinc.com

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Posted in Earnings Season, Economy, Investing/Financial Planning, Market Comments, Newsletters

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A Positive, but Pausing, Theme Has Been Formed – Company Blast Update

Posted on November 17, 2011 by | Comments Off

In our last post I mentioned that in addition to learning about new companies and meeting various managers, I would keep a watchful eye for a theme that might shed light on the US Economy.  After a looooong first day, reviewing my multiple pages of company notes, comments, key phrases, and forecasts, I feel comfortable with the delivery of a theme that emerged, even with another day to go.  

Company managers have the thirst, confidence, and ability to grow, but they are starved for capital. Said another way “Getting access to capital is still not easy!” While many of the companies I visited with were small, even the multi-billion dollar company managers mentioned capital is still not moving freely.   

Here is our opinion on this matter:

  • It is frustrating that capital is not moving freely YET.
  • Proving the horse to water, but not drink fable, no matter what pressures government officials put on the banking system, they will begin moving when they are ready.
  • When capital does begin moving, (imagine the first dance finally happens at the prom), a cascade of confidence and movement may begin.
  • Tossing our banker hat on, new rules (Dodd Frank) and recent bad experiences are natural inhibitors to money flow, we can’t blame them for being cautious. 

Lastly, as mentioned yesterday, former Fed Reserve Board Member, Robert McTeer was the lunch guest, and spoke for an extended period of time (actually well over his alloted time.)  After scribbling multiple pages of notes, I will leave you with one teaser comment, “Like a Coiled Spring” and save the remainder of my comments for our Zig of positives tomorrow.

Bottom line, a positive feeling from most managers which bodes well for us as investors! Now, back to work, I will duck back into meetings for the duration of the day!

Have a Great One!

JK

214-706-4300

PS  A special Happy Seventh Birthday to my daughter Sophia, today!

 

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Posted in Economy, Education, Market Comments

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A Two Day Blasting of Meetings With Over 40 Public Company Managers

Posted on November 16, 2011 by | Comments Off

Over the next 48 hours, a twelve-hour run today, and an eight hour run tomorrow, I will have the opportunity to visit, in person, with over 40 publicly traded managers (CEO and CFO’s) from across the country.

A wonderful by-product of this two-day blasting of meetings is a sketching of the  economy from all walks of life in the public sector.  I will be looking for themes to bring you as they develop, along with any positive or negative outlooks. The more consensus that is established the easier it will be to get a feel for the mood from this sampling of managers.  It is a given that companies from certain sectors will have differing views, which makes it even more interesting.

Each year I look forward to this CFA related event to hear the latest news from various company insiders and learn more about their respective company.  Each meeting lasts a short period of time in which managers briefly go over their business model, then jump into the big three Accounting sheets, (Balance Sheet, Income Statement, Cash Flows) and then give an outlook for the future, with the last item being critical, as stated earlier.

Today lunch is hosted by former Dallas Fed chief, Robert McTeer. Robert is a good guy, whom I have visited with before and written much about over the years. I look forward to hearing his perspective on the macro economy and will bring you any major updates from his camp.

Have a Great Day!

JK

214-706-4300

P.S. Feel free to share our insights with friends!

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Posted in Economy, General Financial Planning, Investing/Financial Planning

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Out with one “Pap”, in with another “Pap”, Pressure on Berlusconi

Posted on November 7, 2011 by | Comments Off

Since it is a post daylight savings time changed Monday, we will keep this brief. Tthe weekend events are shedding light on new international players you may want to know.

As of this morning, it appears that Greece is set to send their current leader, George Papandreau home, with a new front running leader, Lucas Papademos. The later Pap is a former VP of the European Central Bank.  As you may have determined by now, the “Pap” prefix for last names is quite “pap”ular (being funny.)

Pappandreou & Papademos

The importance of this is Greek movement toward a more economically feasible plan. Tossing a leader out is similar to firing a head coach, as it may inspire the team and commence movement in another direction.  As a reminder this “little brother” country has been spending much more than their paychecks for some time. This move MAY be met with positive investor reactions.

Berlusconi

In a note on how dynamic this situation is, before I am able to finish this post, Berlusconi who is/was the Italian leader, which was another important person to know, appears to also be headed home too. Much of the news is sketchy at best. No matter, Mr. Berlusconi is the Italian leader who the spotlight will shine on now, that it appears Greece is making positive moves to better their economic situation.

Those are the very important players for today!

Have a Great Monday!

JK

214-706-4300

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Posted in Economy, Market Comments, World Political

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“Little Brother” Comments from the G-20 Meeting

Posted on September 23, 2011 by | Comments Off

For those that have been following and commented on our self-named “Little Brother” country example (Click to read prior post). I found this comment from the G 20 meeting, which kicks off today, a similarly, and slightly humorous parallel:

“The immediate problem at hand is to get growth back on track in developed countries,” the countries Brazil, Russia, India, China and South Africa (little brother countries) said in a statement Thursday. In language more often directed at poorer countries, the five nations called on developed countries “to adopt responsible macroeconomic and financial policies.” There is growing evidence that those issues are weighing on the economies of developing nations by unsettling their markets.

Wow, little brother country is really challenging his elders!

Have a good day!

JK

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Posted in Economy, Market Comments

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What a 2% 10 Year Treasury Yield Really Means

Posted on September 20, 2011 by | Comments Off

Undoubtedly the record-breaking low yield on the US Government treasury security has caught the attention of most. Weather mortgage rates, car loans, or even the collaterally changed checking account rates, most understand rates are very low and have experienced this in one way or another. What is missed by many is the fact that low-interest rates are an excellent predictor of future growth.

In the bones of financial computations, just as 2 + 2 must equal 4, low interest rates, especially in the longer term maturities, such as the 10 year term are a predictor of future economic growth rates and inflation.

While a 2% long-term treasury yield, in financial terms, is predicting a slower longer term economic growth period for the United States this does not spell doom for the capital markets as this rate is also predicting a slower rate of inflation. Capital market growth is a function of economic growth but not entirely as there has been no proven correlation to economic growth and capital market returns, a subject for another day.

Here is an estimate of long-term stock market returns from my favorite NYU academic valuation professor Aswath Damodaran.

While the expected return is lower than that of the 70′s and 80′s, it is much higher than the return received over the last 10 years.

Bottom line, we would not be surprised to have continued slower economic growth, however capital market growth may not be inhibited terribly by this slower growth.

Have a Good Day!

JK

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Posted in Economy, General Financial Planning, Investing/Financial Planning, Market Comments

An Update on the Sudden Economic Illness, Not Bad, But Not Great

Posted on September 7, 2011 by | Comments Off

In a continuation of our original Sudden Economic Illness post, (worth a read if you missed it) we thought an update on the economic numbers were timely.

Not Up to Expectations:

Last Friday the capital markets did not take kindly to the Bureau of Labor Statistics (BLS) monthly employment report that was expected to show 60,000 new jobs, but actually laid the proverbial goose egg and came in at zero (150,000 is considered break even for normal growth economic times.)

Nonfarm Payrolls

An interesting dichotomy:

Here is the interesting part of our current economic situation: A day earlier, the weekly Department of Labor (DOL) report showed yet another little changed jobless claims number.

Jobless Claims - No Change

So what does it all mean?

At this moment in time, our economy is not coughing out firings, or breathing in new jobs. The US economy is truly running in place. It will move in one direction or the other eventually.

Time will tell !

Have a Great Day!

JK

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Posted in Economy, Market Comments

Explaining the Sudden Economic Illness

Posted on August 12, 2011 by | Comments Off

In an effort to make sure we all do not forget the forest because of the trees, we wanted to quickly review what thorn has gotten under the world capital market’s saddle, and how we arrived on this trail.

As of late the capital markets are on a rollercoaster ride, peaking from one headline, only to stall, and trend down quickly on the next. Currently, capital market participants are mostly concerned with the following three items:

  1. The possibility of a macro global slowdown.
  2. Italy and Spain possible defaults.
  3. The terribly timed S&P Downgrade of US debt from AAA to AA+.

With August being a relatively datapointless month and many overseas companies and individuals on holiday, we are subject to the whims of the most dramatic headlines until we receive more data. This could be as long as 3-4 weeks, so Dramamine may be a good solution.

How Did We Get Here?

Markets are like an immunity system. When events are going good and stress is low, the system/investors act to repel negative influences. As individual items stack up against the immunity system, i.e. a few slightly soft economic numbers, delayed and much publicized US debt ceiling debate, fears of Spain and Italy default, a terribly timed Downgrade of US debt, mount, the weight, sometimes becomes too much to handle and sends the financial immunity system into a tail spin.

Interestingly, each distraction in their own right would have very little effect on the system, and most likely would have been repelled for another more weakened day. Eventually, the stress, and minimal small concerns became heavy enough to get at least a cold.

Recall how fast your last cold or other illness came on? Usually in one day at the most. How could I feel ok yesterday, only to barely be able to get out of bed today? Just like our own immunity systems, economic colds come on very fast.

The key from here is how well we take care of ourselves, to ward off further infections. This story is playing out as you read this, and we will keep you posted on the prognosis.

Thanks for your time on a slightly lengthened post !

JK

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Posted in Economy, Investing/Financial Planning, Market Comments