Interest Rates Part FOUR — How the FOMC Fiddles with Rates — Federal Reserve Rate Control

As we near our fantastic conclusion to our multiple part series on Interest rates (next post is the last) lets quickly review where we came from.

In our First Post here, we spoke of the basic yield curve and how it logically moves from lower left to higher right high to account for risk …. Recall if a buddy borrows $100 bucks and promises to pay it back tomorrow its a lot less risky than if he promises to pay it back next year… and you would rightly charge him more for the delayed time… The Basic Yield Curve!

In our Second Post here, we spoke of movement of the yield curve … basically a parallel shift upward in better economic times and a parallel shift lower during slower economic times – all other things being equal, which they of course never are…

In our Third Post here, we discussed the players and assets that might sit along the yield curve, attempting to make for a more REAL world example(s)

Today … Well, let’s get to it

Where the Federal Reserve (FOMC) Fiddles on the Yield Curve

For all practical purposes  the FOMC/Federal Reserve can completely control the short end of the curve as shown on our graph… Special shout out to the 13 year old tennis player working with the new Apple Pencil (neat subject for another time)- for the updated colored graphs…. yea this is our weekend workings during rain on tennis days..haha

Post GREAT Recession of 2007-2009 the FOMC not only lowered their totally controlled short end of the yield curve – but took the unusual action of using government money to purchase assets of the longer term in order to push longer term rates down as well …

Blue is the normal yield curve – Green is the greatly lowered yield curve we have of late most recently been experiencing ….. Yea the short rate was essentially at ZERO – about what all of our checking accounts have been earning until just recently

Here is the lowering of rates graph:

FOMC Lowers Rates and buys longer to lower

 

It is essential that the FOMC eventually normalize the yield curve back to the original lower left upper right as keeping it unnaturally low for too long will likely lead to an overheating of the economy, not to mention over use of risk via leverage/loans …

Here is the Raising or Normalizing Graph we are currently experiencing:

FOMC Raises Rates

Next up our conclusion, and most importantly it’s predictive behavior over the last six decades….

Have a Great “Rising Rates” Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
www.jkfinancialinc.com
www.street-cents.com

 

New 2018 Total Tax Rate Table – The big Enchilada – Trust Tax Rates – Basically Same

Partially a product of our two day seminar last week and in part from our commencement of planning for our 2018 tax planning, we wanted to present the following chart for our collective reference.

It is busy due to a fair amount of old tax laws remaining in place.

2018 Total Tax Table

Marginal-Tax-Rates-Chart-for-2018-1

Trust Tax Rates Basically the Same

Trust and Estate Kiddie Tax Rates

Be sure to funnel excess income overages from Trusts out of the Trust into a lower tax bracket if at all possible.

This is a fantastic starting place for our 2018 Tax Planning discussions.

Have a Great “2018 Tax Rate” Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
www.jkfinancialinc.com
www.street-cents.com

Two FULL Day Seminars – Bringing a new meaning to Spring Cleaning…. Presenting our New Office Updates … Old/New Pictures

Apologies for any late responses this week as we had a  TWO day seminar this week on Wednesday and Thursday …. Tax Law Changes among others were the topics… Great Stuff to be analyzed and for our full review together shortly….. I digress….

As mentioned earlier here, in an epiphany like fashion it hit us that the office needed freshening….

In Spring Cleaning like fashion…..

Presenting Our Updated Office with Old/New Pictures

Old

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New

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Old

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New

 

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Old My Favorite Couch … Gone

 

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New

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Ok… you get the point … Spring Cleaning at its utmost…

Have a Great Weekend!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
www.jkfinancialinc.com
www.street-cents.com

 

 

 

 

 

 

 

 

 

 

 

 

Interest Rates Part THREE of a Series – What Asset Type Sits Where on the Curve- A Definition of Players in Each Space

As we venture farther into Yields and the Yield Curve, we will begin to get more descriptive as we come to the final interesting conclusion of our series. In order for this to make the most sense we wanted to lay the ground work carefully … such the multitalented part series –  this subject can be controversial, confusing but VERY important for clues on the future economic situation.

Here in our First Part we discussed the basic yield curve itself, next up in Part Two we discussed the movement of the curve and what may or may not cause such movement.

Assets Along the Yield Curve and Placers in Each Space

Going back to our original chart … let’s take a look at a few specific points on the curve itself … Pardon the hand adjusted graph, but the original was a picture making adjustments/edits tough… but you get the picture…

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Point 1, the 1 Year Time Frame – Think money market or even a One Year CD

Point 2, the 5 year time frame – Think car loan

Point 3, the 10 Year Time Frame – Municipality, commercial loans, some mortgage

Point 4, the 30 Year Time Frame- Of course our good old friend the 30 year fixed mortgage

Bond issuers may have issues all across this time frame depending on the need of the project and the timing. Some issuers such as Disney and Coke have even issued 100 year bonds … not kidding…

Our Friends at the FOMC (Federal Open Market Committee) control the overnight rate, which would be, well … at the very bottom left of our hand made graph….

Next Up, what happens when the Fed fiddles with rates! Stay tuned and hope you are enjoying.. promise an interesting conclusion.

Have a Great “Yield Curve Assets” Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
www.jkfinancialinc.com
www.street-cents.com

Protesting that Property Tax – While your there double check your Homestead Exemption too…

Those in the Dallas area know it as DCAD or the Dallas County Appraisal District … the agency that assesses our home property values and then sends us the nice green paper page with the damage due later in the year…..

Property Tax Protest

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If you think your property value has been accessed too high … thereby making your property taxes too high, you may want to protest… Using DCAD or Dallas as an example, there are three different waves of property values accessments that go out at different times, each with different deadlines. (Only one per family, just three different mailings.)

Bottom line, check with the controlling agency in your area for details.

We have found success with these protests when the data is clearly inflated, however we have had more failures than success.

One last item, we have found the greatest success with in-person visits rather than hiring an outside firm, as long as the request is reasonable.

In many cases a mailing or an on-line protest may be a good idea… again check with your controlling agency for details.

Do some legwork by checking other homes of similar nature against yours… while you may think yours is over stated, if you find it understated against similar properties in the respective agency, you might think twice before protesting.

Homesteading Your Home

In the state of Texas and many other states (but not all) across the country, homesteading your home will give you a discount on your property taxes.  Check your individual state for this option and generally you will have had to reside in the home on January 1 of the current year to complete a homestead. Again, check your state, but you will likely have no disadvantage to homesteading your home and will likely only be able to homestead your primary residence.

Here is a good definition of Homesteading from Wikipedia – our biggest favored option is again the discount on our taxes-

Homestead exemption laws typically have four primary features:

1 Preventing the forced sale of a home to meet the demands of creditors, usually except mortgages, mechanics liens, or sales to pay property taxes

2 Providing the surviving spouse with shelter

3 Providing an exemption from property taxes on a home

4 Allowing a tax-exempt homeowner to vote on property tax increases to homeowners over the threshold, by bond or millage requests

For the purposes of statutes, a homestead is the one primary residence of a person, and no other exemption can be claimed on any other property anywhere, even outside the boundaries of the jurisdiction in which the exemption is claimed.

In some states, homestead protection is automatic. In many states, however, homeowners receive the protections of the law only if they file a claim for homestead exemption with the state.

Have a good “Less Property Tax” Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
www.jkfinancialinc.com
www.street-cents.com

Property Tax Pre-View … Friday

We were putting the final touches on a Property Tax post, as the deadline is near for early receivers of tax notices in the Dallas Area … BUT we realized today is a ……..img_1056

With a couple of longer posts this week, we decided to let us all slide into the weekend on easy street. Just this once… kidding of course…

Our Weekend

A big local (thank goodness) tennis tournament for the 13 year old (seven of the next eight weekends include a tournament.) With a five match win streak including two victories (smaller tournaments) the family is excited.

Ahhh … but right now…. today …. Well it is a Friday …. late spring, heading into a soon to be pool opening month … enjoy your weekend and your day!

Talk to you next week!

John A. Kvale CFA, CFP

PS The office remodel is REAlly taking shape– more to come soon!

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
www.jkfinancialinc.com
www.street-cents.com

Interest Rates Part Two of a Series – Movement along the Yield Curve – Parallel Yield Curve Shift

In our prior post here, we discussed the basic yield curve and why the longer the term, all other things being equal, the greater the risk, AND the greater the cost to finance or lend.

A Parallel Movement of the Yield Curve

Just like the weather or most other items in life, the Yield Curve can change.

Generically, during faster growth periods of time .. think inflation or a faster growing economy, rates are higher.

During slower periods of time, rates may fall or go lower.

Assuming they do this pretty much evenly across the curve, changes look like our hand drawn graph below.

A Parallel Shift Across the Yield Curve.

 

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Next up,  real life examples of rates on the Yield curve AND where the Federal Reserve influences rates most on the curve.

Have a Great “Steady Yield Curve Movement” Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
www.jkfinancialinc.com
www.street-cents.com