Second Quarter 2014 J.K. Financial, Inc. Performance Report Cover Letter (Clients)

Dear Investor:

When a capital market is 10-20% overvalued it is tough to give it the benefit of the doubt, but stepping aside completely or going “all out”, has never been our mantra or a good idea for that matter either. US capital markets crawled higher later in the quarter as interest rates, a worry of ours, rose. Higher rates may signal better growth in the future. US equity markets continue to be well larger than their shoe size at the current time.

Given markets tend to be manic, a 10% overvalued market can become a 10% undervalued market with a simple, but rough, 20% move down. Our hope is we begin to grow into capital market valuations and the froth subsides with more sideways movement of markets. We are prepared through diversification for either, and would become more positive/aggressive if valuations near fair value.

In our coming Newsletter we discuss international market diversification and their relative value, which appear on the surface to be slightly more reasonable. We may lean more towards international markets if their growth persists and valuations remain.

The US Economy is growing

We are very happy to see continued US Economic progress. The huge unemployment hole created by the 07-09 crisis was completely filled last month as the US total workforce rose to a new high watermark, albeit one of the longer times to fill the hole.

Consumer Prices are beginning to move upward, giving us another green light for further growth. This may also lend to a faster rate rising Fed and higher rates for savers, all positives in the long run.

Calm v Complacent

Starting in the middle of May, trading volumes and professional investors appeared to take to the hills or Hamptons. While not unique to this time of the year, the magnitude has been greater this summer than in past. Our concern is complacency, not by us but by others. When the tide goes out we see who has been swimming without clothes. While it will not be us, the current is sometimes strong for all.

Have a Great Summer and rest assured we have our investment trunks on tightly, and diversified.

Best Wishes,

John A. Kvale CFA, CFP

Enclosure (Q2 2014 Performance Report)