Category Archives: Earnings

Third Quarter 2018 Cover Letter

The third quarter of 2018 is behind us and the original theme from the first month of the year seems still most appropriate, patience. After rocketing to an unsustainable trajectory in January, the excuse was an over use of a dangerous product, the reality looks to be, we just got too far ahead of ourselves and corrected harshly to a more reasonable trajectory.
It was the Best of Times, it was the Worst of Times
As we look forward, the best part of the year “historically” lies just in our view as we finish the year. Using history as our guide, oddly the first month of the coming quarter has been the most treacherous. Not the time to get to overzealous or glum!
Earnings Eventually Matter
In our Q4 2018 Capital Market Newsletter Article we discuss in detail the correlation of earnings and capital market movement. This obvious connection does not always hold true in the shorter term as aggressive emotions such as greed and fear overshoot constantly in both directions. Eventually the correlation re-connects and more normal heads prevail, making earnings growth and market growth work in tandem.
Interest Rates
The fear of, or at least watching for, an inverted yield curve has grown in popularity. We discussed this item last quarter in great detail. Oddly, when many are looking for an event, it loses it’s predictability. We are not ignoring, and will continue to monitor, but we are concerned at a possible loss of predictively with the crowds of followers swelling. Predictive or not, the FOMC (Federal Open Market Committee) has been slow and open to interest rate increases, so far, and capital markets, the economy and participants are very happy with the increases and have digested them nicely.
Bonds, most effected by interest rates, and one of the safest asset classes tend to feel the headwinds most of higher interest rates. Higher, and increasing rates are initially a headwind, but once the increases stabilize, they become a tailwind, and increased yields push more money into our pockets. This cycle is no different, other than the fact that interest rates we so unprecedented low to begin with, this temporary headwind seems stronger than in other cycles, but it is really not. Look for more details on this subject again in our coming Newsletter.
Have a good start to fall!

John A. Kvale CFA, CFP

Q 4 2018 Newsletter Video Audio Podcast Review By John Kvale

Welcome to our Video and Audio Podcast Review of our Q 4 2018 Newsletter. For those on the road or just unable to grab the time to read, our podcast type review gives you the behind the scenes insight to our thoughts, observations and deep views of the entire Newsletter.

Click Here for direct link to an electronic version (an early peek-good ole fashion paper versions are on their way to you shortly) and here for our Newsletter page

BREAK IN – Save the date for the Holiday Party

November 17th – Saturday before Thanksgiving – Dallas Athletic Club from 3-5 pm

DAC

Let’s get going!

Q 4 2018 Newsletter

And here is your review!

Capital Market Talk

Earnings and Markets Eventually Converge

In this hugely in depth article, first we discuss the effect of earnings eventually driving capital markets, but disconnects can occur. It can even be a good thing for Capital Markets to WAY underperform earnings, as they are this year because in brings valuations back in line.

Here is the key graph

7-13-18 EPS Growth and Mkt Growth 10 year avg

Higher Rates, a Short Term Headwind, Eventually a Tailwind

With sustained lower rates over the last decade, memories have faded on the tugging headwinds that higher rates have – IN THE SHORT TERM – on the mandatory safety asset class of bonds.

Higher rates are a great thing as Bonds/Fixed Income Assets have a place for almost all investors due to their safety and liquidity.

Once the headwinds subside our fixed income investments will have ridden the yield curve higher and begin paying more income in the form of yield – into our pockets – Finally!
bond index V Interest Rates

Too High of Rates Can Create Trouble

Too high of rates or an overshoot CAN create trouble … or a recession…

Our friends at JPMorgan – historically show that rate is about 5% – yea FIVE percent –

We disagree and think a lower level may now be this tipping point, due to the decade low interest rate level we have just experienced-

Current at two percent, we have a long way to go before getting too antsy
JPMorgan Rate Level for Slowdown

Inverted Yield Curve Update

So far to good- no inversion yet!
9-28-18 90 day to 10 year Inverted Curve status

Financial Planning

This series of articles came out of no where and in like domino fashion, once one was done the next took form and fell into place-

PLUP graph

App of the Quarter – Hardware

Our editor took the fancy picture out due to copyright fears, but our experience with the Firestick has been exceptional – Here are the highlights of our findings

  • Great Savings compared to just full service in many cases
  • Does not take as much internet speed as we thought
  • Bring your home on the road
  • Multiple devices used at once
  • Cuts back on duplicated services
  • Allows cherry picking services

Enjoy the fall –

See Ya next Year – Wow 2019 here we come!

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

90 Day Treadmill aka Earnings Update and Neat 10 year Chart

Earnings are the ultimate driver of capital markets.

Growth or the expectation of growth and markets will EVENTUALLY (patience may be needed at times) rise.

Contraction of earnings – think recession- markets will go down, no patience needed on this one, as markets frequently do not waste time in their contraction.

Earnings Update

We frequently quote our Friends at Factset as they do a fantastic job of reviewing every detail of earnings each 90 Day Treadmill/Quarter …. too much of course can lead to YAAAWN … we get it, but we have to keep an eye on this stuff even during Summer Doldrums-

Here is a latest update-

  • Earnings Scorecard: For Q2 2018 (with 5% of the companies in the S&P 500 reporting actual results for the quarter), 89% of S&P 500 companies have reported a positive EPS surprise and 85% have reported a positive sales surprise. 
  • Earnings Growth: For Q2 2018, the blended earnings growth rate for the S&P 500 is 19.9%. If 19.9% is the actual growth rate for the quarter, it will mark the second highest earnings growth since Q3 2010 (34.1%). 
  • Earnings Revisions: On June 30, the estimated earnings growth rate for Q2 2018 was 20.0%. Four sectors have lower growth rates today (compared to June 30) due to downward estimate revisions and negative earnings surprises. 
  • Earnings Guidance: For Q2 2018, 62 S&P 500 companies have issued negative EPS guidance and 47 S&P 500 companies have issued positive EPS guidance. 
  • Valuation: The forward 12-month P/E ratio for the S&P 500 is 16.6. This P/E ratio is above the 5-year average (16.2) and above the 10-year average (14.4).

Ok, so earnings are moving along pretty good as managers continue to navigate tax cuts and a frisky consumer.

Our theme of the year “Patience” is still in order – but take a look at this neat chart –

Neat 10 Year Review of Earnings and Market Movement

 

7-13-18 EPS Growth and Mkt Growth 10 year avg

There is a correlation in earnings and capital market growth- patience and fingers crossed for continued fantastic earnings growth!

Have a Great “Continued Positive Earnings” 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

Test and Re-Test ? Where Oh where are Capital Markets going? This likely will take some time …. Weeks for sure and likely Months? … We will need Patience!

After a long lethargic flat-lined Capital Market of 2017, things have finally changed, and we need to begin to get used to more normal Capital Markets.

What follows are details of what the Capital Markets have done over the last few days (yes only days) …  what we should expect moving forward, along with a review of similar historical movement. Given a future that Rhymes with the past, the most important point we want to get across is this —

What we want everyone to understand is it is highly likely we do not just bounce right back and go to highs again quickly, so let’s have patience and set our expectations for an extended Capital Market search for the most appropriate level.

Ok, so you have the most likely scenario, here is why.

Current Capital Market Review

Suddenly the Capital Markets cared about something — and were WAY ahead of themselves, so they began going down!

We thought they might stop at our fancy trend line from our early post on this subject.

2-3-18-spx-w-trendlines-and-jk-notes.jpg

Nope …. participants pushed on past the trend line.

2-12-18 SPX Trendline

Participants decided the 200 Moving Day Average was where they should stop …

 

2-13-18 SPX hits 200 MDA

So we have a stopping spot, what happens next may be best seen by looking at the past for a possible rhyming future.

2016 Rhyme

The first drop was about 24 trading days followed by another 20-25 day test in a few months.

Start to finish about six months with a move all the way back to even before a second drop.

2-11-18 2016 SPX -010% Moves

2012 Rhyme

With two hiccups during this 2012  time frame, again our weekly charts show a 2-4 months of capital market footing discovery ….

2-11-18 2012 SPX Draw downs 10%

 

Let’s settle in for more normal, but what feels like “Rockier” times, which will likely be with us for a while.

  • Economy is Good
  • Global recovery is beginning
  • Interest Rates are Rising but at a reasonable rate
  • Consumers are feeling good

Patience will reward us!

Happy “Patience” Valentine’s 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

Q 1 2018 Newsletter Video Audio Podcast Review By John Kvale

Welcome to our Video and Audio Podcast Review of our Q 1 2018 Newsletter. For those on the road or just unable to grab the time to read, our podcast type review gives you the behind the scenes insight to our thoughts, observations and deep views of the entire Newsletter.

Click here for direct link to an electronic version (an early peek-good ole fashion paper versions are on their way to you shortly) and here for our Newsletter page

Let’s get going!

 

Q 1 2018 Newsletter

 

Medicare – IRMAA – Means testing

In this long overdue article we dig deep into the background of Medicare and the means testing of recent years. IRMAA, Income Related Monthly Adjustment Amount – AKA higher premiums thresh holds are analyzed and presented for 2018.

In the best part of this article we discuss what to do in order to lower your higher means testing Medicare Premiums.

Have We Already Had a Bear Market?

A Bear Market is generally defined as a drop of 20% or greater. In late 2015 – 2016 almost every asset category except the most popular dropped by 20%. In this article we discuss why this may be good news for the future of the current market.

VIX – A Fear Gauge Goes to Sleep

VIX a volatility (fear measure) rises when fear is rampant and slowly drifts lower when fear is absent. Over the last 26 years the VIX index has closed below 10 a total of 9 times. In 2017 this fear index closed below this level 52 times. We warn not to take these placid seas for granted.

First Time Personal Reflections

In this off the cuff article, we give thanks for all the wonderful things we have, what good things have come during the year and a general Thanks To All of YOU our clients and friends.

THANK YOU!

Ready or not … 2018 here we come!

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

October 2017 Podcast Video, Financial Planning and Capital Market Update- By John Kvale

Here is our October 2017 Monthly review. If you are too busy to read, feel free to listen as we describe our post and thoughts in friendly podcast format.

Enjoy!

October 2017 Video

Break In – D Magazine Honors – Best Wealth Managers

We are super happy to be honored in D Magazines Best Financial Planner and Wealth Managers Award !!

Thanks so much and congratulations to our fellow recipients.

9-27-17 FINAL DMAG Spread

11th Consecutive Honor – John Kvale Best Individual Financial Planner

The 11th consecutive D Magazine best Financial Planner award was also in this edition and we are super happy to announce, John received his 11th consecutive nomination!DmagLogo

Wow and again thanks to our fellow recipients!

Financial Planning Tip(s)-

Social Security Increase

Don’t smirk at 2%, every penny counts! With a CPI (Consumer Price Index) increase of 2% year over year, the Social Security Administration passed the good news on earlier this month. Take that 2% increase and run!

img_0937

Capital Market Comments

Rates are Slowly Ticking Up

After much silence on interest rates, we have taken notice of recent movement as the global economy begins to pick up steam … Overseas seems to really be getting their act together.

10-24-17 10 Year Treasury

Consumer Sentiment Also Higher

The University of Michigan Consumer Sentiment hit a post “Great Recession” high this month.

With two thirds of our US Economy being based on consumer consumption, this bodes well for the Economy.

10-13-17 Consumer Sentiment

See you at the end of November, which also features our very special Blooper Thanksgiving Video from a few years ago!

Happy Fall Season!

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

Price is What We Pay, Value it What We Get

In a fun preview to our coming Newsletter, we wanted to run through a few charts and a reminder of a blunt valuation tool … So here we go!

The PE Ratio and CAPE (Cyclically Adjusted PE)

Directly from our Newsletter …

“One of the most basic valuation metrics used from a very macro level is the P/E ratio, or price to earnings ratio. This simply the price of an asset, group of assets, index or the like, divided by the earnings said asset is delivering. Most times the delivery is on a trailing annual basis, making for a nice round number.”

The CAPE ratio is just a fancy name for the 10 year average earnings, in order to smooth out the fluctuations of just one single year.

Current Valuations

Se we know our blunt valuation measure, let’s look at current levels … Higher would infer more expensive … Just FYI

S&P 500 (Favorite US Index) PE Ratio- 25 with a long term average of 14

S&p 500 P E ratio

S&P 500 CAPE Ratio – 31 with a long term average of 17

S&P Cape.png

The world is a smaller place now … Here is a world Capitalization from our friends at JPMorgan – Only 50% US?

JPMorgan MSCI global breakdown

CAPE Ratios for Big Internationals and Emerging Internationals – 15 and 13 BELOW long term average – Possibly Cheap!

9-1-17 EAFA and EEM CAPE

  • Overseas are more reasonable priced versus their long term average
  • Over half the world capital markets are overseas
  • After a long slow recovery, International counties seem to be getting on their feet

Glad we have holdings there!

Have a Great “Internationally Diversified” 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