Category Archives: Forecast

FOMC Meeting and Interest Rate Update from Last Week

Posted on June 24, 2019 by | Leave a comment

Last week, here in our preview of the meeting post, we discussed what the Federal Open Market Committee would likely review via the fortunate lunch with local Dallas Federal Reserve Chair Robert Kaplan and even had direct audio from the event.

We know it’s summer and we know many of you may be taking much needed R and R, but the FOMC meeting last week was surprisingly important.

Bottom Line: No rate lowering but rhetoric that was taken by market participants as a lowering is in the cards sooner rather than later!

Important Update Meeting Review

Jerome Powell, FOMC Chair released his decision to NOT lower rates ….

our comments….

From information gathered via the audio and economic data points available at the time, we felt strongly that the FOMC would not LOWER rates, that’s in bold because until just recently, many thought future increases may be in the cards.

However … this statement, in the FOMC press release was deemed to mean rates will be lower at the next meeting, which put wind int he sails of Capital Markets …

“The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes, but uncertainties about this outlook have increased. In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.”

Here is the joint estimate of FOMC members for  GDP (Gross Domestic Production-broadest estimate of US growth) for the remainder of the year … note an expectation of slightly slower growth for the remainder of the year and into 2020/21:

6-19-19 GDP Estimate FOMC

There is also a Dot Chart that shows where FOMC members expect rates to be over the same time period, but it was a mess and confusing…so we left it out!

Not playing Economist here, but there is a lot of room for lowering or NOT lowering as well… time will tell, but for now the general consensus for the next meeting which is at the end of July (30-31) is for a lowering of rates, at least by most Market Participants or those with a microphone  …. Call us skeptical of agreeing at this time….

Bottom Line: No rate lowering but rhetoric that was taken by market participants as a lowering is in the cards sooner rather than later!

There are some nice positives that come with these expectations… Mortgage Rates will likely continue to stay low and may even go lower!

Sorry if we got into the weeds, but we wanted to clarify the slightly blurry statement, reaction, and expectations!

Have a Great “FOMC Meeting Update” Day!

John A. Kvale CFA, CFP

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

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Posted in Earnings, Economy, FOMC, Forecast, Interest Rates, Investing/Financial Planning, Market Comments, Political

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Interesting comments from CEO of Mortgage Real Estate Investment Trust

Posted on November 29, 2017 by | Leave a comment

Each year we are kindly invited to a terrific event of publicly traded companies by our friends at Three Part Advisors.

This year the event featured over 70 companies, mostly of smaller capitalization. We enjoy going to this event as a terrific way to really get into the weeds on what is going on in the Economy as well as learn more about the companies themselves.

Chance meeting and lunch Dynex CEO

One of the favorite sessions featured the CEO and Chairman Byron Boston. Luckily, after his discussion, we sat together at the same table for lunch … extending thoughts and comments from his public discussion.person-boston

As chairman of a publicly traded Mortgage REIT (Real Estate Investment Trust) Mr. Boston had/has (rates greatly affect his company) very strong opinions on rates among other things.   Of course our ears perked up when Mr. Boston gave his views and even some forecasts …

  • Rates will be lower longer this cycle
  • Highest rates of his lifetime (Wow- big statement) are in last 15 years
  • Global growth is coming, but more fragile than many think
  • Inflation will not get above 2%
  • Globalization has created an irreversible connectedness between our economy and the rest of the world (We could not agree more!)
  • If inflation goes over 2%, rates will go higher as well- I asked the question, but he did not think inflation would get over 2%

At lunch we had more candid hot topic conversations beyond my comfort zone of our blog.

We were VERY impressed with Mr. Boston. He gave his distinct thoughts with triggers for being wrong and right for that matter …. what is not to like!

We will code this forecast and check back again later to see how well Mr. Boston did !

Have a Great “More Rate Clarity” 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

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Posted in Forecast, Interest Rates, Investing/Financial Planning, Market Comments, Political, World Political

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AI – Artificial Intelligence to take over the World? Nah….

Posted on August 21, 2017 by | Leave a comment

The possibilities seem endless.

An 18 wheeler that can drive across the country at night with less traffic and no human to interfere!

No parking lots, as all needed cars could be used as needed and no unnecessary excess – land savings, energy saving and environmental savings!

A robot does the job, endlessly with no rest.

Artificial Intelligence (AI) Jets cooled

In this recent neat Wharton School Panel Review Report  a lot of cold water is tossed on some of the possibilities …. (Wharton is our friend as occasional co-host of live Sirius Radio Your Money, with Kent Smetters)

But First a few recent headlines!

CNBC 7-19-17 “Half of American Jobs are at risk from automation, new study suggests”

The Guardian 9-13-15 “Self driving cars: From 2020 you will be permanent back seat driver”

Not so Fast on AI – Artificial Intelligence Taking Over the WorldRobot - man-320276__340!

 

On Self Driving Cars

From the Wharton Panel Review.

Vijay Kumar, dean of engineering at University of Pennsylvania (very credible position for opinion)

“It turns out that so much of what appears in mainstream media about self-driving cars being just around the corner is very much overstated …”

“In other words, many optimistic articles about autonomous vehicles overlook the fact that it will take many years to get enough data to make fully self-driving cars work at a large scale — not just a couple of years.”

“A fundamental problem is that most observers do not realize just how vast an amount of data is needed to operate in the physical world — ever-increasing amounts, or, as Kumar calls it — “exponential” amounts”

So this makes sense to us … the last few incremental steps for this to actually occur may be MUCH greater than many think, it’s just harder to get the last 100% completely automated vehicle.

Calling Elon Musk Out

Again from Professor Kumar …

“Elon Musk will also tell you that batteries are improving and getting better and better. Actually, it’s the same battery that existed five or 10 years ago.” What is different is that batteries have become smaller and less expensive, “because more of us are buying batteries. But fundamentally it’s the same thing.”

There sure seems to be a lot of confusion on this subject… some say the batteries are getting better, but few can prove it at this point…

Machines still have a long way to go

“In the near future, no one needs to worry because machines are pretty dumb….” Kumar said. As an example, Fung (Pascale Fung, a professor of electronic and computer engineering at Hong Kong University of Science and Technology) explained that she could make a robot today capable of doing some simple household chores, but, “it’s still cheaper for me to do it, or to teach my kids or my husband to do it. So, for the near future there are tons of jobs where it would be too expensive to replace them with machines. Fifty to 100 years from now, that’s likely to change, just as today’s world is different from 50 years ago.”

We find this extremely interesting, greatly enjoy the views and encourage you to read the article….

The Total Opposite View

In February of 2015 we had the opportunity to listen to Peter Diamandis and wrote a report on his findings here …

He said two years ago, that computers would be faster/smarter than humans in eight years .. here is the chart from the report we wrote…

Computer Power Expanding

Someone is wrong!

Differing opinions are great!

Likely somewhere between 6 years and 100 … Ok , know its wide, but that’s the extreme from both views !

Careful what you believe!!!

Hope you enjoyed!

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

 

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Earnings Review … aka 90 day Treadmill … Revenue the missing link, found?

Posted on August 7, 2017 by | Leave a comment

As mentioned Friday, earnings are the key drivers to asset growth and appreciation.  While we do not want to get into the weeds too much on this, continued growth bodes well for continued market appreciation… and maybe growth into the Frothy valuations.. From our fantastic friends at Factset.

Earnings Growth for the Immediate Quarter Looks Great

While a very short term time frame, (3-5 years is our normal time frame) this 90 day treadmill aka earning season chart shows the move upward in expected earnings growth rate. Continued movement at this rate would certainly help us grow into the current valuations.

 

8-4-17 Factset Earnings Growth Q217

Nice move!

EPS- Earnings Per Share

Ok, sure the EPS Earnings Per Share- solid line is moving down as time has passed for this quarter, BUT, the scale is very narrow and the amount of lowered expected EPS growth is only slightly less…

8-4-17 Factset Change in Q317 eps

Before looking too much into this, the lower line is a tiny move due to the frame size!

Revenue/Sales Growth FINALLY?

Be it the Great Recession lingering effects, demographics, economics, world growth or technological advances, Sales or Revenue has been missing during this economic recovery. In reviewing this chart, Energy, bouncing back from a much lower price just a year ago is making up much of the sales increase, however other sectors are chiming in too. Could this FINALLY be the sales increases we have all been waiting for? Compliments to all company managers for cutting expenses in order to maintain profitability, however there are only so many cuts that can be made. If sales increases continue, this would provide much needed breathing room for managers.

8-4-17 Factset Rev Growth 2017

Sales growth has been absent this recovery, making for HUGE challenges for corporate managers

 

Time will tell! So far its looking good!

Have a Great “Growth in 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.
http://www.jkfinancialinc.com
http://www.street-cents.com

 

 

 

 

 

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Posted in Earnings, Earnings Season, Forecast, Investing/Financial Planning, Market Comments

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Shrinking the Balance Sheet Explained, Bulking and Lowering too

Posted on July 31, 2017 by | Leave a comment

Last Wednesday Janet Yellen, FOMC (Federal Open Market Committee) chairperson released comments on their duty as Federal Reserve members but also introduced a term that may be new to many.

“Shrinking the Balance Sheet”

What is the Balance Sheet

Much to the happiness of all those bookkeeper, accountants, CPA’s and the like, present party included, entries must balance.  Even the US Government as huge as it is, runs by the old adage

Assets = Liabilities + Equity

A basic accounting principal, that MUST always work…

If a change is made, it must be counted somewhere else, even on the USA’s balance sheet.

Bulking up the Balance Sheet

 

Post “Great Recession of 07-09” FOMC members smartly embarked on a successful but unknown effort at the time, of infusing banks and capital markets with Greenbacks aka $ Dollars!

The Federal Reserve led by FOMC members, with the click of a button created money in their checking account and created a contra account for balancing purposes then went out to capital markets and bought bought bought in HUGE quantities various capital instruments, but for the most part US Bonds of all maturities.

Their goal, again unchartered territory at the time was to infuse money into the system and also lower interest rates.

By  purchasing large quantities of instruments the FOMC were putting dollars directly into the system … there were other programs as well, but for the sake of simplicity, their buys pushed money into, at the time, a much needed financial system.

The numbers of this chart are not as important as the line and dates.

img_0874

As the FOMC clicked and bought and clicked and bought again in keeping their books “Balanced” the Federal Reserve Bank Assets Grew and Grew.

Finally the Sizzle, Shrinking the Balance Sheet

Take a peek at the far right of the line in the chart… Come on now you can do it …. this is important, and you have come this far …

What do you see? It’s flat lining….

Since most of the FOMC purchases were bonds of various types, and bonds mature, that line should begin to decrease. The FOMC holds such a huge portfolio of bonds, maturity occurs almost constantly.

Until now, the FOMC has re-invested or repurchased maturing bonds with new bonds, thereby holding that line flat. Yellen and crew are now signaling they may NOT re-invest those maturing bonds, which would lead to a VERY SLOW decline in the FOMC balance sheet or a …

“Shrinking of the Balance Sheet”

These words have been carefully chosen. Eventually the FOMC may actually sell their bonds back into the capital markets, reversing the stimulus applied in the “Great Recession of 07-09” more quickly. That would not be called “Shrinking” that would be called lowering, reducing, or something similar, look for this type of cryptic rhetoric in the future …. for now, shrinking simply means letting the maturing bonds mature and NOT re-investing … Shrinking the Balance Sheet !

There you have it, this post turned longer than expected, but the background should have made for a clearer picture … if you made it this far, pat yourself on the back… You now know the current “Shrinking” step along with likely future announcements by the FOMC and committee members!

Have a Great “Deciphering Cryptic FOMC Rhetoric” 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

 

 

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

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Forecasts from Canadian Economist Derek Burleton … Trump Policy, US Economy, Rates, US Dollar and Oil Prices

Posted on February 15, 2017 by | Leave a comment

Earlier this month at our “Out West” conference where “The Brain” crashed the party in  32 minutes, we had the opportunity to listen to famed Canadian economist, Derek Burleton.

We greatly enjoy hearing from stately folks outside the borders of the US for several reasons …

  • What exactly do people in their geographic area think of the situation?
  • Receiving differing media reports may lead to a totally different and valuable views.
  • Countries with TOTALLY different governments may have clarity that we may take for granted.

Derek Burleton Forecasts20170202_211041438_ios

Trump policies will likely not make major changes to the economy. Burleton likens economies to air craft carriers that are very hard to turn and only slightly changed by policy.

Given the above fact, in the short term, Burleton thinks the capital markets could be due for disappointment, as the markets may be pricing in too much optimism currently.

Rates will rise twice in 2017 and again in 2018. Interestingly the fed has said three times this year and recently are saying even more lately….

US Dollar and Oil are both at near term (12 month) highs.

We like the forecasts as a vote of calmness and reasonable expectations. Thanks Derek… we will be watching as this unfolds.

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

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

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Repatriation/Tax Holiday of Foreign funds? Yes or No

Posted on February 8, 2017 by | Leave a comment

In our continued crossover theme from our Out West Conference, this item was discovered while reviewing the tons of notes taken and prepping for more detailed articles in the coming Newsletter. Nice find!

As a reminder, a crossover occurs, in our minds, when several experts unknowingly say, predict, or comment on the same event or action. We like the chances of such an event when multiple parties agree, and in this case, we even chime in too.

Repatriation of Foreign money held hostage by US companies

Call it a tax holiday, repatriation or whatever term you may like, our experts agreed totally that allowing US companies to bring money back into the US would be terrific idea. Currently, companies have been strangled by a double tax hit if they bring “Already Taxed once” foreign earnings back into the US.20170202_165920762_ios

David Cameron, the famed former Prime Minister/President of Britain “It’s senseless to hold hostage US company money overseas!” He suggested a low tax of 6-8% to allow funds to be brought back into the US and said it would be a nice tail wind.

Derek Burleton, expert Canadian economist “US Corporate tax rates are a big mess and need to be fixed. Allowing funds back into the US from multinational firms is a great idea and would help the economy!”

We could not agree more.

  1. There will be uses of funds that not all agree are good.
  2. The spirit of free trade and borders is being hampered in our opinion by double taxing foreign earnings re-entry.
  3. The World is a MUCH smaller place.
  4. Free flow of capital will eventually find it’s best use, artificially hampering this can cause inefficiencies.

Have a great “Tax Repatriation” Day!

John A. Kvale CFA, CFP

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

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Posted in Forecast, Investing/Financial Planning, Political, Tax Related

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