Category Archives: Forecast

The Fed, Economics, Interest Rates and Interest Rates Review Part 2 What would force the FEDs hand?

Well covered in Part 1, here, the FOMC (Federal Open Market Committee) and Capital Markets also believe currently that interest rates will stay low for longer …. maybe we are hopeful they are both wrong (No maybe, we are!) but there is one word that we know the FOMC cannot allow to get out of control …

Inflation !

With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent.

From FOMC statement September 16, 2020

Here is a great post from earlier on Dallas Fed calculated Trimmed Mean Inflation Measure, the FOMC’s favorite!

Triple the Bazooka – Who Let the Money Out!

During the 07-09 Great Financial Crisis, the FOMC then lead by Ben Bernanke, used the Feds balance sheet to purchase assets in order to lower rates, increase asset prices and calm markets….

This was unprecedented at the time….. Not today!

The current Bazooka is three times more ALREADY and will most certainly continue to grow in size and stimulus !

What if eventually the economy takes hold, and springs back to life –

Here is the traditional measure of inflation, Consumer Price Index from the BLS (Bureau of Labor Statistics) – again we like the afore mentioned Trimmed Mean and so does the FOMC!

Not to worry, we will be watching that 2ish % level closely…..

Inflation may occur, forcing the Feds hand at higher rates — time will tell!

Have a Great “FOMC and Interest Rates Part 2 Conclusion” 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

The Fed, Economics, Interest Rates and Interest Rates Review Part 1

On Friday, we gave you a preview of this post and in completing it over the weekend, it became a bit longer than expected, so we are doing a two part series.

Some of this is also in our coming Newsletter, but with more turf here, we can dig a little deeper, especially in a two part series…

Mid week last week the FOMC (Federal Open Market Committee) led by Jerome Powell and company released their estimates of where interest rates will be over the next several years.

This chart, known as the Fed Dot Plot, represents a dot for each voting member …. looks like there is a ton of group think going on as everyone is pretty much in agreement on the near term view and with a variance of only one percent in the longer term view – far right (One vote at 2% and two at 3%)

This chart from our Friends at JPMorgan includes not only the FOMC estimates but what the Capital Markets are assuming – (This estimates comes from the Futures Market and is easily ascertained)

Market estimates can and do change quickly.

Here is a blow up of the far right portion of the graph – Orange is market expectations again from the futures market and Purple is long run assumptions.

So markets think that rates will stay low and the FOMC also agrees.

Is there any reason that the FOMC would HAVE to raise rates?

Yep, one word ….

Inflation!

In Part 2 we will discuss …

Have a Great “FOMC and Interest 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.

jkfinancialinc

street-cents

Don’t Fight the Fed Brings New Meaning … Where the Stimulus Funds are Being Parked

During the Great Recession of 07-09, the FOMC (Federal Open Market Committee) led by then chairman Ben Bernanke, began an unprecedented (at the time), pushing of money into the financial system. Take a peek at the 2008-2009 move upwards in the graph below.

Fast forward to present, and the sequel (usually more dramatic) …. is well, MORE DRAMATIC…. take a look at the horsepower the FOMC is throwing at our current situation…. makes 08-09 look like a mini me version.

Bazooka is fitting!

 

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Interestingly, these funds are finding their way, conservatively into deposits in institutions, which can be seen by the next chart…. oddly, a non banking crisis as compared to the great recession which was definitely a financial crisis has more worried… hence the parking of money into low interest savings rates.

Will be watching to see if this continues or begins to trickle out into the economy … would be very stimulative if it does!

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Speaking of the FOMC, they have a meeting today, any major changes in their posture would likely be market moving.

Have a Great ” FOMC has a Bazooka” 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

 

 

 

 

Connecting 4 Billion People … Half the Worlds Population Shortly – SpaceX’s Starlink

So there was a time when manufacturers laughed and Elon Musk and said no way would he ever get an electric car off the assembly line, much less in our garages….

Neat posts from the past on his Tesla journey, here, here and here … and did you notice he had a successful launch over the weekend?

Starlink by SpaceX

With a goal of launching twenty thousand, yes THOUSAND low level satellites this year for connectivity of cell service, likely is not a good bet against him…

Here is a picture of a 60 satellite launch…

 

Starlink_Mission_(47926144123)

 

You may say, so what?

His goal is to bring the other half of the world on line via high speed 5G cell at the latest 2025 … and it looks like he may complete it much earlier…

 

Global Connections in years

Sure, there will be some “bad” guys i.e. hackers that come on line…. but think of the brilliant brain power and future consumer that also come on line.

Anyone with a bit of salt in their hair recalls the dial up connection that likely was their first experience with the internet… not these folks, they will come up at 4G and most likely 5G as their first connection… thousands of times faster than our first connection… maybe even 100’s faster than what we have now…

Pretty positive stuff!

Have a Great “4 billion soon” 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

 

Zoom Value Versus Top Seven Airlines

Before just a few weeks ago, GotoMeeting, Skype, WebEx, Teams and many other tools were on our radar and actually had been used…

Had Never Heard of Zoom

From our friends at Visual Capitalist

Zoom V Top Seven Airlines

Forecast here…. this will eventually NOT be the case after things revert back to more normal !

But for now, it is what it is !

Note the staggering user growth…

img_1375

Have a Great “Zoom Boom” 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

Good News On Housing, Mortgage Rates, And A Happy Consumer … Early Observations

Last week we had two good personal data points concerning housing which set us in motion for additional research.

With residences being one of the larger assets for many, a downturn in prices i.e. 07-09 … caused pause for much of the consumer due to a drop in asset value, creating a negative feed back loop, thereby lowering confidence and spending.

Things may look different this time.

Initial Data Points On Housing/Residence

The jury is still out on all of this, and we would think commercial i.e. Office Properties, raw land, and other similar assets may see negative pressure initially coming from our current situation and the easy pivot to Virtual ….

However a silent winner, or at least a stabilization of value may be residential. It makes sense as there are usually winners and losers when change occurs.

With two noted sales last week, we set out for more information on what may be occurring.

The MBA Purchase index, (includes all purchase mortgage applications) has bounced back strongly and is back to about 90% of the original tracking high, set just a few months ago. Hat Tip RB, for bringing this to our attention, we were very surprised!

Here is a good chart, which is copyright protected, as such, not included in this post.

Mortgage Rates Lower – Included in the nice bounce back of the Purchasing Index above, are the following updated lower Mortgage rates … a second positive to go with the consumer and residence real estate.

While this lowered mortgage rates took time to develop (blip in chart), due to a dash for cash and a wave of refinance, along with underwriters concerns of consumer credit health, due to heightened unemployment, it does appear lower rates may be adding wind to the sails of residential market.

5-16-20 30 year mortgage rate

Consumer Confidence – One of the most widely followed confidence indexes, the University of Michigan Sentiment index last week released their latest results, and found surprisingly the index jumped higher than expected, mostly based on current situations, likely associated with the light at the end of the tunnel of openings.

Here is a chart from last month, again copyright restricts last weeks results, but this index bounced back to almost 74 last week…again surprisingly.

Certainly headed in the correct direction.

- U of M -

So a hot New Homes Mortgage Purchasing Index, along with lower Mortgage rates and a happier than expected consumer may lead to additional good news for the economy, spending, asset prices, and an eventual return to a more normal!

It’s early, and things could change quickly, but the initial bread crumbs look VERY positive!

Have a Great “Positive Consumer” Day!

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

 

 

Drink from a Fire Hydrant of CEO’s and Company Executives – Friday

We were happy to receive our invitation to a local gathering co-sponsored by the CFA Organization (Chartered Financial Analyst) – an organization that I was president of a few years ago and maintain contacts and membership.

Wednesday and Thursday of this week, in rapid fire form, over 100 CEO’s and C level executives from all over the country, presented their company to groups of folks for a better understanding and possible investment.img_5476

We cherish this event every year, as it gives us a great candid feel for what’s going on in the economy and we get to meet a wide variety managers in different industries…..

So here’s a quick review:

 

The energy companies that we sat in on where mellow, but longer-term positive,  and much discussion about lower debt, and future higher prices, with lots of hedging as topics. Overall the energy executives felt good long-term but we’re less certain in the very shorter term. Cautiously positive, but managing very well.

Listening to a insurance company that deals with high risk properties – high risk because they’re on one of the eastern shores that is the recipient of bad weather, tactics for maximizing revenues, without passing higher expenses on to their customers, due to inelastic customers, were the topic as well as  fingers crossed for no major bad weather.

The first days keynote speaker for lunch was fantastic:img_5467

“How Government Policy Drives Stock Market Returns” was the title of his presentation.

His conclusion, Politics affect Capital Markets but it’s not sustaining,  what truly affects Capital Markets longer term is policy. We could not agree more … when new rules are instituted, that’s when talk becomes action and you have a definitive line in the sand.

Maybe something we should all remember as we enter a Presidential Election in the coming year!

On Thursday a delightful visit with the CEO of a local steel company, her thoughts on policies, tariffs which surprisingly were somewhat muted. Tariffs did not seem to bother her, but a recession would not be welcomed. Cyclical concerns in a very cyclical industry and defense of such cycles were very well presented.

The lunch speaker of the second day was also very interesting and had two main points:

Jerome Powell and China

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This chart was interesting and may make future discussions, the gist is that when rates have been lowered while an inverted yield curve occurs, it deters the recession… the recession occurs when raising DURING the inversion ….. Hmmmmm ….first time we have heard this, but it peaked our interest….

Regarding China… In a nutshell he felt like China would agree to a multiple part Tariff contract and this was someway a necessity due to China’s current economic situation, and also most politicians stance against China and their tariffs, offering no option for relief.

In conclusion, from a very high-level, everyone was well aware that this economy is not growing extremely fast, but it’s still growing. Many shared our thoughts that we may have a soft recession but a very hard recession is likely not in the cards. Very few touch the political landscape and for the most part we’re generally positive.

Ahhhh…. a HEAVY Friday for you huh ?

Apologies, but we have a short week next week and wanted to get this to you as we know you were hanging on the edge of your chair waiting…. HAHA … kidding of course, recall this is a working Diary for us as well….

Have a Great “Executive Updated” 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

Hold on … Here Come Important Valuation and Corporate Earnings Charts –

As promised, it’s always good to step back occasionally and make darn sure we are not all being Lemurs (most known for following each other without thought) and gathering together, just before we go over the cliff….

Ok, so you are about to receive a blast of charts… we will code this post Forecast so we can go back and look at the “Forecasts” later….

Is the Market (S&P 500) Expensive?

This is the trailing PE (Price Earnings Ratio) the most macro valuation measure used from our Friends at Factset !

Green dotted line represents, 5 year average, and the dark dotted line represents the 10 year average….

Answer – Not cheap, but MAYBE not as frothy as it may feel at times (present party included) – certainly have been MUCH more expensive in the past…

Remember, tariff progress may release some pent up/held on the sidelines demand!

11-9-19 Trailing 5 and 10 year Avg PE Versus Current PE

What Areas are PROJECTED to Grow in 2020

This is what analysts are PROJECTING/Forecasting (hence our coding for future review) for the year 2020!

Recent Losers are expected to be next years winners- i.e. Energy and Materials….

What happens if Tariff Agreements are not reached? Not being negative here but we must consider this could be better or worse!

11-9-19 Earnings Growth for 2020 by Sector - Forecast

Earnings Versus Market Price Movement

You hear us say all the time, Earnings are the ultimate driver of prices… and they are….

No one says this is easy…. Earnings have been flat, but markets up….

Theoretically this should not happen … UNLESS market participants expect future earnings growth as markets are forward looking.

Q 4 2019 EPS Growth Change Versus market Growth

How about the Consumer?

Recall the consumer drives over two thirds of the economy through spending in our consumer consumption economy….

A Happy Consumer = Spending Consumer

One of the many Consumer Sentiment Indicators… University of Michigan…

Steady as she goes!

9-2019 U of Michigan Sentiment 10 years

Ok … you get the point, not too bad!

We could find something really hot and really cold, but these are the biggies from a high level!

Of course we did not forget the inverted yield curve and it’s recession predictiveness … we spoke about it here, here, here and here…. more to come…

Have a Great “Lemur Checkup” 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

Pictures Showing the Future is Bright … Long Weekend …

Long time readers/listeners may have noticed a personal post frequently finds it’s way into our blog, especially on Fridays and Even MORE likely on a Friday before a long weekend….

The Future Is Bright

Almost daily, either a long walk with the Dog, or a jog is taken across the neighboring University near the house. Regiment over the years has made for noticeable knowledge of the energy that abounds, especially during move in –

The Amateur Photographer may not due justice to the energy that prevails…. but it’s there … and an easy bet is that it’s happening all across the country, not just here….

Yeaa … The Future is Bright!

IMG_4463

 

Energy, future…brightness….

 

20190826_135231030_iOS

 

Of course they still are kids……

 

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Enjoy your weekend – Monday is the Labor Day Holiday!

Have a GREAT “College Football … US Open Tennis … Labor Day” Weekend!

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

 

FOMC Meeting and Interest Rate Update from Last Week

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