Category Archives: Forecast

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!

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Energy, future…brightness….

 

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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

Interesting comments from CEO of Mortgage Real Estate Investment Trust

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

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

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

 

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

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