Category Archives: Economy

Q 3 2021 Review – Let the Taper Begin, Interest Rates, Bumpy Season

Let the Taper Begin

In late 2018 the FOMC learned a valuable lesson that they are intent on not repeating.  At their most recent FOMC meeting Jerome Powell, chair, made it very clear that the large monthly asset purchases, $120 billion to be exact, will begin to be tapered.  Powell also made it very clear that the eventual raising of interest rates would not occur until the taper was complete unlike the events of 2018 in which the FOMC tapered and increased short-term interest rates at the same time, much to market participants dismay.

Bottom line if all goes well scheduled monthly asset purchases will be trimmed and eventually reach zero sometime next year.

Interest Rates

The most widely followed interest rate, the 10-year US treasury, after having a startling move earlier this year from under 1% to over 1.7% dropped back down to the low 1.2% during the most recent slowdown due to the variant.

Whether Powell’s comments, or the turning of the variant, interest rates have taken note and moved up smartly to over 1.5% beginning the normalization of higher interest rates which is very good long-term for the financial system

Kyle Bass Predictions

In our Q4 Newsletter we noted some very positive predictions from local financial mogul Kyle Bass, namely oil reaching $100 a barrel before the year end and continued Federal Reserve protection along with a push through to the end of the variant.

Hopefully all of these predictions come true.

The Worst of Times the Best of Times

September and October tend to be the most challenging months for Capital Markets mostly due to large institutions, think Fidelity as an example, closing their books on the year which make for more volatile times. So far, this theme seems to have played true.

The good news is notwithstanding our 2018 example from above, November and December tend to be some of the better months of the calendar.

As we head to the end of the year, we will be watching all of these and many other things very closely and will be communicating live on our blog at street-cents.

Sincerely,

John A. Kvale CFA, CFP

Founder J.K. Financial, Inc.

Federal Reserve Detailed Analysis from Last Weeks Announcement … A Very Stern Jerome Powell

As mentioned in our Preview Post last week, we have been watching the FOMC as their posture is due to change with regards to the stimulus put in motion early last year….

Jerome Powell Gets Tough

Recall as the economy was shut down last year the FOMC chaired by Jerome Powell and its members moved interest rates on the short end of the curve to zero and commenced a $120 billion per month purchase of treasuries and mortgage back securities. Both of these moves were to help stimulate the economy and to stabilize the capital markets.

Meeting their goal of stabilization and a much-improved economy the FOMC are ready to shift policies and unless any major economic or other disruption occurs Powell made it very clear that he expects policymakers to begin decreasing the $120 billion per month purchases, and if all goes well to have completely stopped monthly purchases by mid-2022.

As mentioned in some of our prior posts this message has been floated by multiple fed presidents and Capital Markets seem to be taking this news in stride, much to participants and reserve members’ pleasure.

Much of the mainstream media seemed to report that there was no major change in policy or tone to which we disagree.  In listening to Powell especially in his interviews after the pre-plan reading of notes, he seemed much firmer and resolved to stop the monthly purchases and the tone in his voice in our minds, let us know if this would occur in the very near future.

As has been mentioned before many of our fellow professional investors have long desired this happened many months ago, but no matter, it appears that it is about to occur slowly and diligently, and capital markets are accepting.

On another totally different and non-market related and non-economic related topic several federal reserve members had transactions over the past year that were not optically good for the federal reserve. One of the members is our very own favorite Robert Kaplan who had multiple large transactions in securities that the federal reserve was involved.

While we will voice no opinion on this … Jerome Powell was very stern surprisingly, and in our mind so stern that it could be an occupational loss for some of these members. It will be interesting to see what comes out of this, but this is not the end of it and once again Powell was very angry and forceful on this point.

Bottom line we would expect a taper, slow lane of monthly purchases to commence shortly and will be watching interest rates which have already made some moves as well as capital market participation.

Have a Great “About to Taper” 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

Back to the Office? Not Yet, Kastle Back to Work Index Update

One of our first and favorite finds of interest over the last year and half, the Kastle Back To Work Index.

This index, created by Kastle an office security among other things company (what a clever way to use resources) references multiple city indexes as well as the average on all the cities they cover..

Great progress, with a bit of curving over as of late…. Not back to 50% yet on any of the areas they produce tracking data.

Total Average of just over 30% back at the office, again with some decreases of late. On a personal note, we have had multiple large industry related gatherings switch to virtual as of late!

Will be interesting to see how long it takes to get back to “Normal” and just what that looks like?

Have a Great “Back to Office 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

Kaplan Town Hall/Newsletter Preview Breaking News … Friday … Sports Begin …

Another Fantastic Kaplan (Dallas FOMC President) Town Hall

On Wednesday evening of this week, Robert Kaplan did another Town Hall …. Pretty sure this is our third or fourth to attend so there is some continuity working as we can hear changes, continued thoughts and just a general getting to know Kaplan…

The most BREAKIN NEWS from the talk, was Kaplan saying the following…

“If there are not major changes in the Economy before our next meeting on September 22, 2021, I will suggest taper is announced and it begins in October of 2021!”

This was a big (so soon) enough statement that we were surprised not to see any public media discuss yesterday….

We will dig into Kaplan’s comments next week in a deeper fashion and the possible outcomes should this statement come to fruition.

Newsletter in the Works

The Newsletter is coming right along, we have found some greater details from our Expectations Post Earlier in the Quarter, along with our candid comments…

On a personal note, if you ever want to know how fast a Quarter can go, do an all original Newsletter every 90 days… All Great, but really seems like we just completed the last one…. Time is flying I guess!

Friday

Ahhhh, it is a VERY late summer Friday heading closer to fall… Sports is getting into full force…


Enjoy your Friday and Weekend – Talk Next Week!

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

Thoughts and Forecasts From Kyle Bass … Oil $100/Barrel By Year End 2021 ?

The summer garnered a new found passion towards Podcasts…. While we do our Monthly reviews and Newsletters in an Audio, Video, Podcast like format…. Most podcasts are an hour or longer, making for interesting deep dives into the discussion, especially if the person(s) talking are very intelligent in the specific material….

Hat tip JP for the shove in sharing your favorites…. I have taken the ball and run with it!

In another crossing with this interesting investor, Kyle Bass, on a paid podcast platform, specifically for professional investors…. we highlight Mr. Bass’ current thoughts…

Six years ago, we highlighted his thoughts here in our post and in reviewing his comments, his bets were very correct!

Forecasts and Future Expectations from Kyle Bass

Once again, like we did six years ago, in our public Diary of sorts, we outline Kyle’s thoughts for future reference …. so here we go:

  • The Federal Reserve will continue to support the markets with continued purchases.
  • Federal Reserve feels responsible for Capital Markets … i.e. Every Federal Reserve member has a Bloomberg Investment terminal on their desk and post public talks, Fed members go back to their office to check the markets reactions to their comments.
  • Much more inflation than actually as printed by CPI – (Consumer Price Index) Example of car price increases up 300% over last thirty years, but CPI auto costs increased 5% over that period.
  • Cost of Food increases may cause social inequity problems.
  • Oil hits $100 per barrel this year … due to mal investment over the last 7 years.
  • Short term interest rates not to go higher than 1.5% and long term (10 year) rates will not go higher than 2.5%. i.e. Bernanke Helicopter speech outlines the difficulty in raising rates a lot once they are at a lowered level for some time.
  • We push through the Delta Variant and there is a REAL re-opening effect that works its way through the economy (Hope this is correct!)

These were actually done in order of the Podcast (basically taking notes while listening) but the most interesting in our opinion are the last three points…

Marked as Forecast, which we have had a lot of lately…will review for accuracy in the future!

Have a Great “Kyle Bass” Forecasting 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

JOLTS – Job Openings and Labor Turnover – Continued Openings – Very Tight Hiring Currently

Back in May of this year, we first took note (for this Economic Cycle) of the JOLTS data , a measure of Job Openings in the US Economy….At that time an all time high had been hit as measured by this chart again back from May 2021!

As an interesting side note, take notice of the yellow shaded area- this is the NBER Recession tracking (National Bureau of Economic Research) date of a recession… in May of 2021 we were still waiting for the NBER to state if the recession was over and the exact length…. NOT A GOOD measurement for investment as this was way old news even back in May of 2021! Ok digressing a little but thought it worth it…

JOLT Release as of August 13, 2021

Back in May we noted :

  • Tons of Jobs Available
  • Job Seekers Market
  • Tough on Employers
  • Could lead to higher wages (Inflation?)

Here is last weeks reading…

Another 20% higher print…extrapolating our comments above, 20% harder on all points!

Note once again the yellow bar is gone and the tiny little recession call made by the NBER- again certainly NOT a timing issue i.e. If you wait for them to tell you the recession is over you will likely be left in the dust!

For all those hiring …. patience, this will like cure its self much like our Lumber clearing post here…. but not in as fast of time….

Looking for a job, you are in the drivers seat… remember, burn no bridges it’s a VERY small world, but you are in a great place… enjoy and best of luck!

Have a Great “Jolts” 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

Continued Improvement in the US Economy … Monthly BLS Employment Report .. Unemployment Rate, Interest Rate Reaction

On Friday, August 6, 2021 the BLS (Bureau of Labor Statistics) released the prior monthly (July 2021) employment related report. It is worth noting these are preliminary and will be adjusted in future months, but usually major adjustments are not in the picture….

Bottom Line:

943k hires in the month of July … NICE

5.4% Unemployment Rate as of July …Getting there (lower is better of course)

10 Year Treasuries Took note

BLS Unemployment Report for July 2021

The following Chart from the BLS may look unenthusiastic at first glance….. but hold on!

With the DRAMATIC volatility from the past year, the longer term chart does not give a true recent view…. Let’s look a little closer …. Much Better!

In much the same vein as above, the year view of the Unemployment rate does not look like a big deal as can be seen by the next chart!

On second thought, again with a closer view….. NICE! (We want a downward trending chart when measuring Unemployment)

10 Year Treasuries Wake Up

A measure of future expected growth, after some wrong sided players (shorting the 10 year in expectation of much higher rates faster) blew up pushing yields possibly incorrectly lower….

From Business Insider here

A hedge fund reportedly lost $1.5 billion in a bond market short-squeeze as bets on rising rates turned sour

These Good Economic Numbers put yields on the move higher (far right of chart)!

Continued improvement would likely force the FOMC to slow asset purchases…. as discussed here much desired by many !

Have a Great “Good Economic News” and analysis Monday!


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

Another New Economic Measuring Stick Care of DOT – Department of Transportation … Highway Miles Driven and Prior Year Comparisons …

My absolute first question was where the heck do they get this data from?

TSA – Which we have been monitoring for some time is easy …. Checkpoints!

Ah Ha …. This from the DOT FAQ

The TVT report is based on traffic data from the Highway Performance Monitoring System and on data submitted to the FHWA by State highway agencies throughout the entire U.S. The State highway agencies collect the data through permanent automatic traffic recorders (ATR) on public roadways.

TVT is the abbreviation for Traffic Volume Trends.

All Roads, Urban and Rural Comparison

All Roads:

Urban

Rural

Makes some sense after you think about it that Rural traffic has bounced back and is tracking almost back to normal…. BUT Urban areas, with workers still working from home, lagging!

Latest Kastle Back to Work Tracker Stubbornly stuck below 50% Across the Country

Another fun Economic related item to monitor moving forward!

Have a Great “DOT Road Traveling” Update!

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

Lumber Prices Show How Supply Can Catch Up to Demand – Supply Clearing High Prices

There’s an old saying in many commodity complexes … “What will drive high prices down? High Prices … What will drive low prices up?   Low prices” – the basic gist of this is that when prices get too high, demand slows and when prices are low demand picks up.

We first heard this saying in the oil patch but it fits across almost any commodity or other variable pricing asset.

Spot Futures Lumber Prices – Now thats a Clearing Price

For those of you that have not heard there are supply shortages in all parts of the economy. On a funny personal note …recently I had my golf clubs re-gripped and there were only a few options to have a complete set of the same grip ….all the other were back ordered to mid to late 2022. Part of the increased prices of used automobiles is a reflection of new automobiles being unable to be complete by shortage of semis.

We thought you would find this interesting and a great example of higher prices slowing demand. At one point in the most recent quarter, several publicly traded companies were completely shutting down certain aspects of their operations due to extreme high prices.

Trailing Three Year Spot Prices

Trailing Three Year Spot with Percentage Change – Up 530% Followed By Down 70%

Certainly tons of factors going into this move. BUT, if you are wondering how higher prices can in your commodity of choice (Bread, Wheat, Lumber, Semi’s….) look like when it eventually clears…. Here is a playbook!

Have a Great “Commodity Price Clearing” 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

Q 2 2021 Review – Return to Normal, Inflation Here to Stay or Transitory

Slowly Returning to Normal, or Some Similarities

With hindsight available as our measuring stick, it appears that sometime between March and April earlier this year things across the country really began to return to some type of normal.

As noted in our blog at street-cents.com and in the prior newsletter TSA throughput a measurement of airport travel looks to possibly eclipse 2019 highs later this year.

Restaurants began opening, some earlier and some much later, depending on the geographic location with patrons welcoming their reopening.

Uncertainty remains on the remote versus office environment. Most think the new normal will not be a complete office environment, but some blend of remote since it is readily acceptable and well tested.

Inflation, Here to Stay or Transitory?

As discussed in detail in our latest Q 3 2021 Newsletter, the most prevalent debate at this moment among market participants is the topic of inflation and it’s staying power, or just transitioning through. The importance of this subject is directly related to the FOMC, chaired by Jerome Powell and the timing of his reduced stimulus.  All eyes are on the inflation debate and the timing of the decrease in stimulus and will be sensitive to timing changes.

Not surprisingly economic numbers roared as they met favorable comparisons from last year, but in very recent days, have given the appearance of a return to normalcy already, decreasing concerns of longer-term inflation.

Capital Markets being forward looking are now trying to see what is around the next corner. As earnings continue to return to normal, valuations are finally beginning to be decreased from extremely stretched proportions and as long as earnings outpace returns a continuation of this should occur.

Time is really our friend, and once again the good news is, this will all play out in quarters rather than years. Things can certainly change quickly, and it is not a time to swing for the fences, which we never do!

Have a terrific summer and talk to you at the beginning of fall.

John A. Kvale CFA, CFP