Category Archives: FOMC

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

Here is our July 2017 Monthly review.

July 2017 Video

Financial Planning Tip(s)-

Why NOT to add After Tax funds to your IRA

We carefully reviewed the disadvantages of AFTER tax funds in and IRA as we ALWAYS want good savings habits, but there are more and less efficient ways to save funds.

Here are the key challenges with after tax funds in an IRA:

  • Upon eventual distribution you must calculate a distribution basis which will be different from your actual distribution – Easy for the IRS to confuse
  • You must carry the basis on your tax return- forever- IRS Form 8606 must be filed to keep up with your basis
  • Your heirs may also have to deal with this basis upon your death

1 Minute New Vault Videos

The fun summer New Vault Videos have begun. Holding them to just one minute has been a formidable challenge, but so far we have done pretty well…

Resetting the password of Our New TOTAL Vault

Here is the post of one of the most common questions for our New TOTAL Vault….

Resetting or Acquiring a New Password

Remember you can always easily email us for a quick reset… but if you want to do it yourself… here you go

 

Capital Market Comments

Janet starts Shrinking “The Balance Sheet

In this lengthy post, we take a complete dive into not only what is meant by “Shrinking” the Balance Sheet, but also how it was bulked up and what the next step may be.

img_0874

 

The line on the far right should begin to drop soon, moving back towards a more normal size Balance Sheet, like it was prior to the “Great Recession of 07-09” , shown by the far left of the chart.

See you at the end of August.

Happy Summer!

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

Shrinking the Balance Sheet Explained, Bulking and Lowering too

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

 

 

No Increase YET, Shrinking Balance Sheet ? Huh …. Friday still from afar…

On their regularly scheduled meeting Wednesday (7-26-17), Janet Yellen chief of Federal Open Market Committee (FOMC) and committee announced unsurprisingly, no rate increase. The committee also announced they would be shrinking the balance sheet soon.

Shrinking the balance sheet? huh…

Alan Greenspan (Former, former FOMC chair Yellen-Ben Bernanke- Alan Greenspan) made it clear if you understood what he said, he did not do his job … that language continues today!

Here is a preview graph of the FOMC “Balance Sheet”…

Next week we will explain what shrinking the balance sheet means… in English..hah

Ahhh…but that is next week … today is a Friday and we are still working remotely from afar … (Technology is treating us well!)

Enjoy your Friday and your weekend!

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