Category Archives: FOMC

Advanced Analysis … Part 5 … Inverted Yield Curve to Un-Invert/Narrow ? But Differently: The Bear Steepener – Huh ?

We definitely wanted to talk about this, but it is rather complicated, so it makes our Advanced Analysis Series….Part 5

Inverted Yield Curve is a Big Deal

When short term rates are higher than long term rates, a very unusual and non sustaining event, it is called an inverted yield curve.

Here is a list of over 30 – YEP over THIRTY different articles we have written in just the last 5 years if you need a refresher…

The Un-Inversion (the actual process) or at least Narrowing of Inverted Yield Curve a BIG Deal too

Orange line below the white/zero level = Inverted

Maybe Un-invert, or for sure narrowing?

Note orange line headed towards zero or break even…..Narrowing for Sure –

In true it is different this time…. the UN-inversion is occurring because of what is called a Bear Steepener … something we have not seen in a LONG time…

Note going back all the way to the 1980’s, the most prevalent type of narrowing or Un-inversion is a Bull Steepener, or the FOMC (Federal Open Market Committee) lowering rates – noted by the above white line on the chart (2 year Treasury) marked by the arrows….

From Investopedia:

Understanding Bear Steepener

A bear steepener occurs when there’s a larger spread or difference between short-term bond rates and long-term bond rates–as long as it’s due to long-term rates rising faster than short-term rates.

What does all of this mean and why are we talking about it?

Bear Steepeners occur when Capital Market Participants begin to price in higher inflation expectations … OR maybe this time, finally accepting the FOMC is not ready to quickly lower rates! hmmmm

You see now why we went for another edition of Advanced Analysis… Stay tuned on this, we will be monitoring closely and will bring you more as this plays out!

Have a Great “Bear Steepener Reviewed” 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

Third Quarter 2023 Review, Participation, Rates, Political Season, Seasonality !

Have you ever had some type of team that you follow, could be sports related or the other, that has a pretty good record, seems to be doing well on the surface, but when you look a little closer it becomes apparent that this team is dominated by the performance of just a very few individuals?

Participation or lack there of

There are a lot of similarities in the above analysis to the current capital market environment. Just like the vulnerability of your favorite team, should some of those dominant forces not perform well or heaven’s, even worse, get injured, the real truth will begin to reveal itself.

Capital markets that are thinly led can have distinct vulnerabilities. On a positive side many of the players can catch up to give greater participation. An optimistic outcome. On the negative side just like our team, should some of those more important subjects falter, reality may sink in.

Interest Rates

As mentioned in our Q4 Newsletter, higher interest rates are the tone of the times currently. Our lead article talks about the tremendous positives that higher interest rates have on pensions in the form of higher fixed income earnings. In the very short term, it is a headwind for fixed instruments, but over the long term safer, steadier, and more normalized expected returns.

Political Season Already

While it only seems like yesterday when we had a presidential election, it is hard to believe that next year, approximately this time of the year, we will have another. Recall, there will be many headlines associated with the political process, many of them possibly frightening. You know that we are careful to comment on headlines and things that have not become law, but nevertheless the frightening headlines may appear. Just remember there is a difference between a desire, speaking, debating, and a law.

Positive Seasonality Headwinds

Looking forward to the final quarter of the year, just as it gets cooler in most parts north of the equator, capital markets tend to have positive historical reference. While we are always careful to say this time is different, the Federal Reserve, if resolute in their desire, have both feet firmly pressed on the economic brakes, and as of yet have not been successful in achieving their goals.

Sincerely,

John A. Kvale CFA, CFP

Enclosure (2023 Report)

Q4 2023 J.K. Financial, Inc. Newsletter … Good News on Interest Rates for Pensions and Pension Recipients, What? … Don’t Fight the FED Are we Fighting the Fed? Yes … Important True-Up Reminders for Year End Deadlines i.e. 401k … Handy Cyber Tips and Tricks … RMD Age Date Changes and Others … By John Kvale CFA, CFP …

Welcome to our Video and Audio Podcast Review of our Q4 2023 Newsletter. For those on the road or just unable to grab the time to read, our podcast type review gives you the behind the scenes insight to our thoughts, observations and deep views of the entire Newsletter.

Click the Download button below, for a direct link to an electronic version (an early peek-good ole fashion paper versions are on their way to you shortly) and here for our Newsletter page

Let’s get going! We hope you enjoy!

Q4 2023 Newsletter

(YouTube)

Rate Increase GOOD for Pension Plans and Pension Recipients

Special thanks to Milliman and Rebecca head of medial relations for allowing us the ability to reference this fantastic data… also sourced at the end of our post/article.

Here are the top 100 pension plans, a lot of names you likely know and maybe even have a pension with… At least one family member included in this.

With higher interest rates, something we have mentioned numerous times… Notice because of a rather complex future liability projection, pension plans for the most part are FINALLY funded….YAY

2023 Corporate Pension Funding Study

By Zorast WadiaAlan Perry, and Richard J. Bottelli Jr. 20 April 2023

https://www.milliman.com/en/insight/2023-corporate-pension-funding-study#

Don’t Fight the Fed! Wait, are we Fighting the FED? YEP

This unusual correlation especially when the blue line is going down, represents the FED (Federal Open Market Committee) pulling money from the economy or trying to slow the Economy.

Add higher rates, at the fastest pace ever….

Interesting that participants are fighting the FED, even though they regularly quote “Don’t Fight The FED!”

Stimulus still sloshing around in the Economy…

True-Up Reminders – 401k and the Like

In the year 2023 (Currently heading towards a close) the maximum amount WE (not including matching) can contribute is $22.500 and for those either age 50 or older or turning age 50 happily in 2023, you get a nice catch-up amount of $7,500 bringing your deferred amount to a whopping $30,000! 

Pro-Tip – Contribute evenly throughout the year, with a terminal amount of maximizing in late November or early December.

Pro-Trick – Similar to rushing/upping your contributions near the end of employment to maximize levels, if you are new to an employer and wish to maximize your contributions for the year, dump all you can to maximize your contributions now, with the intention of dropping that contribution level down to a normal level (see Pro-Tip above) after the turn of the calendar.  

Do Not Overfill Duplicate Plan Years

Remember, if you have contributed to a plan earlier in the year via another employer, your new employer will not be able to throttle your contributions back if you happen to go over the total annual limit. Reach out for help and clarity on this!

Be Aggressive in New Plans

Lastly, in new plans, starting from scratch with new contributions, allocation should be wide open and aggressive with the hope of choppy entry points as your contributions make up the majoring of the plan and will take advantage of the ups and downs in the early years of the plan.

Cyber Reminder- Tips and Tricks

If there’s one thing, for those of us with little time or patients for a long read that we would like you to take from this article it is that most cyber intrusions come from an e-mail that has a bad actor with a hot link click, do not click on that bad hot link!

The second thing and more encouraging, most cyber security situations are not extremely complicated and are allowed by a simple letting of our guards down- see above point!

  • Handy tip #1– Use an only known to you, phrase or password.
  • Handy tip #2– Do not ignore the recommended updates!
  • USB/Pen Drives a No No Avoid the USB/pen drive at all costs unless you absolutely, 100% know where it came from

RMD Age Changes and other Important Dates

RMD (Required Minimum Distributions)

One of the most important and likely most confusing due to the recent multiple updates is the adjustment of Required Minimum Distributions (RMD) They are now mandatory to commence for those aged 73. Those turning 75 after 2033, your new RMD age is 75.  Recall, these just a few years ago, moved from age 70 1/2 to 72, now to age 73 and eventually age 75. No wonder we are all confused!

Social Security Mandatory Commencement Date reminder age 70

The current maximum age that you may defer commencement of  Social Security still remains at age 70, well below the new younger thresholds that we hopefully are all feeling. 

The earliest one may take Social Security remains age 62, with a 25% discount to the full retirement age (FRA) benefit amount AND has a maximum earnings level of $21,240 from W-2 or 1099 (working income) not pension, investment or other non working types of income.  

Have a Great Fall! Talk after the turn of the Calendar!

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

Second Quarter 2023 Review, Dickens Best and Worst of Times , Party Like its 1999 !

Dear Investor:

As we say goodbye to the end of the second quarter, the middle of the year is currently right before us, and remarkably interesting cross currents abound.

“It was the best of times; It was the worst of times.”

The Charles Dickens old favorite seems like a good quote given the cross currents at our mid-year review and more importantly forward-looking possibilities.

It is no secret that interest rates have risen dramatically, actually on a percentage basis fastest ever, quoting our Q3 2023 Newsletter and main lead article. What is most interesting is the continued stamina of the US economy given the FOMC (Federal Open Market Committee) chaired by Jerome Powell gigantic attempt to slow the US economy in bludgeon hammer like format, with the afore mentioned higher interest rates.

In true what is old is new again “Higher interest rates for longer” again a terrific article in our Q3 Newsletter.  What was once a necessary evil of stability, (fixed income/bonds), is possibly the most pleasurable fixture in our investment house. Now that the preponderance of interest rates hikes is likely far behind us, the hard work is done, and the reward of higher income with lower volatility is looking forward!

Partying like it’s 1999

The vast majority of stocks are adhering to Powell’s desires and at best treading water, at worst admitting defeat. Similar to the dot com (.com) times of 1999, Artificial Intelligence aka AI is the sexy theme of the moment and has put jet fuel on a small handful of company stocks.

Just like lightning, markets rarely tend to repeat, but they do rhyme, and while our hope is that this is not the.com 1999 party, our radar is certainly up.

Referring to our Q3 Newsletter one more time, there seems to be stimulus, just like the candy for the kids at the pool, that has not worked its way through the system. We continue to find more evidence of this and call your attention to the “Slower for longer Article” again in our newsletter.

While cautiously optimistic, we are happy not to be swinging for the fences investors and look forward to how this economic book is finally written!  Time will tell and is our Friend.

Thank you for your time talk to you in the fall,

Sincerely,

John A. Kvale CFA, CFP

Enclosure (2023 Report)

Q3 2023 J.K. Financial, Inc. Newsletter … Rate Increases re-review Forward Looking Effects- Research Affiliates Robert Arnott 10 Year Expectations … What we are doing this Summer … By John Kvale CFA, CFP …

Welcome to our Video and Audio Podcast Review of our Q3 2023 Newsletter. For those on the road or just unable to grab the time to read, our podcast type review gives you the behind the scenes insight to our thoughts, observations and deep views of the entire Newsletter.

Click the Download button below, for a direct link to an electronic version (an early peek-good ole fashion paper versions are on their way to you shortly) and here for our Newsletter page

Let’s get going! We hope you enjoy!

BREAK IN – The TDAmeritrade Charles Schwab merger will happen over Labor Day Weekend (September 5th, 2023) – Only Changes: Log in portal and account number – Expect (no reply) Legal Paperwork and emails!

Q3 2023 Newsletter

(YouTube)

Looking Forward Now with Regards to Rate Increases

Three Articles Centered around this main leading Article –

In our main lead article, we discuss the look forward expectations of NOT lowering rates as soon as many think. With higher rates, cost of capital will be more expensive for many projects, giving the Federal Reserve the desired slow down in the Economy ! Hopefully, and not too much!

Research Affiliates Robert Arnott 10 Year Expected Returns

Take note of Arnott’s powerful firm with predictions of the slower/safer Bonds earning more than the good ole SP 500 like stocks, earning and inferior 10 year return- Lots of disclaimers of course!

Higher for Longer

Asset Allocation – What’s old is New Again (Wish I would have thought of this title for the Newsletter) – Bonds may be our new Buddy – Especially if Powell is to be taken at his word!

Slow motion Slowdown – It is likely not over yet

Sneaky stimulus remains and with the fencing of Banks, this has the effect of additional stimulus in the system!

A Day in the Life and Summer Plans

While we may not talk Wall Street talk, our days are full of watchful research and fun client interactions!

The return of what we are doing this summer finally makes its way back into the Newsletter – we hope you enjoy!

Have a Great Summer! Talk in the Fall!

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

Robert Kaplan Speaks Candidly, Echoes Our Main Thoughts for the Newsletter – NICE – There is Still Stimulus out there and Higher for Longer!

The Forward-Guidance podcast review, recommended from one of my coveted study buddy groups, a week or so ago!

With downtime over the holiday weekend and the newsletter not being in print just yet… Robert Kaplan’s comments from a podcast came in very much in line with some of the articles in our coming Q 3 2023 newsletter, as such we had to bring you up to speed on this podcast.  NICE!

Recall Robert Kaplan was a Dallas Federal Reserve President, before getting caught up in a political issue and he along with several other members ended up resigning. 

What stands out about this podcast is the candor that Kaplan gives, which is what we are always looking for. Is it because this is a less than hugely popular podcast ? … although it will make my regular check for subject matter from now on, Or it is due to the resignation which would make Kaplan never available for public service again? …so he has nothing to lose period. Does not matter the reason his candor again is what grabbed attention. 

The just over one-hour podcast which can be found here (Forward Guidance), had three important points to bring to your attention: 

There’s still stimulus flowing in through the system- Again one of our articles in the coming Q 3 2023 newsletter speaks about the ERC or employee retention credit, Kaplan mentioned specifically talking to many mayors of many cities across the United States which have an abundance amount of stimulus capital still on their balance sheet that must be spent before 2025. hmmmmm 

Higher interest rates for longer should be the baseline assumption according to Kaplan– Again this is the subject matter of another of our newsletter articles. Kaplan speaks to the podcaster candidly and says capital markets even though we were just beginning a credit cycle (Tightening of lending standards, less loans, higher interest rates and lower margins, increased defaults all the intent of the federal reserve’s higher rates to slow the economy)- while capital markets and participants are pricing a lower interest rate at the end of 2023 and the beginning of 2024, Kaplan cautions participants to take Jerome Powell at his word. The only thing that would make him change his posture is some large event created by the further progress of the aforementioned credit cycle. 

It is a good old boys club– In an aha moment that we always thought existed, Kaplan slips and says his dissenting vote in September of 20 was a frowned upon event by Jerome Powell! However he quickly corrected himself and said I will let Powell speak for himself, but the rabbit was out of the hat, Kaplan realizing this went on to say that the general spirit of the FOMC (Federal Open Market Committee) is everybody agrees and falls in line with a distinct hierarchy of ranking. We could all remember and learn that there is a very much pecking order where the king is the chair, and the pawns are supposed to follow. 

Apologies for the length of this post, as mentioned with some time off and the dictation in hand, along with a total complement to our pending newsletter, wanted to bring this to your attention.

Have a great “Inside the Federal Reserve via Robert Kaplan” 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

Fed Watch… All Eyes (not on Vacation-haha) On FOMC (Federal Open Market Committee) Rate Increase or NOT – NOT being most likely … CME Fed Tracker Review …

With a Jerome Powell lead FOMC (Federal Open Market Committee) meeting this week (Announcement Wednesday to be exact) AND an economic projections due this announcement….

Let the Gaming Begin of a rate increase or not?

CME Fed Tracker – 70% Stay 30% Raise .25%

Left Graph is 70% and the markets pricing of a probability of NOT raising…

Right Graph is 30% and the probability of raising .25% or 25 basis points…

By the Way…. Of course the FOMC watches market expectations and know if they raise it will be a slight surprise…. 25 basis points is really nothing at this point, considering the meteoric rise in our rear view mirror….

Have a Great “Fed Fund Watch 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

Rates… Fastest Increase Review … Looking Forward for Effects … Newsletter Precursor …

This is an updated chart from our favorite buds Visual Capitalist

Last year we spoke of the speed of interest rate increases a lot… given the unique pace at which rates increased AND the super low level of (zero is about as low as you can go) starting point … it became a shock to the financial system….

So in all likelihood, rates are near their top for the foreseeable future….what lies ahead?

We will have more on this in the coming Newsletter but rates 500 times higher than they were just a few quarters ago AND looking to stay higher… there are major implications..

Debt/Financing costs higher =

Better safe investment returns aka Fixed Income/Bonds

More costs to debtors (lower returns for those using debt because of higher costs)

End of companies requiring very low costs to make profits

Have a Great “Fastest Rate Increase Effect” 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 BTFP – Bank Term Funding Loan Program UPDATE, Created a new process of Banks Merge/Buyout …

Did you happen to catch the Financial System adjusting the way it does business right before your eyes?

No worry, if you said no… it was not super obvious, but worth a quick review for future knowledge…

So here we go!

BTFP- Bank Term Funding Loan Program Makes Adjustments to the Financial System

As we explained in great detail here in this post in March, the Federal Reserve set up a Backstop program for struggling banks. As several more banks have had issues, the creation of this program has changed the way mergers or buyouts will occur while this plan available.

If you are an acquiring bank, no matter desire, you would be crazy not to wait until your desired bank, if under stress, hits up the Federally backed program aka BTFP, as the Government essentially will guarantee much of the buyout once entering the program.

While it may seem unfair or counterproductive to price discovering markets and mergers, possible unintended consequences created from this program…. they are what they are … and look to continue until we are beyond the rain clouds….

Have a Great “Watch the Financial System Adjust” 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

First Quarter 2023 Review, Advanced Analysis Pilot, Tax Season, Interest Rate Anniversary

Dear Investor:

Putting Q1 of the year (2023) behind us, compared to last year at this time, seemed straight forward. recall last year at this time, we had just began interest rate hikes.

As the calendar turned we began searching for a similar series to last years’ “Back to Basics”, due to the popularity, comments, and sharing that occurred with this multiple series.

By luck or accident, we landed upon the antithesis like series called “Advanced Analysis” in part due to the current economic cycle and the nearing of the end.

Advanced Analysis Pilot

Our Pilot/Part 1 of the series was extremely timely and focused around M2 a broad economic measurement of money sloshing around the financial system. This is discussed in greater detail in our Q2 Newsletter at a very high level. Whether lucky, or preeminent, our observation, was to watch out for more high risk debt players in the capital markets and especially junk bonds. This fact seems to be occurring much faster than originally though.

Tax Season – Hints and Reminders

As we turn to Q2 of the year in what seems like expeditious fashion, it is tax season.  We once again call your attention to our Q2 Newsletter as there are some great last minute tips not only looking forward to this year, but also things available that may help last year’s taxes.

Interest Rate Anniversary – Most Likely Nearing an End

As mentioned in the intro, within the last two weeks we have just passed the start of the interest rate cycle, which was the fastest on a percentage basis we have ever seen The US economy and the global economy for that matter, operate much more like an aircraft carrier then a ski boat in their change of direction. The financial sector seems to be in the early innings with other parts of the economy much later in the economic game cycle. We will get through the slowdown eventually with all parts of the economy and move forward.

Have a great spring. Talk to you in the summer!

Sincerely,

John A. Kvale CFA, CFP

Enclosure (2023 Report)