Category Archives: FOMC

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

FOMC Speaks, Preview Analysis – Newsletter Update – Friday …

On Wednesday September 16, 2020 the FOMC (Federal Open Market Committee) led by Jerome Powell announce their updated thoughts on the Economy and their expectations….

FOMC Preview of Rates and Economic Data

Knowing its a Friday, we are making this a Preview of a more detailed article coming next week…

Here is the FOMC expectations of where rates will be for the next few years… aka Fed Dot Plot

Lower for longer is THEIR expectations…. but there is an inflation assumption embedded here….. hmmmm

Newsletter Update – Speaks to Rates and Inflation

We speak on this very subject in our coming Newsletter – which once again is different from what we have done before….

The coming Newsletter is a review of what has happened over the year so far and actions and assumptions similar to above and what the ramifications of these decisions may be looking forward…

Given the thematic review, this Newsletter is one big flowing review and analysis…

We think you will like it!

Friday

Ahhhh…. today is a Friday heading into a much excitable College Tennis Tournament for the 15 year old in Aggie land… fingers crossed….

Enjoy your day, your weekend, and your time with friends, family and those special in your life!

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

Meet the Trimmed Mean Inflation Gauge … A Measure to Keep Watch

With the FOMC (Federal Open Market Committee) led by Jerome Powell and company at their most recent meeting, made the following comments:

On price stability, the FOMC adjusted its strategy for achieving its longer-run inflation goal of 2 percent by noting that it “seeks to achieve inflation that averages 2 percent over time.” To this end, the revised statement states that “following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.”

The updates to the strategy statement explicitly acknowledge the challenges for monetary policy posed by a persistently low interest rate environment. Here in the United States and around the world, monetary policy interest rates are more likely to be constrained by their effective lower-bound than in the past.

Let’s Decipher these Comments and Bring On the Tracking

The comments above, were understood by many/most on Wall Street to mean rates will be allowed to stay lower for longer and the 2% inflation rate is not a hard line number….

The following is the Trimmed Mean Inflation Rate completed by our very own Dallas Federal Reserve, just down the street from us!

It is basically taking the far outliers in any report out and calculating the number. This rate is one of the most watched inflation numbers by the FOMC!

Here are the actual numbers- watch that 2% number!

When rates go up, it is a headwind for Capital Markets …

Let’s keep a watchful eye on this… we are tracking you Mr. Trimmed Mean.

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

Deep Dive on Interest Rates and Yield Curves … With Helpful Comments … New Fancy Fonts and Colors

Alright, if the title did not scare you off… hope not, we wanted to review the current state of interest rates, with some helpful (in our humble opinion IMHO) comments !

Here we go!

Deep Dive on Interest Rates

First up the US 1 Year Treasury

Think of this as your checking account interest with a little extra earnings … hence the one year time frame.

Seems long ago with all the worlds events, but not too long ago we were in the mid 2% range, currently at .12% ….

Many say we will be in this lower range for a long time, short sighted in our minds, but time will tell!

Next up the US 10 Year Treasury

Think of this as our proxy for mortgage rates, long term inflation and general economic growth expectations.

Not so long ago, in the mid 2% zone looking like we were headed to 3% … today .64%.

Many of the same folks saying we will be here for a long time. We will see!

10 Year Treasury Versus 90 Day Treasury – The Recession Predictor

Not sure if it was luck or just prophetic markets, but when this chart drops below zero (AKA Yield curve inverts) frequently a slowdown comes !

Inversion much of 2019 and then again during the early stages of the lock down.

Take special note of the spike in late March… recall that was when investors tossed their “safe” fixed income investments out the door because they had not other assets they wanted to sell … after the initial spike, normalcy returned.

US versus UK One Year Rates

Thought this was very interesting ….

This most recent interest rate cycle was shallow compared to historical norms, notice how the UK rates were even more shallow.

Many other countries could be inserted here as well with the same result

There you have it, a deep dive on domestic interest rates, yield curves and international comparisons….

Last Friday a new “Block Editor” was forced upon us … think of it as a makeover for all publishing/editing tools on our blog – initially HATED it….but upon further review we are getting used to it and hope you like some of the new fancy features – Like the Big A to start the post!

Have a Great “Deep Dive 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

More Positive Data Points …. Factset Earnings … JOLTS Job Openings … PPI Producer Prices …

As promised, last week, we have some more good data points….

Again, we feel Market Participants maybe a bit overzealous here … expect bumps …

BUT … the earnings and economic front are showing good data points…

S&P 1 Month Earnings Estimates From Our Friends at Factset

Take note of the usual guide down historically in this chart, with this months most recent, bucking the trend… Nice

8-3-20 Fact Set Earnings estimates

JOLTS – Job Openings and Labor Turn Over – aka Jobs Available

The Jolts report is a good measure of the possible jobs available in the US Economy (Watched closely by the FOMC – Federal Open Market Committee – The FED)

What is important about this report, is the expectation was for about 4.9 million jobs and the actual came FAR ahead at 5.9 million … Nice X 2

8-11-20 Jolts 4.8 exp 5.9 actual

PPI – Producer Price Index – Price of Production Items

Lastly and briefly, so as not to have you think you have fallen into an Economics class….haha

The PPI is a broad measure of domestic producer sales prices… when it’s going up, there is demand and more importantly when down, slack…

There are various ways to measure this Economic report (Core, Month over month, year over year, %)  … all measurements beat their estimates handily …. Nice X 3!

8-11-20 Core PPI

There you have it… some nice market and economic numbers for your summer hump day!

Have a Great “Economics Beating Expectations” 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

 

 

A Little Overzealous …. Friday …

So yesterday there was a lot of red (dropping in value) on many of financial professionals and likely your electronic apparatus with regards to Capital Markets…

What’s Up?

A Little Overzealous …

As you know, we are a very “Glass Half Full” firm and individuals as a whole…

But Hang on just a second  … it makes no sense to rally all the way back to almost where we were before Covid 19 became an issue….

Do we think there will be a vaccine? Yes… Newsletter expands in great detail…

Do we think investors should look over the valley and to the greener pastures on the other side? Yes… and they are….

Do we think Capital Markets are ready to be where they where before all of this with the uncertainty of looking through the Valley? Not yet … a lot of uncertainty still…

Yesterday… Capital Market Participants agreed…

6-11-20 Indexes

A dose of reality may have sunk in as the FOMC announced they expected slower growth for the next two years and as such lower interest rates….

Or maybe, some awakened to the fact of where we were …  and where we are now… and said “Wait a Minute!”

All part of the process…. in due time this will all seem like a faded memory… not yet!

Expect ups and downs along the way!

Have a Great “Back to Reality” Friday!

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!

 

img_1384

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!

img_1383

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

 

 

 

 

Updated Capital Market Thoughts, Earnings, Fear Gauge, Interest Rates

We have been very careful in communicating thoughts on the Capital Markets as there are so many unknowns, it’s impossible being extremely accurate.

At the end of the prior quarter when the markets were more like a Bucking Bronco than future economic estimators, we put out our initial thoughts as follows… which so far have been pretty spot on…

Capital Market Participants will anticipate this and begin pricing in the not only conclusion of this economic slow down but the positive affects of the very large stimulus package that has been put into place.

The above being said, we think it appropriate to update you on our thoughts on where we are, and where we may be going …

So here we go …

Earnings

In normal times earnings determine the movement of the markets. Being in slightly different times, earnings are, and will be bad for the current and likely next quarter. The good news, this is not surprising to anyone.

Market participants are more interested on what it will look like on the other side, as things begin to get closer to a more normal environment.

There will be bumps, there always are, but being forward looking, participants will most likely look even farther ahead than normal and ignore the immediate results.

Major Equity Indexes Worldwide

World Equity Markets… after dropping (most likely overshooting to the downside) rather quickly, moved back up as anticipation of future growth began being priced in …

5-11-20 YTD SP R2k EFA

VIX – Volatility Index – aka Fear Gauge

A few years ago, on December 20, 2017, we commented on the record breaking lows the VIX had made …

Over the last 26 years the VIX has registered a end of the day reading of 10 or less 9 times.

At the close of market just a few days ago, as you can see, 9.42.

Care to guess how many days and counting the VIX closed below 10 in 2017 SO FAR?

49 … FORTY NINE … and counting!

Fast forward to today….  in the high 20’s and low 30’s as of late… down from above 80, which was record breaking in it’s own right….

A Continued lower VIX should be good for Capital Markets.

5-11-20 VIX

Interest Rates

The FOMC, Federal Reserve Open Market Committee, correctly dropped rates to zero as extra stimulus for the situation. Eventually rates got to a lower boundary, see chart below, take notice of the increase in rates before finally settling at a lower range. This represents a dash for cash when original fears commenced. We would be surprised to see rates stay here for a decade, as they were after the great recession of 07-09.

5-12-20 Treasury 10 Year Yield

So where are we going?

Last week we mentioned here in our Edison post, we think a cure will eventually be found, and we still do.

The day those four words are hopefully spoken …

We Found a Cure!

Our lives will change back to more normal, economic growth will pick up and a giant sigh of relief will come across all of our brows as well as a cheerful day/week in capital markets and many otherwise distressed assets.

If a relapse or fear of one occurs, there will be heightened volatility and slower Economic recovery ….

Our bet is on the former rather then the latter, but as mentioned at the beginning, no one really knows.

What Do We Do?

Stick to our allocations, trust the system, and have patience.

Will there be times and items we do not like? Sure, there always are, but we will get through them together!

Oh… and remember, Stay Informed not Consumed! (Over Drama catches the most eyes!)

Have a Great “Updated Market” 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

 

 

From the Road … FOMC Takes Action Last Night in Response to Shutdowns and Economic Slowdowns

Not wanting to bring a knife to a possible gun fight, the FOMC (Federal Open Market Committee) led by Jerome Powell announced multiple actions in response to Corona and the related shutdowns last night.

FOMC Lowers Rates, Lowers Bank Reserves and Adds Money

On Friday a coalition of private and public groups agreed to begin more testing for the Corona Virus… not surprisingly if you are able to test more, there have been more findings.

Last night the FOMC led by Jerome Powell announced multiple measures to help economic activity:

  • Lowering of Short Term Rates
  • Lowering of Bank Requirements AND encouraging Banks to lend to businesses, especially small businesses with the extra freed up reserves
  • Purchasing of Treasury and Mortgage Securities for Liquidity and lowering of rates

Friday, I mentioned multiple ways to think of the current events… given the above events, here is another example…

  1. The FOMC did all of this, it must really be bad…
  2. Not wanting to get behind, the FOMC is taking advanced actions to help stay in front of disruption and possible slowness…

Choice one is easy and likely will show up somewhere in your sights, if it has not already …. again, choice two is the positive, high road choice, and will only likely be seen here today!

Yes, events are making the Spring Break Trip hard to focus on family and friends, but in a strange way, maybe it is good to be out of the office!

Careful what you intake… drama rises to the top!

Rest assured, as you can tell, we have complete remote access…and again, we are a conservative firm by nature!

Have a Great “FOMC No Knife to Gunfight” 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