Welcome to our Video and Audio Podcast Review of our Q4 2022 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
With the news being the worst near the tail end of a slowdown, after crossing paths with Ben over five times, we thought it a great time to review some of his thoughts and research…
The Missionary Statement or Strong Direct Narrative
Ben and his partner theorized that Missionary statements once saved for Oval Office wartime speeches or the like are now used in part due to the way we consume our information by almost everyone, leading to an overload possibly of missionary or breaking news like headlines and narratives.
The possible effect of strong missionary statements or narratives, again Ben theorizes is that when there is the need for a very strong subject matter or narrative, if we are not careful we have become desensitized to things because of the possible dramatization of other headlines and narratives that it’s not taken serious. Said simply, the boy who cried wolf
“Why am I reading this, and why am I reading it now?”
Dr. Hunt mentions that they have actually had a number of news organizations and authors directly communicate with he and his partner in order to make sure or check that they are not accidentally using a narrative, which is a fantastic possible change moving forward
Peter Zeihan – Russian Ukraine Thoughts – Demographics made It Now or Never
With regards to the Russian invasion of Ukraine, Peter theorizes that this is a recapture of multiple ports of invasion that Russia has given up over the past many decades. He also mentions that because of poor demographics the Russian invasion was an absolute necessity sooner rather than later due too an aging population
Interest Rate Thoughts
“The Federal Reserve led by Jerome Powell, has long wanted to get rates up to a more normalized level” For the record this has been a known goal in the halls of Wall Street and the Federal Reserve for that matter.
Peter goes on, “Seems to be a feeling from the Fed Officials, that if a recession is going to happen anyway, let’s get our toolkit back of a higher interest rates!”
As mentioned Friday, there were a lot of words dictated, typed and researched over the weekend in preparation for the Q 4 Newsletter.
During some of the research, a stumble on to the follow chart occurred. Being totally unrelated to our Newsletter information, but very eye catching and interesting, a share was in order!
From our Friends at JPMorgan and their Market Insights Slide deck:
What is most striking to the eye, or at least our eyes, is the disproportionate amount of MBS (Mortgage Back Securities – think packs of Mortgages) the Federal Reserve purchased during this latest round of asset purchases.
This month the Federal Reserve has stated they are now pushing 97 Billion dollars of these assets back into the market, up from a prior mentioned 40 Billion monthly sale.
This may be a reason that Current Mortgage Rates are by almost any measure WAY to high, compared to their historical normal spreads between other similar assets.
Bottom line, the Federal Reserve likely over pushed rates low and they may be doing just the opposite now.
Just as eventually the sugar wears out, so will the salt of higher rates!
As a kid, with a firm 9 PM bedtime, one of the last shows I could grab before hitting the sack each night was a cop show … maybe showing my age, remember was a kid … Hill Street Blues, each show started out with the chief giving a summary of the day and passed events ….. and his words every show as he released his men to the streets were …
“Let’s be careful out there!”
Reviewing Anatomy of a Slowdown again
Being creatures of habit … recency bias seeps into so much of our thinking … 2020 was just barely a double digit day retreat and Capital Markets of 2018 just barely a double digit month retreat.
Many may have forgotten what a normal slowdown looks like.
Not trying to beat us over the head or a dead horse, however that goes …. More normal economic slowdown‘s as mentioned here and here just to name a few mentions (ok dead horse again) take somewhere between nine month and eighteen months a.k.a. 2007 – 2009 financial and 2000 dot com bust followed by a slow down, rather than just the most recent quarters we’ve experienced.
Contra Movements
Big bounces are part of a slowdown… much bigger bounces than normal growth appreciations during Growth/Bull times …
Yep… 19.37% and 22.93% bounces….
A slow down, the R word – (Recession), or a growth absence, patience is a virtue …
In true let’s be careful out there fashion, we haven’t forgotten the umbrella and maybe it will not rain, but we definitely have the umbrella just in case….
Bottom line, stay away from extreme headlines of “It’s all clear” and the other “It’s all doom and gloom”, we will get through this, but let’s be careful out there and have our patience hats on too!
Have a Great “Anatomy of a Slowdown Refresher” Day!
In our final fun “Back to Basics” review we discuss Tax PLANNING….
From the post:
Coincidentally, the most important part of Tax Planning is the second word in the subject, Planning!
As we individual or corporate tax payers traverse the tax year, it’s important to take note of unusual events that may be occurring. We’re certainly not saying you have to worry about this every minute of the day, but should you have an unusual increase in income, or decrease in income, this should be thought about before the end of the year for your tax planning.
Later in the post we discuss the key items in reviewing your return as well….. in step by step format!
Legacy Health Coverages
After running into several situations of legacy health care options for long time former employees… Here in this post we outline the possibilities of bridge Health Coverage from legacy companies and how fantastic of an option this can be…
In almost every situation, the key is these plans are not easily discovered. In order to find out if you have an option, it’s best to dig out contact information from HR of your old employer and reach out to them directly.
This is an expense to your former employer, so it would be expected not to receive multiple information regarding such a plan, but if available it could greatly help in bridging the gap for Medicare should we be in the situation of needing coverage before age 65.
Capital Market Comments
Bond Market turns Upside Down – The R Word
After the second negative GDP print … see next note of Fed’s Pickle…. the bond market really began to price in the R Word…. Here in this post we discuss the inversion of long bonds to short and their meaning…
The Fed’s Pickle
In this post, BEFORE the actual GDP announcement, we discussed the Fed’s pickle, with a hot economy (CPI inflation holding tight) BUT an economy that is slowing …..even qualifying as the R Word now – Recession!
From the BLS release after our post :
Q2 2022 (Adv)
-0.9%
Q1 2022 (3rd)
-1.6%
Real gross domestic product (GDP) decreased at an annual rate of 0.9 percent in the second quarter of 2022, following a decrease of 1.6 percent in the first quarter. The smaller decrease in the second quarter primarily reflected an upturn in exports and a smaller decrease in federal government spending.
The definition of recession is negative two quarters GDP….
Have a Great Day, Talk to You at the End of August!
As expected, on Wednesday of this week the federal reserve raised rates by 75 basis points (.75%), an early leak to their favorite Wall Street Journal reporter all but absolutely solidified this decision. Note the speed of the move compared to the most recent rate increases…
Now with an open calendar of over two months the federal reserve can head for the hills and get some R&R before having to stew over the next meeting ….. and what will be likely a much more complicated decision! Recall here our note about being in a pickle!
Speaking of R&R this note comes from a cooler higher altitude climate as the family and I recharge the batteries, sharpen the saw or however that goes, and spend time together. A turnaround trip back home is a necessity for the incoming freshmen‘s mandatory sport tryouts with a quick return back to the family …. hopefully!
Today is a Friday, hope you may have some time for some R&R as well!
Imaging you are walking an economic tight rope (We are calling it a pickle) and had no easy way out….
FOMC (Federal Open Market Committee) led by Jerome Powell may be in a Pickle.
Too Hot But Also Too Cold
Here at the Cleveland Federal Reserve , the FOMC’s own research from one of their own showed an estimate of CPI for the most recent of 8.59%…. thing is, it came in above 9% ….
Much too hot for the FOMC’s liking!
Then you have this from ANOTHER of the Fed’s own research ….
At the time of this chart their estimate was -2.1% … today it is -1.6% (jumps around as economic reports are released and fed into the beast/model) – predicting the R – Word!
C/O Pierce Kvale
Ok, so CPI/Inflation is too hot …. let’s slow this economy AND INFLATION down….
BUT Wait – the Economy is already slowing per my own members research!
Some on Wall Street say the Bond Market is the smartest due to the fact that participants are only focused on repayment risk and time of that repayment. Compared to the Equity (Stocks) market were there are flows of capital, tons of complication with financials and mood swings by participants.
Given the Bond Markets high IQ status, when it speaks people listen….
Inverted Yield Curve as Bond Market Beats it Chest with a Warning
As a quick refresher, a normal yield curve will have lower rates for shorter terms and higher rates for longer…. simply because the longer the term the greater chance of a problem/stress/default …
Pardon my free hand, but it looks like this… the longer the time the greater the cost/interest rate
When the Bond Market turns upside down/inverts, it has a very good track record of predicting a R- Word!
Note on this long term chart, as the line drops below zero, the Bond Market is Beating its chest and inverting…. also note the grey area that follow are R-Words…
Using a shorter term chart, last week marked a strong inversion of about -.25% and closed the week off at -.20% note those are point 25% and point 20%…. far right below the line…
So it looks like the R Word is in the cards, not to worry we have been talking slowdown since December of 2021… so we are prepared….
Remember, Equity Markets are forward looking and will sniff out the recovery before it is seen…. Also, recall, headlines are the worst near the end…. Still a Ways to Go though!
Next up — Why the Fed is in a pickle and may only have an R- Word way out!
This week the bond market boldly spoke the R- word ….. it does this by inverting …. shorter yields higher than longer…. no bueno!
To top that off, a hotter than expected CPI (Consumer Price Index – blunt measure of inflation) this week garnered a big ….. YAWN…. (For the record, this was surprising to us….) ….
Could it be Summer Doldrums? Sure … actually glad to see folks get out, travel, spend time with family, relax, sharpen the saw… or however that goes… heck, this am I had less than 100 spam emails to dig through… maybe even the spammers are relaxing ..haha
It’s a Friday, so nothing heavy today…. all bets are off for next week on the analysis of this, have some great stuff ….. a lot going on right now, but let’s enjoy the weekend …maybe BE part of the Summer Doldrums – talk next week!
While we have just reached the halfway point of 2022, for what it’s worth in seemingly much faster fashion than prior several years, likely due to the various lockdowns that we endured, even with such seemingly speed of time, there has been a tremendous amount of interesting events that have occurred so far this year!
All about the FED, once again
After multiple years of Federal Reserve stimulus both through lowering of interest rates and large asset purchases, as the calendar turned the federal reserve, FOMC, led by Jerome Powell pivoted and moved their foot from the accelerator to the brake. Not only has the FOMC pivoted to the brakes, but they have put both feet firmly on said pedal. First talking aggressively about rate increases leading up to the fastest interest rate increases on a percentage basis that have ever occurred, putting headwinds in safe assets also known as bonds or fixed income, but the other foot on the pedal included reversing asset purchases through balance sheet runoff.
The first glimmer of easing of the brakes by the Federal Reserve occurred several weeks ago in a public testimony by Jerome Powell in which he stated the federal reserve cannot control oil and food prices. Capital Markets participants read that to be not as aggressive in posture, maybe one foot easing off the brake.
Literally the last week of the quarter, the second major event occurred oddly enough from the research partner at the Atlanta Federal Reserve. The Atlanta Federal Reserve research department has a forward looking predictive model that attempts to predict GDP (gross domestic production), the most blunt instrument of economic activity. Just days ago, they updated their model from an expectation of 1% growth in Q2 2022 to -2.1% growth or an actual contraction. While seemingly unimportant, this estimate if true would mark the official R word for the economy – Recession. This second event was even more impactful as market participants began pricing in an even less firm brake pedal fed.
Persistent hot CPI Consumer Price Index reports present challenges
Back to the Jerome Powell lead FOMC, one of their favorite inflation measuring sticks, the CPI or Consumer Price Index a very blunt measuring instrument of price increases and inflation measures, looks to remain high, mostly due to the severe lag effects of some of the input data. This puts the FOMC in a pickle, with the aforementioned possible R word and a slowing economy, but lagging blunt measurement showing high blood pressure in the economy a.k.a. the CPI . Not a fun time to be a member of the FOMC!
How about some positives?
In our latest newsletter, hopefully already on your reading table, we point out in multiple graph format tons of positives. While some may say were looking through rose colored glasses, we prefer to say the glass half full. Of course, these can change, but the pictures we pointed out at the time, were positives.
Time is our friend on all of these matters, be sure to avoid the ugly headlines which most certainly will continue likely throughout the remainder of this year, we have your back and will talk to you at the end of the next quarter!
Welcome to our Video and Audio Podcast Review of our Q3 2022 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.
BREAK IN – Our new format of greater articles continues as we received many positive comments last quarter…. this quarter we run with it again, but we do have a constant theme…. Positives!
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
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments may be appropriate for you, please consult your financial advisor prior to investing!
Background
The is the vocal portion of J.K. Financial, Inc. a Dallas Texas Based Fee Only Total Wealth Financial Planning Firm. Founded by John Kvale, a Dallas Texas Fee only Financial Planner and Total Wealth Manager.
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Q4 2022 J.K. Financial, Inc. Newsletter … Slowdown Time to Clear, Ben Hunt Narratives, Peter Zeihan Global thoughts … Video Audio Podcast Review ! By John Kvale CFA, CFP …
Welcome to our Video and Audio Podcast Review of our Q4 2022 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!
Q 4 2022 Newsletter
(YouTube)
Patience – Real Slowdowns take a while to clear
Bear Markets about 20 months
Slowdowns average about 14 months
Narratives by Ben Hunt
With the news being the worst near the tail end of a slowdown, after crossing paths with Ben over five times, we thought it a great time to review some of his thoughts and research…
The Missionary Statement or Strong Direct Narrative
Ben and his partner theorized that Missionary statements once saved for Oval Office wartime speeches or the like are now used in part due to the way we consume our information by almost everyone, leading to an overload possibly of missionary or breaking news like headlines and narratives.
The possible effect of strong missionary statements or narratives, again Ben theorizes is that when there is the need for a very strong subject matter or narrative, if we are not careful we have become desensitized to things because of the possible dramatization of other headlines and narratives that it’s not taken serious. Said simply, the boy who cried wolf
“Why am I reading this, and why am I reading it now?”
Dr. Hunt mentions that they have actually had a number of news organizations and authors directly communicate with he and his partner in order to make sure or check that they are not accidentally using a narrative, which is a fantastic possible change moving forward
Peter Zeihan – Russian Ukraine Thoughts – Demographics made It Now or Never
With regards to the Russian invasion of Ukraine, Peter theorizes that this is a recapture of multiple ports of invasion that Russia has given up over the past many decades. He also mentions that because of poor demographics the Russian invasion was an absolute necessity sooner rather than later due too an aging population
Interest Rate Thoughts
“The Federal Reserve led by Jerome Powell, has long wanted to get rates up to a more normalized level” For the record this has been a known goal in the halls of Wall Street and the Federal Reserve for that matter.
Peter goes on, “Seems to be a feeling from the Fed Officials, that if a recession is going to happen anyway, let’s get our toolkit back of a higher interest rates!”
Talk to you after the turn of the calendar !l!
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
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