Category Archives: Interest Rates

First Quarter 2018 Cover Letter Review

In true Groundhog like fashion, Capital Markets, after getting way ahead of themselves early in the quarter, saw their shadow only to turn, run and hide.

Included in the newsletter, which we sent early to give everyone a chance to view and remind of the tax strategies, is an article about the VIX and its reverse brother the XIV. These funny products along with the more recently noted tariff talk has been the recent excuse for capital markets to act like a bashful Groundhog.

The reality is capital markets got way ahead of themselves and needed time to rest. From our perch we would much rather them rest go sideways or even down a little bit, rather than getting WAY ahead of themselves like they did early in the quarter, only to quickly revert and likely overshoot to the downside.

Interest Rate Increase

In this most recent quarter we did just digest another small interest rate increase. Our new Federal Reserve Chairman Powell, looks to continue the gradual increase rates, slowly normalizing short term interest rates, and continuing on the path left by his predecessor Janet Yellen.

Capital Markets have a very unique way of signaling Interest rates have been raised too far called an inverted yield curve. Look for rhetoric about an inverted yield curve soon, as the historic importance and accuracy of this effect are in our crosshairs at this time.

Consumer and Earnings

With an economy that is two thirds driven by the consumer, a happy and spending consumer along with company earnings, which are beginning to digest the new tax reform, lead to a good backdrop.

As we mentioned in our Newsletters and repeatedly at street-cents, this is likely a year we will need patience, we see no change in that view at this time.

Have a great spring, talk to you in the summer!

Sincerely,

John A. Kvale CFA, CFP

Test and Re-Test ? Where Oh where are Capital Markets going? This likely will take some time …. Weeks for sure and likely Months? … We will need Patience!

After a long lethargic flat-lined Capital Market of 2017, things have finally changed, and we need to begin to get used to more normal Capital Markets.

What follows are details of what the Capital Markets have done over the last few days (yes only days) …  what we should expect moving forward, along with a review of similar historical movement. Given a future that Rhymes with the past, the most important point we want to get across is this —

What we want everyone to understand is it is highly likely we do not just bounce right back and go to highs again quickly, so let’s have patience and set our expectations for an extended Capital Market search for the most appropriate level.

Ok, so you have the most likely scenario, here is why.

Current Capital Market Review

Suddenly the Capital Markets cared about something — and were WAY ahead of themselves, so they began going down!

We thought they might stop at our fancy trend line from our early post on this subject.

2-3-18-spx-w-trendlines-and-jk-notes.jpg

Nope …. participants pushed on past the trend line.

2-12-18 SPX Trendline

Participants decided the 200 Moving Day Average was where they should stop …

 

2-13-18 SPX hits 200 MDA

So we have a stopping spot, what happens next may be best seen by looking at the past for a possible rhyming future.

2016 Rhyme

The first drop was about 24 trading days followed by another 20-25 day test in a few months.

Start to finish about six months with a move all the way back to even before a second drop.

2-11-18 2016 SPX -010% Moves

2012 Rhyme

With two hiccups during this 2012  time frame, again our weekly charts show a 2-4 months of capital market footing discovery ….

2-11-18 2012 SPX Draw downs 10%

 

Let’s settle in for more normal, but what feels like “Rockier” times, which will likely be with us for a while.

  • Economy is Good
  • Global recovery is beginning
  • Interest Rates are Rising but at a reasonable rate
  • Consumers are feeling good

Patience will reward us!

Happy “Patience” Valentine’s 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

Let’s Pace Ourselves … Whoa Market Whoa … Points Versus Percent Reminder

Most of our Posts are a work in progress for 3-5 business days prior (at least, many take months) till the actual post. We started our theme of Too fast of a Pace way before the Capital Markets started pulling back the reins. We left the title on this post as an odd coincidence of good timing!

One quick note before we start.

Points Versus Percentage

It has been a LOONG time since we have had a meaningful pause in the capital markets.

While we watch all indexes but not the Dow Jones as much, we do understand that this index is one of the most watched. “The Market” in most circles means the Dow Jones .. such the reminder.

As the Dow Jones Index has risen over the last few years, a percentage move has become a greater number of Points.

Today a 2% move is around 500 Dow Points. At the lows of the great recession of 07-09 a 500 point move would have been near an 8% move … just a friendly reminder to keep things in perspective.

Whoa Baby Whoa

Don’t get us wrong, we like growth, but just like starting a long distance race too fast, this year started too fast … proving even too much of a good thing, is still too much !

2-2-18 SPX w JK Notes and Trendlines

The first white trend line is a high double digit (~20%) annual growth line … unsustainable in itself over a longer period. The second “Super Aggressive is an approximate 40% annual rate, only to be out done by the third trend line which is over a 60% annual clip. This last line is 3x an aggressive pace … clearly unsustainable!

It would not surprise us to rest a while … a much needed rest that is.

Oh, we have plenty of excuses (rates, hot economic numbers, Fed Reserve talk) but we think the unsustainable pace was the key

Have a Great “Paced” 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

 

 

 

 

January 2018 Podcast Video, Financial Planning and Capital Market Update- By John Kvale

Hello and Welcome to our January 2018 Financial Planning and Capital Market Update!

If you are too busy to read, feel free to listen as we describe our post and thoughts in friendly podcast format.

January 2018 Video

Financial Planning Tip (s) –

Fraud Reminderthief

Two and 1/2 issues in one week… No one was harmed, but it was a great reminder, they are out there!

As we mentioned in our post just prior to this one, the Grand Enchilada of Tax Forms enters the mail and electronic systems this week. These most popular forms are due by the end of January and fraudsters are taking notice.

Keep your eyes and ears out for anything suspicious!

Vault Saves Day Twice

Here in our real life experience post, we ended up needing the Vault to help save time and a HUGE hassle at a far distant Tennis Tournament. Who would have thought they would be so strict in identification at a Tennis Tournament?

Here is a neat reminder of what might do into your very own Personal Vault:

Legal Documents □ Wills □ Deeds □ Revocable & Irrevocable Trusts □Power of Attorney □ Codicils (Supplements made to a Will) □Living Wills/Health Directives □Prenuptial Agreements □ Buy/Sell Agreements □ Contracts Social Security and/or Veteran’s Administration Info Insurance Policies (Life, LTD, Disability, Medical, Car, Property) Medical Records Bank & Investment Statements □Pensions, IRAs, passport-2642170__340Annuities etc. □Investment Accounts □Stock Options/Certificates Liabilities □List of Credit Cards with contact information □ Mortgages □Loans Taxes □Tax Returns □ W-2 Forms Identification □ Birth Certificates □ Drivers Licenses □Passports Family □ Adoption Papers □ Marriage License □Pictures □ Audio Files □ Video Clips Property □Titles to Homes, Autos, Boats, etc. □ Warranties Employment Benefits

Capital Market Comments

Interest Rates

10 Year Treasury touches 2.70% – Where to next?

After floundering in the low 2% range, it appears interest rates may be on the rise. This is just in time as the FOMC (Federal Open Market Committee) are set to raise short term rates several times this year and the one thing we DO NOT WANT is an inverted yield curve (more on this another time).

We have argued higher rates are helpful as long as they move gradually.

So far so good!

1-29-18 10 Year Treasury

Have a Great 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

Taking a Peek at Interest Rates – 10 Year Treasury – Short and Long Term Look

Low rates are great. However we have argued multiple times, low rates too long can cause more damage than good.

Higher rates … increasing moderately, NOT super fast is the perfect scenario.

10 Year Rate Peek

Over the short term, the much watched 10 Year Treasury Rate looks like it is on a tear… maybe even moving too fast …

1-22-18 10 year - 1 year graph

While we peek at the short term, turning points are more important over the LONG term ..

Here is a longer term chart …

1-23-18 10 Year Long term

The white line on this chart is what is called a trend line. Many call this stuff VooDoo … Let’s liken this to momentum in a sporting event… hard to define, but certainly existent.

Keep an eye on the far right corner of this chart … if it continues, then we may be headed for a sustainable period of longer term rates … Good if it occurs slowly.

Have a Great “Higher 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.
www.jkfinancialinc.com
www.street-cents.com

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

Here is our December 2017 Monthly review. If you are too busy to read, feel free to listen as we describe our post and thoughts in friendly podcast format.

So Long 2017 … Hello 2018 .. Nice to see you!

December 2017 Video

Financial Planning Tip (s) –

You have been IRMMAAtized – Options for Relief

In our post, here and here we discuss the Medicare Means testing levels, both historic and what we are faced with in 2018.

Due to the faster lower Tiers of income, the Social Security Administration has casted a wider net for all of us.

Here are the new levels, again from our post AND in even GREATER details in our Q1 2018 Newsletter.

2017 V 2018 Medicare IRMAA levels

A life event change may create relief – Life events not limited to the following-

  • Marriage
  • Divorce/Annulment
  • Death of Your Spouse
  • Work Stoppage
  • Work Reduction
  • Loss of Income-Producing Property
  • Loss of Pension Income
  • Employer Settlement Payment

Please see our Q1 2018 Newsletter for detailed instructions on how to get relief from these faster grabbing surcharges.

Personal Spring Cleaning in the WinterUnsubscribe monitor-608241__340

Personal Reminder Email Tip

In our post mid-month here we discussed cleaning your emails to lower the Tidal Wave of daily emails.

After almost four weeks we are down to a trickle.

What was most interesting were the different experiences of who was up front and nice about the “Unsubscribe” request and who was down right dirty about letting us off their list. Surprised and disappointed with some companies.

Capital Market Comments

VIX – Fear Index Goes into Hibernation

We initially wrote in our Newsletter article and Blog post here, the VIX went to sleep … after another few closes below 10, we are coining it “Hibernation”

VIX as of 12-15-17

From 1990 to 2016 this Fear index closed below 10 a total of 9 times. During the year 2017, it has closed below that level 52 times and counting !!

Wow … Hibernation!

Interest Rate Increases

Just few years ago, with former FOMC (Federal Open Market Committee) chair Ben Bernanke running the show, a miscalculated mention of a pending interest rate increase threw the Capital Markets into a tail spin – and that was just a mention of one small .25% increase. WOW-

When the history books are written on this period of time, FOMC members “Listening” to markets may be prominent, and possible reason for success.

In 2017, the FOMC raised rates 3 times with very little market disruption. They are on record for 3 more in 2018. The best part of this, market participants are not throwing a hissy fit and seem to be welcoming the increases.

Today, we think NOT increasing the rates as forecasted would cause more harm than increasing – exactly the opposite of just a few years ago. Way to pivot FOMC officials.

2017 Fed Funds Rate Bar Graph

 

Happy New Year!

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

Interesting comments from CEO of Mortgage Real Estate Investment Trust

Each year we are kindly invited to a terrific event of publicly traded companies by our friends at Three Part Advisors.

This year the event featured over 70 companies, mostly of smaller capitalization. We enjoy going to this event as a terrific way to really get into the weeds on what is going on in the Economy as well as learn more about the companies themselves.

Chance meeting and lunch Dynex CEO

One of the favorite sessions featured the CEO and Chairman Byron Boston. Luckily, after his discussion, we sat together at the same table for lunch … extending thoughts and comments from his public discussion.person-boston

As chairman of a publicly traded Mortgage REIT (Real Estate Investment Trust) Mr. Boston had/has (rates greatly affect his company) very strong opinions on rates among other things.   Of course our ears perked up when Mr. Boston gave his views and even some forecasts …

  • Rates will be lower longer this cycle
  • Highest rates of his lifetime (Wow- big statement) are in last 15 years
  • Global growth is coming, but more fragile than many think
  • Inflation will not get above 2%
  • Globalization has created an irreversible connectedness between our economy and the rest of the world (We could not agree more!)
  • If inflation goes over 2%, rates will go higher as well- I asked the question, but he did not think inflation would get over 2%

At lunch we had more candid hot topic conversations beyond my comfort zone of our blog.

We were VERY impressed with Mr. Boston. He gave his distinct thoughts with triggers for being wrong and right for that matter …. what is not to like!

We will code this forecast and check back again later to see how well Mr. Boston did !

Have a Great “More Rate Clarity” 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