Category Archives: Interest Rates

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

Rates Rise and No One Blinked, Report Cover Letter

The once dreaded and feared interest rate raise seems to have run its course from a fear standpoint. Just a few quarters ago when Ben Bernanke was the Federal Open Market Committee (FOMC) chairperson, the whisper of a long-awaited rate hike lead to market calamity and many to believe rates would be permanently artificially low.

Near the end of this most recent quarter, current FOMC chair Janet Yellen raised rates to the 1% level, a level not seen in almost a decade and without much capital market trepidation. Longer term the short-term interest rate controlled by the FOMC may not go all the way back to the higher levels once seen historically, however a 2-3% rate would still be stimulating from our perch. It is possible the gradual move higher will extend this current economic expansion.

Speaking of rates, in our Q3 2017 Quarterly Newsletter we do a complete deep dive on interest rates, among many other items, that may have changed Residential Housing Prices movement for the foreseeable future. While so many argue of reasons for Housing volatility, the answers are less vivid than many may think.

Continued optimism from company executives seems to have given them confidence to expand their businesses dropping the unemployment rate to levels many thought not possible via hiring’s of workers. It is possible an employed consumer is a happy consumer who is also a consumer who spends more. With consumer spending making up over two thirds of Gross Domestic Production (GDP) this bodes well for domestic and world growth, as long as it continues.

Given low but rising interest rates (finally) a happy higher price valued Home Owner (again full details in the Newsletter), a happily employed consumer, it is no wonder many assets and most capital assets, especially the US markets are priced to perfection (high compared to historical values). The fantastic news is that our overseas counterpart capital markets are not priced as high and it looks like investors are finally beginning to warm to their markets. Our good friend diversification keeps us exposed to these markets as the possibly reawakening occurs. Look for more on this on our street-cents.com blog.

Summer doldrums?

Maybe, but we always keep our guards up as risk can happen fast, even if the less tenured folks are at the wheel of the capital markets.

Have a Great Summer!

John A. Kvale CFA, CFP

Q 2 2017 Cover Letter

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

 

June 2017 Podcast Video, Financial Planning Tax Review and Earnings Update- By John Kvale

Here is our June 2017 Monthly review.

Hard to believe we are ALREADY at the half way point of 2017 … A little early due to the Holiday schedule.

Here we go!

June 2017 Video

 

Financial Planning Tip-

Safely Hand Off VERY Important Documents

Vault Add View W Arrows for private and Full View

With a few services still showing too much confidential information such as social, bank and date of birth, in our post here we reminded everyone of how to easily hand-off that VERY confidential document.

Also as a reminder, one of our projects over the latter part of the summer will be a set of 1 minute videos on how to use the New Total Vault and feature such as this one … Looking forward to completing them !

Capital Market Comments

Rates are Rising

Libor 1 month 6-27-17

This chart shows does a great job of showing the rate increases as they have occurred. So far, market participants are taking the rate increases in stride.

We continue to believe higher/more normal rates are a good thing!

Happy Mid-Year point!

Let the 100 degree days begin !

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,

Technology Upgrade Update – Rates Rise – Friday

On Monday of next week we hopefully successfully do a major upgrade to our internal email systems. This will mean each of our company emails will be down, but not all at the same time. As the switch occurs, while promised nothing will fall through the cracks by our IT team, if you happen to send an email and you have not heard from us, please re-send it just to be safe.

Rates

Ok, it’s a Friday so we will be brief, Janet Yellen, head of the Federal Open Market Committee (FOMC) notched another rate increase under her belt without disrupting the capital markets. Once thought impossible, so far, slow and steady (tortoise- not the hare) is winning the interest rate normalization race.

This is a good chart of the ever increasing rates… finally !

Fed Funds Rate 6-15-17 fredgraph

Ahhhh…. Today is a Friday… enjoy your day and your weekend !

Talk to you next week!

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

 

Interest Rate Increase and No One Cares? We do!

It is very interesting to watch the once ferocious markets hate a possible interest rate increase, only now to greet it like family.

Interest Rate Increase Today

It is highly likely the FOMC (Federal Open Market Committee) led by Janet Yellen will raise short term interest rates up to the 1% threshold at their announcement later today. What is more interesting is just a few quarters ago even a whiff of a raise threw the capital markets into a tailspin.

Past rate increase events:

  • The US Dollar soared as other countries across the world continued to push their rates down.
  • US Capital Markets threw a temper tantrum in dispute of a raise.
  • Headlines beamed with fear of the crazy FOMC raising rates.

Probably our favorite chart from our friends at JPMorgan- higher rates can be a good thing

There will be a day that it does matter. Rates can go too far which results in an inverted yield curve (short term rates are higher than long). For now it seems everyone is on the same page and digestion of higher rates is occurring.

Have a Great “Higher Short Term Interest Rate” Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
http://www.jkfinancialinc.com
http://www.street-cents.com

Residential Housing Prices Analysis – Q 3 2017 Newsletter Preview

As a large asset for many, not to mention the emotional aspects of Residential Real Estate, we set off to review historical, current, and future values of Residential Real Estate across the country.

What we found was very interesting!

Something happened about two decades ago

The following key chart from our complete analysis in our coming Q 3 2017 Quarterly Newsletter depicts the change that occurred about two decades ago:

Inflation via the CPI and US House Price Index

20170507_150801156_iOS

So what happened and why?

After many decades of Residential Housing Prices closely following the price of inflation, near the turn of the century a change occurred that can be easily spotted on the comparison chart.

In our coming Newsletter we discuss the following:

  • The change that occurred
  • Why the change?
  • What does it mean for the future?
  • What lessons can be learned?
  • Current value analysis

We look forward to bringing you the full details soon, but wanted to wet your appetite with our initial information and key chart now !

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