Category Archives: Interest Rates

Q 4 2018 Newsletter Video Audio Podcast Review By John Kvale

Welcome to our Video and Audio Podcast Review of our Q 4 2018 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 Here for 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

BREAK IN – Save the date for the Holiday Party

November 17th – Saturday before Thanksgiving – Dallas Athletic Club from 3-5 pm

DAC

Let’s get going!

Q 4 2018 Newsletter

And here is your review!

Capital Market Talk

Earnings and Markets Eventually Converge

In this hugely in depth article, first we discuss the effect of earnings eventually driving capital markets, but disconnects can occur. It can even be a good thing for Capital Markets to WAY underperform earnings, as they are this year because in brings valuations back in line.

Here is the key graph

7-13-18 EPS Growth and Mkt Growth 10 year avg

Higher Rates, a Short Term Headwind, Eventually a Tailwind

With sustained lower rates over the last decade, memories have faded on the tugging headwinds that higher rates have – IN THE SHORT TERM – on the mandatory safety asset class of bonds.

Higher rates are a great thing as Bonds/Fixed Income Assets have a place for almost all investors due to their safety and liquidity.

Once the headwinds subside our fixed income investments will have ridden the yield curve higher and begin paying more income in the form of yield – into our pockets – Finally!
bond index V Interest Rates

Too High of Rates Can Create Trouble

Too high of rates or an overshoot CAN create trouble … or a recession…

Our friends at JPMorgan – historically show that rate is about 5% – yea FIVE percent –

We disagree and think a lower level may now be this tipping point, due to the decade low interest rate level we have just experienced-

Current at two percent, we have a long way to go before getting too antsy
JPMorgan Rate Level for Slowdown

Inverted Yield Curve Update

So far to good- no inversion yet!
9-28-18 90 day to 10 year Inverted Curve status

Financial Planning

This series of articles came out of no where and in like domino fashion, once one was done the next took form and fell into place-

PLUP graph

App of the Quarter – Hardware

Our editor took the fancy picture out due to copyright fears, but our experience with the Firestick has been exceptional – Here are the highlights of our findings

  • Great Savings compared to just full service in many cases
  • Does not take as much internet speed as we thought
  • Bring your home on the road
  • Multiple devices used at once
  • Cuts back on duplicated services
  • Allows cherry picking services

Enjoy the fall –

See Ya next Year – Wow 2019 here we come!

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

September 2018 Podcast Video, Financial Planning and Capital Market Update – By John Kvale

Hello and Welcome to our September 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 as well as Video too!

Newbies – We like to articulate our thoughts and review on a Monthly basis our Financial Planning Tips, Capital Markets and current events!

This is month two of our upgraded Laptop, which means a new recording system of Audio and Video — while still working the kinks out, we are getting the hang of it – Enjoy!

September 2018 Video

Financial Planning Tip (s) –

The Emergency FundMoney - dollar-941246_1920

In our post here, a shortened version of an article in the coming Newsletter, we review all, about a much needed Emergency Fund, and the levels for certain scenarios.

Reasons to be slightly bigger-

  • Possible Job Change – Need to be higher on emergency funds
  • New Family Member- Higher is better
  • New Home – Expect unforeseen expenses – they always occur (Has anyone ever built or bought a home in less time and for less money than they thought? Nope, it’s in our nature)
  • Salary Fluctuations i.e. Commissions – Error on the higher side of that emergency fund
  • Others dependent on you – Business owner, large family, solo income earners, college or wedding – Higher is better

Reasons for a normal to smaller Emergency fund-

  • Dual Similar Incomes – Lower Emergency fund is ok
  • Very stable Job – Smaller side of the living expenses will
  • Very fixed income stability – Pensions, Social, etc.

High Deductibles – Why to Consider

In this post, we discuss the reasons for considering a Higher Deductible lifestyle –

Break In – There are always situations that a High Deductible will not work, we are just pointing out the advantages, under the correct circumstances!

Auto Insurance: One of the best ideas to consider a high deductible – take a look here at the great examples of why.

Home Owners: Another great coverage to consider a higher deductible.

Health Insurance: Once again a good one, but certain situations can easily negate the advantages of this!

Capital Market Comments – Interest Rates and Bonds

Short Term Headwinds Of Higher Rates on Bonds

This busy chart gives a great picture of the short term effects of interest rates on bond. Coming from such an extended long period of unusually low rates, we are reminding ourselves along with everyone else, this is very normal phenomenon and will correct itself with time by putting extra dollars in our pockets in the form of higher yields.

Have a Great Day – Talk to you at the end of October!

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

street-cents

The Short Term Inverse Relationship Between Rates and Bonds

After over a decade of not only lowering of rates, but SUPER low, interest rates, it is no wonder we have forgotten the short term relationship of bonds and interest rates.

Inverse Buddies

Over the short term, when rates are going down bonds go up and just the opposite as rates are increased. Pair that with extremely low – zero – rates and the gradual increase in rates, which causes a natural headwind has caught many by surprise, especially after over a decade of lowered and low rates.

bond index V Interest Rates

Ok, so it is a little busy – but it directly shows our point – as rates go down, bonds go up and then as rates go up bonds down. This is a short term phenomenon as once rates stabilize, bonds do as well.

We are happily welcoming higher rates as we think they are much needed – even though they present headwinds for a much needed safe asset class, Bonds – in the SHORT term!

Have a Great “Rate Bond Buddy” 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

Inverted Yield Curve Fancy Chart – After Seven Notices by Us!

We are happy to humbly state when someone comes out with a really cool chart – in this case, it out does our charts/comments seen here, here , here, here. here, here and here – all good – We were there much earlier – theirs is pretty, much prettier, slight worry about so many all talking about it – discussion for another time …

Check this out!

explaining-yield-curve

Have a Great “Inverted Yield Curve” 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

Second Quarter 2018 Cover Letter Review

On the road to nowhere? Or are we?

While capital markets around the globe may seem subdued, especially compared to last year’s movements, looking beneath the surface there is much going on.

Increased Company Earnings

With the corporate tax cuts, earnings are increasing. Public companies are enjoying terrific earnings growth and logging excellent earnings reports as the year continues. With little movement in capital markets and increased earnings, valuations by most any measure, are becoming less expensive. Also, worth notice in our Q3 Newsletter is a detailed article concerning lowered numbers of public traded companies, a possible source of different valuations moving forward.

Financially Happy Consumer

Broadly, the consumer from a financial standpoint is doing well. A happy consumer, leading to a more freely spending consumer, is an important point for the United States since the Gross Domestic Economy is made up of over two thirds consumer spending. Much of this financial happiness comes before a lower tax burden, likely to be felt by consumers next tax season – again in our Q3 Newsletter there are multiple family scenarios detailing the tax savings due next year.

Interest Rates

Market participants have digested multiple rate increases in stride, unlike times before. With gradual rate increases already occurring in the year, and more expected, normalization of interest rates is occurring without the fears of past. Being the first time in almost a decade to have rate increases, we are on Inverted Yield Curve watch (detailed article again in our Q3 Newsletter) as a possible predictor that rates have moved too far, and a signal of a possible recession. So far this has not occurred.

In closing, our patience theme from the beginning of the year seems to be still best suited.

Have a Great Summer!

John A. Kvale CFA, CFP

May 2018 Podcast Video, Financial Planning and Capital Market Update – By John Kvale

Hello and Welcome to our May 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.

May 2018 Video

Financial Planning Tip (s) –

Social Security Website and Items to check while you are perusing

In our Social Security related post here, we discuss the tons of new options for use as well as the fantastic updates the Social Security Administration has done with their website.

img_1043-1

The most important item to check if you are not already drawing Social Security is your credits… which can be done on this site… recall there is a possible time sunset of loosing your benefits if you do not have the Social Security Office notified, leading to a possible lower benefit.

New Tax Table and Rates – Personal

Here are the new tax tables… if they look complicated, well it is because they ARE !

Marginal-Tax-Rates-Chart-for-2018-1

Expect much more on this throughout the coming months as we dig DEEP into the actual rates and the planning techniques necessary to optimize our tax liability …. One Important five letter word…. CLUMP – more later on this!

Capital Market Comments

Interest Rate Yield Curve – Rates – Inverted Yield Curve

Bottom line, at its most basic level the yield curve should go upward and outward just as our home made chart below (the starting point for our discussion.)

20180424_122733630_iOS

When it does completely the opposite or inverts, as seen below… a recession is just around the corner for as long as the eye can see!

2s 10s Spread W Recession sfredgraph

Expect a complete detailed video over the summer on this phenomenon … along with another review in the coming Newsletter… It can be boring info, not to worry … we will liven it up!

Have a Great Day – Talk to you at the end of June!

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 Rates Part FIVE/Final – The FOMC Overshoot, a Recession Predictor – The Inverted Yield Curve

Finally our conclusion to what we have all been waiting for …. The Predictive Value of our discussion …

So we know the FOMC fiddles with rates…

The FOMC Federal Open Market Committee raising the totally controlled short end … recall, they do not totally control the longer end… capital market participants do!

 

FOMC Raises Rates

This following Chart is our sizzle….

This is the difference of the 2 year yield and the 10 year yield for about 5-6 decades…

When the 2 year yield is BELOW the 10 year  yield the line is plotted above zero … think 1% less 3%, would give you a data point of 2 on this chart….

When the short end of the curve is ABOVE the long end — totally backwards to all logic, the plot on the graph would be BELOW zero… areas which we have circled in red…

Grey area are recessions …. just behind the inversions —

Take a moment and check this chart out…

2s 10s Spread W Recession sfredgraph

Here is an easier to see chart from 1999 to present–

2s 10s spread 99 to present - fredgraph

Why don’t they stop raising?

They cannot, it is their mandate – keep inflation under control …. raising rates is their main control mechanism.

Also, it is beyond their control as investors actually pile into the long end of the curve dropping it’s rate while the FOMC raises, in anticipation of the next recession…

Creating the Inverted Yield Curve!

In Never go all in or All out fashion, if the curve inverts we do not pack up our things and leave …. BUT  caution is definitely advised.

There will be excuses …

  • it’s different this time …
  • rates are un-natural …
  • rates are low …

Maybe- worth heeding with a track record shown above….

We will keep you posted!

Hope you enjoyed the Series … Quick links – Part 1, Part 2, Part 3, Part 4

Have a Great “Not Inverted Yield Curve” 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