Category Archives: Performance Report Cover Letter

Q 2 Quarterly Review Cover Letter

The big news this quarter happened near the end of the quarter in mid June.

Near the end of 2018 the FOMC, led by chairman Jerome Powell, were on record to increase rates three additional times after their late in the year .25% increase. Capital markets threw a gigantic hissy fit. Fast forward a mere six months later, Powell lead FOMC are no longer interested in raising rates and maybe even considering lowering rates, a possibility virtually no one thought probable late last year.

Capital market participants have a way of making their feelings known – it does appear that the hissy fit late 2018 was in response to too fast of a rate increase. While we may never know for sure, post Powell chairman negation of further rate increases, and possible future lowering of rates were met with capital market participant applause.

We still feel there is a lot of ground to cover before an actual rate lowering may occur, and with market participants pricing in an expectation of late July lowering of rates, certainly there’s a possibility of disappointment.

For the moment it appears that interest rates will not go higher, and will at the least stay where they are for the foreseeable future and maybe even go lower from the current 2.25% to 2.5% threshold.

Tariffs and the Slowing Global Economies

The lack of a tariff agreement has put, for obvious reasons, many company managers in a holding position. Combine this with some global waning of growth, and we have a slight macro slowdown.

Global slowdowns are normal, and should not be feared. Major downturn‘s are the crux of problems and are what the FOMC seem to be most fearful of above.

With earnings being the ultimate driver of capital markets, a slowdown would take the wind out of the sails of levitating markets

Inverted Yield Curve Update

The recent deeper and more prolonged inverted yield curve, not hugely inverted but definitely inverted may be signaling a recession to come. In our Q3 2019 newsletter we dig very deep into multiple charts and update our thoughts once again on the inverted yield curve. The bottom line with an inverted yield curve is no one knows when the eventual recession may occur.

While the investment skies are rarely sunny and blue, there are some overcast unknowns at this time. Sunny skies can happen very quickly with agreements and progress from different parts of the world.

We are conservatively positive, and look forward to how all of the cross currents play out in the next few quarters. Needless to say this is not a time to swing for the fences in investment portfolios, we would argue it’s never the time to swing for the investment fences.

Have a great summer will talk to you in early fall!

John A. Kvale CFA, CFP

Q 1 2019 Report Cover

 

No one really knows for sure!

Just like we weren’t certain what caused a hissy fit the last quarter of 2018, no one really knows for sure why everyone became so happy this quarter. Needless to say, we think this is a more normal reaction and possibly a reversion to the mean from the hissy fit.

As mentioned in our Q2 2019 Newsletter, capital markets could have been protesting higher interest rates – or as mentioned in one of our most read posts at Street-cents.com, it could have just been that it was amateur hour and movement during a Gentleman’s agreement no movement time was exaggerated. No matter the reason, capital markets have a happier face.

Inverted yield curve

Just as we pushed the Q2 Newsletter off to the presses, the yield curve did officially invert – as a reminder, yield curve inversion is when short term interest rates are higher than long term rates, which occurred in the last five days of the quarter. The reason we, as well as many other in the industry crow about this unique situation, is it has been a precursor to recessions with great accuracy.  Before taking shelter and hiding under the covers, this precursor has no accuracy on the depth, and very little accuracy on the timing of a recession.  In some instances a recession occurred two years after the inversion.

Recession Definition

As mentioned again in our Q2 Newsletter, the definition of a recession is two consecutive negative gross domestic production – GDP prints – yes that could be – .01% and -.01% making for a mini-mi recession, but still a recession. No matter, just as you can’t be partially sick or partially have an accident the inverted yield curve did occur. As such we will be monitoring the situation very carefully and remembering that now, is not the time to be taking extra risk.

Interest Rates

Given the yield curve inverted, no steep inflation signals are occurring, and the economy is growing, but not red hot, it is likely we have seen the highest short term rates for a while. Fed officials seem very comfortable at the current level. As more data is recorded, things can change.

We will talk to you again in the summer, have a great day!

John A. Kvale CFA, CFP

 

Fourth Quarter 2018 Cover Letter

Thank you for your wonderful digestion of the recent market volatility. 

We have seen so many reports, articles, studies that show this is more of the normal and what we had lived through for the past multiple years was less normal. However, what we have experienced most recently is what we become accustomed to. We’re not going to quote you some article or historical fact that says this is the norm-even we have been uncomfortable with the sudden movements. 

Just like we all became more accustomed to low volatility and capital markets that seem to increase day by month by quarter almost without ever dropping, we will again get used to this type of movement. 

We don’t like it, and would rather not have it, and yes history says it’s more the norm but we’d rather have the abnormal – this is where we are now. We thank you for all of your confidence and once again given the recent volatility we are happy we are a more conservative firm. 

It is a true statement that Markets have predicted 10 of the last 4 recessions. Meaning they often fret over things that do not occur, but that extra fretting tends to be correct is some cases. We acknowledge that the global economies are not growing “Red Hot” fast like they were last year, however we refute a global meltdown or imminent recession at this time.  

After promising (Federal Open Market Committee – FOMC) multiple rate increases as recent as October (four to be exact) at this time that is not going to happen. With rates being somewhat a reflection of inflation, and inflation being wrung out of the system via technology and outsourcing, rates are likely near their “New Normal” range.  

Earnings are the ultimate driver of capital market returns and interestingly they continue to be churning out very nice, taking into account the market recent volatility, valuations have become much less stressed and even cheap in many cases. 

In Closing 

Your Fourth Quarter summary is enclosed on the front page of this report we have included our most recent investment allocation from your Investment Policy Statement. This is also the time we attach our Private Policy Statement for the year along with our opportunity to offer our latest ADV filings; Requests for review will be accepted via phone, mail or email, and mailed immediately upon request. 

Sincerely, 

John A. Kvale CFA, CFP

J.K. Financial, Inc.
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confidence.
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We are required by law to annually provide a notice describing our privacy policy.
In addition, we will inform you promptly if there are changes to our policy.
Please do not hesitate to contact us with questions about this notice.

 

Third Quarter 2018 Cover Letter

The third quarter of 2018 is behind us and the original theme from the first month of the year seems still most appropriate, patience. After rocketing to an unsustainable trajectory in January, the excuse was an over use of a dangerous product, the reality looks to be, we just got too far ahead of ourselves and corrected harshly to a more reasonable trajectory.
It was the Best of Times, it was the Worst of Times
As we look forward, the best part of the year “historically” lies just in our view as we finish the year. Using history as our guide, oddly the first month of the coming quarter has been the most treacherous. Not the time to get to overzealous or glum!
Earnings Eventually Matter
In our Q4 2018 Capital Market Newsletter Article we discuss in detail the correlation of earnings and capital market movement. This obvious connection does not always hold true in the shorter term as aggressive emotions such as greed and fear overshoot constantly in both directions. Eventually the correlation re-connects and more normal heads prevail, making earnings growth and market growth work in tandem.
Interest Rates
The fear of, or at least watching for, an inverted yield curve has grown in popularity. We discussed this item last quarter in great detail. Oddly, when many are looking for an event, it loses it’s predictability. We are not ignoring, and will continue to monitor, but we are concerned at a possible loss of predictively with the crowds of followers swelling. Predictive or not, the FOMC (Federal Open Market Committee) has been slow and open to interest rate increases, so far, and capital markets, the economy and participants are very happy with the increases and have digested them nicely.
Bonds, most effected by interest rates, and one of the safest asset classes tend to feel the headwinds most of higher interest rates. Higher, and increasing rates are initially a headwind, but once the increases stabilize, they become a tailwind, and increased yields push more money into our pockets. This cycle is no different, other than the fact that interest rates we so unprecedented low to begin with, this temporary headwind seems stronger than in other cycles, but it is really not. Look for more details on this subject again in our coming Newsletter.
Have a good start to fall!

John A. Kvale CFA, CFP

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

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

Fourth Quarter 2017 Cover Letter Review – Private Policy

Do you recall the last time you went to a movie, maybe even begrudgingly, because expectations were low, but the movie turned out good, making for a wonderful surprise? Starting out the new year of 2017, most, including us had minimal expectations for the year 2017; A bad movie.

What If We Already had a Bear Market?

In our “What if we already had a Bear Market?” article in the coming Q1 2018 Newsletter the early 2016 drops across most asset classes except the more popular ones were 20% to over 30%. While markets don’t usually repeat, they often rhyme, again setting low expectations for the 2017 movie.

Sleepy VIX

Not only did we not start out bad, (Good Movie) but we may have just experienced a generational “Fear-Less” year. In our record breaking low “VIX Fear” article again in our coming Newsletter, a reading less than 10 on the VIX (Volatility/Fear Index) had occurred just 9 times over the last 26 years. Our surprisingly good movie year recorded 53 end of day VIX closings below 10, five times as many as ever recorded. Good movie.

Interest Rates

Post great recession of 2007-2009 most expected the FOMC (Federal Open Market Committee) controlled rates ascent to begin moving back up as they always did through history. Thanks to a stubborn, data watching, Janet Yellen (FOMC Chair) rates have been correctly moved up gradually. The current Federal Funds rate was increased 3 times in 2017, once in December to the targeted level of 1.25-1.5%. Officials are on record for another 3 moves or .75% in the next year, gradually pushing rates nearer their more normal historical levels.

Janet Yellen will be leaving her post next year and we look for her replacement to continue on the transparent, methodical, data watching, path of rate increases that keep market participants personal VIX/Fears in check.

Next Year’s Movie?

Looking into next year’s movie, we think it is healthy to have a conservative view again. We are not predicting or welcoming a bad movie, but just staying vigilant! Good movie or bad, we will be prepared.

In Closing

Your Fourth Quarter 2017 summary is enclosed on the front page of this report we have included our most recent investment allocation from your Investment Policy Statement. This is also the time we attach our Private Policy Statement for the year along with our opportunity to offer our latest ADV filings; Requests for review will be accepted via phone, mail or email, and mailed immediately upon request.

John A. Kvale CFA, CFP

PRIVACY POLICY NOTICE

Our Promise to You

As a client of J.K. Financial, Inc., you share both personal and financial information with us.  Your privacy is important to us, and we are dedicated to safeguarding your personal and financial information.

Information Provided by Clients 

In the normal course of doing business, we typically obtain the following non-public personal information about our clients:

  • Personal information regarding our clients’ identity such as name, address and social security number;
  • Information regarding securities transactions effected by us; and
  • Client financial information such as net-worth, assets, income, bank account information and account balances.

How We Manage and Protect Your Personal Information

We do not sell information about current or former clients to third parties, nor is it our practice to disclose such information to third parties unless requested to do so by a client or client representative or, if necessary, in order to process a transaction, service an account or as permitted by law.

In order to protect your personal information, we maintain physical, electronic and procedural safeguards to protect your personal information.  Our Privacy Policy restricts the use of client information and requires that it be held in strict confidence.

Client Notifications

We are required by law to annually provide a notice describing our privacy policy.  In addition, we will inform you promptly if there are changes to our policy.

Please do not hesitate to contact us with questions about this notice.