It’s hard to believe the final quarter of the year included an Election, multiple vaccines, the commencement of vaccine shots and near the end of the quarter, a second stimulus package for the year 2020. Wow!
Three Major Acts in a Little Over Twelve Months
If we look back just a little over twelve months, three major bills, The Secure Act, passed in late 2019, but left in the shadows by lasty years events. Then the Cares Act late first quarter 2020, followed by the Appropriations Act of 2021, which was an extension of the Cares Act. If you are not confused yet (or do not even remember some of these), congratulate yourself, most are! Not to worry, we will be reviewing all of these over the year as the much forgotten, Secure Act will have multiple planning techniques and mandates that once again may have been forgotten.
Who let the dogs out? Or Maybe Better Said, The Dogs Continued to Cheer!
Capital markets bullied by federal reserve purchases and anticipations of good news coming from a vaccine, in true Capital Market form did cheer much of the news, but not as much as many had thought, mostly because it had already been anticipated.
As we had mentioned multiple times, Capital Markets are likely well ahead of themselves currently which may make for tougher rowing in the near term, but just as clothes purchased a little too large for that growing teenager, Capital Markets with an expected economic recovery, should be able to grow into their overzealous clothes. However, with current stretched valuations, negative surprises may be met with more volatility due to the priced-to-perfection levels currently, once again making us happy we are conservative and diversified investors.
Interest Rate Watch
One thing we will be watching closely are interest rates, and their levels, as the economy begins to come back on line. The Federal Reserve is squarely focused on keeping interest rates down through their purchases. Should interest rates begin to rise or should the FED ease off (or even give speak of ease) of the pedal and interest rates rise on their own, especially quickly, this could be a headwind to Capital Markets and other assets. Not to worry, we will be watching and letting you know what we see and taking appropriate actions as needed.
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 and Client Relationship Summary (Form CRS); 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.
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.
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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.
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Q 1 2021 Review – Three V’s: Vaccine, Volume of Money, Valuation
Vaccines, Volume of Money, Valuations
With the continued increase of the number of people getting the vaccine a much-welcomed sigh of relief is being felt across the country and most of the globe. Thankfully thus far the variance seems not to pose a terrible threat and most continue even post vaccine to take the appropriate precautions. This is leading to a slow Opening of the country and a light at the end of the tunnel heading back to some type of normalcy.
Volume of Money
The Federal Reserve (FOMC) led by Chairman Jerome Powell continue to buy assets at the rate of $120 billion a month. With a main goal of lowering the Unemployment rate, these funds of course are giving a boost to Capital Markets and providing massive volume liquidity.
Additionally, the Fed has short term rates at zero and has stated they intend to keep them there for some time. This is also a stimulus for certain parts of the economy, but also a boosting effect on Asset Prices.
With Fed controlled short interest rates being held low, longer term rates, notably on the 10-year US Treasury have been moving up in minor protest by bond vigilantes that economic stimulus may be too much, fortunately at this time there seems to be no effect.
With the FED on record saying that short term rates are deemed to stay low, their first move back to normalcy maybe to pair back the purchases. Our interest will be, when, and if this occurs, and more importantly, capital market participants reactions.
Valuations
As mentioned, multiple times in our blog at www.street-cents.com and again our Q2 2021 Newsletter, valuations by almost any metric are stretched.
While valuations may be a more somber note, the re-opening and vaccine completion rates should dribble into corporate earnings, the ultimate driver of capital markets and possibly provide a wonderful “Grow into our Valuation” affect.
If you asked us for our candid opinion, we would like capital markets to trend sideways while we grow into our valuations. Continued rise in capital markets could lead to a bumpier ride once the Fed adjust their policy.
We of course will be watching carefully! �
Sincerely,
John A. Kvale CFA, CFP
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Posted in Clients/Clients Only, Economy, FOMC, Investing/Financial Planning, Market Comments, Performance Report Cover Letter, Retirement Planning
Tagged Cover Letter, Quarterly Cover Letter, Quarterly Performance Cover Letter