Tag Archives: Advanced Analysis

Advanced Analysis … Part 5 … Inverted Yield Curve to Un-Invert/Narrow ? But Differently: The Bear Steepener – Huh ?

We definitely wanted to talk about this, but it is rather complicated, so it makes our Advanced Analysis Series….Part 5

Inverted Yield Curve is a Big Deal

When short term rates are higher than long term rates, a very unusual and non sustaining event, it is called an inverted yield curve.

Here is a list of over 30 – YEP over THIRTY different articles we have written in just the last 5 years if you need a refresher…

The Un-Inversion (the actual process) or at least Narrowing of Inverted Yield Curve a BIG Deal too

Orange line below the white/zero level = Inverted

Maybe Un-invert, or for sure narrowing?

Note orange line headed towards zero or break even…..Narrowing for Sure –

In true it is different this time…. the UN-inversion is occurring because of what is called a Bear Steepener … something we have not seen in a LONG time…

Note going back all the way to the 1980’s, the most prevalent type of narrowing or Un-inversion is a Bull Steepener, or the FOMC (Federal Open Market Committee) lowering rates – noted by the above white line on the chart (2 year Treasury) marked by the arrows….

From Investopedia:

Understanding Bear Steepener

A bear steepener occurs when there’s a larger spread or difference between short-term bond rates and long-term bond rates–as long as it’s due to long-term rates rising faster than short-term rates.

What does all of this mean and why are we talking about it?

Bear Steepeners occur when Capital Market Participants begin to price in higher inflation expectations … OR maybe this time, finally accepting the FOMC is not ready to quickly lower rates! hmmmm

You see now why we went for another edition of Advanced Analysis… Stay tuned on this, we will be monitoring closely and will bring you more as this plays out!

Have a Great “Bear Steepener Reviewed” 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

Advanced Analysis … Part 4 of More to come … Standard Deviation – Dust that Statistics Off !

OK so while maybe not a complete advanced topic it may be unfamiliar to many, so let’s code this Advanced Analysis as a refresher that we’re going to use in the future to build on.

Standard deviation

Below you will see a nice graph of a bell shaped curve that attempts to depict basically a broad estimate within a certainty of an outcome.

Said in a much simpler way and by example… on June 1st in Dallas TX … there’s a 95% chance that the temperature will be between 90 and 110, and on average over longer periods of time, this deviation will be somewhat normal… this makes the graph even on both sides.

The only reason that you want to know this is so that when the result we are measuring greatly varies from this temperature one can infer how unusual it is.

By M. W. Toews – Own work, based (in concept) on figure by Jeremy Kemp, on 2005-02-09, CC BY 2.5, https://commons.wikimedia.org/w/index.php?curid=1903871

Two standard deviations is the very most common and represents a probability of 95%!

There you have it .. likely the simplest advanced analysis topic that we’ve had and a refresher for many, but again this brings us up to date for some items that we can build on soon with more to come in advanced analysis topics

Have a Great “Standard Deviation Refresher/Advanced Analysis” 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

Q2 2023 J.K. Financial, Inc. Newsletter … Tax Reminders – Still time for 2022 Savings … M2 Pilot Advanced Analysis Series Review … By John Kvale CFA, CFP …

Welcome to our Video and Audio Podcast Review of our Q2 2023 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 the Download button below, for a 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 : From Parting Thoughts in the Newsletter

If you are not receiving our street-cents.com blog posts weekly Monday, Wednesday and Fri-day, please reach out and let us know. We have entered the late cycle portion of this economic slowdown and items are moving much quicker than our quarterly newsletter so we are posting frequent and very important items amongst our sometimes-humorous articles for your review and knowledge.

Let’s get going! We hope you enjoy!

Q2 2023 Newsletter

(YouTube)

Last Minute Tax Planning and Reminders

After a small top of the mind reminder that it is ok to pay taxes, we do not want to pay zero today and then pay at a much higher rate in the future, we certainly do not want to pay ANY more than we have to, we go into several reminders….

The SEP and the Spousal IRA – two things we can do now that will help last years taxes….

Important Reminder about reporting :

Just because we did not receive a tax form personally, does not mean that the IRS did not receive some type of notification of that taxable event! If you had a transaction, usually of some out of the ordinary type, that you did not receive a tax form for, we are not out of the woods and you should report it.

Lastly, comments about the possible rolling of 529 into Roth… the answer is still up in the air with additional legal clarity on this… but it cannot start until 2024 anyway!

Happy Anniversary Rate Increases

While hard to believe, the monumental rate increases (fastest of a life time in %) just started about a year ago

M2 Broad Liquidity Measure Tightens

In another – not kidding here – never seen before, M2 one of the broadest measures of liquidity, turns negative and makes our Pilot Advanced Analysis Series…

First spoken about in January, the effects are being felt through the financial system.. but not where we had expected so far….

Have a Great Finally Here Spring! Talk in the Summer!

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

CoCo Bonds – Contingent Convertible aka AT 1 Bonds – Advanced Analysis Part 3 of ? BREAK IN: Do NOT add to a Bank Run – Easier than you think to Accidentally Do!

DO NOT DOG ON BANKS

BREAK IN:

At a welcome home family dinner last night, the fact that causing a Bank Run is illegal was brought up . Huh?

Yes it is basically illegal to cause harm to a Bank…. aka create a Bank Run… In today’s Social Media frenzy, this could come in the form of a like, sharing a post or forwarding something to a person of influence .. YIKES…

This is getting LOOOONG… so here is the cliff note version: Coco bonds are European instruments (Not USA) with weird exercise rights that can evaporate an investors money if a Bank gets in trouble. These clauses have been invoked already on a European bank, causing renewed knowledge of these instruments and their weird rights.

Back to our Regularly Scheduled Post

One of the absolute favorite things about the Financial world and our industry is the vast amount of diverse products, structures, programs and for that matter super cult like popularity of instruments that come and go throughout the space of time…. all of which make for constant learning- just continuous!.

Our advanced analysis series is meant to cover very complicated items for our high level collective knowledge…. This is a HEAVY one, just as a heads up!

Advanced Analysis Part 3 – Meet the Coco aka AT-1 Bond – A European thing

Coco’s sizzle because they can essentially be converted at the company’s whim, leaving little control to the actual bond holder!

Bonds are debt instruments unlike Equity (stock ownership) in “MOST” cases that have a front row ownership to the company. Said another way, if something happens to the Company a Bond holder is in most cases the very first person to get paid. Bond holders loan the company money only to hopefully get paid interest on that money and eventually the return of that money in the future.

Convertible Bonds as they are most commonly known, give the bond holder the right to convert or exchange those bonds for another ownership strand of the company. Coco bonds are converted if the Banks hit certain levels, which are stress levels, unlike normal convertibles which are fun/happy levels.

When Coco bonds are converted, investors may actually be taking a step back in ownership (Debt to Equity) have no control in when this happens, and may have large losses immediately for doing so.

Coco bonds do pay more interest, but as some (European banks) are finding out recently, this is not near enough to cover the uncontrolled convert at a less than happy time in the investments life.

Chopped this down a bit, as it is a Monday and wanted to get the Break In to everyone… Just trying to explain, in a very small world, that events across the pond, weird as they may be, have ripple effect here in the USA!

Have a Great “Coco Bond Understanding” 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

Banking is all about Confidence … Experienced Reminders and Hat Tip Advanced Analysis Part 2 the M2 Money Supply!

We will leave the drama headlines for other sources, as there are of course many that will come from the recent West Coast Bank Failure….

Being our second major Rodeo on this one, the Great Financial Crisis (aka GFC) of 07-09 the first, we are reminded of several things – This is NOT the 07-09 Crisis – Don’t go there

Here are some observations:

  • Risk happens slowly, then all at once (money moves faster than 15 years ago too!)
  • Fears may jump from one to the next during problem times- quickly
  • Events rarely repeat (lightening strike same place twice) but they sure do rhyme
  • It takes a long time for events to play out, not withstanding our first point (this is likely not over)
  • Banking is all about confidence … oddly most recently a storm in the south caused a loss of confidence in gas inventory in our neck of the woods… within hours all gas stations were out of gas! Sound Familiar?

Advanced Analysis Replay – Pat ourselves on the Back Here

Part 2 of our Advanced Analysis – Recall and Reminder – The M2 Discussion

M2 Turns Negative for the First Time and that’s a Long Time!

Posted on January 18, 2023 by John Kvale CFA, CFP | Leave a comment

There are tons of measuring sticks out there…. almost all of which we look at and follow, at least at one time or another…..

What grabs our attention is when the measuring sticks do unique things….or have never happened before!

Why are we watching this?

This draw down of money in the system may put pressure on certain risky players i.e. Companies that use Junk or High Yield Debt!

Closing Thoughts:

We mostly stay away from these “HOT” or maybe even Negative topics, but wanted to let you know we watch this, have spoken in advance of some of the risks, and are using past experience to help guide and monitor the situation!

Have a Great “Experience Matters” 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

M2 Turns Negative for the First Time and that’s a Long Time!

There are tons of measuring sticks out there…. almost all of which we look at and follow, at least at one time or another…..

What grabs our attention is when the measuring sticks do unique things….or have never happened before!

M2 – aka Money Supply

According to Investopedia M2 is best described as the following:

M2 is the U.S. Federal Reserve’s estimate of the total money supply including all of the cash people have on hand plus all of the money deposited in checking accounts, savings accounts, and other short-term saving vehicles such as certificates of deposit (CDs). Retirement account balances and time deposits above $100,000 are omitted from M2.

Check out the latest reading of M2

While close in 1994, it stayed positive, for the year 2022… M2 was a negative for the year for the first time ever!

Note also as compared to 1994, the rapid draw down in 2022…

Why are we watching this?

This draw down of money in the system may put pressure on certain risky players i.e. Companies that use Junk or High Yield Debt!

Just a heads up to let you know what we are watching!

Have a Great “M2 Analysis” 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