A True Yogi Berra saying may be fitting now – “It’s like déjà vu all over again!”
Tariffs and Trade War Talks Continue
While the tariff banter seems relentless and every day changing, leading to Capital Market bipolar movements, one day irrational exuberance, and the next day irrationally depressed, as mentioned in our Q4 Newsletter, tariff talk has been going on for decades. With today’s constant bombardment of immediate news stories and short clips it seems, present party included, to be constant and all encompassing. The reality is this likely will work itself out, just as seen in the graph in the newsletter. Our bet is once the tariff talk turns into tariff agreements, we will see market relief and higher overall interest rates. For now, there’s no doubt that the tariff talk is slowing the global economy and there is no envy for public company managers trying to navigate the possible changes that occur on a day by day basis, making it very tough to stock inventory and make purchases.
Treasury Rates- Interest rate cycle
Given the afore mentioned Tariff Talk, FOMC (Federal Open Market Committee) led by chief Jerome Powell and a company have embarked on a lowering of rates, twice to be exact, but only two .25 basis points each, in an attempt to help ease interest rate burdens and spur the economy. While not huge fans of the lowering of rates at this time due to gun powder needs at a future, when the inevitable recession occurs, at this time it appears we are on an interest rate decrease path, a complete 180° turn from just one year ago, when reserve officials were raising. If there is an agreement in Tariff talk, lowering of rates would likely stop, and we might even hear talks of raising, making for an interesting rate cycle. Time will tell.
Taxes or the savings of taxes paid
As we head into the final quarter of the year it’s time to make sure we’ve done all we can do for this years’ , especially items that have no look back features. As also mentioned in our Q4 newsletter, be sure to max those 401(k)s, contribute or distribute from 529‘s, complete Required Minimum Distributions (RMD’s) and make sure those charitable giving are complete this year, as all of these items have a hard stop year-end deadline.
Have a great day and start to fall!
Sincerely,
John A. Kvale CFA, CFP
Enclosure 2019 Report
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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