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
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.
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 nonpublic
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. Additionally, we may share information
with outside companies that perform administrative services for us. However, our
contractual arrangements with these service providers require them to treat your
information as confidential.
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.
Share this:
Like this:
Leave a comment
Posted in Clients/Clients Only, General Financial Planning, Investing/Financial Planning, Market Comments, Performance Report Cover Letter
Tagged Cover Letter