Welcome to our Video and Audio Podcast Review of our Q1 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
Entering the 36 year in the Financial and Capital Markets world, a lesson was learned this year (see below) we want to thank everyone for their well wishes, patience and confidence as we went through a unique “Changing of the Tiger Stripes” event this year!
Higher Rates – Longer – CPI Stubbornly High
CPI Causes Tiger Stripes to Change?
Very Lagging Rent and Shelter Numbers keep pushing CPI
Estate Tax Laws Set to Change – Heads Up
At the end of 2025, putting January 1, 2026 into play, without any tax law adjustments the Estate Tax level will adjust back down to somewhere between a $7 to $8 million or $14 to $16 million for couples level.
While Estate Tax is not a huge revenue earner for the IRS, in our opinion Estate tax is in purpose is to affect the very largest of the states think $100 million and up.
Additionally the IRS is having trouble completing regular federal tax returns, by some estimates some 15 to 20 thousand taxpayers are still waiting on their regular federal returns to be blessed by the IRS from 2020 to present. Lowering the Estate Tax level to an extreme low, while may sound good in the headlines, impracticality, it will likely create a huge bottleneck and more trouble than money earned.
While the Holiday Season is getting closer, Economic data must go on….
On Tuesday we get the CPI (Consumer Price Index) bluntest of instruments for Inflation report from the BLS (Bureau of Labor Statistics) ….
All about expectations versus actual, “for the moment” …. Last months was 7.7% year over year and the expectation this time is for 7.3% …
Above the 7.3% will likely lead to disappointment and below or well below a short term applause …
On Wednesday Jerome Powell and his buddies at the FOMC (Federal Open Market Committee) will in all likelihood raise rate the much expected .50% to the 4.25% – 4.50% level….
While it is not super obvious from the chart above, the longer term 10 year treasury (blue) is much lower and trending lower than the shorter term 2 year treasury …. this is an inverted yield curve….
With Powell pushing short term rates higher with a .50% increase, the interesting observation will be what the 10 year does, as the 2 year is captive to Powell’s movements, being so near in time frame!
Sorry for the heavy start to the week… we promise an easier rest of the week… but wanted to let you behind the curtains of our watch this week….
Imaging you are walking an economic tight rope (We are calling it a pickle) and had no easy way out….
FOMC (Federal Open Market Committee) led by Jerome Powell may be in a Pickle.
Too Hot But Also Too Cold
Here at the Cleveland Federal Reserve , the FOMC’s own research from one of their own showed an estimate of CPI for the most recent of 8.59%…. thing is, it came in above 9% ….
Much too hot for the FOMC’s liking!
Then you have this from ANOTHER of the Fed’s own research ….
At the time of this chart their estimate was -2.1% … today it is -1.6% (jumps around as economic reports are released and fed into the beast/model) – predicting the R – Word!
C/O Pierce Kvale
Ok, so CPI/Inflation is too hot …. let’s slow this economy AND INFLATION down….
BUT Wait – the Economy is already slowing per my own members research!
This week the bond market boldly spoke the R- word ….. it does this by inverting …. shorter yields higher than longer…. no bueno!
To top that off, a hotter than expected CPI (Consumer Price Index – blunt measure of inflation) this week garnered a big ….. YAWN…. (For the record, this was surprising to us….) ….
Could it be Summer Doldrums? Sure … actually glad to see folks get out, travel, spend time with family, relax, sharpen the saw… or however that goes… heck, this am I had less than 100 spam emails to dig through… maybe even the spammers are relaxing ..haha
It’s a Friday, so nothing heavy today…. all bets are off for next week on the analysis of this, have some great stuff ….. a lot going on right now, but let’s enjoy the weekend …maybe BE part of the Summer Doldrums – talk next week!
Last Friday, June 10, 2022 the BLS (Bureau Of Labor Statistics) released their monthly data on the CPI (Consumer Price Index – Great Analysis Link Here) Most blunt measure of inflation — Ok lots of abbreviations but stick with us for the main takeaways…
For the record we called a possible top here, and while the increase of the CPI was only .4% than the prior month, it was NOT a deceleration YET…
Bottom Line Result
Cutting to the chase for those with little time – This hotter report will give the FOMC (Federal Open Market Committee) led by Jerome Powell a green light for further tightening faster – creating a faster slowing of the economy…
Quick FOMC Fed Funds Analysis – The Rate Increase Measure
(Take note once again, the first rate hikes on far left of chart took three years…. the next rate hike cycle ..one in middle right, took almost FOUR years… this one MAY be literally months… again this fits our thesis of headwinds came fast and are behind us (Look Forward not Back)– had to put that plug in while we were on the topic…)
CPI Analysis – What’s the Hold Up
With Owners Equivalent Rent/shelter being a very large portion of the CPI component…. its fast turn around is holding the CPI Up along with food inflation as well….
Note that far right movement up….
Oh and oil prices moving higher did not help either…..
Bottom line, continued FOMC rate increases, faster slowing of the economy, eventually… lower interest rates faster …..
Sorry for the heavy Monday, but wanted to get it out there to you guys as it helps us clarify as well!
We don’t want to get too heavy and pound you with market thoughts, we know you’re getting enough of that from the “Market in Turmoil” like headlines, but we did want to give some explanations and let you know we are watching carefully as we have been on notice since December for a possible slowdown.
Look forward, not back
Economic reports such as today’s CPI (consumer price index) report is very much rearview looking, as such it’s sometime easy to forget that what’s most important is looking forward to what is going to happen next rather than backwards to what has happened. Yes it is much harder, and you do not know exactly what is going to happen … but you sure do not drive a vehicle looking continually in the rear view mirror – some humor on a dry subject… stay with me!
This is even more evident at the recent quick rise in interest rates, creating the headwinds to bonds. As noted here and again here in our posts (the second with even a special video) it’s highly likely and the probability is most that the headwinds for our fixed income investments are behind us. Once again looking forward, a slow down usually garners lower interest rates, exactly opposite to our slightly current and mostly rearview looking higher rates.
FOMC chaired by Powell gave and now takes
Over the past 18 months to two years the FOMC (Federal Open Market Committee) headed by Jerome Powell have taken very aggressive measures to stimulate the economy. Much of a stimulation, once the book is written may have over stimulated not only the economy but various asset prices. Their goal at this time is to slow inflation thereby doing a complete turnaround from their prior stance and taking away stimulus. This most likely will continue until they see evidence of slower inflation or lower employment.
Higher rates are their main instrument of choice:
The FOMC waits for the reports such as the CPI to confirm their decisions, making for a lag in decision making and possibly longer decision-making, but they will eventually get there….
Finally, capital markets are certainly looking forward hence the sluggishness as they begin to price in a slowdown in full force. Eventually it’s very likely the FOMC will begin to see these clues as well!
In our continued fun “Back To Basics” Series here we discuss Educational Funding…
Here is one very important item to remember from the post:
Did you notice we put Retirement Planning BEFORE Education planning? Do you recall in Part 3 in Debt Planning we said one of the few good debts are educational related debts ….We of course are not advocating Student debt/loans… but they are available in abundance and again not a bad debt. There are not retirement planning loans…. just saying!
Proxy Vote Reminder
In this post we remind you to please reach out if you have fallen off the list for us to proxy vote for you!
If you are getting those pesky Proxy Notices (some can be small books- oh the trees that are destroyed- digressing) reach out to us, we not only vote the Proxies for you, but we get one single notice for everyone, and Jen has done an excellent job in getting a great deal of those electronically…. Did we say how Green this is?
Capital Market Comments
The Slowdown is Here
We first started speaking of the slowdown in our Q 1 2022 Newsletter here in our “Anatomy of a Slowdown” main aricle actually released in December of 2021….
Homestead Reminder – New Primary Residence in 2021
In our “Reminder to Homestead” Post found here, we discuss/remind anyone who has established a new primary residence in 2021 to check out the Homesteading laws of your state.
Using our home state of Texas as an example, there are ample tax savings and no downside to homesteading your home!
Annual Credit Score Reminder
In this annual reminder post, we direct everyone their free annual credit report, with instructions on how to review your report and why it is a good idea to check that credit…….
From the post….
Why Do I need to Know or protect my score?
While you may not owe anyone, anything i.e. have a loan with anyone … well done by the way….. A bad credit score can still affect items such as your automobile and your homeowners premiums… no kidding (see this Forbes article.) We cannot blame them, there is data to check and it is their responsibility and ability to review it.
Bottom line a bad credit score or report may be costing you more money.
Capital Market Comments
CPI – Consumer Price Index Further Analysis
More hard comparables come in the form of inflated CPI numbers from last year..
In this post we discuss the large stimulus infusion this time last year and why it will be a giant headwind to further CPI increases….
Have a Great Day, Talk to You at the End of April! Still Going fast this year!!!
The lead Article in our Q 2 2022 Newsletter, reviewed here along with a Video review as well, spoke to a possible tough comparable slowdown from the over $1 Trillion of stimulus pushed directly into the economy almost exactly one year ago …. and was all about the hurdle coming up from the calendar cross over of that stimulus…
Consumer Price Index (CPI) Not Immune to Comparable
In a very similar vein as the above mentioned hurdle, the inflation index gauge/CPI that many follow (Especially the FOMC) closely has a very similar hurdle event occurring…..
Notice the very large annual increases in January and February of 2022? (Orange Bar) But look close at the relatively benign reading from the prior year (tiny blue bars) … That benign reading is the base comparison at which the index comped…
Pretty easy to see as we go further into the year, the base comparisons are much harder (blue bars rising fast)….
These increases are not likely to be enough to cover the tough comps…..
Bottom Line: Likely to see peak CPI numbers within the next few readings….
Lastly, while the CPI may normalize, many if not most inflated items (wages, food, consumer services) will likely stay at the current level…. but not continue upward…
As the FOMC led by Jerome Powell attempt to lower this number, a natural slowing may already be a tailwind.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments may be appropriate for you, please consult your financial advisor prior to investing!
Background
The is the vocal portion of J.K. Financial, Inc. a Dallas Texas Based Fee Only Total Wealth Financial Planning Firm. Founded by John Kvale, a Dallas Texas Fee only Financial Planner and Total Wealth Manager.
$treet-¢ents 
Q1 2023 J.K. Financial, Inc. Newsletter … Estate Tax Law change Heads Up …. Higher Rates for Longer from Stubborn Lagging CPI Inputs … Personal Reflection … By John Kvale CFA, CFP …
Welcome to our Video and Audio Podcast Review of our Q1 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
Let’s get going! We hope you enjoy!
Q1 2023 Newsletter
(YouTube)
Personal Reflections –
Entering the 36 year in the Financial and Capital Markets world, a lesson was learned this year (see below) we want to thank everyone for their well wishes, patience and confidence as we went through a unique “Changing of the Tiger Stripes” event this year!
Higher Rates – Longer – CPI Stubbornly High
CPI Causes Tiger Stripes to Change?
Very Lagging Rent and Shelter Numbers keep pushing CPI
Estate Tax Laws Set to Change – Heads Up
At the end of 2025, putting January 1, 2026 into play, without any tax law adjustments the Estate Tax level will adjust back down to somewhere between a $7 to $8 million or $14 to $16 million for couples level.
While Estate Tax is not a huge revenue earner for the IRS, in our opinion Estate tax is in purpose is to affect the very largest of the states think $100 million and up.
Additionally the IRS is having trouble completing regular federal tax returns, by some estimates some 15 to 20 thousand taxpayers are still waiting on their regular federal returns to be blessed by the IRS from 2020 to present. Lowering the Estate Tax level to an extreme low, while may sound good in the headlines, impracticality, it will likely create a huge bottleneck and more trouble than money earned.
Bottom Line – We are on this in advance!
Happy New Years and a Great Start to 2023!
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
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Posted in Economy, FOMC, General Financial Planning, Interest Rates, Investing/Financial Planning, John Kvale, Market Comments, Newsletters, Personal, Podcast, Retirement Planning, Tax Related, Video
Tagged CPI, Estate Tax, Interest Rates, Newsletter, Personal Reflections