Tag Archives: Fixed Income

The Short Term Inverse Relationship Between Rates and Bonds

After over a decade of not only lowering of rates, but SUPER low, interest rates, it is no wonder we have forgotten the short term relationship of bonds and interest rates.

Inverse Buddies

Over the short term, when rates are going down bonds go up and just the opposite as rates are increased. Pair that with extremely low – zero – rates and the gradual increase in rates, which causes a natural headwind has caught many by surprise, especially after over a decade of lowered and low rates.

bond index V Interest Rates

Ok, so it is a little busy – but it directly shows our point – as rates go down, bonds go up and then as rates go up bonds down. This is a short term phenomenon as once rates stabilize, bonds do as well.

We are happily welcoming higher rates as we think they are much needed – even though they present headwinds for a much needed safe asset class, Bonds – in the SHORT term!

Have a Great “Rate Bond Buddy” Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.

Due Diligence Meeting Take Away … Money Flows

As you probably know by now we watch and sometimes worry over what the crowd does.  Coincidentally from our last quarter performance cover letter:

 … When the tide goes out we see who has been swimming without clothes. While it will not be us, the current is sometimes strong for all….

Due Diligence Meeting Takeaway

Earlier in August I attended a due diligence meeting in the land of the Longhorn. One of the key takeaways from this meeting can be seen on this chart presented at the meeting.

Dimensional Flows

This chart compares the industry money flows to this company, Dimensional. Our concerns are especially deep in the fixed income arena, as we feel many are hiding in certain areas of the fixed income asset class without knowing the risks …. Especially in High Yield (we have long avoided.)

This due diligence meeting was well worth it, as we were impressed with this firms logic, depth and restricted access by investors. We are beginning to integrate into portfolios.

Have a Great Monday …. Sorry so heavy, but we felt it worth discussing!

John A. Kvale CFA, CFP

8222 Douglas Ave # 590
Dallas, TX 75225

Columbus Day … Wire/ACH and Postal Closed … Be Safe … PS Happy Birthday to Donald “The Brain”

Columbus DayToday is Columbus Day and similar to Mr. Columbus I will be traveling, arriving very late tonight back in Dallas, although not nearly as spectacular of trip as Mr. Columbus.

OTC Fixed Income Markets Closed Today

Those bond guys take any holiday possible…haha…kidding of course (very dear friends in the bond market).  In reality bond markets as we have said repeatedly are in control of all capital markets lately… just NOT today. Expect light trading and somber markets with equity markets being open, but not OTC Fixed Income.

Wires, checks, Post Office Closed

Money/Checks/Cash will not move today and as such wires and electronic transaction will be posted tomorrow. Mail will also not move today as the postal system also honors Mr. Columbus’ venture.

WITH MANY SCHOOLS schools closed, especially in the Dallas area, be careful out there as they are headed to the fair and will not have safety as the first priority.

Have a Great Monday!

John Kvale

PS Today is our resident “Brain” Donald Capone’s Birthday !  Happy Birthday Sir !!!

8222 Douglas Ave # 590
Dallas, TX 75225

Newsletter, June Update, Partial Week Office Hours

The Q 3 2013 Newsletter is well underway and should go to print and web posting early next week. We may decide to call this Newsletter the “Fixed Income Report” as the bulk of the articles are directed towards fixed income given our concerns, and the interest rate movements of late. Of course there will be ample discussions of our Axel Merk roundtable as well.

June 2013 and Mid Year update

We are putting the final touches on the high points of June,  a longer term mid year review and rest of the year look out. With Donald in town last week we unsuccessfully attempted to shoot the video last Friday, but could not work the time in. You are stuck with just me again..haha

Office Hours July 4 2013

We will be closed early on Wednesday July 3, 2103 and Cathy will be off on FourthofJulyFriday. Donald and I will be here briefly Friday July 5 2013 either in person or electronically but we expect more happenings at the swimming pools and beaches around the country than the capital markets.

Have a Great Monday!

John Kvale

8222 Douglas Ave # 590
Dallas, TX 75225


Move over Stocks……Fixed Income is the boss right now!

Yes…it is the summer doldrums….Yes….ALL MARKETS trade thin this time of the year…Yes…many of the big boys are at the Hampton’s or at least not present……However, the baton has been handed to the Fixed Income Market!

Fixed Income/Interest Rates take center stage

All eyes including ours are squarely focused on interest rates. Right now just as the equity markets have run up without much proof of economic steaming growth (or at least as much growth as the market is signaling), fixed income markets are doing the same, trudging higher in rates, lower in value on the possibility that QE may be tapered.

  • Mortgage rates are climbing…..3 something percent 30 year rates are barely hanging around
  • High Yield bonds have been taken to the woodshed (spanked handily)
  • US 10 year treasury is being whipped around like crazy (again thin trading)
  • Emerging Market bonds are feeling pressure
  • Municipal bonds are sitting this one out…..not worry they will have their day

Bad news: Loses as rates climb (Lose less please)

In the short-term as rates climb pressure will be applied to the principal of those bonds…i.e.  As rates rise, actual bond values go down. As we have long said favoring short over long and higher quality over lower quality will HELP but not completely avoid losses in the very short-term.

Good News: Yields may relieve pressure on savers

Many may be saying “FINALLY” I can earn a yield/cash return on something safe….We may be approaching this moment. Let’s not get too excited, a more gradual and contained move is by far best, unfortunately, it does not always work this way, we will be watching closely….so far so good!

Have a Great Friday and a Super Weekend!Summer Weekend Beach

John Kvale

PS Oh yea…Don’t forget to enjoy another wonderful summer weekend!

8222 Douglas Ave # 590
Dallas, TX 75225

Puzzling Money Flows From Investors According to Investment Company Institute

According to the Investment Company Institute (http://www.ici.org/) a National Associations for Investment Companies (Mutual Funds), money flows from investors continues to move towards fixed income/bond investments.

Typically the numbers from ICI, which we follow closely, give professional investors an idea of what NOT to do, as many times the investing crowd does the wrong thing at the worst time. See Related Chart  

We are somewhat worried by this as we have great concerns related to the fixed income markets. Just a few of our Posts:

 The Question is why is the money going to fixed income and where is it coming from?

A couple of hopeful possibilities of why the money is going to fixed income: 

  • Funds being chased out of low returning short-term investments such as CD’s or checking accounts but not with reckless abandonment
  • Re-allocation from riskier assets
  • Pension fund allocation changes
  • Foreign Investors

Our worst case possibility for investors moving into Fixed Income Investing:

  • Chasing Returns (looking back over the last few years, bonds have returned better than equities)

Where the funds are coming from?

We are not sure, but suspect, and hope, from diligent investors who are carefully allocating their portfolios, and remembering if rates rise quickly, longer termed fixed income investments will sustain substantial loss of value.

Have a Good Day!



Columbus Day Today, Fixed Income Closed, and a Slow Start to a Fast Earnings Week

Columbus Day is observed today, leaving the Fixed Income and banks closed, but tomorrow brings a full slate of earnings.

Today, Fixed Income Markets (Bonds and Banks too) are closed in observance of Columbus Day. A quick review of earnings reports due, shows only a few today, but looking  later into the week, we will get a great read on the economy as many companies from various sectors of our country will report their earnings.

As a quick review of earnings season, here are a few high points from our standpoint:

  • Larger Companies have bigger impact due to their diverse income portfolios
  • Guidance trumps current earnings (A great report for this quarter will not matter if companies guide lower in the future)
  • Early reporters will set the tone for the season (This week reports will set the momentum for the season)
  • Bad reports from close competitors will up the scrutiny of all fellow companies in the same industry

Have a Good day !

Donald and I will be out most of the day today at an industry event.