Tag Archives: FOMC

November 2018 Podcast Video, Financial Planning and Capital Market Update – By John Kvale

Hello and Welcome to our November 2018 Financial Planning and Capital Market Update!

If you are too busy to read, feel free to listen as we describe our post and thoughts in friendly podcast format as well as Video!

Newbies – We like to articulate our thoughts and review on a Monthly basis our Financial Planning Tips, Capital Markets and current events!

November – 2018 Video

Financial Planning Tip (s) –

Clump – Maximizing the new standard deduction

With a $12k individual standard deduction and double that for joint filers it takes work to maximize the standard deduction threshold… Add the fact that SALT State and Local Tax deductions are now limited to $10k annually, clumping expenses into one year as mentioned here in our post and visually below may be the only way to get above the standard deductions for many …

Clumping Taxes

Capital Market Comments –

Powell Signals a Slower Rate Increase

Current FOMC (Federal Open Market Committee) chairman Jerome Powell signaled the rate increases may be closer to over than just was stated just a month earlier… where a December increase, which is still almost certain, but three additional increases were promised in 2019 – not any more.

Given the long/lower rates of the last decade, it is not a surprise that the new normal may be lower –

Market Participants cheered this statement!

10-31-18 Fed Funds Rate

Have a Great Day – Talk to you at the end of December!

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
street-cents

Great Economic News – Why Some are Frowning?

On Friday, the Bureau Of Labor Statistics (BLS) released their regularly monthly employment report – this is the first report in some time where ….

“Good News is Bad News?” 

Here is why some believe this!

Good Economic News  = Bad News?

Last Friday, November 2, 2018 the BLS released their regular monthly employment report that showed terrific economic numbers.

A fantastic, total 3.7% unemployment rate.

11-2-18 BLS Emp Report

In addition to the above Unemployment level, average hourly earnings were also released and they were up 3.1% year over year — breathing a much needed pay increase to many ….

The bad news for many is that they believe these good numbers will give the Federal Open Market Committee (FOMC) ammunition for continued rate increases.

Currently FOMC members are on record saying they will raise rates in December and three more times next year (2019).

The worry is an eventual inverted yield curve – which we have mentioned many times is a very good precursor to a recession!

11-2-18 90 daty v 10 year fredgraph

By looking at this chart, we are far from an inverted yield curve at this time- leading us to believe this “Good News = Bad News” may be very unwarranted…

Now you know the rest of the story !

Have a Great “Good News is GOOD News” 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

Interest Rates Part FIVE/Final – The FOMC Overshoot, a Recession Predictor – The Inverted Yield Curve

Finally our conclusion to what we have all been waiting for …. The Predictive Value of our discussion …

So we know the FOMC fiddles with rates…

The FOMC Federal Open Market Committee raising the totally controlled short end … recall, they do not totally control the longer end… capital market participants do!

 

FOMC Raises Rates

This following Chart is our sizzle….

This is the difference of the 2 year yield and the 10 year yield for about 5-6 decades…

When the 2 year yield is BELOW the 10 year  yield the line is plotted above zero … think 1% less 3%, would give you a data point of 2 on this chart….

When the short end of the curve is ABOVE the long end — totally backwards to all logic, the plot on the graph would be BELOW zero… areas which we have circled in red…

Grey area are recessions …. just behind the inversions —

Take a moment and check this chart out…

2s 10s Spread W Recession sfredgraph

Here is an easier to see chart from 1999 to present–

2s 10s spread 99 to present - fredgraph

Why don’t they stop raising?

They cannot, it is their mandate – keep inflation under control …. raising rates is their main control mechanism.

Also, it is beyond their control as investors actually pile into the long end of the curve dropping it’s rate while the FOMC raises, in anticipation of the next recession…

Creating the Inverted Yield Curve!

In Never go all in or All out fashion, if the curve inverts we do not pack up our things and leave …. BUT  caution is definitely advised.

There will be excuses …

  • it’s different this time …
  • rates are un-natural …
  • rates are low …

Maybe- worth heeding with a track record shown above….

We will keep you posted!

Hope you enjoyed the Series … Quick links – Part 1, Part 2, Part 3, Part 4

Have a Great “Not Inverted Yield Curve” Day!

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

Interest Rates Part FOUR — How the FOMC Fiddles with Rates — Federal Reserve Rate Control

As we near our fantastic conclusion to our multiple part series on Interest rates (next post is the last) lets quickly review where we came from.

In our First Post here, we spoke of the basic yield curve and how it logically moves from lower left to higher right high to account for risk …. Recall if a buddy borrows $100 bucks and promises to pay it back tomorrow its a lot less risky than if he promises to pay it back next year… and you would rightly charge him more for the delayed time… The Basic Yield Curve!

In our Second Post here, we spoke of movement of the yield curve … basically a parallel shift upward in better economic times and a parallel shift lower during slower economic times – all other things being equal, which they of course never are…

In our Third Post here, we discussed the players and assets that might sit along the yield curve, attempting to make for a more REAL world example(s)

Today … Well, let’s get to it

Where the Federal Reserve (FOMC) Fiddles on the Yield Curve

For all practical purposes  the FOMC/Federal Reserve can completely control the short end of the curve as shown on our graph… Special shout out to the 13 year old tennis player working with the new Apple Pencil (neat subject for another time)- for the updated colored graphs…. yea this is our weekend workings during rain on tennis days..haha

Post GREAT Recession of 2007-2009 the FOMC not only lowered their totally controlled short end of the yield curve – but took the unusual action of using government money to purchase assets of the longer term in order to push longer term rates down as well …

Blue is the normal yield curve – Green is the greatly lowered yield curve we have of late most recently been experiencing ….. Yea the short rate was essentially at ZERO – about what all of our checking accounts have been earning until just recently

Here is the lowering of rates graph:

FOMC Lowers Rates and buys longer to lower

 

It is essential that the FOMC eventually normalize the yield curve back to the original lower left upper right as keeping it unnaturally low for too long will likely lead to an overheating of the economy, not to mention over use of risk via leverage/loans …

Here is the Raising or Normalizing Graph we are currently experiencing:

FOMC Raises Rates

Next up our conclusion, and most importantly it’s predictive behavior over the last six decades….

Have a Great “Rising Rates” Day!

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

 

Yellen speaks, Fed Balance Sheet Unwind Preview – Friday

FOMC (Federal Open Market Committee) chair Janet Yellen laid out their plans for the reduction in the balance sheet. We spoke of this earlier here in this post.

Here is an updated graph from the Federal Reserve

9-28-17 Fed Balance SheetWe will discuss in great detail soon the interesting, slow tightening compared to all the historical adjustments that have been made before. This time it really is different, at least now, notably slower!

Today is the last day of the quarter, which means a monthly review and our Quarterly Newsletter coming soon … both with Podcast Videos now !!

Have a Great Day!

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

No Increase YET, Shrinking Balance Sheet ? Huh …. Friday still from afar…

On their regularly scheduled meeting Wednesday (7-26-17), Janet Yellen chief of Federal Open Market Committee (FOMC) and committee announced unsurprisingly, no rate increase. The committee also announced they would be shrinking the balance sheet soon.

Shrinking the balance sheet? huh…

Alan Greenspan (Former, former FOMC chair Yellen-Ben Bernanke- Alan Greenspan) made it clear if you understood what he said, he did not do his job … that language continues today!

Here is a preview graph of the FOMC “Balance Sheet”…

Next week we will explain what shrinking the balance sheet means… in English..hah

Ahhh…but that is next week … today is a Friday and we are still working remotely from afar … (Technology is treating us well!)

Enjoy your Friday and your weekend!

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

Technology Upgrade Update – Rates Rise – Friday

On Monday of next week we hopefully successfully do a major upgrade to our internal email systems. This will mean each of our company emails will be down, but not all at the same time. As the switch occurs, while promised nothing will fall through the cracks by our IT team, if you happen to send an email and you have not heard from us, please re-send it just to be safe.

Rates

Ok, it’s a Friday so we will be brief, Janet Yellen, head of the Federal Open Market Committee (FOMC) notched another rate increase under her belt without disrupting the capital markets. Once thought impossible, so far, slow and steady (tortoise- not the hare) is winning the interest rate normalization race.

This is a good chart of the ever increasing rates… finally !

Fed Funds Rate 6-15-17 fredgraph

Ahhhh…. Today is a Friday… enjoy your day and your weekend !

Talk to you next week!

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