Tag Archives: High Yield

Not sure what Janet was thinking … Friday

Members of the Federal Reserve are constantly under the microscope. Everything members say is taken seriously.

What was Janet Yellen thinking?

In the middle of this week, Janet Yellen the President of the Federal Open Market Committee (FOMC) stated here in an interview that the US Equity markets were overvalued as were High Yields bonds.Janet Yellen

While we agree on both parts, we are very surprised at Yellen’s public comments.

  • Preparing Markets for Higher Rates?
  • Talking Markets and bonds down?
  • Slip of the tongue? (doubtful)

Not sure on any of these, but in time hopefully this will be clarified!

Ahhhh… but it is a Friday sprint to the end of the school year … three more Fridays and they are done (not that anyone is counting ..haha!)

Have a great weekend and grab your paddle in many parts of the country!

John A. Kvale CFA, CFP

8222 Douglas Ave # 590
Dallas, TX 75225

Another Echo of our Newsletter Thoughts … “Beer Goggles, Monetary Camels, The Eye of the Needle….”

As you may know by now we favor much of Richard Fisher’s thoughts.  The current Dallas Federal Reserve Chair, and a new voting member of the FOMC in just a few days, Fisher’s recent speech grabbed our attention. Here and here we visit a few of his topics from prior events, but his latest speech rhymed with our thoughts, and had a funny headline for such a stiff position.

“Beer Goggles, Monetary Camels, The Eye of the Needle…”

In this speech to the National Association of Corporate Directors, Richard Fisher echoes many of our thoughts. Feel free to click on either of the links for the complete speech, but it is rather long, so we will cut to the echoes below for your time-saving:

CEO Dallas Federal Reserve

CEO Dallas Federal Reserve

  • Share  buybacks financed by debt issuance that after tax treatment and inflation incur  minimal, and in some cases negative, cost; ( Ditto in our Earnings update in the newsletter, buybacks increase earnings growth more that headline numbers seem)
  • Stock  market metrics such as price-to-sales ratios and market capitalization as a  percentage of gross domestic product at eye-popping levels (We use PE ratio, but same thought…I cut out 1999 comparison from Fisher so as not to scare/alarm … again taking the high road for now)
  • In  the bond market, investment-grade yield spreads over “risk free” government  bonds becoming abnormally tight (We have warned against high yield, repeatedly…this is a similar thought)
  • I want to make clear that I am  not among those who think we are presently in a “bubble” mode for stocks or  bonds or most other assets (We said the EXACT same thing, not a bubble,  but frothy and not cheap)
  • Were a stock market correction to ensue while I have the  vote, I would not flinch from supporting continued reductions in the size of  our asset purchases as long as the real economy is growing, cyclical  unemployment is declining and demand-driven deflation remains a small tail risk;  I would vote for continued reductions in our asset purchases (This we agree with and have mentioned many times, understanding this could be a tad of gasoline on a negative thinking market)

There you have it, another similar thinking person to our thoughts. We usually stray from the crowd and this time we are not in the crowd, but there are a few notables that share our thoughts.

Have a Great Day !

John A. Kvale CFA, CFP

PS This is why we like NOT reading anything from our favorite sources before formulating our year estimates and postulation.

8222 Douglas Ave # 590
Dallas, TX 75225

High Yields have us concerned…A Tea Leaf?

High Yield bonds also known as junk bonds are showing stress. As a reminder high yield bonds are slightly lower in quality (higher risk) for various reasons, that pay a greater yield than that of their higher rated relatives.

In our Q 1 2013 Newsletter we spoke of the risks of High Yield bonds, along with the lack of Tea Leaves in this day of outside influences.

Recently High Yield bonds have caught our attention as they are GENERALLY very highly correlated with capital markets.

The divergence in the last several weeks has caught our eye! (Far Right of chart)

High Yield Versus SPY (Click for gigantic picture)


Apologies for the choppy picture, but this charting system produced the best overlay for showing the correlation

This may be nothing, and very well could correct in short order but it is currently giving fuel to our conservative/negative market view, as such we are watching very closely.

Have a Good Day!


8222 Douglas Ave # 590
Dallas TX 75225