Tag Archives: Interest Rate

Flip Flop Not … What’s most important changes, frequently and fast !

If you have been following us long, you may notice we hone in on various items with sometimes excruciating  detail. Of late, interest rates may be an area you have become fatigued, but they are that important at the current time.

Not OCD, but reactive .. It changes

While it may seem at time we jump from one thing to another, we are bringing you the details of what is most important (high level as we never talk exact investments) at any given moment, in our opinion. CPI

Recent the CPI (consumer price index) or inflation gauge printed a hot number and caught our attention.

Here are a few cause and effects:

  • Head Fake (always a possibility)
  • The economy is on the mend and it is just right, Goldilocks
  • Higher interests rates: Headwinds for fixed income instruments  (mortgage, corporate, Treasury)
  • FOMC has to increase the taper speed and maybe increase rates at a faster pace
  • Commodities and  other tangible items accelerate in value
  • Pressure on Capital Markets

So while it may seem we jump around a bit, things change and importances do as well!

Have a Great Day!

John A. Kvale CFA, CFP

www.jkfinancialinc.com
www.street-cents.com
8222 Douglas Ave # 590
Dallas, TX 75225

10 Year Treasury Rate ALERT … Not Alarm

We have mentioned interest rates probably more than you would like, but rates are so critical at this moment in time.

10 Year Treasury Yield Alert

10 Year Treasury 5-16-14

The rate of the US 10 year treasury has fallen decidedly below our voodoo trend line.

Here are a few possibilities in order of fear with our possible probabilities .

  1. We are going into a recession (Very Scary but only a 10% chance from our perch)
  2. There is a shortage of supply due to the Fed’s QE purchases (20%)
  3. Mario Draghi’s latest comments on EU QE purchases are chasing investors here (10%)
  4. Pension/Institutional/Big investors are shifting to fixed income (10%)
  5. Russia Ukraine fears are pushing our rates down (10%)
  6. Something we do not know yet (40%)

We want to alert you to this, but not alarm. We are on VERY careful watch.

Have a Great Day!

John Kvale CFA, CFP

http://www.jkfinancialinc.com
http://www.street-cents.com
8222 Douglas Ave # 590
Dallas, TX 75225

Interest Rate Forecast…Easy and Hard Calculation

Interest rates are in total control lately as we have been mentioning frequently. Uncle Ben (Bernanke) looks set to begin taking the punch bowl away on September 22, 2013 their next scheduled meeting by backing down on the $85 billion monthly purchases.

So Where will Rates go? (stop)

Of course, no one knows where rates will stop, but a move from the lows of 1.60% to almost 3% is an enormous move on a percentage basis and we are happily surprised how other asset classes have held up. How much farther can they go?

Let’s start by using a hard/technical or text-book calculation. Generally rates should be the sum of economic growth (GDP) and Inflation (CPI). Using a smoothed trailing estimate of each of these, we feel comfortable with a 2%+2% or 4% total, under current economic conditions.

For our easy calculation, let’s use a graph of the 10 year with the S&P 500 together, which is one of my personal favorites.

!0 Year V SPY 8-23-13

With rates currently at 2.81%, if your eye gravitates to the same area as most, 4% looks like our target!

So there you have it, 4% the technical way or the easy way from our perch.  We are fine with this, but let’s just GO SLOW (12 months at least), if we move quickly to our target, there will be trouble!

Have a Great Monday!

John Kvale

http://www.jkfinancialinc.com
http://www.street-centa.com
8222 Douglas Ave # 590
Dallas, TX 75225