Tag Archives: Interest Rates

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.
jkfinancialinc
street-cents

Second Quarter 2018 Cover Letter Review

On the road to nowhere? Or are we?

While capital markets around the globe may seem subdued, especially compared to last year’s movements, looking beneath the surface there is much going on.

Increased Company Earnings

With the corporate tax cuts, earnings are increasing. Public companies are enjoying terrific earnings growth and logging excellent earnings reports as the year continues. With little movement in capital markets and increased earnings, valuations by most any measure, are becoming less expensive. Also, worth notice in our Q3 Newsletter is a detailed article concerning lowered numbers of public traded companies, a possible source of different valuations moving forward.

Financially Happy Consumer

Broadly, the consumer from a financial standpoint is doing well. A happy consumer, leading to a more freely spending consumer, is an important point for the United States since the Gross Domestic Economy is made up of over two thirds consumer spending. Much of this financial happiness comes before a lower tax burden, likely to be felt by consumers next tax season – again in our Q3 Newsletter there are multiple family scenarios detailing the tax savings due next year.

Interest Rates

Market participants have digested multiple rate increases in stride, unlike times before. With gradual rate increases already occurring in the year, and more expected, normalization of interest rates is occurring without the fears of past. Being the first time in almost a decade to have rate increases, we are on Inverted Yield Curve watch (detailed article again in our Q3 Newsletter) as a possible predictor that rates have moved too far, and a signal of a possible recession. So far this has not occurred.

In closing, our patience theme from the beginning of the year seems to be still best suited.

Have a Great Summer!

John A. Kvale CFA, CFP

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

 

Interest Rates and Their Importance, Part 1

Yesterday the 10 year US Treasury Bond did something it has not done in some time …. reach a yield of 3%.

4-24-18 10 year Treasury Yield

The Yield Curve – Interest Rates

We have been preparing for some time a multipart series about interest rates and the yield curve its self, and with the recent move in rates higher (finally) the timing could not be better. You will see a lot about this in the coming weeks if you peer into the Financial Section on your computer, periodical or tablet view … so we wanted to prep in advance.

This discussion will be multipart analysis, discussion, education and conclusion …. we hope you enjoy (we think you will as there is a terrific conclusion).

While the chart above shows the most popular “Headline” rate for most, it is really just one part of a series of rates …. here is where our discussion is born… so let’s go!

20180424_122733630_iOS

Liking to keep things simple, this is a self drawn chart that we will build upon, but gets the point across.

The longer something takes, generally the more it should cost.  (Greater risk of loss)

Said another way, the more time something takes, the more it should cost.

If you loan a buddy $100 bucks today to be repaid tomorrow, it is less risky than if you give it to him for a year and hope to get it back! Right?

Our self made chart shows just this, the longer the time, the greater the cost.

Looking again at our chart, we could say the term is anywhere from one day going all the way out to 30 years, with the afore mentioned 10 year term being near the right end of the chart.

This chart shows what could be called a normal yield curve or cost situation.

Next up … Change!

Have a Great “Yield Curve Discussion” 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

First Quarter 2018 Cover Letter Review

In true Groundhog like fashion, Capital Markets, after getting way ahead of themselves early in the quarter, saw their shadow only to turn, run and hide.

Included in the newsletter, which we sent early to give everyone a chance to view and remind of the tax strategies, is an article about the VIX and its reverse brother the XIV. These funny products along with the more recently noted tariff talk has been the recent excuse for capital markets to act like a bashful Groundhog.

The reality is capital markets got way ahead of themselves and needed time to rest. From our perch we would much rather them rest go sideways or even down a little bit, rather than getting WAY ahead of themselves like they did early in the quarter, only to quickly revert and likely overshoot to the downside.

Interest Rate Increase

In this most recent quarter we did just digest another small interest rate increase. Our new Federal Reserve Chairman Powell, looks to continue the gradual increase rates, slowly normalizing short term interest rates, and continuing on the path left by his predecessor Janet Yellen.

Capital Markets have a very unique way of signaling Interest rates have been raised too far called an inverted yield curve. Look for rhetoric about an inverted yield curve soon, as the historic importance and accuracy of this effect are in our crosshairs at this time.

Consumer and Earnings

With an economy that is two thirds driven by the consumer, a happy and spending consumer along with company earnings, which are beginning to digest the new tax reform, lead to a good backdrop.

As we mentioned in our Newsletters and repeatedly at street-cents, this is likely a year we will need patience, we see no change in that view at this time.

Have a great spring, talk to you in the summer!

Sincerely,

John A. Kvale CFA, CFP

October 2017 Podcast Video, Financial Planning and Capital Market Update- By John Kvale

Here is our October 2017 Monthly review. If you are too busy to read, feel free to listen as we describe our post and thoughts in friendly podcast format.

Enjoy!

October 2017 Video

Break In – D Magazine Honors – Best Wealth Managers

We are super happy to be honored in D Magazines Best Financial Planner and Wealth Managers Award !!

Thanks so much and congratulations to our fellow recipients.

9-27-17 FINAL DMAG Spread

11th Consecutive Honor – John Kvale Best Individual Financial Planner

The 11th consecutive D Magazine best Financial Planner award was also in this edition and we are super happy to announce, John received his 11th consecutive nomination!DmagLogo

Wow and again thanks to our fellow recipients!

Financial Planning Tip(s)-

Social Security Increase

Don’t smirk at 2%, every penny counts! With a CPI (Consumer Price Index) increase of 2% year over year, the Social Security Administration passed the good news on earlier this month. Take that 2% increase and run!

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Capital Market Comments

Rates are Slowly Ticking Up

After much silence on interest rates, we have taken notice of recent movement as the global economy begins to pick up steam … Overseas seems to really be getting their act together.

10-24-17 10 Year Treasury

Consumer Sentiment Also Higher

The University of Michigan Consumer Sentiment hit a post “Great Recession” high this month.

With two thirds of our US Economy being based on consumer consumption, this bodes well for the Economy.

10-13-17 Consumer Sentiment

See you at the end of November, which also features our very special Blooper Thanksgiving Video from a few years ago!

Happy Fall Season!

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

Timely discussion of Rates this week … Friday … Travels on the Horizon …

Our Hmmm interest Rate post on Wednesday of this week turned out to be a bit prophetic as Wall Street Turned their “Short Term” eyes toward rates and raised a brow.

JPMorgan Rate Chart

While rates MAY eventually provide a headwind to capital markets, we agree with our friends at JPMorgan and their excellent chart showing MUCH higher levels of rates will be a formidable headwind.

jpmorgan-rates-too-low-graphAhhh… Today is a Friday, and travels are on the horizon next week, but that is next week… Enjoy your Friday, your weekend, and time with those special!

Have a Great Friday!

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