Tag Archives: Jerome Powell

Robert Kaplan Speaks Candidly, Echoes Our Main Thoughts for the Newsletter – NICE – There is Still Stimulus out there and Higher for Longer!

Posted on July 5, 2023 by | Leave a comment

The Forward-Guidance podcast review, recommended from one of my coveted study buddy groups, a week or so ago!

With downtime over the holiday weekend and the newsletter not being in print just yet… Robert Kaplan’s comments from a podcast came in very much in line with some of the articles in our coming Q 3 2023 newsletter, as such we had to bring you up to speed on this podcast.  NICE!

Recall Robert Kaplan was a Dallas Federal Reserve President, before getting caught up in a political issue and he along with several other members ended up resigning. 

What stands out about this podcast is the candor that Kaplan gives, which is what we are always looking for. Is it because this is a less than hugely popular podcast ? … although it will make my regular check for subject matter from now on, Or it is due to the resignation which would make Kaplan never available for public service again? …so he has nothing to lose period. Does not matter the reason his candor again is what grabbed attention. 

The just over one-hour podcast which can be found here (Forward Guidance), had three important points to bring to your attention: 

There’s still stimulus flowing in through the system- Again one of our articles in the coming Q 3 2023 newsletter speaks about the ERC or employee retention credit, Kaplan mentioned specifically talking to many mayors of many cities across the United States which have an abundance amount of stimulus capital still on their balance sheet that must be spent before 2025. hmmmmm 

Higher interest rates for longer should be the baseline assumption according to Kaplan– Again this is the subject matter of another of our newsletter articles. Kaplan speaks to the podcaster candidly and says capital markets even though we were just beginning a credit cycle (Tightening of lending standards, less loans, higher interest rates and lower margins, increased defaults all the intent of the federal reserve’s higher rates to slow the economy)- while capital markets and participants are pricing a lower interest rate at the end of 2023 and the beginning of 2024, Kaplan cautions participants to take Jerome Powell at his word. The only thing that would make him change his posture is some large event created by the further progress of the aforementioned credit cycle. 

It is a good old boys club– In an aha moment that we always thought existed, Kaplan slips and says his dissenting vote in September of 20 was a frowned upon event by Jerome Powell! However he quickly corrected himself and said I will let Powell speak for himself, but the rabbit was out of the hat, Kaplan realizing this went on to say that the general spirit of the FOMC (Federal Open Market Committee) is everybody agrees and falls in line with a distinct hierarchy of ranking. We could all remember and learn that there is a very much pecking order where the king is the chair, and the pawns are supposed to follow. 

Apologies for the length of this post, as mentioned with some time off and the dictation in hand, along with a total complement to our pending newsletter, wanted to bring this to your attention.

Have a great “Inside the Federal Reserve via Robert Kaplan” 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

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Fed Week, Tough Decisions … New “Happy Bank” Back Stop Facility – The BTFP – Bank Term Funding Loan Program … Bank Headlines Continue – Reminder Thought On Late Cycle Headlines …

Posted on March 20, 2023 by | Leave a comment

A while back we mentioned the FOMC – Federal Open Market Committee, lead by Jerome Powell were in a Pickle .. as at that time one of their regional banks had a research report out that GDP- Gross Domestic Production -Economic Growth indicator – was dropping fast and they were going to raise interest rates against a hot CPI = Consumer Price Index – blunt inflation gauge which would exacerbate the situation.

Fast forward to today and that Pickle is not any better…. maybe even more dill! With the afore mentioned Part 1 Advance Analysis M2 review showing dramatically dropping or the pulling of liquidity out of the system, bank fatigue has been seen and felt and here our comments on Banks being a slave to confidence for solvency.

On Wednesday of this week, March 22. 2023 the FOMC is bound by their goal of slowing that sticky inflation we are all seeing, especially at the grocery store, and best measured by the CPI … BUT, this additional rate increase will add fuel to the fire of less liquidity, AND on top of that our neighbors across the pond just raised rates .50% last week, albeit from a much lower 3.00 to 3.50% rate….currently the US rate is 4.75% …

We did say Pickle ? Right….

Enter the BTFP – Bank Term Funding Loan Program – Happy Bank Program

On March 12, 2023 the Federal Reserve Created the BTFP as another backstop for possible Bank Fatigue ..

Press Release

March 12, 2023

Federal Reserve Board announces it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors

For release at 6:15 p.m. EDT

This new program is a sort of Fed Discount Window on Steroids, meant to improve Bank confidence.

Quick History–

Long ago the FED (going back in loose form to the 1920’s – the start of the Fed) started a program for Bank help during stressful times, the Fed Discount Window –

Fed Discount Window –

  • Operation of last resort for a bank
  • Overnight deposit help
  • Anonymous for two years
  • 30 day length, but historically has been lengthened to 90 days
  • Pledge of assets for security – Treasury Securities of all Maturity among other items that are held at par (even value, no gain or loss) or better

BTFP – Bank Term Funding Loan Program

All of the above but the following additions:

  • On Year in Length maximum holding period
  • Pledge of asset securities that may be less than par aka at a loss

The last bullet is the most important and lending a helpful hand from the Fed’s fastest in history rate increase…. as mentioned repeatedly, increase of rates are a headwind to Fixed income aka Bonds, especially longer term bonds….

Some Banks may be seeing a need for immediate liquidity due to loss of confidence and liquidity drain, so this new program essentially gives them liquidity to meet those demands if needed and may have negative assets due to the fast fast rate increases!

Headlines Continue

While this is being written – Sunday late morning in between Newsletter Articles, UBS a Swiss neighbor of Credit Suisse has made a much telegraphed offer to buy their friend out… no idea what the market will make of this starting tonight as overseas markets open…. but something just crossed the mind that we have mentioned many times before…. and may be applicable….

“Headlines are always the worst near the end of the Cycle!”

Have a Great “Heads Up for a Busy Week” 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

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Signs of a less aggressive FOMC/Jerome Powell ? …  First time in a long time less happy to see the longest daylight day of the year pass …   Summer Friday heading into Fourth of July …

Posted on June 24, 2022 by | Leave a comment

Mid this week FOMC chair Jerome Powell in front of a legislative public speaking event, for the first time mentioned that the FOMC could not decrease oil prices and food prices via faster interest rate hikes.

OK, we may take issue with this slightly because if they beat demand down enough, it will most certainly put headwinds to higher prices of both of these assets. However more importantly, this was possibly the first sign of a less aggressive FOMC, again shared by Jerome Powell.

Instantaneously capital markets took notice of the comments with a much happier tone as did interest rates with an extremely happier tone as well…

Interestingly, and speaking out loud to everyone our thoughts, just two weeks ago, a much harsher tone was voiced by Powell …given that fact, it’s way too soon to say the FOMC has taken their foot off the brake a little bit ….. Heck we still have a lot of economic data to get through for the next few quarters… some of which may be very hot and could have the federal reserve reverse course once again… but maybe it is a start..

We will be watching, but wanted to let you know a possible interesting breadcrumb that occurred this week.

Hot Hot Hot

With an unusually, extremely, hot summer shaping up here in the south, breaking hundred degree days by the week, we wave goodbye to the longest day of the year with less sorrow this year and a  bit of trepidation on what August … the seasonally hottest month of the year may bring.

Kvale front yard, watered daily !

Still better than ice and snow that no one here, present party included, knows how to drive on!

Today is a Friday, getting near Fourth of July midpoint of the year, enjoy your day and your weekend, and if you’re near us, stay hydrated and be careful out there!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.

A Dallas Texas based fee only

Financial Planning Total Wealth

Management firm.

jkfinancialinc

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Capital Market thoughts, looking forward not back … FOMC chaired by Jerome Powell gave, now taking away, for the moment

Posted on May 11, 2022 by | Leave a comment

We don’t want to get too heavy and pound you with market thoughts, we know you’re getting enough of that from the “Market in Turmoil” like headlines, but we did want to give some explanations and let you know we are watching carefully as we have been on notice since December for a possible slowdown.

Look forward, not back

Economic reports such as today’s CPI (consumer price index) report is very much rearview looking, as such it’s sometime easy to forget that what’s most important is looking forward to what is going to happen next rather than backwards to what has happened. Yes it is much harder, and you do not know exactly what is going to happen … but you sure do not drive a vehicle looking continually in the rear view mirror – some humor on a dry subject… stay with me!

This is even more evident at the recent quick rise in interest rates, creating the headwinds to bonds. As noted here and again here in our posts (the second with even a special video) it’s highly likely and the probability is most that the headwinds for our fixed income investments are behind us. Once again looking forward, a slow down usually garners lower interest rates, exactly opposite to our slightly current and mostly rearview looking higher rates.

FOMC chaired by Powell gave and now takes

Over the past 18 months to two years the FOMC (Federal Open Market Committee) headed by Jerome Powell have taken very aggressive measures to stimulate the economy. Much of a stimulation, once the book is written may have over stimulated not only the economy but various asset prices. Their goal at this time is to slow inflation thereby doing a complete turnaround from their prior stance and taking away stimulus. This most likely will continue until they see evidence of slower inflation or lower employment. 

Higher rates are their main instrument of choice:

The FOMC waits for the reports such as the CPI to confirm their decisions, making for a lag in decision making and possibly longer decision-making, but they will eventually get there….

Finally, capital markets are certainly looking forward hence the sluggishness as they begin to price in a slowdown in full force. Eventually it’s very likely the FOMC will begin to see these clues as well!

Have a Great “Forward Looking” 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

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Federal Reserve Detailed Analysis from Last Weeks Announcement … A Very Stern Jerome Powell

Posted on September 27, 2021 by | Leave a comment

As mentioned in our Preview Post last week, we have been watching the FOMC as their posture is due to change with regards to the stimulus put in motion early last year….

Jerome Powell Gets Tough

Recall as the economy was shut down last year the FOMC chaired by Jerome Powell and its members moved interest rates on the short end of the curve to zero and commenced a $120 billion per month purchase of treasuries and mortgage back securities. Both of these moves were to help stimulate the economy and to stabilize the capital markets.

Meeting their goal of stabilization and a much-improved economy the FOMC are ready to shift policies and unless any major economic or other disruption occurs Powell made it very clear that he expects policymakers to begin decreasing the $120 billion per month purchases, and if all goes well to have completely stopped monthly purchases by mid-2022.

As mentioned in some of our prior posts this message has been floated by multiple fed presidents and Capital Markets seem to be taking this news in stride, much to participants and reserve members’ pleasure.

Much of the mainstream media seemed to report that there was no major change in policy or tone to which we disagree.  In listening to Powell especially in his interviews after the pre-plan reading of notes, he seemed much firmer and resolved to stop the monthly purchases and the tone in his voice in our minds, let us know if this would occur in the very near future.

As has been mentioned before many of our fellow professional investors have long desired this happened many months ago, but no matter, it appears that it is about to occur slowly and diligently, and capital markets are accepting.

On another totally different and non-market related and non-economic related topic several federal reserve members had transactions over the past year that were not optically good for the federal reserve. One of the members is our very own favorite Robert Kaplan who had multiple large transactions in securities that the federal reserve was involved.

While we will voice no opinion on this … Jerome Powell was very stern surprisingly, and in our mind so stern that it could be an occupational loss for some of these members. It will be interesting to see what comes out of this, but this is not the end of it and once again Powell was very angry and forceful on this point.

Bottom line we would expect a taper, slow lane of monthly purchases to commence shortly and will be watching interest rates which have already made some moves as well as capital market participation.

Have a Great “About to Taper” 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

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The Smartest Guys in the Room, The Bond Markets and Participants – Part 2 of FOMC Dot Plot Update

Posted on June 23, 2021 by | Leave a comment

Part 2 of our overzealous post started Monday that was a bit too long- Enjoy!

There’s an old saying that the smartest guys in the room are the Bond Market or Bond Market Participants.

Bond market participants have way less to think about than their brotherin equity market participants, Basically bond participants only think of the economy, the credit worthiness and length of their investment.

Using the USA as your proxy and with the United States being the most credit worthy bond in the world, there is one less thing bond market participants have to worry about. Taking a peek at the 10-year US treasury yield which would reflect mostly economic expectation or possibly the future growth, of course there could be outside investors rushing to the US treasury market in search of higher yields boring the matter a bit, but all other things set aside under the surface post speech bond market investors are expecting greater controlled economic growth, sooner (2 year Movement.)

Dramatic Movement in the 2 Year Treasury

In order to get a most up to date chart, we needed to use futures contracts, so bear with us, as the chart goes down the yield is rising… bond guys are pricing higher rates now!

Here is a close up of the latest few days, again on the 2 Year

Not surprisingly a bit of a come back (higher prices lower yield) in the chart after such a large move.

30 Year Movement

Same use of futures contract here…

Higher chart price is lower yield? The initial drop is in the February March 2021 time frame as the Economy began to open, but take note of the move UP – lower yields in the last few weeks!

This may seem counter intuitive, but the eventual increase in rates would thwart inflation and is being expressed by lower long term rates…

We’ve talked at length on inflation versus deflation, so will leave it alone at this time but it might be noted that’s the smartest guys in the room thank future economic growth is at least higher and longer term inflation is not their concern, at least for now!

Have a Great “FOMC – Smartest Guys In the Room Review” 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

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Posted in Economy, FOMC, Interest Rates, Investing/Financial Planning, Market Comments, Political, Retirement Planning

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FOMC Updated Thoughts From Press Release, Dot Plots and Post Release Interview of Jerome Powell (Part 1 of 2)

Posted on June 21, 2021 by | Leave a comment

As mentioned Friday in our preview post, Jerome Powell chair of the FOMC and the rest of the voting members released their updated public press Economic Review and analysis mid-week last week. This  release also included 30 minutes post Q and A along with a prepared discussion by Powell that lasted about 15 minutes.

Just by chance finding myself on the road for a slightly unusual 90 minute journey that occurred exactly during the time Jerome Powell was speaking, I was able to listen to the entire speech live, while I’m not sure if it was the subject matter, or a minor dental procedure the day before, no matter … I found it extremely difficult to stay awake while driving – digressing here, but if you weren’t on the edge of your seat listening to the speech and reading the press release … you’re likely in good company as we usually find this material extremely interesting – still digressing.

Jerome Powell is most open to reveal something either by accident or on purpose during the Q&A as the prepared press release and the prepared remarks have so many eyes and advisers reviewing he’s certainly to say only what we are supposed to hear.

Wall Street and much of the media outlets took much of his comments to be more Hawkish (less friendly and more likely to raise rates sooner.)  For the record, this is why we enjoy listening to these types of events ourselves, as we did not find anything more than doing what he and the rest of the FOMC had promised to do, all along.

The dot plot which as a quick reminder, is an estimate of all board members including non-voting members timing and amount of where interest rates and where they expect economy to be was also released.

The following… Shows that multiple board members are more eager to raise rates sooner than they had been in recent quarters. In our minds this is good news as we would rather the FOMC not stay too low to long encouraging reckless behavior in the form of leverage and over leverage. Also encouraging for more conservative and cash investment such as our checking accounts an increase in rate will give us collectively some income on those reserves.

The Dot Plot Thickens

6-16-21 Dot Plot

Two Members Now Expecting two increases in 2022 with five members also expecting one move for a total of seven members expecting moves in 2022!

3-17-2021

Expectation by three Members of One interest rate increase and one member expecting two moves in 2022

Again, we think higher rates sooner is a return to normal and sets us back on course for continued economic recovery… just keeping to their word!

With continued compliments for keeping my material short and to the point, a late viewing of the US Open Golf Tournament, thanks to a West Coast Venue and a desire to see what the so called Smartest Guys in the Room – Bond Guys do this week, this post is officially Part 1 … Will only be one more Part, Promise!

Have a Great “Dot Plot Analysis” 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

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Posted in Economy, FOMC, General Financial Planning, Interest Rates, Investing/Financial Planning, Market Comments, Political, Retirement Planning

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From the Road … FOMC Takes Action Last Night in Response to Shutdowns and Economic Slowdowns

Posted on March 16, 2020 by | Leave a comment

Not wanting to bring a knife to a possible gun fight, the FOMC (Federal Open Market Committee) led by Jerome Powell announced multiple actions in response to Corona and the related shutdowns last night.

FOMC Lowers Rates, Lowers Bank Reserves and Adds Money

On Friday a coalition of private and public groups agreed to begin more testing for the Corona Virus… not surprisingly if you are able to test more, there have been more findings.

Last night the FOMC led by Jerome Powell announced multiple measures to help economic activity:

  • Lowering of Short Term Rates
  • Lowering of Bank Requirements AND encouraging Banks to lend to businesses, especially small businesses with the extra freed up reserves
  • Purchasing of Treasury and Mortgage Securities for Liquidity and lowering of rates

Friday, I mentioned multiple ways to think of the current events… given the above events, here is another example…

  1. The FOMC did all of this, it must really be bad…
  2. Not wanting to get behind, the FOMC is taking advanced actions to help stay in front of disruption and possible slowness…

Choice one is easy and likely will show up somewhere in your sights, if it has not already …. again, choice two is the positive, high road choice, and will only likely be seen here today!

Yes, events are making the Spring Break Trip hard to focus on family and friends, but in a strange way, maybe it is good to be out of the office!

Careful what you intake… drama rises to the top!

Rest assured, as you can tell, we have complete remote access…and again, we are a conservative firm by nature!

Have a Great “FOMC No Knife to Gunfight” 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
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Interest Rates Presenting an Opportunity, Eventually … Current Freddie Mac Mortgage Rates as of Last Week

Posted on March 4, 2020 by | Leave a comment

Really like to work on articles a few days, to even a few weeks (ever so often months) in advance … repeat visits to the draft make for a better post as different moods make for different views.

Well…given the speed of Capital Markets lately… a second or third look may garner a loss of possibility.

Break In: As mentioned above, things are moving quickly, yesterday early in the AM, FOMC (Federal Open Market Committee) chaired by Jerome Powell lowered interest rates by .50 or 50 basis points as an insurance policy against slowing economic conditions. This does not directly affect loan rates, but speaks to a slower economic situation, which does effect rates across the board!

More on this at a later time…. but the following is an all time inter-day low yesterday for the 10 year treasury yield…at least for the moment!

img_6213

.91% – this from the cell, such the unusual format.

Break In Again: Interestingly, after a big rally on Monday and another set for today, the treasury yield is unexpectedly staying low and not rising dramatically in yield, which is what one would expect. This actually gives loan rates time to catch up in their possible slower decline – making this exercise all the better!

Now… let’s carry on …

Fixed Rate Loans, Especially Long Dated, such as 30 Year Mortgages Need Review

Not withstanding the comments in the opener, interest rates have dropped so fast on Virus fears and possible slowing economic conditions as a result that some loans may have not completely caught up as of yet…

3-2-20 Chart of 10 year Treasury

That is an all time low- WOW!

Freddie Mac Rates

Here are the latest average mortgage rates from Freddie Mac as of last week… they are posted only weekly….

2-27-20 Freddie Mac Avg Rates

Now is a good time to review any fixed rate loans, ESPECIALLY longer dated ones… in refinancing a mortgage, here is a detailed post, the following is the most important nugget from that post…

Think 18 months cost break even – We like to have the saving from the refinance cover the cost of the refinance within 18 months – i.e. Person with $30k mortgage at 5% probably would not need to refinance to 4%, but a $3 million mortgage may be smart to refinance from 4.25% to 4% or the like, if the numbers work out.

Have a Great “Fast Moving Markets” 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
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Posted in Debt - Debt Management, Interest Rates, Investing/Financial Planning, Market Comments

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Shhh … FED Quietly Pauses … Finally

Posted on December 13, 2019 by | Leave a comment

The FOMC (Federal Open Market Committee) led by Jerome Powell, quietly paused this week.

FOMC No Change

Mid-Week, the FOMC announced no change in their controlled short term interest rate.

12-16-19 Fed Funds Rate

We have been vocal about not lowering rates moving forward, to keep some gunpowder for the next recession.

After a market desired multiple small lowering of rates earlier this year, this week, the FOMC effectively did nothing, and did not disturb Capital Market Participants… finally.

They also made no future promises, again, with market blessings…

We like it!

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.
jkfinancialinc
street-cents

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