IRS Refunds and Tax Return Processing Very Delayed
In this Break In Post, after having discussions with several of you, and then touching our CPA contacts we came to the conclusion that the IRS is delayed in processing returns and more importantly REFUNDS!!!
Before we could get the news to you, this Yahoo Finance Article nicely summarizes that the IRS is behind on a whopping 20% of returns or over 30 million !
With a September 1, 2021 IRS stimulus check lookback (those who did not get the last round of stimulus will be reviewed by the IRS to see if they qualify) the IRS has their hands very full….
All together…. PATIENCE! They will eventually get to us!
Fingers Crossed For a Hot (Large) COLA Increase
Catching wind through our contacts of a possible HOT (read Large!) COLA adjustment this year for Social Security and possibly those lucky ones that have a COLA adjuster on their Pension or other retirement plan we dug in here in this post and outlined the methodology used by the SSA. The line in the sand for adjustment is later in the year but as can be seen by the latest CPI-W running at 6.1%, with a little luck, we may have a very nice adjustment on our hands!
Capital Market Comments
Valuations are Getting Better but Expectations are WAY out of Line!
In this post and with the help of our Friends at JPMorgan we happily reviewed the far right hand smartly turning graph, that is headed in the correct direction for better valuations… YAY
A bit later in the month we ran across a wonderful but somewhat worrisome poll done by Natixis of over 8000 investors and their expected return over the next 10 years…. Way off base in our minds….
Likely to see this last poll make its way into the Newsletter as these numbers are likely so exaggerated, we want more air time!
Ok…that’s a wrap for the July review….
Have a Great Day, Talk to You at the End of August!
As mentioned multiple times … with recent examples here and here by almost any metric Capital Market valuations have been and are stretched.
As a reminder this does not mean that markets have to come tumbling down to earth … just that heightened risks of sharper declines may be possible. Also as a reminder, just like our teenager with oversized clothes grows into them … as earnings increase faster than Capital Markets rise, valuations can come back in line! YAY
Updated Valuation Metric from our Friends at JPMorgan
And while still stretched take note of the very far right of the graph as it has smartly turned over as earnings outpaced Capital Market Growth
This is why the Graph is moving in a better direction – huge expected earnings in view….
Nice….
Still no time to swing for the fences, which we never do- but good progress…
Welcome to our Video and Audio Podcast Review of our Q 4 2020 Newsletter. For those on the road or just unable to grab the time to read, our podcast type review gives you the behind the scenes insight to our thoughts, observations and deep views of the entire Newsletter.
Click here for a direct link to an electronic version (an early peek-good ole fashion paper versions are on their way to you shortly) and here for our Newsletter page
Unlike the last two Newsletters which had very little economic and market related comments, this one is all about where we have been, what has occurred and where we may be going!
As the spread of the Covid Virus occurred, Capital Market Participants in true anticipation form, voted with their feet and sold assets across the board well ahead of the eventual lock downs.
The largely followed S&P 500 (Larger US Companies) fell over 33% along with major international markets such as the German Dax falling over 35% and US Small companies represented by the Russell 2000, falling over 40%.
The most startling item of the drop was the speed at which this drop occurred, 27 days!
Ignoring the speed of these most recent declines is a bad idea as we need only look earlier in 2018 to see ANOTHER very fast drop.
The FOMC Steps In – Lowers Rates
By Mid-March as Capital Markets continued their descent, the FOMC (Federal Open Market Committee) led by Jerome Powell, dropped the hammer on interest rates by a full 1% to zero. During normal times, .25% is the usual adjustment as can be seen by the late 2019 and early 2020, non-crisis adjustments.
FOMC Adds More Fuel
Correctly using the financial crisis of 07-09 as the play book, the FOMC took the bazooka out, and starting buying assets to flood the markets with liquidity. The current bazooka is much bigger (about 3 X) this time as can be seen by the difference in balance sheet increase of $1 Trillion in 07-09 versus the $ 3 Trillion and counting increase currently.
It Worked (Maybe Too Well), Capital Markets Took Notice
You know us to be very positive – all through the many negatives that have occurred !
You also know we will call it like we see it!
Markets have officially gone too far and are ahead of themselves, expect bumps and no extra risk taking is warranted at this time – CAREFUL!
We hope you enjoy … talk to you Next Year – 2021 !!!
On Friday, we gave you a preview of this post and in completing it over the weekend, it became a bit longer than expected, so we are doing a two part series.
Some of this is also in our coming Newsletter, but with more turf here, we can dig a little deeper, especially in a two part series…
Mid week last week the FOMC (Federal Open Market Committee) led by Jerome Powell and company released their estimates of where interest rates will be over the next several years.
This chart, known as the Fed Dot Plot, represents a dot for each voting member …. looks like there is a ton of group think going on as everyone is pretty much in agreement on the near term view and with a variance of only one percent in the longer term view – far right (One vote at 2% and two at 3%)
This chart from our Friends at JPMorgan includes not only the FOMC estimates but what the Capital Markets are assuming – (This estimates comes from the Futures Market and is easily ascertained)
Market estimates can and do change quickly.
Here is a blow up of the far right portion of the graph – Orange is market expectations again from the futures market and Purple is long run assumptions.
So markets think that rates will stay low and the FOMC also agrees.
Is there any reason that the FOMC would HAVE to raise rates?
Over the weekend… doing what Financial Nerds do, after actually looking for an earnings update from Factset, but only being about 40% through the earnings season and after reviewing an almost 100 page slide deck from JPMorgan, the following consumer related charts jumped out, so we decided to share
Three Views of the Consumer
Recall that the consumer makes up over two thirds of the US GPD/Economy/Economic Growth via his/her spending… one can infer a happy consumer is a spending consumer…
These are averages across the country, so there are certainly different individual cases, but this is definitely worth a look…
Here is the Consumer latest Balance Sheet
Liabilities are most interesting to us, especially the non-mortgage liabilities…
Consumer Debt Service is at a very low and serviceable level
The Great Recession of 07-09 has had at least the one good long term effect of keeping the consumer debt service low… not sure if fear or regulation, but still low compared to this multi-decade Chart…
Worth noting this chart variance in NOT very large… very interesting ..
Consumer Net Worth
Appreciation of most financial assets post Great Recession 07-09 has cleared new higher ground for the consumer, adding to confidence, happiness and freedom of spending…
Ignore the value the numbers are too big to comprehend, just take note of the higher high in the far right…
These numbers being so interesting, likely have spawned a deeper dive in our next Newsletter with additional facts and national averages that may make for a great New Years Resolution Article…
With earnings being the ultimate driver of Capital Markets it’s always good to stick our heads down into the weeds occasionally to see how corporate managers are navigating the waters.
Our favorite go-to source for this information is from our friends at Factset, a research arm that does terrific tracking …
Here are a few charts with our notes:
This following is an estimate of Earnings for the remainder of 2019 and for the year 2020 – notice expectations are positive year over year 2018 to 2019 but not much growth is expected from the analyst community – Tariff agreement would likely change this expectation quickly…
Next up, how the change in estimates has occurred in real time – take note of the drop near the end of the year 2018 – while it looks like a larger than normal drop, and we prefer it increasing, it is only about a 5% total expected drop but again still a year over year increase as seen from the prior chart.
Lastly, we had to throw one of our favorite charts in from our friends at JPMorgan – the lagging blue line, that actually looks out of place, is the current market expansion rate – note how slow this expansion (2007-current) has been. We find this very interesting as even the 2001 expansion was at a much faster pace than our current. Could we be entering an extended period of slower, but more stable growth? This would also speak to lessened concerns of inflation and lowered expectations moving forward…
Overall, lets give corporate managers an A to almost A+, especially those dealing with overseas trading partners of any kind.
There is much rhetoric about higher interest rates being a headwind for equity markets. Heck we have even mentioned it multiple times. While we agree the immediate/short term reaction may be a headwind, longer term may be a much different story.
A Silver lining found?
Higher Interest Rates CAN be a good thing
From our friends at JPMorgan
If you are scratching your head a little about this chart, not to worry, we did too.
Rates currently reside in the lower green area, well BELOW the stagnation dot. According to JPMorgan’s analysis, raising rates would actually stimulate demand as rates are so low now they are having a stifling affect rather than stimulative.
Look for a much deeper dive into this in our coming Newsletter, and a soon to be released post (as promised earlier) on just how many times rates have been raised during an election year … We were very surprised, and bet you will be too !
Recently there have been a couple of mass notifications regarding Class Action Settlements, most recently with JPMorgan.
Not to worry, we participate as a group for all applicable. Donald uploads all the date needed at once, rather than individually. The forms you receive are not necessary.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments may be appropriate for you, please consult your financial advisor prior to investing!
Background
The is the vocal portion of J.K. Financial, Inc. a Dallas Texas Based Fee Only Total Wealth Financial Planning Firm. Founded by John Kvale, a Dallas Texas Fee only Financial Planner and Total Wealth Manager.
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July (YIKES GOING FAST) 2021 Financial Planning and Capital Market Review – By John Kvale
Hello and Welcome to our July 2021 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 audio 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!
Hope you enjoy!
July 2021 Video
YouTube
Financial Planning Tip(s)
IRS Refunds and Tax Return Processing Very Delayed
In this Break In Post, after having discussions with several of you, and then touching our CPA contacts we came to the conclusion that the IRS is delayed in processing returns and more importantly REFUNDS!!!
Before we could get the news to you, this Yahoo Finance Article nicely summarizes that the IRS is behind on a whopping 20% of returns or over 30 million !
With a September 1, 2021 IRS stimulus check lookback (those who did not get the last round of stimulus will be reviewed by the IRS to see if they qualify) the IRS has their hands very full….
All together…. PATIENCE! They will eventually get to us!
Fingers Crossed For a Hot (Large) COLA Increase
Catching wind through our contacts of a possible HOT (read Large!) COLA adjustment this year for Social Security and possibly those lucky ones that have a COLA adjuster on their Pension or other retirement plan we dug in here in this post and outlined the methodology used by the SSA. The line in the sand for adjustment is later in the year but as can be seen by the latest CPI-W running at 6.1%, with a little luck, we may have a very nice adjustment on our hands!
Capital Market Comments
Valuations are Getting Better but Expectations are WAY out of Line!
In this post and with the help of our Friends at JPMorgan we happily reviewed the far right hand smartly turning graph, that is headed in the correct direction for better valuations… YAY
A bit later in the month we ran across a wonderful but somewhat worrisome poll done by Natixis of over 8000 investors and their expected return over the next 10 years…. Way off base in our minds….
Likely to see this last poll make its way into the Newsletter as these numbers are likely so exaggerated, we want more air time!
Ok…that’s a wrap for the July review….
Have a Great Day, Talk to You at the End of August!
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 Audio, Clients/Clients Only, General Financial Planning, Investing/Financial Planning, Market Comments, Monthly Review, Retirement Planning, Social Security, Tax Related, Video
Tagged Cola, Forward PE, Inflation, IRS, IRS Delays, IRS Refunds, JPMorgan, Natixis, Natixis Investor Survey, Pension COLA, Social Security COLA