Last month as the payroll report (monthly report on hiring of workers in the US) was released we commented on our title of the review-
“Not Buying the Weak Payroll Report”
It’s nice to be correct, but it is even better for our investments.
Payroll Jumps
After a measly May, see tiny bar second from the left — A huge bounce back employment hiring report was released for last month. Ok — before we rave too much, the two reports combined are just above average, but not falling off the cliff !
The numbers are going in the correct direction – looking from a longer perspective!
Looking back at the great recession of 08-09 – There were job losses of over 750k monthly — we are far from those days…thank goodness !
Our refusal to accept the prior report was based on other parts of the report that we felt were just to compelling to ignore – better times ahead ? Maybe….
Have a Great … Clear-in-Rear-View-Mirror Economic Report – Day!
With a week that started as a possible smoldering cold war, it’s almost hard to believe Friday is here and the conflict seems a distant memory.
Hold On Tax Filings YET
Congratulations to all of the prompt tax filers who have completed, or are almost there on your tax returns. Please hold off on your actual filing as we expect several more rounds of corrected 1099’s. The first round of corrections were minor in quantity, which usually means this will be a light year, however we have had years where we are walloped in the second or third round. We will give you the green light as soon as the coast is clear.
Non-Farm Payroll Update
As we have mentioned/worried, the last two months non-farm payroll employment report have been less than resilient. (I know we have been mentioning this frequently…apologies, but this report is that important.) The street was expecting 150k for February (released today) and the actual was 175k … Ok, not a coast is all clear, but we feel much better now. We still feel there is abundant froth in the capital markets, but this eases our slow down scenario.
Spring Break Next Week
Next week is one of the most popular weeks of the month for spring break and my family and I will be out-of-town to a warmer climate for the week. We will be visiting clients, family, and friends, and will also usher in a week-long tennis school for my daughter.
With the newest Capone on final approach and having landing gear down, my tether to technology will remain flexible (light unless otherwise needed.)
Time Change
Turning the clock back is a favorite as the loss of sleep is way offset by the later dusk arrival. Don’t forget to turn yours’ Saturday night/Sunday morning if it does not automatically.
Enjoy your Friday and your weekend.
John A. Kvale CFA, CFP
PS My plans are to let the keyboard rest next week, but no promises!
In this post we review the top Economic, Financial and Market happenings from the most recent month and include a short video that details our thinking. A new additions to our Monthly review, straight from the trenches is our Hot Financial Planning Tip of the Month.
Hot FInancial Planning tip of the month: 401k/Pre-Tax Retirement account funding
There are right and wrong ways to fill that pre-tax retirement plan. This month’s tip comes from repeated trenches discussions and adjustments that go along with the turning of the calendar to a new year.
Spread the contributions as evenly as possible. AKA Dollar Cost averaging. You may be tempted to fill that 401k early for cash flow or other reasons. Resist it, we argue an even contribution reaching your maximums as late in the year as possible (see our Tax Cheat sheet here for 2014 IRS limits) works best in the long run.
You may need to exclude your bonus or other unusual cash flow event to hit your max late in the year. If you have questions, please reach out to us as we run these calculation frequently.
Side note and special extra tip (ok….a little cheesy but bear with us)
New 401ks in almost all cases should be a beast of aggression (click for our Beastly logic article) as your contributions make up the majority of your account, so be aggressive and welcome market maham, it will be better for your balance in the long run.
Non Farm Payroll — Two Strikes
The December report (January release) was expected near 200k and came in at 74k (wiff and a miss). The January report released in February, was 125k with the street looking for 180k. We have two strikes, and so far capital markets are happily ignoring this news. We will breathe much easier with a positive report later this week, due March 7, 2014.
Interest Rate Voodoo
Interest rates are so important, they have begun play opossum. We have tossed up a few fancy trend lines in order to help clarify their final movement. A break up or down MAY lead to accelerated movement. Even if you do not believe in the chart Voodoo, others do, adding pressure at these eventual break points. (Momentum in a sporting event…can’t see it, but it exists.)
The Year of the Buyout
With a SLOW Growing economy, both in earnings and especially Sales (top line.) This may be the year of the buyout. If you cannot build it, buy it. This is fine with us and represents an increase in confidence which is what we need moving forward. We will keep you updated as we progress through the year, but at this time it appears mergers/buy outs are going to be very popular this year.
It’s tax season, while many forms are coming in the mail, most are not arriving for another two weeks. Non-Farm Payroll disappoints again.
Tax Forms
For those ready to get rolling on your taxes, forms will be ready after Presidents day on February 18, 2014. We will have an official post of “they are ready” but as always caution those eager to get at the front of the IRS line, not to file too early, as corrected tax forms are the usual in this day of complicated reporting.
Non-Farm Payroll Weak
Not to beat a dead horse, but another slightly weak (113k reported v expected 180k) Non-Farm Payroll number was reported this am. Recall this number measures hiring in the USA, and last months report (December measure) was very weak.
We think this weakness has been caused by the Polar Vortex Winter and is just a pause, not a break, however we will continue to monitor it closely. This key report in January has put a damper on the markets since early 2014.
Next week brings another travel time for me late in the week, but that is next week, and this is a Friday, heading into a weekend.
Confidence left the capital markets with one possibly outlier economic report this month. While many have pointed to the Emerging Market Economies, looking closer we can see cross currents beginning at a different point and time.
Break In — An All New monthly Financial planning Tip
After reviewing the HEAVY material from our most recent Q 1 2014 Newsletter and our recent monthly review video’s we have decided to insert a Financial Planning tip of the month. This tip will come from the trenches of recent questions and we hope to break up the monotony of the heavy material, we financial Nerds get so excited about. So here is our first hot tip.
The Personal Umbrella Policy
If you have any liabilities that may expose assets to bad people, you need a Personal Umbrella Policy.
An Umbrella Policy has the following characteristic:
Most commonly added to your homeowners policy
Inexpensive (Hundreds of dollars annually, not thousands)
Implementing an Umbrella policy confirms other policies are appropriate (Underlying liability coverage must be in place prior to adding an Umbrella policy)
Kicks in when trouble arises (Once other coverage is exhausted, the Umbrella begins)
For the annual price tag, the peace of mind this policy will give makes it well worth it most cases. Ok … On to our regular monthly review.
the Non-Farm Payroll Bomb
With a consensus expectation of 200,000 new hires for the month of December, a print of 74,000 was where it all started.
Recall the polar vortex we have all experienced. While the numbers are not SUPPOSED to reflect this, actions speak louder than words. This may be a one time event. Next Friday, February 7, 2014 we will get the January report, which will be very important. We will be watching closely.
INTEREST RATES ARE WORRIED
There are many sayings on Wall Street, often comparing Bond guys (can see their thoughts through interest rates) to Equity guys (can see their beliefs via Dow, S&P) most of which make fun of each other.
Interest rates are saying there is a problem. The FOMC is reeling in stimulus which should allow rates to rise, however they are falling. Bonds (bond investors) are saying we are heading into a serious slowdown. Equity markets ignored much of this until lately and then the many headlines blamed Emerging Market Currency fluctuations.
The peak in rates from this chart, directly co-insides to the above mentioned Non- Farm Payroll report. Right or wrong, it is pretty easy to see now in hindsight what started making equity markets nervous.
There is a tug – of – war going on between Bond guys (feeling scared/negative) and Equity guys (feeling a slight slow) which only time will tell who is correct.
Just like clock work, market participants tend to overshoot at each end of the spectrum. This time possibly raising expectations too high.
This chart from a fellow wordpress blogger, Macro Monitor, shows not only the losses during the latest recession, but also if you look to the very far right (latest data) and see the nice blue bars rising steadily, until the Friday dose of reality report, you can see how many participants were sucked into believing all was clear.
We are not saying the clouds are turning dark and all is lost, just keep a reasonable perspective is usually helps in investing.
This morning non-farm payrolls came in at 243k versus expectations of 140k, far exceeding expectations. This surprising report has put a fire in the capital markets around the globe.
While this is only one report, most economists believe it takes about 210k to bite into the unemployment situation.
Given the Black Cloud CFA Forecast dinner post, and the dialogue I have gladly received from many of you, we now have another positive tea leaf on the table.
Thanks for all of your emails and comments, and thanks for reading our work, we greatly appreciate it!
Have a Great Day and we have another post coming shortly today to slide you lightly into your super bowl weekend !
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.
Pausing for a moment to realize just how good Economically it is today …
There are always shortcomings … as a growing “Type A” country, we want more and better … Let’s pause for just a moment …
March 2009, 823 thousand jobs were reported lost
The lowest bar on this chart was on March of 2009 (coincidentally, the bottom of the great recession stock market too– digressing)
Pause for just a moment … 823k people were fired/left the workforce, IN ONE MONTH … that’s a small town !
Unemployment rate hits 4.1%
By scanning the chart above, as the bars turned up the resilient USA economy started rebuilding/hiring workers again.
Looking from a different angle, last Friday the USA unemployment rate logged a fresh great recession low of 4.1%
Pretty good stuff!
Have a “Good” 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
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Posted in Economy, Investing/Financial Planning, Market Comments, World Political
Tagged Jobs, Non-Farm Payroll, Unemployment Rate