Tag Archives: QE

Q 4 2020 Newsletter Video Audio Podcast Review of Year Events, Cause and Effects By John Kvale

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!

J.K. Financial q 4 2020 newsletter

Let’s get going!

Thanks in advance!

Q 4 2020 Newsletter

(YouTube)

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 !!!

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

Jeremy Siegel Talks Markets

 

At a recent CFA (Chartered Financial Analyst) Annual Forecast dinner, legendary Author, Investor and Professor, Jeremy Siegel chatted candidly with the audience.

Just by chance, recently he had a two hour podcast interview on Bloomberg’s Masters in Business.

Combining these two lengthy events, the following themes and forecasts (yep we will code this forecasts for future reference here in our digital diary) resonated:

  • Net real returns on stocks, netted out after inflation are about 6.5% over the long term – (Ok by us)
  • Siegel thinks the next 3-5 years will be a slightly lower 5-5.5% – again net of inflation
  • Inflation will not rise to the 2% target of the Federal Reserve (FED) due to deflationary forces – (We disagree)
  • QE (Quantitative easing) helped during the 07-09 crisis but has overstayed it’s welcome (We agree)
  • Emerging Markets (Young international country stocks) are poised to do much better over the next 5-10 years than many if not all capital markets (We 100% agree) – the trouble is when will they will finally get their feet under them from a timing standpoint according to Siegel (We totally agree again)
  • Increased regulations such as Dodd Frank have undermined productivity, leading to lower wage growth, investment and over all GDP (Ahh…this is so hard to measure, but seems like too much affect to us- we disagree)
  • Jeremy mentioned three times he was concerned with deflation over the next 1-2 years (Nah!)

We threw our thoughts in too … just for fun, and to also be held accountable.

We will check back in the future to see who got it correct !

Have a Great Day!

John A. Kvale CFA, CFP

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

 

 

Has the Federal Reserve Levitated Financial Markets ?

Bianco Research/Ritholtz

5-1-15 Bianco Research QE

YEP! …  Stunning

Note QE and Non QE return totals.

Have a Great Monday !

John A. Kvale CFA, CFP

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

 

Unintended Consequences of the Artificially Lower Rates … US Dollar Rally

Over the last several years the Federal Reserve (now along with other countries) has embarked on a program (QE- Quantitative Easing) to buy fixed income assets in order to lower interest rates. The US is the first to begin unwinding this QE, and there are a few consequences, the culprits now, US Dollar and Currencies.

Currencies move back and forth, the issue is not movement, but the magnitude of the movement, and the speed at which it has occurred.

The first QE side affects are now showing their teeth.

US Dollar Rally Continues

Today the FOMC (Federal Open Market Committee) ends a two-day meeting and will give hints about increasing interest rates. One of the items they may address is the increase in the dollar versus …. basically the world !

3-17-15 US Dollar

The Bad News: This makes anything in international dollars lower in value …. Very hard for international companies to compete (in the short-term.)

The Good News: Great time to travel overseas … More importantly, this is most likely temporary and will eventually normalize (flatten or go the other way.)

Bottom Line: Headwinds for international markets and foreign companies … For now! (Many investors have begun to chase/all in on this trend … wrong… let it self correct!)

Have a Great Day!

John A. Kvale CFA, CFP

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

 

Meeting with Axel Merk, World Economic Update

As mentioned earlier, Axel Merk, founder of the Merk Funds, a huge complex of currency Mutual funds, was in Dallas last week, and took time to come by the office and catch up.

A Few Interesting Items from Our Conversation

While our visit was brief (thanks again for the time), we were able to catch up on the World Economic situation in great detail.

Let’s start with our back yard, as Axel had recently co-chaired an event with Alan Greenspan in which Greenspan had some rather candid comments.

Greenspan, Federal Reserve, Inflation

  • Federal reserve does what congress asks (this may seem obvious, but recall they are supposedly “independent” …maybe not)
  • Question spawned from the above point, “Does this jeopardize the FED’s independence?” “I never said the Federal Reserve was independent” was Greenspan’s response (hmmm)
  • According to Axel, Greenspan stated inflation will HAVE to rise in the future and Gold will be much higher (our thoughts, bring it on!)

Moving On to Japan; Going all in

  • Axel believes Haruhiko Kuroda went all in recently in announcing huge purchases of securities to lower interest rates, of which we took note here, will be a failure (we are not so sure)
  • Japan will continue to debase its currency as long as possible, according to Merk
  • Interestingly, Sinzo Abe, Japan’s version of the president, if unsuccessful will fade into the sunset leaving very little dust if Axel’s vision come true

European Union; better late than never

  •  Mario Draghi (president of European Union) and company are on more on the right track according to Axel
  • They were very late in this economic cycle of getting started
  • Draghi’s attempt to do an American/Japan version of QE (purchase of assets to lower interest rates) is very difficult because of so many fragmented countries
  • France and Spain, according to Merk are not so good

What does it all mean?

Most interesting for me was the firm conviction of eventual inflation. We have been watching for it for some time and think a sip would be nice.

Time will tell.

Oh…here is a pretty cool chart from Axel’s group. This should make 2015 more interesting as the blue line will no longer be rising.

Merk Fed and S and P

Have a Great Day!

John A. Kvale CFA, CFP
www.jkfinancialinc.com
www.street-cents.com
8222 Douglas Ave # 590
Dallas, TX 75225

October 2014 Financial Planning Tip, Capital Market and Economic Review (Video)

Welcome to our monthly Economic, Capital Market, and Financial Planning tip of the month. Once again a special thanks to all of  YOU … the best clients and friends as your experiences have again given us the subject matter for our Financial Planning Tip of the Month.

For those new to our writings, we touch on the most pertinent Economic and Financial “stuff” along with a video of my mug that has even more specialized details of the latest month as well as this post.

VIDEO

You Tube Direct Link   or   Vimeo Direct Link

 

Financial Planning Tip: Home Stretch 401k/Qualified plan Max time401k

With just a few more contribution periods left, now is a good time to review your 401k contributions to make sure you are contributing the maximum available for your situation.

Also, take a peek to see if your allocations are correct as well. If we have completed your withholdings and allocations, and something has changed, shoot a quick note to us, we will review again to make sure we are all on the correct path to the end of the year.

It’s all about those rates (no treble)

Less bond dealers and a blow up somewhere led to a sharp fall in rates. It will eventually come out who was forced to sell, but as a October boo goes, rates cratered lower mid month with a slight bounce back.

This appears to us more of a situation (someone was forced to sell) than fundamentals and we continue to see higher rates in the nearer future.

10 Year 10-31-14

 

Quantitative Easing Ends

Several years ago, the Federal Open Market Committee then chaired by Ben Bernanke embarked on a path of asset purchases cleverly name Quantitative Easing (QE).Bernanke Helicopter Merk- 2012-06-05-bernanke-cartoon-qe3

  1. Three continuous rounds of QE (1,2,3)  were completed through monthly purchases of fixed income/bonds via the Federal Reserve
  2. Longer term Interest rates were pushed down
  3. Asset prices were pushed up
  4. The Economy, while slowly, caught its footing

Just as they should, these asset purchases were stopped in the month of October.  Markets should begin more open price discovery (we think higher rates.)

Have a Great Fall!

John A. Kvale CFA, CFP

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

Japan Let’s the Dogs Out

Friday, October 31st 2014, Japan’s version of US Federal Reserve Chair (think Greenspan, Bernanke or  Janet Yellen) surprised the entire world.

Japan Goes All In

Bank of Japan Governor, Haruhiko Kuroda announces a major round of government induced stimulus, catching the world by surprise.Haruhiko Kuroda

Similar to the US’s quantitative easing, Kuroda upped his commitment of government purchase of Japan bonds to $750 billion. More interesting was the fact that Japan’s government pension plan, the largest by far ($1.3 trillion) in the world would, is also being mandated to double their equity holdings by reducing their bond/fixed allocations.

  1. Lower the value of your home currency
  2. Help locals with exports, due from number 1
  3. Push local investors into higher risk assets

Japan is the third largest economy in the world. If Kuroda is successful, the world will thank him, as another growing economy of this size would be very positive for the growth prospects of the globe.

As luck would have it, I have a private meeting with our friend Axel Merk later this week. Looking forward to his take … should be interesting!

Have a Great Monday!

John A. Kvale CFA, CFP

PS Equity markets around the globe cheered, this move was not fundamental based, only reactions to government intervention!

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

Gloves off on Federal Reserve Intervention … “Hitting a Skunk with a Tennis Racket” …. That Skunk is a Nobel Laureate

Here is how the big boys fight … Not with fist punches, but public  jabs  … This fight shows what a “Black Ice” investment landscape we are in !

Quantitative Easing (QE 1,2,3)  AKA Federal Reserve Purchases of Government and Mortgage Backed bonds to lower interest rates, has been a lightening rod since introduced. We agreed with QE 1 and maybe QE 2, but not QE 3 ….

Nobel Laureate and Famed Hedge Fund Manager take the gloves off

Cliff Asness: Famed Hedge Fund founder of AQR Capital:Cliff Asness

….Responding to Krugman is as productive as smacking a skunk with a tennis racket. But, sometimes, like many unpleasant tasks, it’s necessary. I will, at least partially, make that error here ….

Paul Krugman: NY Time Op Ed columnist, Princeton Economics professor and 1998 Nobel Prize Winner:Paul Krugman

His recent column in the NY Times:

…..Clearly, Asness has never read anything at all on the subject — not what I’ve written, not what Mike Woodford has written, not what Ben Bernanke has written …..

… if you’re one of those people who don’t have time to understand the monetary debate, I have a simple piece of advice: Don’t lecture the chairman of the Fed on monetary policy.

Sounds like fighting words to me …    Guys … Let’s be orderly and nice!

Bottom Line:

This continued “Strong Federal Reserve” hand (buying assets to lower interest rates),  and now more importantly the exit, has even the big boys sparring over the outcome … and a “Black Ice” investment landscape

Have a Friendly and “Nice Monday !

John A. Kvale CFA, CFP

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

Chair Yellen … Please Continue, the Economy can handle it, and may need it!

Tomorrow and Wednesday mark another FOMC meeting.  It is expected they will reduce asset purchases by another $10 billion per month to a new $35 billion monthly level ($85 billion monthly near the start of 2014.)  We look forward to Chair Janet Yellen’s public testimony on hump day for clarification and guidance

If it has not happened by now it will not

Quantitative Easing aka QE or the purchase of fixed instruments by the FED to lower rates was a clever and handy tool when first used, but has overstayed its welcome. Rates have been low enough for long enough, we think it’s done all it can do!

The side effect of such purchases are a ballooning balance sheet (the FED creates money synthetically to buy the assets … not to worry there is a debit and credit entry for those accountant likes).

Here is a chart from our friends at JPMorgan of the afore mentioned balance sheet that also finds its way into our upcoming newsletter (that’s Trillions $$$) … getting pretty big!

Feds Balance sheet

The FED has a problem

In our coming newsletter we have an article concerning the FED’s ability to raise rates with so much extra money sloshing around in the system, which is a direct byproduct of the QE.

Janet … Go ahead and continue to slow those asset purchases (or even go more than $10 billion reduction) please! The US economy can handle it.

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