We have been watching interest rates closely as well as a local born inflation gauge called the Trimmed Mean put out by our Own Dallas Federal Reserve….
Interest rate movement can be a predictor of better times ahead… Think reopening and also of future inflationary waves…
Here is a shorter termed graph of the 10 Year Treasury Yield….
Purposely a shorter term graph to exaggerate the recent movement…
Next up, we fly much higher to the ten thousand foot level to show you while rates are moving, they are far from sky high….
Higher rates can be a headwind to markets… fast moving higher rates would have a high probability of disruption…
Slower, gradual, less jittery rates may be just what the Dr. ordered… not too hot, not too cold…
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 !!!
In a luckily timed post here in our August review and again here in September we mentioned that markets had gotten far enough ahead of themselves, we had to waive the white caution flag…
Oddly, within days of our original white waiver, markets slipped … always rather be lucky than good – markets breathed caution in the air quickly with a sharp 10% correction — Safety is still advised!
Capital Market Comments
Inflation & The FOMC
In a somewhat preliminary discussion on what might change market sentiment, not knowing it had already adjusted a bit, here , here , here we discussed inflation measures, the FOMC (Federal Open Market Committee) and their views along with our personal favorite inflation measure, Dallas Federal Reserves own Trimmed Mean inflation gauge.
With two heavy posts this week, here and here and not only were they heavy, but they were about the FOMC (Federal Open Market Committee), Interest Rates, CPI (Consumer Price Index) and the Trimmed Mean Inflation measures…. Y.A.W.N for many!
Ya Ya we know you guys may not find this stuff as interesting as we do, but we like to at least let you know what we are watching and call attention to some of this so as to know what may or may not change or cause issues… thanks for the reading this week….
Month End Coming
With the afore mentioned heavy posts and month end coming along with two Video reviews shortly (Newsletter and September) we thought we could slide into the weekend as it is a Friday….
Speaking of Month End…. this brings a family favorite into view OCTOBER which means HALLOWEEEN … (over week ago of rats, pumpkins and a Crow that keeps falling of the front rail of the entry at the house already set up for the occasion) – not kidding – ok so yours truly has become fond of the warmer months along with the long days…. but occasionally the guard is let down….. the Mrs. and Myself from a few years ago ….
Hope at least got a chuckle …. Green Make Up stuck around for weeks
Next week, back to heavy … and lot’s to talk about …
Today is a Friday … Enjoy your weekend and see you next week!
Well covered in Part 1, here, the FOMC (Federal Open Market Committee) and Capital Markets also believe currently that interest rates will stay low for longer …. maybe we are hopeful they are both wrong (No maybe, we are!) but there is one word that we know the FOMC cannot allow to get out of control …
Inflation !
With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent.
During the 07-09 Great Financial Crisis, the FOMC then lead by Ben Bernanke, used the Feds balance sheet to purchase assets in order to lower rates, increase asset prices and calm markets….
This was unprecedented at the time….. Not today!
The current Bazooka is three times more ALREADY and will most certainly continue to grow in size and stimulus !
What if eventually the economy takes hold, and springs back to life –
Here is the traditional measure of inflation, Consumer Price Index from the BLS (Bureau of Labor Statistics) – again we like the afore mentioned Trimmed Mean and so does the FOMC!
Not to worry, we will be watching that 2ish % level closely…..
Inflation may occur, forcing the Feds hand at higher rates — time will tell!
Have a Great “FOMC and Interest Rates Part 2 Conclusion” Day!
With the FOMC (Federal Open Market Committee) led by Jerome Powell and company at their most recent meeting, made the following comments:
On price stability, the FOMC adjusted its strategy for achieving its longer-run inflation goal of 2 percent by noting that it “seeks to achieve inflation that averages 2 percent over time.” To this end, the revised statement states that “following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.”
The updates to the strategy statement explicitly acknowledge the challenges for monetary policy posed by a persistently low interest rate environment. Here in the United States and around the world, monetary policy interest rates are more likely to be constrained by their effective lower-bound than in the past.
Let’s Decipher these Comments and Bring On the Tracking
The comments above, were understood by many/most on Wall Street to mean rates will be allowed to stay lower for longer and the 2% inflation rate is not a hard line number….
The following is the Trimmed Mean Inflation Rate completed by our very own Dallas Federal Reserve, just down the street from us!
It is basically taking the far outliers in any report out and calculating the number. This rate is one of the most watched inflation numbers by the FOMC!
Here are the actual numbers- watch that 2% number!
When rates go up, it is a headwind for Capital Markets …
Let’s keep a watchful eye on this… we are tracking you Mr. Trimmed Mean.
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.
$treet-¢ents 
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
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
Share this:
Like this:
Leave a comment
Posted in Audio, Economy, FOMC, General Financial Planning, Interest Rates, Investing/Financial Planning, Market Comments, Newsletters, Podcast, Video
Tagged FOMC, Forward PE, Inflation, Interest Rates, JPMorgan, QE, Trimmed Mean, Valuation