J.K. Financial, Inc. J.K. FINANCIAL, INC. Happy Thanksgiving!

Happy Halloween!
REGISTERED INVESTMENT ADVISOR

sletter
New
8222 DOUGLAS AVE SUITE 590
DALLAS, TX 75225 4TH QUARTER 2009

INTEREST RATES
A special four part series, newsletter theme
Just as the last newsletter had a theme of pen-
sions, this newsletter is devoted to interest rates.
You know we have great concerns that interest
rates will rise in the future. Our concern is that
investors be aware of the extreme danger that
lurks in longer term dated fixed income instru-
ments if interest rates rise rapidly.
Recently, in a gathering with Michael Cox, for-
mer Chief Economist for the Dallas Fed and cur-
rently Director, O’Neil Center for Global Markets
and Freedom at Southern Methodist University,
he stated that he expected inflation to be at 4-5%
within a year.
While this is extremely good news for our
economy, this will result in higher interest rates,
if correct, for mortgages, checking and money
market balances, but much lower values for lon-
ger term fixed income instruments.
Just be careful. See our “Coiled spring” article
on Page 5 for more information.
We wanted to give you a bit broader invest-
ment and wealth management topics. We hope
you enjoy.

Required minimum distributions waived this year (2009)

As the end of 2009 taxes paid) assets. butions is to pay taxes. along these lines are Roth
comes, one thing we do The logic behind this Fret not, as we will not conversion and contribu-
not have to fret about was to allow investors be calling you for those tions. Next year, a few
is RMD’s or Required the opportunity to gain annual distributions this of the rules concerning
Minimum Distributions. traction back in their year but next year will these investments are
RMD’s are the govern- investments as the mar- certainly be back to the changing and in order
ment’s requirement for kets smartly recover. In norm. Enjoy the slightly not to confuse you, we
those of us 70 ½ or older effect, this is a tax break lower taxes to the IRS this will update those rules
to take funds from our as the main reason we are year. next year (2010).
IRA or other qualified (no forced to take IRA distri- Follow up points

INSIDE THIS ISSUE:

Sneak peak: What we learned
Part 1: Inflation...best known secret
Part 2: Consumer Price Index
Part 3: Inflation factors to look for
2
3
4
5
5%
Investors over age
2.75%
Consumer Price
Coiled spring..... Careful! 5 50 opting for extra
Part 4: Our probability of inflation 6 catch-up payments Index Average Since
So what did you do this summer? 7 available for 401k 1928. (CPI) A proxy
J.K. Financial, Inc., John voted Five Star and other retirement for Inflation.
Investment Advisor 7 contributions!
J.K. FINANCIAL, INC.

Sneak peak:
What we learned over the last business cycle
FIVE THINGS TO Donald recently com-
KNOW piled the chart below
about inflation (small preview version),
c Inflation is too which we know is a bit
busy, but forms the the-
much demand
sis for our next newslet-
chasing too little ter in which we review
supply. our predictions from the
prior year, formulate a few
hypothesis for the coming
c The Fed attempts year (2010) and take a look
to maintain a 2-3%
rate of inflation.
at what happened over the
last recession. Not to let the
secret out but we were so
pleased by the data com-
piled from S&P, ICI and
Telechart that we wanted
to give you a sneak pre-
view. Another reason we
want to hold off until our
next newsletter is to add
additional data which will
be available over the next
quarter and will most likely
further support our thesis.
The gist of the chart
shows two investor classes
acting at differing times.
Can you figure out how
we may infer this? If not,
we will explain in the next
newsletter.

c The CPI mea-

sures inflation
as experienced
by consumers in
their day-to-day
living expenses.

c Higher interest
rates may signal
the possibility of
inflation coming
around the corner.

c We think in-
flation will rise Pension success, follow up from our last newsletter
and take several We are happy to thank those of you with Yes, just as the old EE bonds mature, we have
years to stop as feedback and research in discovering your found pension benefits that mature as well.
pension information from our last newsletter There has been no uniform age and no extreme
the economy (quarter 3, 2009). Your research and discovery notification to the investor that we can deter-
overheats and -- yes, there were found pensions -- actually mine as of this time.
helped us uncover an even more important In such cases, immediate action is necessary
begins showing pension item. as pension owners may actually be penalized
signs of supply/ The following only applies to individuals for their procrastination. If you have a vested
who are not yet taking pension benefits but do yet untapped pension, dust off the folder and
demand mis- have a vested benefit. take a look for key words such as “Freeze” or
matches. We have found several situations where “No More Accrual.” If you have questions, feel
pension benefits actually stop earning a benefit free to e-mail us or give us a shout.
to their owner. What, you may be asking?
PAGE 2
 4TH QUARTER 2009

Part 1
INFLATION: one of the best known secrets
W
ith much talk of inflation, and to be
fair, much coming from our mouths
as well, we decided to post a series of
thoughts concerning inflation.
What is inflation? Investorwords.com has the
following definition:
“The overall general upward price move-
ment of goods and services in an economy,
usually as measured by the Consumer Price
Index and the Producer Price Index. Over
time, as the cost of goods and services in-
crease, the value of a dollar is going to fall
because a person won’t be able to purchase
as much with that dollar as he/she previ-
ously could. While the annual rate of infla-
tion has fluctuated greatly over the last half
century, ranging from nearly zero inflation
to 23% inflation, the Fed actively tries to
maintain a specific rate of inflation, which
is usually 2-3% but can vary depending on
circumstances, opposite of deflation.”
In less technical terms, too much demand chas-
ing too little supply.
What is the long term inflation rate as mea-
sured by the CPI (Consumer Price Index)? 2.75%

Tax strategies for year end er

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W Tax Guide
pro

It’s not too early

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be fi
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to think about
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next year’s taxes
As we enter the Fall, we
begin working on tax loss
selling and capital gain neu-
tralization strategies.
As many of you are most
certainly aware, Uncle Sam
wants his fair share of our
gains on taxable investments
we have realized over the
calendar year. While it may
be unthinkable, given the
104
0 U.S.
Individ
ual the invest-
market’s negative movement the “tax tail wag
over the last two years, it is ment portfolio dog.”
still possible to have capital
gains taxes due. There are always surprises
that we miss and gains that
Our tax strategies involve slip through at the last min-
attempting to realize the ute but as our thoughts turn
current maximum deduct- to helping minimize taxes,
ible amount ($3,000) in losses we thought it informative to
while not sacrificing the relay and remind you of our
integrity of the investment strategies in advance.
portfolio, and never letting
PAGE 3
J.K. FINANCIAL, INC.
Part 2
Consumer Price Index (CPI) ...
a measure of inflation?
What is the CPI?
The Consumer Price Index,
according to the Bureau Of
Labor Statistics which has an
excellent web site at www.bls.
gov, is a measure of the average
change over time in the prices
paid by urban consumers for
a market basket of consumer
goods and services.
Is the CPI the best measure of
inflation?
Inflation has been defined as
a process of continuously ris-
ing prices or equivalently, of a
continuously falling value of
money.
Various indexes have been
devised to measure different
aspects of inflation. The CPI
measures inflation as experi-
Update from Q3 newsletter
Nouriel
Roubini more
in line with
our view
PAGE 4
enced by consumers in their goods and services to consum-
day-to-day living expenses; ers. Finally, there are specialized
the Producer Price Index (PPI) measures, such as measures of
measures inflation at earlier interest rates.
stages of the The “best” measure
production The CPI mea- of inflation for a given
process; the sures inflation as application depends on
Employment the intended use of the
experienced by
Cost Index data. The CPI is gener-
(ECI) measures consumers in their ally the best measure
it in the labor day-to-day living for adjusting payments
market; the BLS expenses... to consumers when the
International intent is to allow con-
Price Program sumers to purchase at
measures it for imports and today’s prices a market basket
exports; and the Gross Domestic of goods and services equiva-
Product Deflator (GDP Deflator) lent to one that they could pur-
measures inflation experienced chase in an earlier period.
by both consumers themselves Release time is 8:30 ET, about
as well as governments and the 13th of each month for the
other institutions providing prior month.
In our last newsletter (quar-
ter 3, 2009), we commented that
be here sooner rather than later.
Nouriel Roubini, a noted econ-
omist, was one of our favorites,
Here is the link to the inter-
view: http://www.cnbc.com/id/
yet we did not totally agree 232?play=1&video=1212550416
with his timing of a recovery.
It is nice to have Mr. Rou-
He has revised his com-
ments, stating the recovery may
bini now closer to our original
views.
 4TH QUARTER 2009

Part 3
Inflation factors to look for as leading indicators
We have spoken of the concerns of higher
interest rates and the headwinds that higher rates
create.
Being that most investor’s memories do not
stretch for many decades, we continue to men-
tion interest rates and their prevailing value as a
possible leading indicator for inflation.
Here are our inflationary watch dogs that
would signal the possibility of inflation coming
around the corner:
Higher interest rates We have mentioned this
before and a current poll is in the works for your
opinion.
A lowering of the value of our U.S. dollar Be
aware that foreign countries own much of our
government debt. The warning or actual transfer
of that debt into another more perceived steady
currency can have dramatic effects on the value
of our U.S. dollar, effectively creating a possible
head fake in our inflationary watch.
Commodity prices rising While not a directly
linked inflation effect, as the value of the U.S. dol-
lar goes down, commodity prices may rise. Think
the price of oil!
Wage pressures Unthinkable at this point
in the business cycle, workers in an inflationary
environment are often apt to push for higher
wages to accommodate the lower value of their
paycheck.
In our last, and most important part of this
series, we outline OUR thoughts on the possibil-
ity of inflation and our thesis of why or why not
inflation may occur.

Coiled spring being held down…Careful!

The Federal Reserve meeting
press release, (see link below)
gives us a bit of concern from an
artificial market force.
http://www.federalre-
serve.gov/newsevents/press/
monetary/20090812a.htm
Here is the meat of the release
in case you have trouble with
the link:
“As previously announced,
to provide support to mortgage
lending and housing markets
and to improve overall condi-
tions in private credit markets,
the Federal Reserve will pur-
chase a total of up to $1.25 tril-
lion of agency mortgage-backed
securities and up to $200 billion
of agency debt by the end of
the year. In addition, the Fed-
eral Reserve is in the process of
buying $300 billion of Treasury
securities. To promote a smooth
transition in markets as these
purchases of Treasury securities
are completed, the Committee
has decided to gradually slow
the pace of these transactions
and anticipates that the full
amount will be purchased by
the end of October.”
Yes, here we are again, wor-
rying about interest rates but
please be aware there are un-
intended effects when we have
government intervention (we
do agree with the current gov-
ernment policy.) Like a coiled
spring, or rattlesnake, interest
rates may be held down cur-
rently via artificial, non-market
forces.
We are investing accordingly
and warn that great risk may
be in long dated fixed income
instruments!
PAGE 5
J.K. FINANCIAL, INC.

Part 4
Our probability of inflation and thesis why
At this point we in the late 70’s and ing our country into a cards.
have a good idea of took a lot of criticism second “double dip” Point 2: Obama is
what inflation is, why for doing so. Current- recession. Bernanke is extremely smart and
it happens, the lead- ly, Volcker is chair- a student of econom- knows time is of the
ing in- man of the ics and specializes in essence in turning
dicators The Great De- Economic the Great Depression; our country around
and it’s Recovery we find this possibil- in order to be re-
effects.
pression lasted Board and ity possible but un- elected. He currently
So in longer and was may pro- likely. has two years to get
our opin- deeper due to an vide valu- 60% chance: the country in shape
ion (and able insight Inflation rises and in order to thwart his
early recovery
only time into a soft, takes several years to opponents in the next
will tell being squashed non infla- stop as the economy election. We think
if we are as the govern- tionary overheats and be- he will error on the
correct), recovery. gins showing signs side of too hot of an
ment became
here is 15% of supply/demand economy, rather than
our prob- over confident of chance: mismatches. take a chance of a
ability of the recovery and The gov- Our key thesis for slowdown near elec-
coming hiked rates too ernment this event is two fold: tion time.
inflation extracts 1) where Only
and most fast, throwing too much, we have Obama is ex- time will
impor- our country into too quickly been, 2) tell if we
tantly
tremely smart
a second “double and throws re-elec- are cor-
why. us back tion. and knows time rect in our
25% dip” recession. into an- Point 1: is of the essence thesis and
chance: other reces- Given the probabili-
in turning our
No sion. amount ties but we
inflation and the Little known, and of dollars, country around have out-
government is able mostly by historians, compa- in order to be re- lined the
to extract the recent the Great Depression nies lost, possibili-
elected.
stimulus perfectly. lasted longer and and em- ties in our
While difficult, it is was deeper due to an ployment opinion
not impossible for a early recovery be- figures and will
perfect outcome con- ing squashed as the we have experienced, update them in the
cerning the next few government became we think it highly future as new facts
years. over confident of the likely an error on arrive. We hope you
Paul Volcker was recovery and hiked the too hot side or have enjoyed this
able to stop inflation rates too fast, throw- inflationary, is in the four part series.
PAGE 6
 4TH QUARTER 2009

So what did you do this summer?

John... John and family had an early
retreat to Destin with John’s dad. He
Looking into the fall, the CFA
Presidency is going to keep John
Retreat to and his wife, Pam, spent the remain- hopping, with numerous meetings,
Destin, pool der of the summer at the pool with travel and board related duties.
time, school for the kids. Sophia started Pre- Fall also marks the official start
K five days a week, begin- to a heavy sports season, which
the kids, ning Aug. 31. Pierce headed John and family are always glad
Presidency, lots to his big sister’s school to see, although the days with
of sports -- different class of course -- twice a shorter hours of sunlight are not so
week. pleasant.
Cathy... Beach time with
Cathy Kitzman spent the first by playing in her pool with her daughters,
week of June relaxing at the beach black Lab, Cody. The highlight of staying cool
with her two daughters, soak- the summer was seeing Paul Mc-
ing up the sun and reading Cartney in concert.
in Texas heat,
suspense novels. The remain- Fall plans include spending McCartney in
der of the summer was spent time with family and friends and concert, more
trying to stay cool in the Texas heat treating each new day as a blessing. family time

Donald... Donald and Randi had a quiet but
Quiet, fast fast-paced summer. Unfortunately,
the fun summer travel plans were
summer, long delayed until Labor Day week-
weekend in end. They were able to enjoy
Charlotte, a long weekend in Charlotte,
Komen 5K North Carolina, spending time
race... Red Sox with family. They even got to
make a side trip to Virginia to do
in World Series? some mountain biking.
They are looking forward to the
much improved Fall weather that
they will see in Houston, which will
hopefully allow them to prepare
for the Susan G. Komen Race for
the Cure 5K in October. Donald
will also have his fingers crossed
the Red Sox will make another
trip to the World Series.

New news:
J.K. Financial, Inc., John voted Five Star Investment Advisor by Texas Monthly

U pon receiving a con-

gratulatory call from
a peer, we found that Texas
Monthly, in the most recent
monthly publication, voted
J.K. Financial, Inc. and John
Kvale, among many others, a
five star investment advisor.
We are very flattered by the
nomination and had no prior
knowledge of this.
We have always thought
highly of Texas Monthly
Magazine and now we even
think higher!
PAGE 7
 J.K. FINANCIAL, INC.
REGISTERED INVESTMENT ADVISOR

8222 DOUGLAS AVE SUITE 590

DALLAS, TX 75225
Phone: 214-706-4300
Fax: 214-706-4262
E-mail: cathy@jkfinancialinc.com

( Check out our Blog

www.street-cents.com )
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 ap-
propriate for you, consult your financial advisor prior to investing.

Office NEWS: Parting thoughts: Sites to visit

Our website at www.jkfi-
nancialinc.com is undergo-
ing major improvements. In
the near future keep an eye
out for continued additional
resources on our website.
Complete archived Newslet-
ter viewing, in-house edu-
cational pieces, and much
more, as we enhance our
company website.
We appreciate your com-
ments and hope you are
continuing to enjoy our blog
email update. Feel free to
share with a friend or col-
leage.
Your referrals are certainly welcome.
We are always very happy to visit with
friends and contacts concerning their
finanical goals and needs.
We selectively offer new clients en-
gagements, and find that about one
in four have similar philosphies and
eventually become new clients.
Our goal is to help every person we
visit with, either within our firm or
possible other related direction. Given
the terrific network of financial con-
tacts we have established over the past
twenty years, we feel very comfortable
in the ability to confidently help al-
most any person in need of assistance.
• http://www.nytimes.com
• http://finance.yahoo.com
Dates:
Halloween is Oct. 31.
Thanksgiving is Nov. 26.
14th Annual J.K. Finan-
cial, Inc. Holiday Party,
Sunday Dec. 13, 3:30-5:30
p.m. at Dallas Athletic
Club --
Cowboys football game
will be playing for your
viewing pleasure.