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Greater Evidence of Bear Market

Today the SP traded below 1820, a key support level, which implies an increased risk of a breach downward into much low prices. The ten year Treasury yielded as low as 1.57% today, only 0.13% above the all-time low of July, 2012. The New York Composite index dropped below 9,000, which is a 22% decline since the peak of May, 2015. The global economy was fooled by the real estate and mortgage bubble of 2002-2007, fooled by the China growth bubble and its related commodities bubble of 2000-2012, fooled by US, EU, Japan central bank QE, and ZIRP from 2008-2014. These programs have become discredited so that people have begun to lose faith in the hope of economic growth. This

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February 11th, 2016|mayflowercapital blog|0 Comments

Negative Interest Rates Very Risky

Talk in favor of negative interest rates fails to grasp that when there is hypothetically a need for negative rates the people who need to borrow may be so afraid to that merely having a negative rate is not enough to encourage more use of debt. The claim that negative rates encourage more use of debt and thus more demand for goods is like saying that if gas prices keep going lower people will buy faster cars and drive at faster rates. Then one could erroneously leap to the conclusion that if gas goes so low that it has a negative cost maybe everyone would spend millions developing a “car” that goes 600 mph on the Bonneville salt flats. Instead,

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February 10th, 2016|mayflowercapital blog|0 Comments

Deep Crash Can Occur Even If No Recession

The key to a country’s economy improving is when people make a sacrifice and forgo petty consumption in favor of major capital purchases. The oil cut is wasteful to the extent it encourages consumption of low margin, foreign made impulse purchase items. That also applies to buying domestic SUVs. The establishment refutes the possibility of recession or claims it will be mild. They may be right that it will be mild. Surely, after 8, 9, 10 years after the last recession something will happen, probably best explained by the “Minsky moment” where people who use junk financing fail and get cut off from access to credit. The housing market, which has become less risky because it has not had Easy

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February 9th, 2016|mayflowercapital blog|0 Comments

Oil Price Drop Will Cause And Then Cure Recession of 2017

   The theory that low oil prices will create a new boom for consumers and business is wrong in the short term but correct in the long run. Oil has been consumed in the amount of 3% of GDP before the price drop. A 2% cut in one’s budget, as a result of a 2/3rds drop in oil prices, with no guarantee of a price lock, in is not enough of a “tax cut” to justify a major capital spending boom. If Congress gives you a temporary 2% tax cut ending in an unknown time do you go out and buy something that costs 20% of your income and is a fixed long term debt? The problem with the oil

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February 8th, 2016|mayflowercapital blog|0 Comments

Stock Crash Intensifies

Today LinkedIn crashed 44%, down 62% from its peak and is now at same level as the pre-bubble era of mid-2012. Many NASDAQ listed companies also went down significantly today. The main thing propping up stocks have been a few glamorous NiftyFifty FANG tech stocks. The slaughter of LNKD shareholders made other tech investors nervous. I feel they will lose faith in momentum investing, which advocates buying simply because others are buying, and this will trigger a massive rout in tech stocks. Then dramatic losses in tech will inspire caution in investors of more traditional stocks, causing them to awaken to the high PE ratios. Thus broad market indexes will decline significantly. The Federal Reserve can’t cut rates any more

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February 5th, 2016|mayflowercapital blog|0 Comments

Employment Report Supports Bond Investing

The Employment Report released today by BLS showed 150,000 new jobs, which is roughly 25,000 net of population growth. That pace shows the unemployment has been only improving by 0.2% a year. Assuming that the true unemployment rate is 2.5% higher than the official rate of 4.9% then the unemployment rate is really 7.4%. If it improved by 0.2% a year it would take many years to reach the magic goal of 4.0% unemployment. However, using a more credible six month average then the population-adjusted net growth in jobs is about 1% a year. That rate would require 3.5 years to reach the 4% employment goal of full employment. Since recessions usually happen every eight years then soon another one

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February 5th, 2016|mayflowercapital blog|0 Comments

PE10 Does Work

The complaint against PE10 is that it has rarely, signaled a buying opportunity in the past 20 years. But if one assumes that the only correct times to buy stocks was during the recessions of 2002 and 2009 then PE10 acted as a protective measure to discourage buying when stocks were overpriced. If one assumes that the May, 2015 high of 2,130 points for the SP was correct and not a bubble then I’m wrong. But if true value is somewhat more like the 1200 point estimate for the SP that some bears advocate then why bother to make the trip up to 2,130 points and hold on tight as stocks drop back down to 1,200 points? If one rejects

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February 4th, 2016|mayflowercapital blog|0 Comments

Investing After The True Crash

Assuming the economy tips into recession late in 2016 and stocks crash then eventually in 2017 the economy may have reached the bottom. Then conditions may be appropriate to reallocate into risk-on assets. Should investors buy junk quality small cap and EM stocks or should they seek high quality (usually large domestic companies)? I feel that there is enough risk (and thus potential reward) in equities such that one should limit oneself to the high quality type of equities and other risk-on assets, with the goal of reducing excessive, uncompensated risk. The definition of high quality risk-on assets would be stocks that are industry leaders in financial ratios such as return on equity, growth, growing profitability, low debt, plenty of

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February 3rd, 2016|mayflowercapital blog|0 Comments

Rising Risk of Big Muni Bond Default

As the economy moves closer to the top of the credit cycle and a subsequent stock crash and recession bond investors should be aware to avoid being fooled by hidden risks in bonds. Traditionally Muni bonds were low risk and had a track record, except for a few tiny cities, of not defaulting. But Puerto Rico is deeply in debt. News stories have said the territory may seek a 46% haircut plus several years of no interest (which would really be more like a 55% haircut. There are many news stories about Chicago public schools having more debt than they can afford. It was a shock when Lehman failed and creditors were paid a small amount. When Argentina defaulted in

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February 2nd, 2016|mayflowercapital blog|0 Comments

Tech Doesn’t Hurt Employment But Tech Stocks Can Be Dangerous

Technology creates new layers of complexity that require more experts, trainers, inspectors, etc. Technology creates totally new types of jobs such as a Search Engine Optimizer, etc. An amazing article in the New York Times about how consumer who use Google’s search system are fooled by dishonest businesses that create phony office locations and how honest businesses are fighting back shows the importance of human work to fight back against marketing fraud. The article mentions someone hired a private detective to research this problem and another hired an attorney to subpoena records. Thus non-tech jobs were created. I’m a tech optimist regarding the idea that tech will create jobs and growth. Tech allows the opportunity for new, more complicated things

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February 1st, 2016|mayflowercapital blog|0 Comments