Monthly Archives: August 2017

Will the Treasury Default and Ruin Bonds?

   On Friday, September 29 it is the deadline to raise the federal budget deficit before a crisis starts on October 1. Trump threatens to not to cooperate unless a border wall is built. To get the budget done Congress would have to authorize paying $30 billion to $60 billion for the wall. But this is a capital expenditure, so the amortized cost might be 3% of the capital cost a year. That’s only $3 to $6 per person a year, plus interest. Trump may find that the senators who can protect him from impeachment are a valuable resource of contacts to build alliances with, rather than to antagonize, so there will be room for compromise. The idea that U.S.

2017-08-23T14:55:37-07:00August 23rd, 2017|mayflowercapital blog|Comments Off on Will the Treasury Default and Ruin Bonds?

Cash On The Sidelines: Does It Justify High PE Ratios?

Fundamental analysis may look at PE ratios to define bubbles. But what should one do if the money supply has been drastically increased thus providing more funds for investors to engage in a bidding war to buy stocks? Does that mean that PE ratio guidelines should be expanded to accommodate the increased supply of money? Some fundamentalist advisors refer to the phrase “cash on the sidelines” as a false concept that can’t happen.  They assume that there is a finite amount of cash available to be traded between investors for shares of stock held by other investors and that on the aggregate that no new cash can appear on the sidelines and then be deployed into buying stocks. This would

2017-08-14T14:01:11-07:00August 14th, 2017|mayflowercapital blog|Comments Off on Cash On The Sidelines: Does It Justify High PE Ratios?

Greenspan Says Bonds Are A Bubble

          Alan Greenspan was quoted today saying that stocks are not a bubble yet he said bonds are. I strongly disagree. The traditional metric was that the ten year Treasury yield equals nominal GDP. Using PCE inflation around 1.6% and real GDP of 2.5% implies a 4.1% yield is needed. (But this metric was developed during the old days before the labor market became weak and before EM countries had huge Savings Gluts.) Contrast this with the current yield of 2.25%; the difference between 2.25 and 4.1% is 1.875%. Assuming the 1.875% difference is multiplied by the duration of 8.8 then the 10 year bond price needs to drop 16.5% to reach fair value. That is hardly a sign of

2017-08-01T14:32:46-07:00August 1st, 2017|mayflowercapital blog|Comments Off on Greenspan Says Bonds Are A Bubble