Monthly Archives: April 2018

Yields Are Not Too Low

    Yields intuitively seem to be too low compared with the pre-2008 crash era, however, if the 2001-2007 era of higher rates could be redone without the misleading false data caused by the mortgage fraud and real estate bubble of 1997-2007 then GDP growth rate and yields would have been lower. If the excessive debt used in China and other EM countries during the previous decade hadn’t been used then far less global economic activity would have occurred, thus dampening the global economy and making global yields lower during 2001-2007.   The U.S. based mortgage bubble of 1997-2007 was a two-sided coin. On one side was the dishonest promise that mortgage backed securities rated as AAA by ratings agencies were

2018-04-25T13:03:34-07:00April 25th, 2018|mayflowercapital blog|Comments Off on Yields Are Not Too Low

Treasury Rate Hit 3%. Will It Go Higher?

The benchmark 10 year Treasury bond closed at 3.0% today, the highest since July 5, 2011. After the crash of 2008 it occasionally reached 3.9% in 2009 and 2010. Before the 2008 crash it often was at the same number as nominal GDP, around 4.5% to 5%. I think the marketplace feared that during the early days of the Obama administration in 2009 and 2010 that government spending would be excessive, leading to inflation, so the market made rates higher than they should have been until mid-2011 when the Tea party members of Congress obtained some assurances that steps would be taken to rein in spending. Once that point had been reached rates dropped and the old paradigm that the

2018-04-24T15:28:04-07:00April 24th, 2018|mayflowercapital blog|Comments Off on Treasury Rate Hit 3%. Will It Go Higher?

Yields Reach New Highs: When Will They Go Down?

    The 10 year Treasury yield hit 2.96% today, a new four year high. If it exceeds 3.25% that may be a sign of a bear market in bonds. Typically inflation rate changes determine bond yields. However there maybe time lags. Interest rates are based on the market’s forecast of future inflation but the CPI is based on what happened in the past. The result is the final year of a cycle is when inflation goes through a blow off top formation and then suddenly crashes. During the upward movement of the blow off it looks like a trend is being established, but it was only transitory.     During the era before globalization, before 1980, employers were trapped in the

2018-04-22T21:20:06-07:00April 20th, 2018|mayflowercapital blog|Comments Off on Yields Reach New Highs: When Will They Go Down?

Do “Check the Box” Techniques Result in Greater Risk?

   There is a risk that gatekeepers will evaluate economic data (including risks) with a simple, unverified, or naively “verified” “check the box” questionnaire (where questions may be answered with superficial forced use of simple yes or no answers) which would lead to an eventual failure to screen out misunderstood data leading to bad decision making criteria. For example, the BLS calculates unemployment by counting nominally “employed” people who may merely have a gig economy temp job with unsustainable, unreliable income or a tippable job with a $2.07 an hour minimum wage. An example of  “check the box” questionnaire verification is a bank doing Easy Qualifier loans before 2008 would simply ask the loan agent “Did you verify the income?”

2018-04-19T12:41:08-07:00April 19th, 2018|mayflowercapital blog|Comments Off on Do “Check the Box” Techniques Result in Greater Risk?

Yield Curve Inversion Coming Soon

    Increasingly more articles have been written by various people saying that the bond market’s yield curve (where yields are placed on a chart in a curved pattern) is the best predictor of recessions when it inverts and that it is getting close to inverting. It may be as little as a 0.50% rate increase could tip it over into an inversion where short term rates are higher than long term rates. The difference (spread) between the 2 year and 10 year Treasury Note is 0.44%.     The next Fed meeting is May 1 – 2, followed by June 12 – 13. So Wednesday, June 13 the yield curve could be inverted, tipping over the economy into recession, assuming they

2018-04-17T16:08:25-07:00April 17th, 2018|mayflowercapital blog|Comments Off on Yield Curve Inversion Coming Soon

Dollar To Decline Against Other Currencies?

      Many articles have been written by other people forecasting that the dollar will decline, but I disagree. The huge and growing federal deficit is a concern, but it can be handled and reduced by switching to a European system of government controlled health care. Much of the deficit can be attributed to health care costs. A popular myth is that Americans don’t pay as much in tax as people in other Developed countries. But some articles written about this topic seem to only focus on federal income tax and not on payroll tax, state income tax, etc. Also, most countries, except the U.S., don’t tax their individual citizens on offshore earnings held in corporations located offshore. Many wealthy

2018-04-16T18:19:45-07:00April 16th, 2018|mayflowercapital blog|Comments Off on Dollar To Decline Against Other Currencies?

Rising Inflation: A Tug of War Between The Forces of Inflation and Disinflation

   The CPI had a 1.2% core ex-housing YoY in yesterday’s CPI report. The effect of housing inflation going to zero means core CPI would be 1.2%. If Owner’s Equivalent Rent (a hypothetical measure that is used even if one lives debt free) used by the BLS for housing was calculated in an accurate way the housing component would be about half of its inflation rate, thus cutting core CPI from 2.1% YoY to perhaps 1.7%. If the economy experiences rent declines from cyclical highs then we will get to a 1.2% core CPI. Already rents have been dropping in the elite high cost areas as professional workers who can afford to pay that have already satiated their needs by

2018-04-12T11:48:51-07:00April 12th, 2018|mayflowercapital blog|Comments Off on Rising Inflation: A Tug of War Between The Forces of Inflation and Disinflation

Four Things That Could Blow Up Interest Rates

   The Federal Reserve wants to sell its portfolio of bonds acquired during Quantitative Easing. This sale is called Quantitative Tightening (QT). Congress has authorized a massive increase in the federal deficit requiring even more selling by the Treasury of new issues of bonds. It is alleged that China may seek to sell its holding of U.S. Treasuries. Additionally it is alleged that a significant increase in employment and higher wages is occurring which would be inflationary. If all these things occur at the same time the downward pressure on bond market prices would be enormous. Regarding the Fed’s QT program, at the slow pace of sales that they have actually done, it will take another 27 years to liquidate

2018-04-10T09:18:15-07:00April 10th, 2018|mayflowercapital blog|Comments Off on Four Things That Could Blow Up Interest Rates

Employment Report: Lower Rate of Employment Gains Results In Stock Crash

The employment report was released today by the BLS with a significant decline in the new jobs at only 102,000 new jobs, only a third of last month’s. The 60 day average, adjusted for excluding volatile retail and construction jobs, was 165,000 which is near the long run average of 170,000. Thus employment continues to grow slowly. The economy needs 125,000 new jobs simply to offset population increase so the net increase adjusted for that was only 40,000 a month using a two month average. That’s a 0.35% annualized rate of improvement in the unemployment rate. Wages have been rising recently at about 1% faster than inflation, although this late in the cycle, with unemployment at 4.1%, real wage gains

2018-04-06T14:50:04-07:00April 6th, 2018|mayflowercapital blog|Comments Off on Employment Report: Lower Rate of Employment Gains Results In Stock Crash