Monthly Archives: October 2018

Enterprise Zone Tax Savings: Be Careful

     The new tax law signed December, 2017 allows for investments in Enterprise Zones to be free of capital gains tax if held 10 years. Assuming someone is in the 23.8% federal bracket for capital gains this may seem appealing, but some of the tax savings might go to sellers of these properties. Assuming the properties appreciate immediately by half of the amount of the tax savings then the seller would indirectly get half of the value of the tax cut. If the buyer overpaid by half of 23.8% then he only saves half, which is 11.9%, then if divided by 10 years holding, that’s about 1% a year saved. Every bit of savings helps to boost returns but what

2018-10-31T13:18:12+00:00October 31st, 2018|mayflowercapital blog|Comments Off on Enterprise Zone Tax Savings: Be Careful

Stock Market Crash: GDP Report Didn’t Help

    Stocks crashed today, with the SP down 1.73%. Yet the government released the GDP report this morning showing a 3.5% growth. However, buried in the details is the fact the increase was due to one-time figures such as inventory building, rushing to buy before tariffs are implemented, government spending and savings drawdown. If these factors were removed the GDP would have been negative 0.1%. Capital expenditures, vital to fixing the economy and achieving a proper labor market recovery, had been ranging from 10% to 4% in the past three previous quarters but this recent quarter ending 9-30-2018 had only a 0.4% annualized growth. The implication is that the economy has failed to break out of its long term trend

2018-10-26T14:19:10+00:00October 26th, 2018|mayflowercapital blog|Comments Off on Stock Market Crash: GDP Report Didn’t Help

Unaffordably High Rates To Create Recession

   Considering how fragile the economy is and how moderate income people are hurt when they try to buy things using a loan then soon the damage from rising rates will result in recession. Yes, it is fair for the Fed to try to return to “normal” where real rates are 2% and the QE purchases are sold off in a QT program, but that won’t happen because we are in a brave new world of excessive debt balances. This means people simply can’t afford to pay higher rates.    The debt / GDP ratio went from about 150% during much of the past century, before 1996, to 365% today, a huge change. If you earned $50,000 in 1990 and

2018-10-25T14:19:54+00:00October 25th, 2018|mayflowercapital blog|Comments Off on Unaffordably High Rates To Create Recession

Stocks Crashed Today: Should You Buy Gold?

  Stocks crashed hard today, the NASDAQ was down 4.4%, the most in 7 years. Yet gold, which many people think is a hedge, only went up 0.22%. I believe the intrinsic value of gold, based on inflation indexes, is roughly $800, some $436 below today’s price of 1,236. Thus in theory gold should first need to drop to a “cleansing crash” bottoming out price of $800 and then later, during a recession, a new round of inflationary stimulus will make it go up. To generate massive inflation society would first need to go through a dramatic, deep recession that would trigger bipartisan demands for aggressive reflation. Thus it is way too early in the cycle for gold to go

2018-10-24T14:42:00+00:00October 24th, 2018|mayflowercapital blog|Comments Off on Stocks Crashed Today: Should You Buy Gold?

Hedge Funds Are Failing: Regime Change

    A webinar by a prominent hedge-like mutual fund offered no good reason for their underperformance. I suspect they incorrectly assumed they were diversified, but they failed to realize that during a bubble, most assets have their correlation rise to be nearly fully correlated. The only quality diversification tools (especially during bubbles) are low duration Investment Grade bonds, or buying puts, etc. and thus they weren’t as diversified as they thought. They say their losses are in middle of the pack of peer group competitors but since they greatly underperformed a short term bond index (like the bond ETF AGG which lost 1.31% in 12 months, versus the 9.85% loss of a hedge-like fund in 12 months thru 9-30-2018) and

2018-10-19T17:29:14+00:00October 19th, 2018|mayflowercapital blog|Comments Off on Hedge Funds Are Failing: Regime Change

Major Stock Crash; Bonds Improve

    Stocks crashed today, thus rescuing bonds, since yields dropped because of the stock crash. The 10 year Treasury yield dropped 1.6 basis points; in after-market trading the yield dropped even more (a total of 3.5 basis points), like a stone in water. The SP stock index dropped 3.3%; NASDAQ declined 4.08%. The VIX exploded up 44%, making it too hard for speculators to buy put options thus forcing sales of stock out of the hands of short term speculators. Much of the world’s stock indexes have been negative for the YTD. Looks like the U.S. market is moving towards a global stock bear market, as are bond yields. This morning the PPI inflation data was released showing inflation YoY

2018-10-10T14:00:35+00:00October 10th, 2018|mayflowercapital blog|Comments Off on Major Stock Crash; Bonds Improve

Improving Labor Market Unlikely to Hurt Low Duration Bonds

    The BLS Employment report was released today showing 134,000 new jobs. Adjusting for 125,000 monthly population growth, of those likely to want to work, implies the net increase was only a few thousand jobs in a nation of 144million job holders and is thus a near zero growth rate. The unemployment rate decreased because less people attempted to participate in the workforce. When the unemployment rate is this high it is a sign of an overheated economy that will fall into recession in a year. Stocks may anticipate this a half year early so if recession come sin 12 months then stocks could crash in 6 months.    100% of the increase in employment went to those with no

2018-10-05T09:49:08+00:00October 5th, 2018|mayflowercapital blog|Comments Off on Improving Labor Market Unlikely to Hurt Low Duration Bonds

Bond Yields May Have Topped Out

    Yesterday’s dramatic bond market crash may make some people worry about rising rates, but I disagree. First, this year has seen an unusual degree of tax cut stimulus with huge federal deficits. This stimulus acted to make economic statistics including employment, hotter than normal, which resulted in rising interest rates. However, the typical scenario of a big stimulus package is a 5.5% GDP growth, not the 3.2% for the first half of 2018. The fact that the economy is growing 2% slower than it should (based on tax cuts) implies the stimulus may soon fade away and thus reduce the risk of inflation. During the two days before the monthly BLS Payroll Employment report bond yields tend to go

2018-10-04T12:56:32+00:00October 4th, 2018|mayflowercapital blog|Comments Off on Bond Yields May Have Topped Out

Interest Rates Up A Lot: Are Bonds Doomed?

  Today the yield on the ten year Treasury went up 0.12%, about three or four times the typical day’s movement. Reasons for yields to go up are that the economy is growing and experiencing rising wages and a shrinking jobless rate. Based on old cliché-like paradigms of the pre-2008 crash era the ten year bond yield should be the sum of inflation and GDP growth, about 4.5% total (today it's 3.18%). Also, the real yield should be about 2% (1% higher than today) which means, if inflation is 2.2%, then nominal yields should be 4.2%. So based on old-style fundamentals the ten year Treasury could go to a range of 4.2 to 4.5%. The effect of bond yields rising

2018-10-03T15:30:01+00:00October 3rd, 2018|mayflowercapital blog|Comments Off on Interest Rates Up A Lot: Are Bonds Doomed?