Monthly Archives: February 2019

Federal Reserve Ending QT Policy This Year

   The Federal Reserve intended to reverse the effects of Quantitative Easing by selling off its bond portfolio in an act called Quantitative Tightening (QT). The program started in late 2017. Only about 7% of assets were sold since then and now the Fed has suddenly decided to cancel QT this year. At this rate perhaps 11% of assets will have been sold, instead of the intended 100%. Most of the assets are intermediate term bonds or mortgage backed bonds that likely will “run off” (be prepaid) in a few years. The prepayment will occur if a recession triggers rate cuts that motivate borrowers to refinance, thus prepaying their loans. Thus, assuming a recession is coming soon, the portfolio will

2019-02-27T15:39:09+00:00February 27th, 2019|mayflowercapital blog|Comments Off on Federal Reserve Ending QT Policy This Year

QE And NIRP Monetary Policy is a Dangerous Trap

My concerns about QE: 1. It was a placebo that won’t work next time thus creating a surprise, not yet fully discounted by the stock market. 2. QE and associated polices of NIRP and bailouts, including the Japanese and Swiss central bank’s purchase of equities have created moral hazard that encourages speculators to operate in a riskier manner thus building up a higher degree of hidden risk that eventually will bubble to the surface and disrupt the economy. Imagine investors seeking to make income from writing naked put options. If they were lured into a false sense of security that they are entitled to a perma-bull fantasy of central banks bailout of markets then they may act recklessly and take

2019-02-20T19:26:13+00:00February 20th, 2019|mayflowercapital blog|Comments Off on QE And NIRP Monetary Policy is a Dangerous Trap

QE And Monetary Policy is a Confidence Game And a Placebo

   Quantitative easing (QE) and monetary policy don’t truly work except in the limited context of a placebo effect. Sophisticated business managers and investors plan around avoiding being manipulated by these activities, thus these manipulations don’t work. The ones who are unaware of the manipulation are the naïve working people who leapt to the conclusion they should buy a car or a house using low rate loans. Now look what happened where it was reported that the number of people with a 90 day delinquency on their car credit loans is the highest ever. If the economy is so good then why such a high default rate? The asymmetric nature of QE is that it does worse damage to the

2019-02-14T14:30:38+00:00February 14th, 2019|mayflowercapital blog|Comments Off on QE And Monetary Policy is a Confidence Game And a Placebo

Employment Report Very Misleading

   The monthly employment report released today by the BLS said 304,000 new jobs were created and the rate of unemployment went up to 4.0%. The U-6 discouraged person’s rate went up 0.7% from the cycle low of July, 2018. Once unemployment reverses a downtrend and goes up by 0.4% or more that is a sign of new recession. If one respects the U-6 rate then that confirms a recession has already started.    The payroll-based BLS report uses a Birth-Death model of hypothetical jobs that added 122,000 jobs. But this is hypothetical. (This assumes business are so disorganized and slow that they need a long time to report new employment to the government – this is not correct, as

2019-02-01T17:38:53+00:00February 1st, 2019|mayflowercapital blog|Comments Off on Employment Report Very Misleading