Monthly Archives: August 2019

Negative Rates Explained

      Interest rates are very low or negative because of a need for investors to find risk-free sovereign bonds. During the 19th century there were many years of crashes when the only safe store of value, besides gold, was Treasury bonds; at times the real yield was near zero. The nominal yield was also quite low. Investors who buy bonds may engage in competition with other investors, thus forcing the price up, which makes the yield go down. It is like real estate investors: if too many buyers compete to buy a rental property to get yield from a property then prices will go higher and yields as a percent of the property will go lower.    Since

2019-08-21T17:45:12-07:00August 21st, 2019|mayflowercapital blog|Comments Off on Negative Rates Explained

Negative Interest Rates May Intensify

   Recently there has been an increase in news stories about the increasing amount of negative interest rate debt. I had hoped that the problem of negative interest rates would somehow go away as people realized they don’t provide a solution. Instead, the negative loans and bonds are increasing.    To understand negative rates imagine yourself with all your assets in the form of gold coins while living in a medieval city-state in Italy in the year 1500. To secure you gold you would have to deposit the funds with a goldsmith who had a safe.  They would charge you a fee since they are merely providing a storage service. If the town was undergoing a siege by powerful adversaries

2019-08-12T18:24:42-07:00August 12th, 2019|mayflowercapital blog|Comments Off on Negative Interest Rates May Intensify

Investing in Gold: The Paradigms Have Changed

    Traditionally gold has tracked the inflation rate, in a hugely lumpy manner, until the great stock crash of 2008. Based on its historical behavior of correlating with inflation it should only be about $800 or $1,000 an ounce; instead it trades at $1,513. The theoretical reason for the 50% premium over hypothetical intrinsic value is that this is like a call option on the future: what if future inflation is much worse, thus justifying a high price for gold today?     The reason to stop using the old paradigm that gold simply tracks the CPI inflation index and instead start viewing gold differently, is that CPI or PCE inflation indexes are something based on lifestyles of the masses; by

2019-08-07T16:39:27-07:00August 7th, 2019|mayflowercapital blog|Comments Off on Investing in Gold: The Paradigms Have Changed