Monthly Archives: October 2019

Why Stock Prices Are High

                     Why are US stocks trading at twice the intrinsic value (as indicated by PE10)? The total amount of newly printed money injected into the global economy from all central bank’s Quantitative Easing (QE) programs in the past 10 years has been about $13.5Trillion, not counting some done by Japan before the 2008 GFC crash. Assuming global investors were reluctant to invest in the EU and Japan then this new money went into the U.S. stock market. The U.S. market has about $30Trillion in stocks; it was about half of that in 2013. Taking an average of 2013 and 2018 values implies over the past six years on average US stocks were priced by the market at $22trillion. About a

2019-10-25T15:29:44-07:00October 25th, 2019|mayflowercapital blog|Comments Off on Why Stock Prices Are High

Why Recession Has Been Delayed

    Several years ago people worried that recession would soon come and make stock prices plummet. Instead the economy kept growing and is now the longest expansion in U.S. history.      Reasons why recession was delayed: 1. Aggressive use of junk bond investing (by yield-starved investors) has provided extra funds for poor quality business; in previous cycles these businesses would have failed sooner thus triggering a recession. 2. Migratory capital from the EU and Japan, where desperate savers hurt by negative interest rates, have sent capital to the U.S. junk finance markets. (Junk finance can be junk bonds, Bank Loan Funds, Peer-to-Peer loans, BDCs, put option writing, and some Venture Capital funds that foolishly invest in over-hyped non-technical so-called “tech”

2019-10-18T16:28:37-07:00October 18th, 2019|mayflowercapital blog|Comments Off on Why Recession Has Been Delayed

Bank Repo Market Distress Not A Concern

     The bank Repo (repurchase) market where banks use a Repo transaction to get cash from their inventory of Treasury bonds has created some distress in the banking system resulting in the Federal Reserve offering to buy $60Billion a month to add liquidity to the system. Some bearish commentators have implied that this is a tip off of an impending financial crisis. I disagree. The problem is merely a minor technical difficulty in implementing new Dodd Frank regulations. Any time someone writes up a new regulation or even a voluntary safety procedure there is the possibility of unforeseen technical difficulties occurring which necessitate a fine tuning to handle the contradictory goal of making the new seat belt fit comfortably yet

2019-10-11T17:32:56-07:00October 11th, 2019|mayflowercapital blog|Comments Off on Bank Repo Market Distress Not A Concern

No Inflation in the Employment Report

     The BLS Payroll Report was issued today showing 136,000 new jobs. Of this perhaps 100,000 are needed for population increase, thus the real net gain was about 36,000 which is almost nothing out of a work force (total seeking or holding jobs) of 160 million. Job growth is not occurring in prime aged males, thus risk that growth is in low paid jobs held by other groups; growth of low wage jobs not inflationary at this point because these job increases mostly went to high school drop outs. The least skilled sector of society have many problems like no reserves, no 24 month job history, bad credit, etc. so they can’t qualify for an A paper loan that increases

2019-10-04T08:57:06-07:00October 4th, 2019|mayflowercapital blog|Comments Off on No Inflation in the Employment Report

Using Bonds, and Gold To Short-Sell Stocks

When stocks crash, bond yields may go down, thus increasing bond prices. If yields are very low then investors may feel they have nothing to lose by owning gold, which has no yield, thus in a stock crash both gold prices and bond prices may rise together. If someone is bearish about stocks then one may decide to buy gold and bonds so as to benefit from a stock crash. It is far less risky to own unlevered gold and bonds than short-selling stocks and there are minimal carrying charges for gold and none for bonds. However sometimes bond investors are early to the party in terms of wanting to be bearish about stocks. The bond market tends to anticipate

2019-10-01T17:35:03-07:00October 1st, 2019|mayflowercapital blog|Comments Off on Using Bonds, and Gold To Short-Sell Stocks