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Drama in Bond Market: What is Happening?

    The past 10 days since the weekend of Saturday, March 7th, when Saudi Arabia started a severe oil price war, have had some of the most dramatic financial market movements ever, even more shocking than a few parts of the 1929 and 2008 crashes. What is particularly unusual is the end of the pattern where bond prices rise when stock prices fall. Instead bond and stock prices both fell together recently by significant amounts. This is because stocks are still significantly overpriced and need to go down much more to reach fair value. Bonds have been hurt by the politicians’ promises of massive deficit fueled stimulation to try and offset the damage caused by Corona Virus quarantine, etc. There

2020-03-18T18:31:28-07:00March 18th, 2020|mayflowercapital blog|Comments Off on Drama in Bond Market: What is Happening?

Dramatic Stock Crash: What Next?

       This week's stock market crash of over 10% is one of the four worst weeks since WWII for stocks. The others were Black Monday 1987, Dot-com bubble in 2000, and the GFC crash of 2008, which was the worst. The 2000 bubble was mainly in tech stocks while the low tech companies were not that badly overpriced, so that crash was less of a comprehensive crisis. The 1987 crash occurred when debt levels were much lower and demographics more favorable. The 2008 banking crash was mainly about financial companies that were stuck with a negative net worth because they made bubble-like loans to the housing bubble, so they were able to respond to central bank QE stimulus and suspension

2020-02-28T16:41:24-08:00February 28th, 2020|mayflowercapital blog|Comments Off on Dramatic Stock Crash: What Next?

Job Situation Worsens Even Though BLS Says More Were Hired

   The monthly BLS employment report released today said 225k new jobs were created, but it included the hypothetical Birth-Death model that added 141k hypothetical jobs. Thus the net true growth was 84k, less than the 100k a month needed to offset population growth. Therefor jobs actually declined on a relative basis. The Birth-Death model is an allowance for employers to take plenty of time to log in hiring of new employees. In reality with today’s strict laws about fast, accurate payroll tax withholding and the requirements to verify that new employees are not illegal aliens there is no need for the Birth-Death model, thus its use substantially distorts the data. Manufacturing jobs, a source of good paying, “real” jobs

2020-02-07T14:29:21-08:00February 7th, 2020|mayflowercapital blog|Comments Off on Job Situation Worsens Even Though BLS Says More Were Hired

Grantham’s Forecast: Is A Crash About To Start?

   Jeremy Grantham of GMO published a document at gmo.com on Jan. 3, 2018 that the SP needs to go to 3,400 to 3,700 to be high enough to have a crash. First a melt-up (where stocks go up far too fast) is needed to lead to a crash. The big stock price increase of 2019 implies that a melt-up has occurred. The idea would be a 60% increase from the 2,100 level in mid-2017 until it reached 3,400 in 21 months. In actuality it took over 30 months to climb nearly 60%. If a bubble is too modest and gentle then apparently it is less likely to crash. Recently the SP reached 3338. It dropped 1% today. Grantham mentioned

2020-01-24T17:44:02-08:00January 24th, 2020|mayflowercapital blog|Comments Off on Grantham’s Forecast: Is A Crash About To Start?

How Will The Man With The Pin Affect Stocks?

      In 2018 Fed chief Powell promised to raise rates and make progress using the Quantitative Tightening (QT) program to reverse out the asset purchases of the QE program. But by December 24, 2018 stocks had dropped about 20% since the previous high point of stocks that was reached in September, 2018. Powell decided to end the QT program and start cutting rates instead of continuing to raise them. When politicians get elected after promising to cut government spending they often catch an illness called Potomac Fever when they start working in Washington. This illness results in them suddenly empathizing with various special interest groups that want handouts at taxpayers’ expense; thus they break the pledge to cut and instead

2020-01-17T17:58:51-08:00January 17th, 2020|mayflowercapital blog|Comments Off on How Will The Man With The Pin Affect Stocks?

Gold Investing: The Hidden Factors

    Should people buy gold to get protection from inflation? The increasing use of Federal Reserve money printing because of the “Repo” crisis implies that the Fed will accidentally trigger a repeat of the terrible inflation of the 1970’s. During that era investors were able to protect themselves by holding short term bonds because the yields kept up with inflation (when a short term bond matured the proceeds could be reinvested at higher rates as inflation rose). But in the post-2008 post-GFC era rates have been artificially low and could be held down to zero by the Fed. Thus investors would not be able to replicate the benefits of short term bonds during a repeat of the 1970’s level of

2020-01-15T12:26:11-08:00January 15th, 2020|mayflowercapital blog|Comments Off on Gold Investing: The Hidden Factors

Payroll Report Shows Shrinking Economy

    Today’s Payroll Report had 145k new jobs, but according to David Rosenberg, when adjusting for downward revisions and BLS Birth-Death model of jobs, employment grew by 79k. In my opinion we need 100k new jobs a month to keep up with population growth, thus by using this as an adjustment for population growth, when subtracted from the 79k figure, jobs actually had a negative growth of 21k last month. The bond market cut the 10 year Treasury yield by 4 bps, implying that the economy is cooling.     The dominant paradigm of the past 30 years is the loss of good paying blue collar jobs due to globalization where the jobs are transferred to low wage EM countries where

2020-01-10T17:32:41-08:00January 10th, 2020|mayflowercapital blog|Comments Off on Payroll Report Shows Shrinking Economy

30 year Anniversary of Nikkei Crash

   The Nikkei index in Tokyo peaked 12-29-89 at 38,915. Now it’s 23,837 (a 38% loss) despite massive stimulus, gigantic government debt of 600% of GDP (double the US percentage), Quantitative Easing, negative interest rates, and outright purchase of equities by the central bank. Much of the last 30 years it traded near 10,000, a 75% drop. Some real estate in Japan dropped 90% after the 1989 crash and some Japanese mortgages were sold with a 95% drop in price below par. It seems a lot of bubbles result in a long term drop of 75%. The U.S. NiftyFifty stocks of the 1970’s dropped about that much (and never fully recovered when adjusting for inflation, despite the huge 1999 boom).

2019-12-30T18:17:55-08:00December 30th, 2019|mayflowercapital blog|Comments Off on 30 year Anniversary of Nikkei Crash

Huge Increase in Jobs: Are Bonds Doomed?

   Today’s monthly BLS employment report had a huge surprise 266k increase in jobs. Normally this would be inflationary, thus ruining the value of bonds. Yet the yield on the ten year Treasury rose only 3 basis points (that’s 3/100ths of a percent) to 1.83%. Gold went down 1%, indicating the market doesn’t believe the jobs increase is inflationary.     The key to inflation is when banks lend money that increases the money supply, causing inflation. (Also it can be caused by the central bank monetizing the debt, which is not the case right now, although it could be in future decades. QE as done by most countries is not true “spendable” debt monetization.) To lend money the bank examines

2019-12-06T09:03:40-08:00December 6th, 2019|mayflowercapital blog|Comments Off on Huge Increase in Jobs: Are Bonds Doomed?

Why The Fed Funds Market Has Had a Shortage of Lenders

   The mystery of the Fed funds market experiencing a shortage of available lenders and thus trading at high rates may be because U.S. banks don’t want to risk loaning to a high risk bank whose parent is based in the EU. If the EU breaks up then the ECB central bank would be unable to continue its existence and its going out of business would be a bigger catastrophe than the Lehman bankruptcy of 2008. If a European bank defaults on a repo loan in theory the ECB could loan money to the failed bank who could then make good on their repo loan. But this rescue wouldn’t happen if the ECB is eliminated. The global banking system is

2019-11-15T18:05:59-08:00November 15th, 2019|mayflowercapital blog|Comments Off on Why The Fed Funds Market Has Had a Shortage of Lenders