bond forecast

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|0 Comments

Should Bearish Investors Avoid Gold and Treasuries?

    Have bearish investors gotten ahead of themselves regarding buying gold and Treasuries? One strategy some people (who are bearish about stocks) use is to buy gold and long-term Treasuries with the expectation that they will go up in value when stocks crash.  The problem is that if too many stock market bears did this then they would make the price of gold and bonds too high to make this strategy succeed. Gold should only be roughly 1,000 based on its long-term pattern of appreciating in line with CPI inflation; instead it has been around $1,500. Perhaps the $500 “excess” price is like a long-term put on stocks? If a repeat of the crash of 2008 occurs perhaps gold will

2019-11-08T17:58:25-08:00November 8th, 2019|mayflowercapital blog|Comments Off on Should Bearish Investors Avoid Gold and Treasuries?

Negative Rate Policies To End

   The possibility of endless dropping of yields until rates reach negative 8% (as suggested by one expert) is nonsense. The economic crisis that enabled negative rates somewhat like the 1962 Cuban missile crisis where stakes of failure were so high that everyone needs to pitch in and help compromise to avoid war. It was a new era, despite the cliché that people never change and thus (the old cliché) wars will continue to occur; but that is no longer applicable. So by analogy, possibly the advocates of Quantitative Easing (QE) and Zero Interest Rate Policy (ZIRP) will realize how dangerous it is and the opponents will be assertive enough to persuade government policy makers to stop it. Precedents for

2019-11-06T17:29:00-08:00November 6th, 2019|mayflowercapital blog|Comments Off on Negative Rate Policies To End

Jobs Report Not Inflationary

       The monthly nonfarm payroll report was released today showing a 128,000 increase in employment. Since employment needs to increase by roughly 100k to 125k a month to offset population and immigration increases then the “real” population-adjusted gains were a token 10k or so, which would be an annualized rate of 0.08%, which is almost a zero percent increase. Also, the pool of available workers was reduced by 41,000 last month. 80% of the job gains were in dead-end minimum wage type of work, the other 20% in secure industries like health care or civil servants where employers have a greater stability of cash flow to enable hiring even in a weak economy. Bond yield increased by only 2 basis

2019-11-01T13:51:30-07:00November 1st, 2019|mayflowercapital blog|Comments Off on Jobs Report Not Inflationary

Did Bankers Cause the Repo Crisis to Get Rich?

   The recent crisis in the Repo market last week may have been because the banking industry had gotten used to having only one or two of the big six banks provide last minute loans (Repo transactions) to their peer group and then suddenly these one or two banks simply weren’t available because they found other interesting things to invest in. Perhaps the banks decided it was worth it to temporarily pay an exorbitant interest rate to buy a two year Treasury Note yielding about 1.7%. The reason: if yields drop to zero then the banks borrow for free while earning a 1.7% yield (actually the yield about 10% more, about 1.9%, since it's free of state income tax) from

2019-09-23T19:04:52-07:00September 23rd, 2019|mayflowercapital blog|Comments Off on Did Bankers Cause the Repo Crisis to Get Rich?

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

The Federal Reserve Could Make The Economy Worse

Some Federal Reserve governors want to make the economy run “hot” by rapidly increasing the money supply to cause inflation. They mistakenly believe that higher inflation will force consumers to overconsume and that will trigger economic growth. This is wrong because consumers and business managers won’t be fooled by inflation and will not sustainably increase spending and investing. As the Fed increases its degree of interference with and disruption of the economy then business managers will have to adjust for this which will include assigning a higher risk premium (a hurdle rate used to decide if a project is going to be successful) to business activities. When that happens the cost of capital will be higher that it otherwise would

2019-07-26T15:23:31-07:00July 26th, 2019|mayflowercapital blog|Comments Off on The Federal Reserve Could Make The Economy Worse

Will Bonds Perform the Same as in the 1970’s Inflation Era?

   During the 1970’s there was a significant increase in inflation in the US and the UK which made interest rates rise, thus damaging long term bonds. Gold’s price rose during the 1970’s and was the best asset during that era. Stocks spent the inflationary era of 1966 to 1982 going down 50% and then their prices returned to their starting points after a 16 year bear market, so on a nominal price return basis investors made no gains, however they did get dividends. Could this time be different where yields are repressed by central banks and not allowed to rise in tandem with inflation? There was a precedent for that in the UK in the 1970’s the real rate

2019-07-12T16:11:06-07:00July 12th, 2019|mayflowercapital blog|Comments Off on Will Bonds Perform the Same as in the 1970’s Inflation Era?

Negativity About the U.S. Dollar Is Wrong

    It seems a many financial advisors and financial commentators are making an increasing amount of negative comments about the U.S. dollar and U.S. Treasuries. I disagree with them. I remember the 1970’s when there were many scary headlines about the end of Bretton Woods monetary agreement, Watergate, Nixon’s resignation, the U.S. defeat in Vietnam, the two OPEC oil shortages of 1973 and 1979 that severely damaged the economy, and the US embassy hostage situation in 1979 in Iran, etc. The dollar went down in value and the economy performed poorly while inflation increased dramatically in the 1970’s. Gold went up from $43 in August, 1971 to a peak of $880 in January, 1980. The inflation-adjusted price return of the

2019-06-14T17:25:55-07:00June 14th, 2019|mayflowercapital blog|Comments Off on Negativity About the U.S. Dollar Is Wrong