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

Employment Market Weakens, Recession Coming Soon

    The Employment report was released by the BLS today showing only 75,000 new jobs created, less than the 100,000 a month needed to keep up with population growth. Thus, on a relative population-adjusted basis, employment shrank by 25,000 jobs. Based on employment to population percentages before the GFC of 2008, the hidden unemployed are roughly 1.0% to 1.5% of the workforce, thus the unemployment rate is close to 5% instead of the official 3.6%. Many workers are labeled by the BLS as employed even though they have a speculative, high risk self-employment occupation with almost no income or they may have a waiter’s “job” with a $2.50 an hour minimum wage. The inverted yield curve of bond yields implies

2019-06-07T14:57:58-07:00June 7th, 2019|mayflowercapital blog|Comments Off on Employment Market Weakens, Recession Coming Soon

Stock Market Crash: GDP Report Didn’t Help

    Stocks crashed today, with the SP down 1.73%. Yet the government released the GDP report this morning showing a 3.5% growth. However, buried in the details is the fact the increase was due to one-time figures such as inventory building, rushing to buy before tariffs are implemented, government spending and savings drawdown. If these factors were removed the GDP would have been negative 0.1%. Capital expenditures, vital to fixing the economy and achieving a proper labor market recovery, had been ranging from 10% to 4% in the past three previous quarters but this recent quarter ending 9-30-2018 had only a 0.4% annualized growth. The implication is that the economy has failed to break out of its long term trend

2018-10-26T14:19:10-07:00October 26th, 2018|mayflowercapital blog|Comments Off on Stock Market Crash: GDP Report Didn’t Help

Do “Check the Box” Techniques Result in Greater Risk?

   There is a risk that gatekeepers will evaluate economic data (including risks) with a simple, unverified, or naively “verified” “check the box” questionnaire (where questions may be answered with superficial forced use of simple yes or no answers) which would lead to an eventual failure to screen out misunderstood data leading to bad decision making criteria. For example, the BLS calculates unemployment by counting nominally “employed” people who may merely have a gig economy temp job with unsustainable, unreliable income or a tippable job with a $2.07 an hour minimum wage. An example of  “check the box” questionnaire verification is a bank doing Easy Qualifier loans before 2008 would simply ask the loan agent “Did you verify the income?”

2018-04-19T12:41:08-07:00April 19th, 2018|mayflowercapital blog|Comments Off on Do “Check the Box” Techniques Result in Greater Risk?

Stocks Inability to Have Duration Is A Concern

  Bond duration is the amount of years until you get back your initial principal, adjusted by Present Value. In a low rate environment the discount rate is modest enough so as not to greatly diminish Present Value. But if a bond has 50 years future life and the expected discount rate is very high in future years because of an expected increase in the discount rate then the duration (the hypothetical time it takes to get paid back) can be very long. But what about stocks? Is the duration simply 2% yield times 50 years equals 100% to get paid back? The yield needs to be discounted for Present Value and is needs to be projected to grow with

2018-01-25T12:20:40-08:00January 25th, 2018|mayflowercapital blog|Comments Off on Stocks Inability to Have Duration Is A Concern

Employment Report Shows Weak Economy Justifies Low Yields

   Today the employment report was released by the government’s BLS showing unemployment dropped to 4.1%. This occurred only because of a massive number of discouraged jobseekers who dropped out of looking for work. The Labor Force Participation Rate dropped from 63.1% to 62.7%, which is more than the percentage improvement in unemployment. There is no wage inflation when compensation costs are covered by increasing productivity. Unit labor costs fell 0.1% YoY rate. Most of the loss of jobs to EM low wage countries is hurting the least skilled people who are inherently less productive than highly skilled people. If there is a predominance of highly skilled people remaining in the labor force and they are increasing their productivity then

2017-11-03T14:02:09-07:00November 3rd, 2017|mayflowercapital blog|Comments Off on Employment Report Shows Weak Economy Justifies Low Yields

Political Events Imply Continuation of Status Quo of Low Yields

    The proposed tax cuts offered today in Congress are not a huge game changer that will stimulate the economy and trigger inflation. Regardless of which party is in power, the problem is a bipartisan problem, that the country’s excessive debt and government spending commitments mean the government is trapped and can’t afford a serious tax cut. When people or a government have too much debt then they become debt slaves and are unable to engage in increasing consumption and instead have to labor long hours just to keep their credit score from crashing. The appointment of Jerome Powell to be Federal Reserve chief is an affirmation of a continuation of traditional Federal Reserve moderate bubble making policies. He will

2017-11-02T13:29:16-07:00November 2nd, 2017|mayflowercapital blog|Comments Off on Political Events Imply Continuation of Status Quo of Low Yields

Bond Yields Drop Despite Robust GDP and Rising Stocks

10 year Treasury Bond yields dropped more than usual, some 4.5 basis points today, even though the news that GDP for the 3rd quarter was 3% (released today), instead of the typical 2.3%. Traditionally the ten year might yield the sum of GDP growth and inflation, implying it should yield over 4%. Why did the yield actually go down today? Why is the yield at roughly half of what the traditional metric implies it should be?      I think people are deeply prejudiced to assume that past cyclical patterns will repeat and people are not open minded to looking creatively at new conditions. The era of 1945 post-war until the great crash of 2008 it was customary for nominal GDP

2017-10-27T13:48:10-07:00October 27th, 2017|mayflowercapital blog|Comments Off on Bond Yields Drop Despite Robust GDP and Rising Stocks

Avoid Overpriced Stocks Even If Bond Yields Are Low

One of the most important things to do to make a good return in investing is to avoid overpaying for assets. Thus during a bubble top it is important to avoid overpriced assets. During the crash of 1929 it took 20 years for stock market, based on price return, not total return, to breakeven, but on an inflation adjusted basis it took 30 years for price return to breakeven. Since taxes are not adjusted for inflation’s effect on the basis (acquisition cost) of an asset then additional appreciation would be needed to offset the effect of both taxes (including the phantom income created by inflation) and inflation. That might require waiting until 37 years after 1929 until 1966 when the

2017-10-05T13:34:59-07:00October 5th, 2017|mayflowercapital blog|Comments Off on Avoid Overpriced Stocks Even If Bond Yields Are Low

Is the 4% Rule Still Useful?

  The financial planning profession believes that a retired person ought to limit their retirement spending to 4% a year of their portfolio, assuming a 30 year retirement (called the “Safe Withdrawal Rule” but there is no guarantee it will work since past performance of the market shouldn’t be used to rely on for the future). Now more articles are being written by financial journalists suggesting that we are in a new era of low interest rates and low stock market returns and thus the 4% figure should be cut down to 3% to avoid running out of money. The 4% figure was designed to survive a repeat of a 1930’s depression. The idea is when markets make high returns

2017-09-29T11:43:18-07:00September 29th, 2017|mayflowercapital blog|Comments Off on Is the 4% Rule Still Useful?