bubble

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?

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?

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

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

Can The Federal Reserve Prevent A Deep Stock Crash?

   The current stock market is a repeat of the irrational NiftyFifty stock market of 1973 with very high Price/Earnings ratios in the 1970’s which had nothing to do with low yields, bailouts, implied promises of Fed put options, corporate buybacks, QE, etc. – it was plain and simple irrational investor emotions in 1973 that created a stock bubble that lead to a crash. OK so the Fed did overstimulate in 1972 election but in those days it was a broadly dispersed benefit instead of today’s QE benefiting only stocks. It is tempting to feel a new era of permanently high PE’s has occurred but leaping to that conclusion is wrong as it is motivated by a desire to conform

2019-04-29T18:42:34-07:00April 29th, 2019|mayflowercapital blog|Comments Off on Can The Federal Reserve Prevent A Deep Stock Crash?

Stocks Hit New Highs: Should You Buy?

Today the SP index closed 2 points higher, (now at 2933) than the previous all-time high, which was in September, 2018. With the PE10 ratio at 31 this ratio shows stocks are priced at double fair value, implying that eventually stocks will crash 50% and stay down for a long time. It may be tempting to short sell stocks but as Keynes said, “stocks can go up longer than you can remain solvent”, so shorting is too risky. Since stocks are mostly bought by the affluent top 10% of society and these people are doing quite well in their careers then they can take their lucrative earnings and invest in stocks, thus fueling the bubble. But is it right to

2019-04-23T15:42:25-07:00April 23rd, 2019|mayflowercapital blog|Comments Off on Stocks Hit New Highs: Should You Buy?

Stocks Very High: When Will They Crash?

    Today the SP index of stocks closed at 2907, very close to the all-time high of 2940. It is tempting to wrongly leap to the conclusion that the ten year old economic cycle will never go into a recession and thus stock prices will grow infinitely upward. Junk bonds and similar junk quality loan assets continue to rise in price, implying the market thinks no crash is coming. As junk bond prices rise this makes their interest rate lower and thus attracts more borrowers, thus stimulating the economy. I have for a long time advocated that the tipping point in flipping over into a recession is the reduction of the availability of cheap, plentiful junk financing. If the supply

2019-04-12T16:44:34-07:00April 12th, 2019|mayflowercapital blog|Comments Off on Stocks Very High: When Will They Crash?

Central Bank Bubble Making: A Misleading Activity Worsening The Economy

   Don’t be fooled by the central bank’s ability to reflate the intangible financial economy and recover from a crash. If a crash occurs in financial assets then rhetorically speaking one can allege that prices are somehow unknowable or shrouded in an undiscoverable mystery so it’s somehow OK for central banks and governments to manipulate markets and artificially prop up asset prices. When stocks, bonds, real estate, and banks collapse, the central bank can print money and buy these assets at artificially high prices while the government and legislature can decree that “mark to market” accounting is suspended and that people must use the high water mark for valuation purposes.  This ability to create a miraculous “recovery” has fooled investors

2019-03-06T17:44:43-08:00March 6th, 2019|mayflowercapital blog|Comments Off on Central Bank Bubble Making: A Misleading Activity Worsening The Economy