Dollar Flash Crash: What Next?

The dollar crashed last night against the Yen in a Flash Crash, dropping 3% (a very significant figure), before settling in to a 1% decline to 107.5 Yen to a dollar. This demonstrates a potential risk that the Yen could appreciate roughly 10% or even 20% to reach fair value. Its price is held down by Japan so that they can encourage exports through devaluation. If global investors get burned by a US stock crash they may decide to withdraw funds from the US, thus making the dollar go down and the Yen to go up. This would force Japan to have even deeper negative interest rates, thus pulling down global interest rates.    If Japan devalues that can cause

2019-01-03T13:54:46+00:00January 3rd, 2019|mayflowercapital blog|Comments Off on Dollar Flash Crash: What Next?

Stock Market Today Seriously Damaged By Broken Trendlines

    The market dropped today; the SP was down 1.91%, the DJ Transports index broke through a support line on a chart and reached new lows for the year. The ValueLine Geometric index (Ticker VALUG) broke through 500 and closed down at 493, slightly below its 1998 and 2007 highs. The sharp decline destroyed its uptrend and started a new downtrend. The index is not adjusted for inflation and doesn’t consider dividends. If one netted a dividend yield of 2% against a roughly similar amount of inflation then the inflation adjusted total return since 1998 (when it was trading at 500 points) was zero for the stocks in the index. Finance theory teaches that stocks should provide an Equity Risk

2018-12-14T20:59:21+00:00December 14th, 2018|mayflowercapital blog|Comments Off on Stock Market Today Seriously Damaged By Broken Trendlines

Stocks Crash: What Next?

    Stocks crashed hard today. The Russell Small cap index was down 4.43%, the SP down 3.24%. The ten year Treasury yield dropped to 2.91%, far below the recent high of 3.23%. The 10 - 2 Treasury spread narrowed to 10 bps, it had been in a range of 22 to 32 bps for the past year. At this pace the Treasury 10 – 2 spread will be inverted, a classic sign of a recession. Investing in stocks in the past decade has been dominated by the psychological aspects of technical trading, including “momentum”. But now momentum is broken, or soon will be. Many bullish investors may secretly feel stocks are overpriced and once the momentum trading turns against the

2018-12-04T13:20:31+00:00December 4th, 2018|mayflowercapital blog|Comments Off on Stocks Crash: What Next?

Stocks Crashed Today: Should You Buy Gold?

  Stocks crashed hard today, the NASDAQ was down 4.4%, the most in 7 years. Yet gold, which many people think is a hedge, only went up 0.22%. I believe the intrinsic value of gold, based on inflation indexes, is roughly $800, some $436 below today’s price of 1,236. Thus in theory gold should first need to drop to a “cleansing crash” bottoming out price of $800 and then later, during a recession, a new round of inflationary stimulus will make it go up. To generate massive inflation society would first need to go through a dramatic, deep recession that would trigger bipartisan demands for aggressive reflation. Thus it is way too early in the cycle for gold to go

2018-10-24T14:42:00+00:00October 24th, 2018|mayflowercapital blog|Comments Off on Stocks Crashed Today: Should You Buy Gold?

Major Stock Crash; Bonds Improve

    Stocks crashed today, thus rescuing bonds, since yields dropped because of the stock crash. The 10 year Treasury yield dropped 1.6 basis points; in after-market trading the yield dropped even more (a total of 3.5 basis points), like a stone in water. The SP stock index dropped 3.3%; NASDAQ declined 4.08%. The VIX exploded up 44%, making it too hard for speculators to buy put options thus forcing sales of stock out of the hands of short term speculators. Much of the world’s stock indexes have been negative for the YTD. Looks like the U.S. market is moving towards a global stock bear market, as are bond yields. This morning the PPI inflation data was released showing inflation YoY

2018-10-10T14:00:35+00:00October 10th, 2018|mayflowercapital blog|Comments Off on Major Stock Crash; Bonds Improve

Declining Yield Curve Spread Hints at Recession

    The yield curve spread between 2 year Treasury bond and ten year is 21.5 basis points, it was about 25 a week ago, and is consistently dropping to new lows not seen since last economic top of 2007.  Economists say that a declining spread eventually moves the yield curve to inversion which is a symptom of recession, and partly a cause of it.     Global rates have already inverted as have some domestic esoteric short term bond swap contracts for 2 and 4 year maturities. The old paradigm that the ten year Treasury yield is the same as nominal GDP hasn’t worked since 2008 crash because a new world exists where major regions such as the EU and Japan

2018-08-23T15:11:59+00:00August 23rd, 2018|mayflowercapital blog|Comments Off on Declining Yield Curve Spread Hints at Recession

Tech Giant Plunges 23% Is This the Top?

Today’s 23% plunge in the price of Facebook stock is no surprise since it is one of the high priced tech stocks in the FANG index. If this can happen to a company with decent earnings then imagine how much riskier are the razor thin earnings companies like Amazon or money losing tech companies like Netflix. What has been propping up the entire market are the ten FANGS companies, so when they start to drop steeply in price then the momentum will soon be or now has been broken for the entire market. Already the broad market has failed to make a new high for six months.    The ECRI leading index peaked before every recession in 50 years. It

2018-07-25T17:08:43+00:00July 25th, 2018|mayflowercapital blog|Comments Off on Tech Giant Plunges 23% Is This the Top?

No Recession In A Long Time: When Will It Crash?

The economy hasn’t had a recession in 9 years and is the verge of a record long period of expansion. Some experts claim this trend could go on for another few years. However, in my opinion, stocks could still crash soon without a recession. During the post-2000 tech bubble, during the crash of 2001-02 the SP index dropped 50% and NASDAQ dropped 78% even though the economy went into a very short and almost imperceptibly shallow recession. It is possible that if an asset is grossly overpriced it can come down in price even without a recession. The economy today is much more fragile than during other expansions and is thus more vulnerable to a sudden mild recession.  Debt loads

2018-06-07T15:03:10+00:00June 7th, 2018|mayflowercapital blog|Comments Off on No Recession In A Long Time: When Will It Crash?

Catalyst of the Next Recession

     The Covenant Lite nature of BBB corporate bonds may create the surprise that triggers the next recession. They won’t all fail, but if a significant number do and new borrowing applicants are turned away that can act to tip the low GDP growth economy into recession. The next stage is that the damage to that sector would then trigger a lightening fast shut down of the excessively permissive granting of credit to nonconforming (B paper) borrowers. This type of lending allows weak borrowers to get loans and to get even bigger debts from a new lender to pay off their old lender. It acts on the margin to provide the opportunity for GDP growth. But when this credit is

2018-05-02T12:03:03+00:00May 2nd, 2018|mayflowercapital blog|Comments Off on Catalyst of the Next Recession

Broken Trend Lines And Broken Markets

     Stocks recovered partly from yesterday’s crash but more importantly the stock market’s trendline has been broken and the stock market will eventually enter a bear market. In recent years the gravitational tug of the crowd’s emotions have swamped and overwhelmed fundamental analysis of stocks, resulting the market being hijacked by perma-bulls who rely on technical analysis to justify their actions. These investors try to justify their bullishness by claiming there is a technical trend shown as a pattern on a chart that somehow justifies forecasting that stocks will rise. But now these alleged trend lines have been broken. Since the stock market bulls depend on technical analysis, including trend lines, to justify investing then the bulls have less reasons

2018-02-06T14:45:48+00:00February 6th, 2018|mayflowercapital blog|Comments Off on Broken Trend Lines And Broken Markets