crash

If Stocks Crash Can The Federal Reserve Repair The Damage?

    When the recession comes, stocks will go down. The Fed can’t cut rates enough to prevent or heal a crash. Typically the Fed needs to cut rates by 5% in a crash; since they are now at 2.4% they would have to go to negative 2.6% which can’t be done without destroying the economy, and thus it won’t be cut to a negative rate. The intrinsic value of the SP is 1,800 (the peak was 2,954); the intrinsic value of the SP could even be as low as 1,100. If the Fed can only provide about half of the rate cuts needed to heal the next crash then perhaps stocks would get stuck at halfway between intrinsic value and

2019-05-16T13:33:54-07:00May 16th, 2019|mayflowercapital blog|0 Comments

Will China Tariffs Be Inflationary?

     The 25% tariff against imports from China won’t be inflationary. Consumers in the U.S. will simply buy less goods because they have a limited budget. Thus if they chose to buy imported goods from China, that suddenly cost 25% more because of the tariff, they will simply buy less of other items. The higher cost will inspire domestic competition and more likely inspire additional competition from other EM countries that have lower wage costs than China. Based on the fact that China devalued by 50% in 1994 a 25% devaluation by China, in response to the tariffs, will occur. This would trigger a retaliatory devaluation by Japan which has used devaluation to compete and stimulate its economy. This would

2019-05-14T15:06:33-07:00May 14th, 2019|mayflowercapital blog|0 Comments

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?

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

2019-01-03T13:54:46-07:00January 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

2018-12-14T20:59:21-07:00December 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

2018-12-04T13:20:31-07:00December 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

2018-10-24T14:42:00-07:00October 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

2018-10-10T14:00:35-07:00October 10th, 2018|mayflowercapital blog|Comments Off on Major Stock Crash; Bonds Improve