crash

Tax Trap From Mutual Fund Distribution

Mutual funds issue distributions to shareholders typically in either early November or late December. These are a taxable event which applies even if the mutual fund lost money after a shareholder bought shares. For example a fund could buy a stock at the beginning of the year, sell at a loss in mid-year and then in mid-year a new investor buys shares in the fund which then go down in value. The new investor, if a shareholder on date of distribution, is “tagged” with a 1099 distribution even if he lost money. Using Morningstar to screen I found 196 mutual funds with potential capital gains distributions of over 50%, some as high as 99%. These are mostly stock funds where

2017-11-06T17:09:42-08:00 November 6th, 2017|mayflowercapital blog|0 Comments

Thaler Wins Nobel Prize For Behavioral Economics

   Richard Thaler won the Nobel prize for work on Behavioral Economics. In my years of experience working with consumer/investors in finance I have been shocked how many well educated consumers made irrational financial decisions because of the gravitational tug of emotions, including peer pressure. I am shocked at how society tolerates huge, irrational, unjustified stock market bubbles. The establishment viewpoint about finance, the Efficient Market Hypothesis (EMH), assumes stocks are always fairly priced because everyone is presumed to be rational and diligent in investing. In reality many investors don’t study the market and instead allow peer pressure to push them into poorly thought through investment themes. If the EMH was correct then there never would have been a huge

2017-10-10T13:56:34-07:00 October 10th, 2017|mayflowercapital blog|Comments Off on Thaler Wins Nobel Prize For Behavioral Economics

Feedback Loop Fools Stock Investors

    The availability of put options has reduced risk for owners of stocks who own puts, thus inducing more people to buy stock. As low interest rates make more people seek to earn a fake “yield” from selling naked put options this has created a vicious cycle or feedback loop where the flow of money into put writing makes stocks less risky and thus makes writers of puts feel there is not much risk in writing a put. This is like in the pre-2008 era when AIG offered a huge amount of cheap insurance against the risk of a crash in mortgage backed securities which helped contribute to the creation of more risky mortgages that in turn allowed more people

2017-07-19T18:16:37-07:00 July 19th, 2017|mayflowercapital blog|Comments Off on Feedback Loop Fools Stock Investors

Central Banks Ending QE: Will Rates Go Up?

               Global central banks are retreating from Quantitative Easing, creating a fear of rising rates. During the QE programs in the U.S. the extra money went into stocks but didn’t go into bonds so bond prices went down moderately, making yields go up 0.63% during the average of each of the QE’s. Then when QE’s ended stock gains slowed and the yield on the 10 year Treasury dropped 0.83% on average. Investors became afraid that a recession would occur if QE ended so that made interest rates go down when QE ended, just the opposite of what the Fed intended. Thus, the effect of a cycle of starting and then stopping QE was a net drop in yields of 0.20%

2017-07-06T13:53:38-07:00 July 6th, 2017|mayflowercapital blog|Comments Off on Central Banks Ending QE: Will Rates Go Up?

20th Anniversary Of Asian Currency Crash

Yesterday was the 20th anniversary of the great East Asian financial crash. It started in Thailand then spread to much of Asia over several months. The crash resulted in a huge drop in U.S. interest rates because of the potential disinflation caused by the deep global crash. In the U.S. the economy was running at a very hot pace which implies a significant increase in inflation and interest rates would occur. Yet inflation remained at low levels and interest rates declined. The lesson to learn was that massive money printing in Asia created a fake economic boom there that was killed off by excessive debt. The excess money was related to a significant increase in dollar denominated debt owed to

2017-07-03T10:22:06-07:00 July 3rd, 2017|mayflowercapital blog|Comments Off on 20th Anniversary Of Asian Currency Crash

Why has the Recession Been Delayed?

   The economic cycle bottomed in 2009 and should have had a recession in about seven or eight years (about now) but there are no signs of warning of an imminent recession. Why has the cycle lasted so long? One reason is that the dysfunctionality of Japan and the EU's economies allows the U.S. to prosper by default. Another reason is that the U.S. is more entrepreneurial and welcoming to skilled immigrants. Also there was enormous stimulus from Quantitative Easing, although that ended over two years ago. Monetary stimulus has a two year lag so perhaps so about now the benefit of QE will end. There is stimulus from the stock market going up so much. One key reason for

2017-06-01T12:02:52-07:00 June 1st, 2017|mayflowercapital blog|Comments Off on Why has the Recession Been Delayed?

Will Central Banks Bailout Stocks During The Next Big Crash?

   Some people are saying that because the ECB and Japan’s central bank have bought so many local bonds that they will eventually have bought all of their countries’ bonds and will be forced to buy global stocks in an attempt to flood the world with Quantitative Easing (QE) stimulus. Does this mean that stocks will be purchased by central banks, leading to an even greater deviation (a bubble) from traditional fundamental analysis? The answer is that it depends on central banks’ desire to indefinitely pursue QE. I believe the U.S. Federal Reserve has already decided to repudiate QE and Zero Rate Policies (ZIRP) and back away from them very slowly so that no one realizes what is happening. Eventually

2017-05-24T13:56:08-07:00 May 24th, 2017|mayflowercapital blog|Comments Off on Will Central Banks Bailout Stocks During The Next Big Crash?

Will Your Portfolio Be Impeached?

     If 21 of the 238 Republican members of the House of Representatives sided with the Democrats on an impeachment vote then an impeachment trial would commence in the Senate. That’s less than 10% of House Republicans that would need to change their position. About that many voted against the Trump administration’s proposed Health Care law. About that many took a tough and highly risky stand in favor of threatening a debt default rather than allow the deficit to get bigger in the July, 2011 deficit dispute. 22 House Republicans voted against Speaker Boehner‘s debt limit plan in July 29, 2011 even though failure to compromise could have ruined the government’s credit rating by a debt default. Already a House

2017-05-17T15:52:57-07:00 May 17th, 2017|mayflowercapital blog|Comments Off on Will Your Portfolio Be Impeached?

Growing Signs of Recession

The yield curve is flattening which implies a recession is coming, especially if it inverts and becomes negative. The difference between the 3 month Treasury versus the ten year Treasury ranged from 1.1% to 2.1% and is now 1.38%. If it drops another 0.18% the yield curve will be very close to its low point of the past year. After the market closed today IBM came out with a bad earnings report; its shares plunged 3.9% in after-hours trading. This could contribute to additional downward pressure on interest rates. China and Japan continue to look for ways to wiggle out from the pressure from Trump to open up their markets to American exports. One way for foreign nations to evade

2017-04-18T14:31:23-07:00 April 18th, 2017|mayflowercapital blog|Comments Off on Growing Signs of Recession

Are Low Rates Justification For High Stock Prices?

Discounting cash flows to estimate stock values far into the future should incorporate a factor for the risk of an error of the estimates, which may increase geometrically every 15 or so years. This means that even if interest rates are low the discount rate can be higher, the further out in the future one goes, because of an increase in risk premium. This means that the present era of the next 10 or 15 years is much more important to establishing the Discounted Cash Flow of an investment because the distant future has to be discounted so heavily that its returns regardless of outcome have less weight. Thus if interest rates remain very low for 10 to 15 years

2017-04-05T15:18:40-07:00 April 5th, 2017|mayflowercapital blog|Comments Off on Are Low Rates Justification For High Stock Prices?