debt

New Year’s Message: Invest In Risk-Off Assets

The New Year will have increased volatility and surprises. This will reward patient risk adverse investors who operate in the area of risk-off assets such as investment grade bonds. The risks to bonds are a rising level of economic growth and rising inflation. I doubt that the global economy will increase its rate of growth in 2017. The problems of Japan, China, the EU, UK outweigh any hope of growth from the US. The rising dollar hurts the finances of EM countries and hurts the ability of U.S. manufacturers to export which could contribute towards creating a recession. If Trump succeeds in helping workers to get higher pay and restricting imports this would reduce corporate profits. The key paradigm of

2017-01-03T13:32:21-08:00 January 3rd, 2017|mayflowercapital blog|Comments Off on New Year’s Message: Invest In Risk-Off Assets

No Way To Refute Bearish Points

One of the most shocking economic statistics are the ones showing the difference between the claim that the economy is in full employment mode even though the hidden unemployed are several percentage points higher than the official U-3 unemployment rate of 4.9%. For a while I didn’t let that be a significant concern because I felt perhaps some of the hard core unemployed were so unskilled and deserving of only a minimum wage job that their absence from the economy wouldn’t have made that much of a difference. But reading David Rosenberg say that the Employment to Population ratio is at a level consistent with 8% jobless instead of 5% I felt perhaps this topic needed to more closely reviewed

2017-01-10T23:32:53-08:00 August 29th, 2016|mayflowercapital blog|Comments Off on No Way To Refute Bearish Points

Could Trump Create A Global Recession As A Result Of A Trade War?

An alternative to my pro-inflation blog post of yesterday is idea that Trump would be unable to create reflation and instead the economy would fall back into recession. The possibly that Trump’s policies would result in inflation and growth could be wrong, because creating a trade war is deflationary. Much of the world outside of the U.S. and northern Europe is teetering on the edge of recession and has far too much debt, which can also trigger a recession. A popular economic belief is that the economy can be stimulated by government make-work infrastructure spending using borrowed or newly printed money. Even if that is true, its stimulatory effects will have to be stronger than the deflationary forces triggered by

2017-01-10T23:33:00-08:00 May 26th, 2016|mayflowercapital blog|Comments Off on Could Trump Create A Global Recession As A Result Of A Trade War?

China Debt Bubble Has Reached Saturation Point

Michael Pettis gave a speech today at the CFA convention where he discussed the massive growth in China over 30 years. He said that China reached its point of saturation of too much debt fueled unneeded development roughly in 1998 or maybe 2003. This would be at the point where additional investment is no longer socially productive, in other words when they are adding far more capacity than needed. Then by definition, debt grows faster than debt service capacity. Thirty countries have had cases since 1945 like this, it always happens where they overdo it with excess debt, he said. It is interesting that Pettis says that the saturation point in China was reached in 1998. That is roughly about

2017-01-10T23:33:01-08:00 May 10th, 2016|mayflowercapital blog|Comments Off on China Debt Bubble Has Reached Saturation Point

Can China Use Annuities To Fix Their Economy?

In the U.S. there are equity indexed annuities which claim that you can never lose money and you get to participate in investing in the stock market because the annuity is indexed to stocks. The secret to how annuity companies attempt to do this is that they require that no withdrawals be taken other than small monthly annuitization payments for the next 30 years. If you decide to close out the account and withdraw your funds then you take out only what the value of the account would be worth if there was no annuity guarantee minus the annuity company’s hefty fees. An investor could try to replicate this by simply refusing to sell his stocks for 30 years! Based

2016-03-01T13:42:33-08:00 March 1st, 2016|mayflowercapital blog|Comments Off on Can China Use Annuities To Fix Their Economy?

Japan Central Bank Starts Negative Interest Rate Program

This morning Japan started a negative interest rate program, which made investors flow into U.S. Treasuries. The 10 year U.S. Treasury yield dropped from 1.99% to 1.91% before leveling off at 1.93%. Negative interest rates don’t work and are dangerous because they could frighten the average unsophisticated consumer or investor and make them feel something bad is going to happen, in which case they would respond with lower consumer confidence and less consumption. They also are bad because they hurt retired people who depend on the yield of bonds and savings. These people will have to reduce consumption and sell off assets like houses and become a renter thus creating a downward spiral in asset prices. In Tokyo there are

2016-01-29T12:51:09-08:00 January 29th, 2016|mayflowercapital blog|Comments Off on Japan Central Bank Starts Negative Interest Rate Program

How do Underpaid Workers Get Funds To Continue to Consume?

   Some economists say that the economy is a closed system and that the masses of hidden discouraged unemployed are somehow managing to continue to consume even though lack sufficient income. Of course the obvious answer is they either get welfare checks, spousal support or use borrowed money. One overlooked answer to this puzzle is to look at the Sharpe ratio of personal income. This ratio is used in investing so why not use it in a review of personal income.    The Sharpe ratio compares excess return over Treasuries divided by volatility. How it would apply for earned income is that a worker might continue to earn the same pay as before but do so by heroically working two

2017-01-10T23:33:10-08:00 December 1st, 2015|mayflowercapital blog|Comments Off on How do Underpaid Workers Get Funds To Continue to Consume?

Bogus GDP Growth Fools Investors

    Which is worse: Ordos style waste or U.S. Venture Capital (VC) funded Unicorns with negative gross margin? See a blog by Venture Capitalist Fred Wilson “And so most of the companies out there who are growing like weeds using a negative gross margin strategy are going to find that the capital markets will ultimately lose patience with this strategy and force them to get to positive gross margins, which will in turn cut into growth and what we will be left with is a ton of flatlined zero gross margin businesses carrying billion dollar plus valuations. And that is what Gurley and Moritz see when they look out into next year and the year beyond.” (Gurley and Moritz are

2017-01-10T23:33:12-08:00 October 30th, 2015|mayflowercapital blog|Comments Off on Bogus GDP Growth Fools Investors