foreign currency

What Is The Proper Level For Rates?

  Regarding the concern that interest rates will rise to dangerously high levels, I doubt this will occur. The fear that Quantitative Tightening, where the Fed sells its holdings of bonds to undo QE, will make rates go up a lot is incorrect. When QE was implemented from 2009-2014 it didn’t create inflation and probably only lowered interest rates by 0.5%. The reason yields went down was because of global fears of falling into a debt/deflation trap and because other Developed countries (the EU, Japan, Scandinavia, Switzerland) had negative rates. I don’t see things getting better in Europe; probably the economic problems have not been truly solved in Japan. Thus since the fundamental reason for low yields in the U.S.

2018-11-05T17:54:35+00:00November 5th, 2018|mayflowercapital blog|Comments Off on What Is The Proper Level For Rates?

Bond Yields May Have Topped Out

    Yesterday’s dramatic bond market crash may make some people worry about rising rates, but I disagree. First, this year has seen an unusual degree of tax cut stimulus with huge federal deficits. This stimulus acted to make economic statistics including employment, hotter than normal, which resulted in rising interest rates. However, the typical scenario of a big stimulus package is a 5.5% GDP growth, not the 3.2% for the first half of 2018. The fact that the economy is growing 2% slower than it should (based on tax cuts) implies the stimulus may soon fade away and thus reduce the risk of inflation. During the two days before the monthly BLS Payroll Employment report bond yields tend to go

2018-10-04T12:56:32+00:00October 4th, 2018|mayflowercapital blog|Comments Off on Bond Yields May Have Topped Out

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

Dollar To Decline Against Other Currencies?

      Many articles have been written by other people forecasting that the dollar will decline, but I disagree. The huge and growing federal deficit is a concern, but it can be handled and reduced by switching to a European system of government controlled health care. Much of the deficit can be attributed to health care costs. A popular myth is that Americans don’t pay as much in tax as people in other Developed countries. But some articles written about this topic seem to only focus on federal income tax and not on payroll tax, state income tax, etc. Also, most countries, except the U.S., don’t tax their individual citizens on offshore earnings held in corporations located offshore. Many wealthy

2018-04-16T18:19:45+00:00April 16th, 2018|mayflowercapital blog|Comments Off on Dollar To Decline Against Other Currencies?

The Dollar Is Too Low

     Economics firm BCA said short German government Euro denominated bunds, and go long, unhedged for foreign currency changes, the 30 year US Treasury bond because of the interest rate differential. I think investors hold a prejudiced view that Europeans like to pay higher taxes and thus have a more sound currency due to smaller deficits. I disagree with that claim, I think the EU has plenty of loopholes and is not a haven for those who like to collect high taxes and use the tax revenue to pay down debt; instead they have many aspects of deficit spending. The EU financial system is inherently unstable, using a new type of system never tried before where they have national central

2018-03-05T12:57:02+00:00March 5th, 2018|mayflowercapital blog|Comments Off on The Dollar Is Too Low

Dollar’s Decline: What Next?

The dollar has declined from 103 points in December, 2016 to 89 points. This implies that interest rates need to rise to encourage an inflow of foreign capital, even though our rates are the highest in the Developed world, except for Australia. The global markets may be concerned that the U.S. deficit is growing and so they want to avoid the U.S.    The dollar index has fluctuated between 70 to 130 since the gold window was closed in 1971. If one excludes the one-time effects of ending the gold standard in 1971, the extreme high interest rates of 15% in 1981, and the extreme tech stock bubble of 2000 then typically the dollar’s value fluctuates gradually in a trading

2018-01-24T15:08:30+00:00January 24th, 2018|mayflowercapital blog|Comments Off on Dollar’s Decline: What Next?

Japan’s Failure To Cure Deflation: Should You Buy Yen?

The Yen is now about 100 to the dollar. Yesterday the central bank of Japan announced new policies and the market’s reaction was to make the Yen go up. Usually when a central bank is trying to stimulate the economy that creates cheap and easy money conditions. These actions should cause foreigners to flee because they would then fear devaluation and inflation. This should have made the Yen go down. It rose from a May, 2015 price of 125 to the dollar despite Japan’s central bank trying massive Quantitative Easing and negative rates to devalue the currency. Many other nations worried the attempted devaluation would be in violation of agreements to avoid big devaluations. Thus it is quite a surprise

2017-01-10T23:32:52+00:00September 22nd, 2016|mayflowercapital blog|Comments Off on Japan’s Failure To Cure Deflation: Should You Buy Yen?

Interest Rates To Return To Normal If Foreign Flight Capital Stops Flowing?

The old paradigm that the rate for the ten year Treasury should be roughly the same as nominal GDP was based on the assumption that there would not be huge inflows of foreign flight capital into the U.S. If this paradigm was active now then the ten year Treasury would yield about 4%. (This comes from adding the real GDP of 2.3% to inflation, which is about 1.7%). The foreign inflows in recent years have helped to push the ten year Note to 1.59%. Is it possible that the pressure of the flow of funds is what forces rates down and once the flow of funds becomes neutral then the lack of flow will cause the economy to move back

2016-07-18T10:14:26+00:00July 18th, 2016|mayflowercapital blog|Comments Off on Interest Rates To Return To Normal If Foreign Flight Capital Stops Flowing?

If Britain Leaves The EU: Will A Crash Occur?

On June 23rd Britain will vote on deciding whether or not to leave the European Union (EU). This is called Brexit. Opinion polls indicate exiting is likely, but the vote will be close. The risk is if the UK leaves the EU it may greatly weaken the already unsustainable EU economic system resulting in a breakup of the Eurozone. The EU is slightly bigger economic region than the U.S. If it breaks up and falls into a recession that will further increase the chances of global recession affecting the U.S. A massive capital flight out of the UK and EU may not have any major region to go to except the U.S. resulting in lower U.S. interest rates and a

2017-01-10T23:33:00+00:00June 13th, 2016|mayflowercapital blog|Comments Off on If Britain Leaves The EU: Will A Crash Occur?

Why Did The Yen Go Up When The Nikkei Declined?

The Yen went up against the dollar in the past 12 months from 125 to 108. Meanwhile the Nikkei stock index went down from 20,800 in June, 2015 to 14,900 in February, 2016 and is now 15,928. Based on the Purchasing Power Parity theory (that consumer goods should cost the same everywhere when adjusted for foreign exchange) the Yen was too cheap, possibly as much as 33% too cheap, so it needed to go up to about where it is now. A massive new amount of Quantitative Easing since Abe became Prime Minister in late 2012 caused it to be indirectly devalued. It is tempting for investors to leap to the conclusion that because Japan’s stock market has been low

2016-04-12T14:10:39+00:00April 12th, 2016|mayflowercapital blog|Comments Off on Why Did The Yen Go Up When The Nikkei Declined?