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Huge Increase in Jobs: Are Bonds Doomed?

   Today’s monthly BLS employment report had a huge surprise 266k increase in jobs. Normally this would be inflationary, thus ruining the value of bonds. Yet the yield on the ten year Treasury rose only 3 basis points (that’s 3/100ths of a percent) to 1.83%. Gold went down 1%, indicating the market doesn’t believe the jobs increase is inflationary.     The key to inflation is when banks lend money that increases the money supply, causing inflation. (Also it can be caused by the central bank monetizing the debt, which is not the case right now, although it could be in future decades. QE as done by most countries is not true “spendable” debt monetization.) To lend money the bank examines

2019-12-06T09:03:40-08:00December 6th, 2019|mayflowercapital blog|0 Comments

Why The Fed Funds Market Has Had a Shortage of Lenders

   The mystery of the Fed funds market experiencing a shortage of available lenders and thus trading at high rates may be because U.S. banks don’t want to risk loaning to a high risk bank whose parent is based in the EU. If the EU breaks up then the ECB central bank would be unable to continue its existence and its going out of business would be a bigger catastrophe than the Lehman bankruptcy of 2008. If a European bank defaults on a repo loan in theory the ECB could loan money to the failed bank who could then make good on their repo loan. But this rescue wouldn’t happen if the ECB is eliminated. The global banking system is

2019-11-15T18:05:59-08:00November 15th, 2019|mayflowercapital blog|Comments Off on Why The Fed Funds Market Has Had a Shortage of Lenders

Should Bearish Investors Avoid Gold and Treasuries?

    Have bearish investors gotten ahead of themselves regarding buying gold and Treasuries? One strategy some people (who are bearish about stocks) use is to buy gold and long-term Treasuries with the expectation that they will go up in value when stocks crash.  The problem is that if too many stock market bears did this then they would make the price of gold and bonds too high to make this strategy succeed. Gold should only be roughly 1,000 based on its long-term pattern of appreciating in line with CPI inflation; instead it has been around $1,500. Perhaps the $500 “excess” price is like a long-term put on stocks? If a repeat of the crash of 2008 occurs perhaps gold will

2019-11-08T17:58:25-08:00November 8th, 2019|mayflowercapital blog|Comments Off on Should Bearish Investors Avoid Gold and Treasuries?

Negative Rate Policies To End

   The possibility of endless dropping of yields until rates reach negative 8% (as suggested by one expert) is nonsense. The economic crisis that enabled negative rates somewhat like the 1962 Cuban missile crisis where stakes of failure were so high that everyone needs to pitch in and help compromise to avoid war. It was a new era, despite the cliché that people never change and thus (the old cliché) wars will continue to occur; but that is no longer applicable. So by analogy, possibly the advocates of Quantitative Easing (QE) and Zero Interest Rate Policy (ZIRP) will realize how dangerous it is and the opponents will be assertive enough to persuade government policy makers to stop it. Precedents for

2019-11-06T17:29:00-08:00November 6th, 2019|mayflowercapital blog|Comments Off on Negative Rate Policies To End

Jobs Report Not Inflationary

       The monthly nonfarm payroll report was released today showing a 128,000 increase in employment. Since employment needs to increase by roughly 100k to 125k a month to offset population and immigration increases then the “real” population-adjusted gains were a token 10k or so, which would be an annualized rate of 0.08%, which is almost a zero percent increase. Also, the pool of available workers was reduced by 41,000 last month. 80% of the job gains were in dead-end minimum wage type of work, the other 20% in secure industries like health care or civil servants where employers have a greater stability of cash flow to enable hiring even in a weak economy. Bond yield increased by only 2 basis

2019-11-01T13:51:30-07:00November 1st, 2019|mayflowercapital blog|Comments Off on Jobs Report Not Inflationary

Why Stock Prices Are High

                     Why are US stocks trading at twice the intrinsic value (as indicated by PE10)? The total amount of newly printed money injected into the global economy from all central bank’s Quantitative Easing (QE) programs in the past 10 years has been about $13.5Trillion, not counting some done by Japan before the 2008 GFC crash. Assuming global investors were reluctant to invest in the EU and Japan then this new money went into the U.S. stock market. The U.S. market has about $30Trillion in stocks; it was about half of that in 2013. Taking an average of 2013 and 2018 values implies over the past six years on average US stocks were priced by the market at $22trillion. About a

2019-10-25T15:29:44-07:00October 25th, 2019|mayflowercapital blog|Comments Off on Why Stock Prices Are High

Why Recession Has Been Delayed

    Several years ago people worried that recession would soon come and make stock prices plummet. Instead the economy kept growing and is now the longest expansion in U.S. history.      Reasons why recession was delayed: 1. Aggressive use of junk bond investing (by yield-starved investors) has provided extra funds for poor quality business; in previous cycles these businesses would have failed sooner thus triggering a recession. 2. Migratory capital from the EU and Japan, where desperate savers hurt by negative interest rates, have sent capital to the U.S. junk finance markets. (Junk finance can be junk bonds, Bank Loan Funds, Peer-to-Peer loans, BDCs, put option writing, and some Venture Capital funds that foolishly invest in over-hyped non-technical so-called “tech”

2019-10-18T16:28:37-07:00October 18th, 2019|mayflowercapital blog|Comments Off on Why Recession Has Been Delayed

Bank Repo Market Distress Not A Concern

     The bank Repo (repurchase) market where banks use a Repo transaction to get cash from their inventory of Treasury bonds has created some distress in the banking system resulting in the Federal Reserve offering to buy $60Billion a month to add liquidity to the system. Some bearish commentators have implied that this is a tip off of an impending financial crisis. I disagree. The problem is merely a minor technical difficulty in implementing new Dodd Frank regulations. Any time someone writes up a new regulation or even a voluntary safety procedure there is the possibility of unforeseen technical difficulties occurring which necessitate a fine tuning to handle the contradictory goal of making the new seat belt fit comfortably yet

2019-10-11T17:32:56-07:00October 11th, 2019|mayflowercapital blog|Comments Off on Bank Repo Market Distress Not A Concern

No Inflation in the Employment Report

     The BLS Payroll Report was issued today showing 136,000 new jobs. Of this perhaps 100,000 are needed for population increase, thus the real net gain was about 36,000 which is almost nothing out of a work force (total seeking or holding jobs) of 160 million. Job growth is not occurring in prime aged males, thus risk that growth is in low paid jobs held by other groups; growth of low wage jobs not inflationary at this point because these job increases mostly went to high school drop outs. The least skilled sector of society have many problems like no reserves, no 24 month job history, bad credit, etc. so they can’t qualify for an A paper loan that increases

2019-10-04T08:57:06-07:00October 4th, 2019|mayflowercapital blog|Comments Off on No Inflation in the Employment Report

Using Bonds, and Gold To Short-Sell Stocks

When stocks crash, bond yields may go down, thus increasing bond prices. If yields are very low then investors may feel they have nothing to lose by owning gold, which has no yield, thus in a stock crash both gold prices and bond prices may rise together. If someone is bearish about stocks then one may decide to buy gold and bonds so as to benefit from a stock crash. It is far less risky to own unlevered gold and bonds than short-selling stocks and there are minimal carrying charges for gold and none for bonds. However sometimes bond investors are early to the party in terms of wanting to be bearish about stocks. The bond market tends to anticipate

2019-10-01T17:35:03-07:00October 1st, 2019|mayflowercapital blog|Comments Off on Using Bonds, and Gold To Short-Sell Stocks