stock market Archives - Independent Investment Advice Blog | Investment Planning

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

Don Martin2018-12-04T13:20:31+00:00December 4th, 2018|mayflowercapital blog|Comments Off

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

Don Martin2018-10-24T14:42:00+00:00October 24th, 2018|mayflowercapital blog|Comments Off

Determining the Equity Risk Premium

The Equity Risk Premium (ERP) is the excess return of stocks over Treasuries. It is used to show what the benefits of owning stocks are compared to bonds. A simple way to calculate it is to use the total return of long term Treasuries subtracted from stocks’ total return averaged out over a period of 30 or 40 years. The problem is that when stocks go up too high in a bubble this makes the ERP artificially high thus creating bubble that feeds on itself. Also when there is a period of severe inflation and high interest rates or extreme central bank tightening with very high rates then bonds may return more than stocks thus creating negative ERP. This

Don Martin2018-09-05T16:51:13+00:00September 14th, 2018|mayflowercapital blog|Comments Off

Fair Trade and Laisse Fare Economics

Trading with China may result in American companies submitting to the rigged rules of a non-free enterprise country that may result in an unfair outcome. It is interesting that American companies seek to move from high tax, high regulation states like California into low regulation states like Texas, yet they also want to open a branch in China and endure excessive regulations that may transition to a less secure situation if trading and tariff conditions worsen. I believe in free enterprise and in the optimism that if one country exports goods at a loss to another country that this ultimately won’t hurt the country that experiences too many low cost imports that result in a trade deficit. But this

Don Martin2018-09-05T16:48:39+00:00September 5th, 2018|mayflowercapital blog|Comments Off

New Highs For Stock Market: Should You Buy Stocks?

Earlier this week the SP made a new high after failing to do so for six months. However, the market’s breadth (of number of new highs vs. new lows) has shrunk to record lows, an extreme and dangerous sign. Only 3 sectors of the SP made new highs this week, versus 7 in January’s peak. The extreme price appreciation of the FANGs stocks has warped the averages. Corporate earnings before tax were up 0.2% a year since their peak in 3rd quarter 2014, which means in inflation-adjusted terms profits have been shrinking. In order to have a healthy and fairly priced market I’d like to see earnings increasing consistently and robustly for each of the last 16 quarters, instead

Don Martin2018-08-30T14:46:26+00:00August 30th, 2018|mayflowercapital blog|Comments Off

Stock Buybacks: How They Damage Companies

When corporations buyback shares of publicly traded stock the opinion of most experts is that it does no harm. I think on a small scale this could be partly true, but on a macro scale, if every company does buybacks and if buybacks act to raise the price of a stock then the companies’ actions in the aggregate can create a momentum driven bubble for the entire market, which is harmful. It is analogous, in an inverted mirror image way, to the fallacy of composition argument where during recessions even though it is best for each individual to save money and avoid household deficits, if everyone saves at the same time, then there will be a disruptive reduction of

Don Martin2018-08-13T12:24:27+00:00August 13th, 2018|mayflowercapital blog|Comments Off

Will Apple be the First $Trillion Company?

If Apple reaches $203 (only 1% higher than today’s price) it will be the first U.S. $Trillion Company, however, the first global one occurred in October, 2007 in China when PetroChina (PTR) reached a peak of $262 a share. Now PTR is at $74 a share, a decline of 72% from the peak of a decade ago. I bought PTR in March, 2005 at $62 and sold it November, 2006 at $116. I sold because I was worried (too early) that oil and PTR were going up too far and might plunge suddenly. Instead oil went higher, peaking in July, 2008. I don’t regret getting out too early because the downside risk of a volatile oil stock is great.

Don Martin2018-08-01T16:06:39+00:00August 1st, 2018|mayflowercapital blog|Comments Off

Broken Trend Lines And Broken Markets

Stocks recovered partly from yesterday’s crash but more importantly the stock market’s trendline has been broken and the stock market will eventually enter a bear market. In recent years the gravitational tug of the crowd’s emotions have swamped and overwhelmed fundamental analysis of stocks, resulting the market being hijacked by perma-bulls who rely on technical analysis to justify their actions. These investors try to justify their bullishness by claiming there is a technical trend shown as a pattern on a chart that somehow justifies forecasting that stocks will rise. But now these alleged trend lines have been broken. Since the stock market bulls depend on technical analysis, including trend lines, to justify investing then the bulls have less reasons

Don Martin2018-02-06T14:45:48+00:00February 6th, 2018|mayflowercapital blog|Comments Off

Dow Has Worst Point Loss Ever

Today’s stock crash made the Dow drop 1,175 points today. The Dow is almost down 10% intraday (8.6% at the close) from the high point of a week ago. The VIX volatility gauge closed at 38, it was at 12 last week, and in early January was as low as 9.2. The fact that VIX went up 3x in a few days is impressive. I believe in fundamental analysis. Based on fundamentals like PE10, Price to Sales, Price to GDP, stocks are roughly worth about half of their recent highs of last week. I expect to see the SP index trade at 1,400. It can drop an extra 20% due to a panic, so it could briefly hit 1,100

Don Martin2018-02-05T15:30:42+00:00February 5th, 2018|mayflowercapital blog|Comments Off

Stocks Inability to Have Duration Is A Concern

Bond duration is the amount of years until you get back your initial principal, adjusted by Present Value. In a low rate environment the discount rate is modest enough so as not to greatly diminish Present Value. But if a bond has 50 years future life and the expected discount rate is very high in future years because of an expected increase in the discount rate then the duration (the hypothetical time it takes to get paid back) can be very long. But what about stocks? Is the duration simply 2% yield times 50 years equals 100% to get paid back? The yield needs to be discounted for Present Value and is needs to be projected to grow with

Don Martin2018-01-25T12:20:40+00:00January 25th, 2018|mayflowercapital blog|Comments Off