Monthly Archives: May 2016

Are Stocks Ready For New Highs?

Today the SP at 2099 is 2% below its all-time high of 5-21-2015. If one adds in the 2% dividend then it has almost matched its total return all time high. However, if one uses the SP500 equal weighted index (the index used by the ETF RSP) the 5-21-2015 high was 83.03 vs today’s 80.43 value. Even with a 2% dividend added in the equaled weighted index would be 1.2% below the all-time high of last year. The New York composite (an index of all assets traded on the New York Stock Exchange) is 10,451 versus a high of 11,240 of 5-21-2015. The index reached a high in 7-3-2014 of 11,105, which after adjusting for inflation, was slightly higher than

May 27th, 2016|mayflowercapital blog|Comments Off on Are Stocks Ready For New Highs?

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

May 26th, 2016|mayflowercapital blog|Comments Off on Could Trump Create A Global Recession As A Result Of A Trade War?

Election: Will It Trigger A New Era of Reflation?

If Clinton is elected the status quo may continue and thus stock investors may experience less risk than if Trump is elected. The potential Black Swan for stocks is if Trump gets elected. Trump may only have enthusiastic support from a minority of the population, mainly blue color white males but if this group is the most angry and energetic and other groups are more passive, unmotivated, undecided, and less frustrated then perhaps the extra energy of the disaffected will enable them to win the election. Dave Rosenberg said Trump will win and this will result in much needed fiscal stimulus, but it won’t be good for Wall Street. My opinion is that Trump would enact policies that would raise

May 25th, 2016|mayflowercapital blog|Comments Off on Election: Will It Trigger A New Era of Reflation?

Is There Hidden GDP Not Properly Calculated?

A Goldman Sachs economist Jan Hatzius, and an independent hedge fund manager John Burbank have said that GDP is not properly calculated because of all the free things on the internet. See this article. I disagree. Imagine a restaurant owner who charges $25 for dinner and can charge $5 for lunch if he wishes to breakeven. Suppose he offers a totally free lunch with limits on how many people can get it. Does that really create $5 of hidden GDP for each lunch? The GDP would be calculated from the restaurant’s purchases of its supplies, wages, rents, etc. and would thus not be an invisible achievement of the economy. Is that the same as a broadcast TV show paid for

May 20th, 2016|mayflowercapital blog|Comments Off on Is There Hidden GDP Not Properly Calculated?

Diagnosis Of Rising Inflation: Is BLS Wrong?

There is a growing consensus that the Federal Reserve is more wary of the growing risk of inflation and will tighten regardless of foreign economic events that indicate a need to loosen. It wouldn’t surprise me if a few token tightenings occur this summer. The core inflation rate over 12 months reached 2%. A large reason for this rising rents which are rising about 3.5%. The problem is that due to the U.S. economy becoming like a Third World economy where the masses of people in rural areas have low paying jobs or high unemployment then people migrate and pile into cramped quarters in urban areas to look for better employment or more lucrative welfare benefits. This creates a situation

May 19th, 2016|mayflowercapital blog|Comments Off on Diagnosis Of Rising Inflation: Is BLS Wrong?

Rising Rates: Is This The Start of a Secular Rate Hike Cycle?

Today the ten year Treasury yield jumped from 1.76% to 1.88%, a significant jump. Rumor is that the Federal Reserve will raise short term rates in June. My opinion is that if they do then it will act to encourage bond investors to believe that the Fed is fighting inflation and this will act to support bond prices for long maturity bonds, and suppress interest rate increases of the ten year bond. Thus the possible Fed rate increase may not hurt long term bonds. The big picture is that in the past 25 years the world’s economy has become highly integrated and interdependent. Thus if China, Japan, and the EU all experience a deep recession next year then the massive

May 18th, 2016|mayflowercapital blog|Comments Off on Rising Rates: Is This The Start of a Secular Rate Hike Cycle?

Will The U.S. Economy Be Like Argentina’s?

The political environment in the U.S. is moving towards a Latin American strongman socialist type of outcome. Such an economy would include severe restrictions on imports resulting in consumers being forced to buy expensive domestic goods with less than ideal competition between manufacturers so that their quality might be weak. In that scenario the government would stimulate the economy with inflationary make-work projects creating more employment for the least skilled workers and allowing some debtors to partially inflate their way out of debt. But eventually inflation would begin to gallop out of control and then on an inflation-adjusted basis people would be worse off. The stimulation to the economy might increase corporate earnings but those earnings could also be decreased

May 17th, 2016|mayflowercapital blog|Comments Off on Will The U.S. Economy Be Like Argentina’s?

Secular Change From Central Bank Manipulation to Fiscal Stimulus and Inflation

The rise of Trump implies that voters may seek a more aggressive solution to the economy’s problems than that offered by traditional politicians and the Federal Reserve. That implies a switch from lassie faire Federal Reserve easy money Quantitative Easing and Zero Rate policies to a Congressionally authorized targeted fiscal stimulus program to create jobs through make-work projects financed by deficits. I feel that as time goes by there will be a growing acceptance by professional economists that QE and ZIRP don’t work and can make things worse, leading to a search for an alternative to central bank easy money policies. That alternative is either Reagan style tax cuts (unlikely to be approved by voters) or old-fashioned Keynesian fiscal stimulus

May 16th, 2016|mayflowercapital blog|Comments Off on Secular Change From Central Bank Manipulation to Fiscal Stimulus and Inflation

Politics Is Turning Against Business: Will Investments Be Hurt?

The implications of Trump’s popularity is that the traditional Republican constituency of moderate income blue collar traditionalists who would vote for Republican politicians that cut taxes for the rich has faded away. As the economy weakens then more traditional non-rich Republicans may defect to vote for a high tax Democratic slate rather than vote Republican because of some sort of traditionalist issues like guns, religion, gays, etc. When the country goes through economic hardship then the key issue for voters will be the alleged ability to create more jobs by restricting foreign trade (leading to a trade war and trade treaty cancellations) and restricting immigration. The Republicans haven’t won a popular vote presidential election since 1988 except for Bush, Jr.’s

May 13th, 2016|mayflowercapital blog|Comments Off on Politics Is Turning Against Business: Will Investments Be Hurt?

What Investors Can Learn From Trump’s Tax Returns

In trying guess what Trump’s taxes might look like I did some hypothetical thought experiments. I don’t know what his net worth is or other details of his finances. It was said in the news a long time ago that he had $4,000,000 of annual living expenses. Forbes said he has a $4billion net worth. The purpose of this essay is not to come up with a figure of what he earns but rather to discuss possible types of tax situations a wealthy real estate developer/investor might encounter. Assuming hypothetically he has a $300million net worth he might buy a portfolio of $900million of rental properties and use a mortgage for about 67% of the value. If it was an

May 12th, 2016|mayflowercapital blog|Comments Off on What Investors Can Learn From Trump’s Tax Returns