Monthly Archives: November 2016

Repatriation of Corporate Offshore Funds Won’t Help the U.S. Economy

The new administration’s plans to encourage U.S. companies to repatriate funds from offshore subsidiaries may appear to stimulate the economy but it will merely be a wash that won’t boost the economy and it won’t boost the demand for dollar based deposits. Funds held in offshore subsidiaries can be invested in global bond market in whatever is the best short term investment grade bond, anywhere in the world, regardless of whether a company is located in Ireland or the U.S. Thus if an Irish subsidiary wires money to the U.S. parent they first have to sell their bond holdings and wire the cash to New York. Then the parent corporation deploys the cash by buying possibly the same list of

November 30th, 2016|mayflowercapital blog|Comments Off on Repatriation of Corporate Offshore Funds Won’t Help the U.S. Economy

Fiscal Stimulus To Be Too Weak To Help Stocks

Trump’s policies are starting to increasingly look like conventional fiscal stimulus: tax cuts, and infrastructure projects. Is his administration really going to be different from others who advocate stimulus to help the job market? When the government seeks to stimulate to help the economy they use tools like Quantitative Easing (money printing) or deep interest rate cuts both done by the Federal Reserve, or fiscal stimulus such as tax cuts, or make-work infrastructure projects. All of these tools depend on the government manipulating the economy and very importantly manipulating the opinion of business managers and consumers in hope of inducing them to borrow more and to spend more. This manipulation is thwarted by insightful business managers and some consumers on

November 29th, 2016|mayflowercapital blog|Comments Off on Fiscal Stimulus To Be Too Weak To Help Stocks

Even If Risk Of Stocks Reduced By Federal Reserve They Are Too Risky Compared To Bonds

What happens if every time stocks need to crash they get a bailout from Federal Reserve money printing? In theory stocks are overpriced and need to crash 55% to reach fair value. What is possible is that central banks will decide a deep crash would cause problems for the economy and thus they have sought and could seek to prevent crashes. This could mean that at any given point in time stocks are overpriced but the authorities at the central bank, because they fear a crash, are propping it up. If the Fed decides that a stock crash is like a Too Big To Fail bank crash then they could continuously prop up stocks thus preventing them from dropping down

November 28th, 2016|mayflowercapital blog|Comments Off on Even If Risk Of Stocks Reduced By Federal Reserve They Are Too Risky Compared To Bonds

Sharpe Ratio For Labor Income: A Warning For Investors

The statistic that the average inflation-adjusted wage didn’t increase since 1989 doesn’t dive deeply enough into this topic. When analyzing cash flows for investments one should review the Sharpe ratio showing the excess return divided by the standard deviation (as a proxy for risk). If there is too much risk required to get a certain type of return then the investment isn’t worth doing since on a risk-adjusted basis some of the time the payback might be inadequate in proportion to what one expected to get. It helps to think of a person’s career like an investment in a stock. The risk to workers in the past 30 years is that their jobs changed from a stable full time job

November 25th, 2016|mayflowercapital blog|Comments Off on Sharpe Ratio For Labor Income: A Warning For Investors

Thanksgiving: Be Grateful

Today is Thanksgiving.  Be grateful that we live in the most prosperous country in the world based on per capita incomes (excluding small population tax shelter or OPEC countries). Additionally the per capita earned income figures don’t show the value of tax-free welfare state transfer payments (free or subsidized housing, medical care, food stamps, disability income) that can be worth more than the per capita income of many countries. The U.S. has a higher per capita income for each state except Alabama, compared to the UK. Some people say that because the average inflation- adjusted income has been stagnant since 1989 that the system is unfair. However, Society has had the standard of living increased in ways that are not

November 24th, 2016|mayflowercapital blog|Comments Off on Thanksgiving: Be Grateful

Stocks Continues To Be Overpriced Regardless of Election

Stock expert Jeremy Grantham of GMO said on 11-7-16 the current high priced stock market isn’t a true bubble because its exuberance is not as frothy as in 2000; it needs to go higher to be a true bubble, he claims. My response is that using the 2000 bubble as a benchmark is not correct because that was an extreme outlier. Using 1966 top as a secular top might be a better example. The market didn’t really crash hard until 1973, although adjusting for inflation it went down a lot before 1973. Regarding GMO’s claim that stocks didn’t go up enough to be over-exuberant, I think if one assumes there was no government intervention in the 2008 crash then the

November 23rd, 2016|mayflowercapital blog|Comments Off on Stocks Continues To Be Overpriced Regardless of Election

Tax Cuts to Make Some Companies Look Worse

If a U.S. company makes no domestic profit and makes $100 profit in a foreign subsidiary that pays no tax then its income for accounting (not tax) purposes is $100. If the new tax law of 2017 allows foreign income to be repatriated at 10% tax rate presumably the company would so to avoid paying a higher tax rate in ten years when the legislation sunsets out of existence. But then its income after tax would be 10% lower and the company would have to report earnings dropped 10%, even though it would be better off than if it paid a 35% tax many years later. Since a corporation is valued on its after-tax earnings this would reduce the value

November 22nd, 2016|mayflowercapital blog|Comments Off on Tax Cuts to Make Some Companies Look Worse

Stocks Hit A New High: Will Tax Cuts Make Stocks Go Way Up?

Yesterday various stock indexes hit a new all-time high. Should you buy? One school of thought is to use momentum trading and buy when a trend has developed and simply follow the trend. The other school of thought is that this is very risky since fundamentals indicate stocks are too high. I prefer to use fundamental economic analysis. Based on ratios such as price to earnings, price to sales, price to GDP stocks are roughly worth about 1100 for the SP, half of the current price. They will fall 50%, although it may go higher before falling. There is no guarantee that they won’t first go higher for irrational emotional reasons.  The proposed tax cuts will enrich those rich enough

November 22nd, 2016|mayflowercapital blog|Comments Off on Stocks Hit A New High: Will Tax Cuts Make Stocks Go Way Up?

Solving The Problem of Low Cost Foreign Competition: Will it Hurt U.S. Investors?

A trade war could damage the value of bank stocks, bonds, loans and damage export sales, leading to a deep recession. The new administration will seek to help workers by restricting foreign trade in the hopes of undoing the problems caused by the importing of low cost imported goods from low wage countries. The problem with that is that it is closing the barn door after the horse has left. The situation has changed. Now the true problem is not low wage EM countries, rather it is that automated robotic workplaces are the wave of the future. There will plenty of jobs for college graduates in the future but there will be a lesser number of good quality blue collar

November 21st, 2016|mayflowercapital blog|Comments Off on Solving The Problem of Low Cost Foreign Competition: Will it Hurt U.S. Investors?

Housing Starts: Evidence of Depressed Economy

Housing permits as a percent of population were in a range of 0.8% to 0.4% (from 1960 to 2007) with one outlier in 1972 of 1.1% when the economy was overstimulated during a period of high inflation. Then in the crash of 2008 permits went to half of the recession level at 0.19%, a truly depressed figure, before coming up to 0.38%, which is below the lowest ever in the pre-2008 era. Thus housing remains in a recession level seven years after the economy bottomed out in 2009. See the housing chart second from the top on this web page here. During the past seven years interest rates have been at very low levels. Imagine if interest rates were at

November 18th, 2016|mayflowercapital blog|Comments Off on Housing Starts: Evidence of Depressed Economy