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Shrinking GDP Validates Low Interest Rates

GDP data released today shows the economy grew at a 1.2% annualized rate in the second quarter. The previous quarter’s rate was 0.8% annualized, so the six month average is 1.0% annualized. The stall speed for falling into a recession is 2% GDP growth. Another concern is that unemployment is at 4.9% and yet the economy is growing at only 1%. If the unemployment is so low then GDP should be growing at about at least 3%. The reason why unemployment is low when GDP is also low is because the lack of productivity growth means that employers have to hire lots of low skilled, low paid people who laboriously manually do things that should have been automated.  The reason

July 29th, 2016|mayflowercapital blog|0 Comments

Election outcomes: Which Candidate Will Cause Inflation?

Rumors are increasing that Trump will beat Clinton. The implications of that are that Trump could start a trade war, which would be deflationary, or he could stimulate jobs growth through deficit spending and make-work projects, which would be inflationary. Considering how powerful Congress is regarding fiscal matters then Trump as president may not be able to move the dial and increase deficit spending and stimulate the economy. Thus the deflationary side of risk is likely to be stronger than the inflationary side of risk. Congress decides a great many things in Washington. Conservatives in Congress have opposed excessive spending (except for war matters and except for the first six years of the Bush, Jr. administration). In the drama of

July 28th, 2016|mayflowercapital blog|0 Comments

Deflationary Aspects of the Internet

The paradigm about internet marketing is that people would get used to reading free content and eventually settle down and become loyal consumers of websites that offer free quality content. That plan has been greatly discredited because there are too many choices resulting in dilution of the value of free content. Another paradigm is that people will reveal their data to a giant intent company who can then use the data to sell targeted advertising. Buyers of those ads should be careful since in modern times people are very busy and so a viewer of online ads may habitually instantly click to get away from the ad so he can read what he wants to read. Many people use ad

July 27th, 2016|mayflowercapital blog|0 Comments

Political Problems Resulting In Less Global Trade Could Trigger A Crash

Political cycles may lead to counter-intuitive outcomes. The result of artificially high wages caused by New Deal unionization resulted in workers in the 1970’s being pushed into very high tax brackets as a result of inflation and a tax code that didn’t care about inflation indexing. The result was widespread worker support for Reagan and tax cuts in 1980. The Republicans helped to end the Cold War and thus open up the huge economies of Russia and China which resulted in a wave of cheap exports fueled by cheap labor. This undercut the very workers who voted the Republicans into power. 25 years after global markets were opened up, the wave of cheap labor from China and other communist areas

July 26th, 2016|mayflowercapital blog|0 Comments

Yahoo Sold To Verizon: Lessons For Investors

Yahoo sold its core business today to Verizon for $4.8Billion. Yahoo was worth $125Billion at the top of the 2000 tech bubble. The company still retains assets worth $40Billion, most of which consist of stock in Alibaba, a Chinese internet company and Softbank in Japan. This implies Yahoo dropped from $125Billion to $40 Billion, a 68% drop. It would be lower if taxes were paid on the appreciation of Alibaba stock. Assuming that Alibaba experiences the fate of many tech companies and drops significantly in price the same degree as Yahoo or AOL did then Yahoo basically is worth about $4.8billion for the core, $4Billion for Alibaba, after tax, and another $5billion for Yahoo’s shares in Softbank, and a Billion

July 25th, 2016|mayflowercapital blog|0 Comments

Republican Party’s Decline: How Will It Affect The Economy?

Generally speaking Republicans have offered lower tax rate policies than Democrats so the decline of the Republican party implies the nation will move towards a one-party state with a higher rate of taxation and regulation. This could slow down the already slow growing, overly indebted economy, resulting in the economy falling into recession. This could induce more years of a long running Japan-style Soft Depression. Two possible outcomes could occur, one inflationary, the other deflationary. In the inflationary scenario the Democrats achieve full power in Congress and the presidency and respond to the coming recession with classic Keynesian fiscal stimulus using deficit financing. Deficit supplied funds would be used to create make-work projects to build infrastructure, etc. If the projects

July 22nd, 2016|mayflowercapital blog|0 Comments

Have A Positive Mental Attitude About The Economy

Even though stocks are seriously overpriced one should still have a positive mental attitude about the economy. Some people say that the U.S. doesn’t win anymore and that our economy has gone downhill. This is wrong. The economy may be stagnant and wage growth inflation adjusted maybe stagnant but it hasn’t gone down. By contrast, many other countries have actually become poorer compared to the U.S. People make the mistake of getting jealous of the success of rich people instead of being grateful for at least not having a declining income. By being unduly upset and unhappy people are losing sight of all the good achievements that they system has provided workers. Our workers are far better off than workers

July 21st, 2016|mayflowercapital blog|0 Comments

When Will Negative Rates End?

In the past 12 months there has been a massive increase in the amount of global negative interest rate bonds. Assuming that people who have resources to invest are often over age 45 and many people between 45 to 60 are actively preparing for retirement by doing long term investment planning then most people who have assets are mentally in the same position as a retiree in the sense that they care about being hurt by low yields. The pre-retirees anticipate or discount the future and act accordingly. Thus capital markets, to the extent they are influenced by retail individual investors, get a message that rates of return will be low and thus personal spending power and personal consumption psychology

July 20th, 2016|mayflowercapital blog|0 Comments

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

July 18th, 2016|mayflowercapital blog|0 Comments

Are Stocks Really In A New High?

After adjusting for inflation it seems stocks are not in a new high if one excludes the nine FANGS stocks.The SP index is warped by a few ultra-bubbly FANGS stocks so I prefer to use an equal weighted index to measure that market which one can find using the ticker for the ETF “RSP”. (I don’t recommend buying this ETF, it simply has some market data to examine). It topped out at 83 last year and is now about 0.3% higher, plus the dividend yield, which means the total return of 1.7% is about the same as inflation so it failed to make a new high adjusted for inflation. Some people think because the SP hit a tiny new high

July 15th, 2016|mayflowercapital blog|Comments Off on Are Stocks Really In A New High?