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Employment And Inflation Trends Not A Threat To Bonds

On Tuesday the 14th there was quite an inflation scare which made bond yields go up to 2.51% for the ten year Treasury. Now yields have retreated to the levels of a few days ago at 2.44%. The CPI “headline” Year over Year came in at 2.5% and the core was 2.3%. The YoY CPI has was 2.5% five years ago but decreased later. The root cause of inflation is an increase in hiring and wages, which leads to the use of bank loans, which in turn expands the money supply, causing inflation. But what causes hiring and wages to increase? It is not the increase in wages and work hours for dead end minimum wage jobs, rather it is

February 16th, 2017|mayflowercapital blog|0 Comments

Stocks Hit New High: Does That Mean Time To Buy Them?

Stocks continue to rise. The SP index reached 2,337. The ten year Treasury yield is 2.47%. As stocks rise to excessive heights that induces some bond investors to sell bonds and buy stocks. This makes bond prices go down and stock prices go up. However, since stocks are very high priced, it is wrong to chase after a bubble and buy stocks. Instead, people should avoid the bubble in stocks and seek refuge in short term duration bonds, preferably in investment grade quality bonds. The current rally reminds me of the feverish pace of the stock bubble of 1998-2000 when it kept going higher even as a growing number of experts were forecasting a crash. The experts looked bad because

February 14th, 2017|mayflowercapital blog|0 Comments

Do Employment Patterns Of Highly Skilled People Explain Stock Bubbles?

Over the past forty years society has become a more class stratified environment where the highly skilled upper-middle class and upper class have a much higher earnings capacity and capacity to quickly find employment than do manual workers. The lower one’s skill set the harder it is to earn a living or find work. If stocks typically are bought by the top 10% of society and this class has gotten bigger percentage pay increases than moderate income people then perhaps this helps to explain the huge run up in stock prices since the low of August, 1982. As the affluent class has increased its ability to save and its financial self-confidence it has used these things to invest in stocks

February 6th, 2017|mayflowercapital blog|0 Comments

Big Hiring Gains Are Bogus And Not Inflationary

Today the BLS issued the monthly employment report (based on the “Establishment” survey, one of two BLS surveys) showing 227,000 new jobs last month. However, 305,000 jobs held by the prime age workers (age 25-54) were lost. This implies that the source of new jobs were either for new, low paid entrants to the labor force or to near-retirement age people who are taking jobs away from others. Wage growth was weak. The unemployment rate went up 0.1% to 4.8%. The U-6 rate, at 9.4%, showing the discouraged, hidden unemployed, is roughly at the same rate that it was during the worst period of the previous cycle, even though the economy is now at the top of an eight year

February 3rd, 2017|mayflowercapital blog|Comments Off on Big Hiring Gains Are Bogus And Not Inflationary

The Political Basis For Creating Inflation

The great inflation of 1965-81 can be traced to the Roosevelt New Deal of the Great Depression where every attempt was made (including efforts by Herbert Hoover) to inflate the economy out of the depression. These measures should have been dismantled after the 1941-45 war. Instead many features were kept in place thus creating conditions that helped create the 1965-81 inflation era.  During The New Deal, WWII, and on through the regime of president Johnson from 1930 to 1968 the Democrats were solidly in control (except for a brief time in 1954) and the Republicans often went along with their polices. Basically the country was united around a consensus of New Deal style government manipulation of the economy to cure

February 2nd, 2017|mayflowercapital blog|Comments Off on The Political Basis For Creating Inflation

Is 4% the True Sign of the End of The Bond Bull Market?

The Federal Reserve left rates unchanged during today’s meeting. The rate for the ten year Treasury went up to 2.47%. Typically rates rise a few days before the monthly release of the BLS’s Employment Report due Friday morning. A clearer view of rates will probably be offered by the market on Friday afternoon. Some bond experts like Bill Gross say that once the ten year Treasury yield exceeds 2.6% then the 35 year bond bull market will be over. (The market edged in at 2.62% briefly then retreated). Another expert, Jeff Gundlach, said 3.0% is really when the trend line will be broken signifying the end of the bond bull market. Economist Dave Rosenberg said, in a Macrovoices podcast recently,

February 1st, 2017|mayflowercapital blog|Comments Off on Is 4% the True Sign of the End of The Bond Bull Market?

Will The SP Rise Dramatically In a Melt-Up?

When stocks go up far too fast this is called a “melt-up”. It happened in 1999-2000. Currently various metrics like PE ratio, Price to Sales, Price to GDP show that stocks are at roughly the same degree of being overpriced as the tops of the bubbles of 1929, 1966, 2007. The great bubble of 2000 was briefly higher for a few months. Investor psychology may explain why extreme bubble tops occur. Demographics also help explain investor behavior. During 1999 the median aged Baby Boomer was 44. During ages 25-45 many people go through an aspirational stage where anticipate future promotions and pay raises and use borrowed money to consume a little extra in advance of the expected pay raise. Then

January 26th, 2017|mayflowercapital blog|Comments Off on Will The SP Rise Dramatically In a Melt-Up?

Dow Hits 20,000 Yet Barely Beats Bonds

The Dow hit 20,000 today. It doubled since March, 1999, almost 18 years ago. That’s an annual compounded appreciation of 3.8%, plus the dividend. Since the dividend of roughly 2% a year roughly offsets inflation, then the inflation adjusted total return was basically the 3.8% price appreciation. From 1998 to 2007 bond yields were often higher than this. The Long Government bond index total return was 2.8213 times it starting value since March, 1999, which is an annual return of 5.93%. The Dow had a total return of 3.0845 times its starting value since March, 1999, making a 6.52% annualized rate of total return (which is both dividends and appreciation). The Dow beat bonds by 0.7% a year. Traditionally the

January 25th, 2017|mayflowercapital blog|Comments Off on Dow Hits 20,000 Yet Barely Beats Bonds

Tax Cuts and Import Duties: How Will They Affect Investments?

The Trump administration seeks tax cuts on personal income and tax increases on imports. Assuming a taxpayer gets a three percent tax cut but also loses the deductibility of state income tax (which is 9.3% to 13.3% in California) they may not get a net income tax cut. If a consumer earns $100 and gets $67 after-tax and spends 20% on tangible goods subject to the Border Adjustment Tax they may pay 35% in hidden taxes (paid by the corporate importer) on the 20% that they spend on goods. That’s 7% of their after-tax income or about 4.6% of before-tax income, enough to wipe out the personal income tax cut benefit. If someone owns a corporation they will experience lower

January 24th, 2017|mayflowercapital blog|Comments Off on Tax Cuts and Import Duties: How Will They Affect Investments?

Anti-Import Laws May Result In Recession

The Trump administration and Congress are trying to restrict imports and reward exports through the proposed Border Tax Adjustment law with the goal of increasing domestic employment. One possible outcome is that domestic manufacturers will increase spending on domestic robotic manufacturing for expensive high value added products. This would increase the GDP but not increase employment. The people qualified to do sophisticated work are already employed and thus an employer would have a difficult time increasing the number of qualified employees on short notice. The very unskilled people who are the ones with the highest rate of unemployment would not be able to participate in this type of employment. Presumably some progress will be made in creating jobs for low

January 23rd, 2017|mayflowercapital blog|Comments Off on Anti-Import Laws May Result In Recession