inflation

Inflation Risk Greatly Reduced

   The recent inflation data included the first time a month’s core PPI was flat and core CPI was negative. Service industry inflation has peaked and the upward trend in rents has been broken. Core CPI for goods deflated YoY for each month over the past 12 months, which is unusual. It hit a peak at 2.3% and didn’t beat the previous cycle high of 2.5%. The core CPI (which excludes food and energy) is about 50% composed of rents. However, 65% of the population live in owner occupied homes, some with fixed rate loans or no loans. Those who rent often have a smaller residence as tenants, so the impact of rental inflation on them is not as big

April 20th, 2017|mayflowercapital blog|0 Comments

Trump Move Towards Establishment: Reduced Risk of Triggering Inflation

The Trump administration continues to show that it is moving towards the center and towards a somewhat establishment or consensus type of policies. They are hemmed in by the moderate Republicans in Congress who won’t dare cut the existing welfare state benefits such as the ACA, etc. because they would lose their seats, and are also boxed in by the Freedom Coalition members who that hate growing deficits. Trump will not be able to engage in massive deficit fueled stimulus nor will he be able to cut costs and use the savings to finance a tax cut, thus depriving taxpayers of stimulus because they won’t get real net tax cuts. The administration seems to be moving towards recruiting more professional

April 10th, 2017|mayflowercapital blog|Comments Off on Trump Move Towards Establishment: Reduced Risk of Triggering Inflation

Inflation Alarm Bells Ringing: They Are Wrong

    The PCE inflation index was released by the BEA today showing a 2.1% increase in inflation. The 10 year Treasury bond yield dropped by 2 basis points. The PCE is more cautious and reliable than the CPI. At first glance it may be tempting to panic and fear that inflation is returning and that it will somehow morph into a 1970’s nightmare of high inflation. However, if one subtracts the effect of oil prices then the increase was not so threatening. Oil has increased 80% over the past year. Oil is about 4% of the economy. So the 80% oil price increase multiplied by 4% is 3.2% contribution to inflation which is slightly more than the 2.1% overall

March 31st, 2017|mayflowercapital blog|Comments Off on Inflation Alarm Bells Ringing: They Are Wrong

Political Developments Imply Lack of Stimulus

    The defeat of the Republican’s anti-Obamacare bill today implies that the Republicans, including Trump, will be heading in the direction of a traditional Republican Establishment doing-nothing type of regime instead of a dynamic, aggressive libertarian agenda of deep budget cuts and deep tax cuts. It is far too dangerous for elected Republicans to remove traditional welfare state benefits such as Social Security, Medicare, food stamps, etc. The same applies to the ACA subsidy for health insurance. The rural, low paid, blue collar workers who voted for Trump may have no choice but to depend on Obamacare because health care at age 55-64 can cost $15,000 a year a person and lower-middle class people might only earn $30,000 thus making

March 24th, 2017|mayflowercapital blog|Comments Off on Political Developments Imply Lack of Stimulus

Strategic Retreat By The Fed In Wednesday’s Rate Increase

     The Fed’s rate hike of Wednesday was a watershed event. They hiked even though they sluggish economy didn’t warrant a hike. They hiked in part because the free market already had the two year Treasury at 1.4% on March 15. The new fed funds rate is now about 0.875%, so the fed still needs to raise by 0.4% to 0.5% to reach the market’s estimate of interest rates. The Fed has decided to follow the market instead of lead it. The Fed has realized that QE was a mistake that made things worse. They realize that negative interest rates would vastly damage the economy and thus there is a zero bound line, even though it is possible to make

March 17th, 2017|mayflowercapital blog|Comments Off on Strategic Retreat By The Fed In Wednesday’s Rate Increase

Fed Raises Rates Yet Bond Yields Drop

Today the Fed raised their short term rate 0.25% to a range of about 0.875%. However, the free market has had the two year Treasury Note at 1.38% or near there for several weeks. Some people feel the free market short term rates are more reflective of the real world than the Fed’s artificial rate. If so, then the Invisible Hand of the market has already priced in the remaining 0.5% increase coming from the Fed later this year. The ten year bond yield dropped 9 basis points today as so as the Fed made their announcement. The market feels Fed tightening will fight inflation and thus increase the value of long term bonds. The comments that we are near

March 15th, 2017|mayflowercapital blog|Comments Off on Fed Raises Rates Yet Bond Yields Drop

Inflation: Ready to Destroy Bonds?

   The Fed meets tomorrow where they will raise rates by 0.75% over the next nine months. Based on rate increases in proportion to inflation and GDP this would be like rising rates at roughly double that pace in the old days. And if one adjusts for the huge balances of debts compared to several decades ago then the effect of the coming rate increases would be even more dramatic. This would be like taxing the economy to cool down inflation. The financial press seems to feel that the economy has fully recovered and that the labor market is tight and that inflation is ready to accelerate. I disagree. Bond prices may have been pushed up by flight capital fleeing

March 14th, 2017|mayflowercapital blog|Comments Off on Inflation: Ready to Destroy Bonds?

Huge Jobs Increase. Result: Lower Interest Rates

   The monthly employment report was released by the BLS today showing a big increase in employment of 235,000. Yet bond yields dropped by two basis points today. The unemployment rate declined 0.1% to 4.7%. But if one adjusts for extremely warm weather, the second warmest February in 96 years, then there would have been 181,000 less jobs bringing the total increase of jobs to 55,000 which is less than the 120,000 monthly jobs increase needed to keep up with population growth. The weather adjusted and population growth adjusted number, in my opinion, would be 55,000 minus 125,000 equals negative 70,000 jobs created, implying that the unemployment rate actually rose on a path that will in a year result in

March 10th, 2017|mayflowercapital blog|Comments Off on Huge Jobs Increase. Result: Lower Interest Rates

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|Comments Off on Employment And Inflation Trends Not A Threat To Bonds

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