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

Will Tariffs Be Free For Americans?

The proposed border tax adjustment will act like an import tariff tax and has an interesting anomaly that it may act to increase the value of the dollar (reducing the cost of the imported goods) thus negating the cost to consumers of the tax. This unverified anomaly reminds me of the “print and pay” anomaly where G7 countries can issue huge amounts of sovereign debt denominated in their own currency and simply print up more to make the minimum payment and thus never be at risk of defaulting. An additional twist on G7 debt or high quality G20 sovereign debt is that the worse the economy gets the greater the degree of “crowding in” (instead of “crowding out”) occurs where

January 19th, 2017|mayflowercapital blog|Comments Off on Will Tariffs Be Free For Americans?

Dramatic Increase in Tariffs Will Contribute To Causing Recession

Trump wants to have a 35% tariff on imports. This would reduce global trade, result in trade wars and thus reduce our exports. It would raise prices since domestic manufacturers would be able to get away with charging more. If half of all consumer expenses are tangibles and they experience either a 35% tariff multiplied by a 50% allocation to the wholesale cost of imported goods or a matching price increase by domestic vendors, then that could result in perhaps a one-time 17% increase to the CPI index for tangibles on top of the usual 1.5% CPI. I’m assuming no increase in inflation for services. Thus the total CPI would be about half of 17% or 8%.  Many things could

January 17th, 2017|mayflowercapital blog|Comments Off on Dramatic Increase in Tariffs Will Contribute To Causing Recession

Election: How Will It Affect Your Portfolio?

It is 10:30 pm Pacific time on election night November 8. For over four hours since 6:30 pm I have watched the stunning Republican landslide. This was truly the most shocking outcome in U.S. history since 1860. Many watershed elections such as 1932 were accurately predicted by polls, this one was incredibly unpredicted by polls. Trump’s policies are fiscal stimulation through massive deficits and restrictions of imported goods and deportation of illegal aliens, many of whom work at minimum wage jobs. This is inflationary. It could also create recession by reducing global trade and starting a trade war. It is possible to have both inflation and depression.  In that case there might not be any good investments since stocks are

November 8th, 2016|mayflowercapital blog|Comments Off on Election: How Will It Affect Your Portfolio?

Was the Great Lehman 2008 Crash Really That Important?

When Lehman crashed in 9-14-2008 and the economy went into the worst recession in 78 years it seemed very dramatic. After several years it seemed somewhat trivial because it only made GDP drop 4.5%. Except for Lehman all the giant financial companies were rescued and life went on somewhat like normal. The main groups of people who were hurt were people in the financial, real estate and home construction industries. Does this mean that the recession and crash should be trivialized? Does it mean that it was caused by an unjust irrational panic? An interesting phenomenon was that the professional class of workers in engineering, medicine, IT, education, accounting continued to thrive with minimal disruption to their ability to earn

October 12th, 2016|mayflowercapital blog|Comments Off on Was the Great Lehman 2008 Crash Really That Important?

Politics Effect On The Economy

Last night was the second presidential debate. With the election of Clinton now at an 88% probability and the rising probability of the Democrats controlling both houses of Congress what will happen to the economy? Today the U.S. bond market was closed for a holiday but the CBOE futures market for bonds was open. Interest rates went down one basis point. The dollar went up in value against major currencies by 0.5% to 0.7% on Monday, which is a lot for one day. The dollar index is already high at 96.9 and will probably go 20% higher, assuming no recession. If the U.S. is viewed as having a stable government that is a responsible government then its currency may be

October 10th, 2016|mayflowercapital blog|Comments Off on Politics Effect On The Economy

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|Comments Off on Shrinking GDP Validates Low Interest Rates

Employment Report Implies Recession Risk Rising

Today the monthly employment report by the BLS showed the unemployment rate dropped from 5.0% to 4.7% because people dropped out of the work force. The net hiring was 38,000, which is about 80,000 less than the monthly increase in new job seekers due to population increase. At that pace the jobs market, in proportion to population growth will have shrunk by 1,000,000 jobs in a year, which implies unemployment would increase by 0.65% in a year. Of course, these figures need to be smoothed using a three month or longer average. The three month average is 116,000 new jobs a month, which is no real increase after adjusting for population growth. The U-6 unemployment rate which measures marginally attached

June 3rd, 2016|mayflowercapital blog|Comments Off on Employment Report Implies Recession Risk Rising

When Will The Recession Occur?

The average economic recovery lasted 66 months over the past 50 years. Recoveries were of shorter duration before that, however, I prefer to use the most recent 50 years because it is more relevant. The current recovery is 82 months old. The recoveries in the past 50 years that lasted longer were 1991, which lasted 119 months, and 1982, which lasted 91 months. Both of those were due to rare, exceptionally favorable circumstances including the Reagan tax cuts, the end of the Cold War and the huge opening of low cost EM labor markets in the former communist areas. The good times in 1982-2000 correlated with significantly lower debt to GDP loads than today’s debts. Some people claim that the

April 11th, 2016|mayflowercapital blog|Comments Off on When Will The Recession Occur?

Imbalance Between Consumption and Income Implies Recession

The imbalanced situation where people consume more than they earn may be where younger people are not saving for retirement and are spending their entire earnings just to survive. As the years go by today’s affluent retirees will pass on. They may have spent down their nest egg and their children will not get a big inheritance. Then people on average will have less spending capacity than today. The difference between working and retired people is that retirees are supposed to spend down some of their net worth while workers are supposed to save. A balanced situation is one where a worker’s monthly contribution to his or her savings are offset by or matched by retirees’ consumption in excess of

March 31st, 2016|mayflowercapital blog|Comments Off on Imbalance Between Consumption and Income Implies Recession