Monthly Archives: February 2017

Will Border Tax Adjustment Cause Inflation?

If the proposed Border Tax Adjustment becomes law there are three scenarios: Scenario A. The consumers and business simply ignore it and consumers pay it to access foreign made goods. This would increase consumer prices since the tax would be embedded in the retail cost of goods. However consumers would react to higher prices by cutting back on purchases thus provoking some retailers and manufacturers, including foreign companies to cut costs. Also the dollar might go up slowly to partially offset this, making the cost of imported goods lower than it would have been. In this scenario little or no increase in domestic employment results. This in turn avoids inflation that is caused by rising wages that enable larger bank

2017-02-23T10:56:13-08:00February 23rd, 2017|mayflowercapital blog|Comments Off on Will Border Tax Adjustment Cause Inflation?

Investors May Experience A Decline Like That of Workers

Investors may experience a decline in their well being that will parallel the experience of unionized workers in recent decades. The globalization and de-unionization of America’s workforce resulted in declining real income for well paid unionized workers, while those non-union workers who started at the bottom did make some gains because they came up from a low base. For 20 years the Federal Reserve has been cutting interest rates and increasing the money supply resulting in a massive increase in debt that was used, not to create factories and jobs, but was instead used to chase after stock and real estate bubbles. At some time that phenomenon will have a reversion to the mean and then stocks will be deprived

2017-02-22T17:25:36-08:00February 22nd, 2017|mayflowercapital blog|Comments Off on Investors May Experience A Decline Like That of Workers

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

2017-02-16T11:44:26-08:00February 16th, 2017|mayflowercapital blog|Comments Off on Employment And Inflation Trends Not A Threat To Bonds

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

2017-02-14T13:36:23-08:00February 14th, 2017|mayflowercapital blog|Comments Off on Stocks Hit New High: Does That Mean Time To Buy Them?

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

2017-02-06T15:49:55-08:00February 6th, 2017|mayflowercapital blog|Comments Off on Do Employment Patterns Of Highly Skilled People Explain Stock Bubbles?

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

2017-02-03T13:31:40-08:00February 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

2017-02-02T13:08:33-08:00February 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,

2017-02-01T14:05:44-08:00February 1st, 2017|mayflowercapital blog|Comments Off on Is 4% the True Sign of the End of The Bond Bull Market?