Monthly Archives: May 2017

Will Central Banks Bailout Stocks During The Next Big Crash?

   Some people are saying that because the ECB and Japan’s central bank have bought so many local bonds that they will eventually have bought all of their countries’ bonds and will be forced to buy global stocks in an attempt to flood the world with Quantitative Easing (QE) stimulus. Does this mean that stocks will be purchased by central banks, leading to an even greater deviation (a bubble) from traditional fundamental analysis? The answer is that it depends on central banks’ desire to indefinitely pursue QE. I believe the U.S. Federal Reserve has already decided to repudiate QE and Zero Rate Policies (ZIRP) and back away from them very slowly so that no one realizes what is happening. Eventually

2017-05-24T13:56:08-07:00May 24th, 2017|mayflowercapital blog|Comments Off on Will Central Banks Bailout Stocks During The Next Big Crash?

Will Your Portfolio Be Impeached?

     If 21 of the 238 Republican members of the House of Representatives sided with the Democrats on an impeachment vote then an impeachment trial would commence in the Senate. That’s less than 10% of House Republicans that would need to change their position. About that many voted against the Trump administration’s proposed Health Care law. About that many took a tough and highly risky stand in favor of threatening a debt default rather than allow the deficit to get bigger in the July, 2011 deficit dispute. 22 House Republicans voted against Speaker Boehner‘s debt limit plan in July 29, 2011 even though failure to compromise could have ruined the government’s credit rating by a debt default. Already a House

2017-05-17T15:52:57-07:00May 17th, 2017|mayflowercapital blog|Comments Off on Will Your Portfolio Be Impeached?

Bonds With The Least Influence From Central Banks And Flight Capital

    Central banks and foreign flight capital investors have taken actions that warped the U.S. bond market. However, one possible uncontaminated (or less contaminated) segment of the bond market are Muni bonds. Since they are tax free they are usually not purchased by foreign investors who are exempt from tax on passive income. Central banks have never bought any U.S. Muni bonds.    Currently investment grade Muni bonds held in some of the lowest cost mutual funds with a portfolio of bonds rated as “A” quality, are yielding about 2.58%, after netting out the mutual fund’s fee, using the SEC 30 day yield method, which adjusts for bond premiums and discounts. Using a 2.58% federally tax free rate implies roughly

2017-05-16T13:11:08-07:00May 16th, 2017|mayflowercapital blog|Comments Off on Bonds With The Least Influence From Central Banks And Flight Capital

Inflation Risk May Not Be That Great

       According to a blog post, by an unknown source on Twitter, U.S. per capita health care costs, when measured as a percent of Actual Individual Consumption instead of GDP, are not that much different from other Developed countries. According to the blogger rising health care costs are a voluntary decision by increasingly affluent consumers to spend more, thus the richer the U.S. becomes, the worse per capita health care expenditures will appear to be, but according to the author things are not actually bad. My opinion about the essay is that, if true, then the macroeconomic concerns that the nation’s economy will be damaged by increasingly unaffordable health care are not a significant concern. Thus a good or at

2017-05-10T18:24:11-07:00May 10th, 2017|mayflowercapital blog|Comments Off on Inflation Risk May Not Be That Great

A New Era For Investors

             Stock market investors often discuss the topic that there is a “new era” where the old economics rules allegedly don’t apply. This concept usually happens when bullish people try to justify the high price of stocks after a huge runup. The stereotype is that a wise person says there is no new era, so avoid bubbles, etc. But there could be a new era. The new era maybe one where the Federal Reserve ceases their 30 years of massive rate cuts and bailouts that started in the crash of 1987. The Federal Reserve needs to raise rates to a “normal” level of rates. Based on that fact that the U-3 unemployment rate is very low, at 4.4%, the appropriate

2017-05-08T10:29:22-07:00May 8th, 2017|mayflowercapital blog|Comments Off on A New Era For Investors

Employment Report Doesn’t Show Inflation Returning

The Labor Force Participation Rate dropped from 66.2% in January, 2008 to 62.9% today. The 3.3% underperformance means that 3.3 percentage points of workers divided by 66.2% who were participating has declined by 5% since the economy topped out in 4Q2007. Today the unemployment rate was released showing it went down to 4.4%, yet PCE inflation is only 1.6%, workers are not getting real wage increases, and the ten year Treasury yield today was unchanged from yesterday at 2.35%. If those missing 3.3 percentage points of workers were willing to go back and search for work and insist on being counted as an unemployed person then the unemployment rate would be 3.3 plus 4.4% equals 7.7% unemployment rate. However, due

2017-05-05T13:35:45-07:00May 5th, 2017|mayflowercapital blog|Comments Off on Employment Report Doesn’t Show Inflation Returning

Low Growth Kept Afloat By Deflation

                   Regarding the recent GDP data issued 4-28-17, the Q1 oil drilling investment capital expenditures (some 0.4% of the economy) was up 450% annualized, which is why investment in non-residential assets went up 22% annualized in Q1. This would have been zero, except for the sudden burst of economic activity in drilling for oil. The other 99.6% share of economy that was not in oil drilling investment had no growth. The GDP for the quarter was only 0.7% annualized instead of the usual 2% range. Real GDP would have been flat if not for the recovery in the drilling sector. Recently more evidence has emerged of a lower breakeven cost level (possibly at the high 20’s a barrel instead of

2017-05-02T16:49:22-07:00May 2nd, 2017|mayflowercapital blog|Comments Off on Low Growth Kept Afloat By Deflation

Will Tax Cuts Create Growth?

              Tax cuts can stimulate the economy. However, many articles written about tax cuts don’t clarify some serious misunderstandings. The typical article criticizing tax cuts cites the 91% tax rate started in the New Deal that was from 1933 to 1963 and compares it to today’s lower rates. But these articles fail to mention that before the 1986 tax law changes investors could cavalierly buy a legal tax shelter using leverage at the end of the year and get tremendous savings. Someone could pay $100,000 to buy a limited partnership unit that provided an immediate $300,000 write off thus eliminating their tax bill. The best way to judge the economic impact of tax cuts is to step back and gain

2017-05-01T12:08:12-07:00May 1st, 2017|mayflowercapital blog|Comments Off on Will Tax Cuts Create Growth?