Monthly Archives: November 2017

Tax Cutting Bill To Damage the Bond Market?

       The proposed tax bill may just barely get passed by Congress. This makes the bond market nervous as some people think there would be a risk of inflation causing deficits and stimulus. A closer look at the bill shows it may not create much stimulus. It is actually a slight tax increase on the middle class and the net benefits accrue to either wealthy people with a net worth over $11,000,000 who face estate tax, or corporations with foreign subsidiaries that will get a cut in their taxes.           The perceived risk of the bill causing inflation mystifies me because if the bill increases the deficit by $1.5Trillion over ten years that is a 0.75% a year increase in

2017-11-29T19:15:15-08:00November 29th, 2017|mayflowercapital blog|Comments Off on Tax Cutting Bill To Damage the Bond Market?

Two Year Treasury Note Go Up From 1.75% to 5%?

    Interest rates for the two year Treasury Note may go substantially higher according to a “bond king” using technical chart reading. I disagree. If the two year Note, now yielding 1.75%, goes up 0.5% to 2.25%, then the yield curve will be flat and may occasionally be negatively sloped, which is the sign of a recession. The ten year Note has been yielding near 2.36% recently. A well established pattern for five years has been that most of the time the ten year Note’s yield is range bound between 1.88% and 2.6%. During this time the GDP has been about 2.3% and inflation about 1.5%. The sum of those numbers, 3.8%, is nominal GDP which in a previous decade

2017-11-20T19:40:18-08:00November 20th, 2017|mayflowercapital blog|Comments Off on Two Year Treasury Note Go Up From 1.75% to 5%?

Tax Trap From Mutual Fund Distribution

Mutual funds issue distributions to shareholders typically in either early November or late December. These are a taxable event which applies even if the mutual fund lost money after a shareholder bought shares. For example a fund could buy a stock at the beginning of the year, sell at a loss in mid-year and then in mid-year a new investor buys shares in the fund which then go down in value. The new investor, if a shareholder on date of distribution, is “tagged” with a 1099 distribution even if he lost money. Using Morningstar to screen I found 196 mutual funds with potential capital gains distributions of over 50%, some as high as 99%. These are mostly stock funds where

2017-11-06T17:09:42-08:00November 6th, 2017|mayflowercapital blog|Comments Off on Tax Trap From Mutual Fund Distribution

Employment Report Shows Weak Economy Justifies Low Yields

   Today the employment report was released by the government’s BLS showing unemployment dropped to 4.1%. This occurred only because of a massive number of discouraged jobseekers who dropped out of looking for work. The Labor Force Participation Rate dropped from 63.1% to 62.7%, which is more than the percentage improvement in unemployment. There is no wage inflation when compensation costs are covered by increasing productivity. Unit labor costs fell 0.1% YoY rate. Most of the loss of jobs to EM low wage countries is hurting the least skilled people who are inherently less productive than highly skilled people. If there is a predominance of highly skilled people remaining in the labor force and they are increasing their productivity then

2017-11-03T14:02:09-07:00November 3rd, 2017|mayflowercapital blog|Comments Off on Employment Report Shows Weak Economy Justifies Low Yields

Political Events Imply Continuation of Status Quo of Low Yields

    The proposed tax cuts offered today in Congress are not a huge game changer that will stimulate the economy and trigger inflation. Regardless of which party is in power, the problem is a bipartisan problem, that the country’s excessive debt and government spending commitments mean the government is trapped and can’t afford a serious tax cut. When people or a government have too much debt then they become debt slaves and are unable to engage in increasing consumption and instead have to labor long hours just to keep their credit score from crashing. The appointment of Jerome Powell to be Federal Reserve chief is an affirmation of a continuation of traditional Federal Reserve moderate bubble making policies. He will

2017-11-02T13:29:16-07:00November 2nd, 2017|mayflowercapital blog|Comments Off on Political Events Imply Continuation of Status Quo of Low Yields