Monthly Archives: July 2018

GDP Rise Today Not A Sign of Better Economy

    GDP for the 2nd quarter was reported today at 4% annualized. However, if one subtracts out the temporary boom in soybean exports done to avoid new tariffs, the lumpy defense spending, and a savings rate draw down that facilitated excessive consumption, then the GDP, ex-those items, was up only about 2.3%, which is what it has been for several years. The bond market actually reduced yields today after the news was released, so bond traders feel it is the same old story of a GDP stuck at 2.3% in the past few years (or about 1.4% over a ten year cycle). Regarding GDP growth, John Hussman @hussmanjp tweeted: “Basic arithmetic is your friend. Aside from quarterly pops in real

2018-07-27T16:13:05-07:00July 27th, 2018|mayflowercapital blog|Comments Off on GDP Rise Today Not A Sign of Better Economy

Tech Giant Plunges 23% Is This the Top?

Today’s 23% plunge in the price of Facebook stock is no surprise since it is one of the high priced tech stocks in the FANG index. If this can happen to a company with decent earnings then imagine how much riskier are the razor thin earnings companies like Amazon or money losing tech companies like Netflix. What has been propping up the entire market are the ten FANGS companies, so when they start to drop steeply in price then the momentum will soon be or now has been broken for the entire market. Already the broad market has failed to make a new high for six months.    The ECRI leading index peaked before every recession in 50 years. It

2018-07-25T17:08:43-07:00July 25th, 2018|mayflowercapital blog|Comments Off on Tech Giant Plunges 23% Is This the Top?

CPI Index Higher Today Yet Fundamentals Show Inflation Tame

   The yield curve flattened some more today, and at an accelerating pace. The 2 – 10 year Treasury spread closed the day at 0.23%, it was 0.28% a few days ago. It had been shrinking at a pace of 0.06% a month, but this week’s pace was almost a month’s worth of change in a few days. At this pace the curve will be flat at the end of August. The swaps (a non-cash market version of the spread) was 0.18% two days ago so it is even lower than the spread in the 2-10 Treasury cash market. Traditional economic theory says that an inverted yield curve is a sign of recession and these usually occur every 8 years;

2018-07-12T14:59:38-07:00July 12th, 2018|mayflowercapital blog|Comments Off on CPI Index Higher Today Yet Fundamentals Show Inflation Tame

Trade Conflicts Imply Global Growth to be Lower

     The trade conflicts that created rising tariff barriers will act predominantly to shake the confidence of the business community in regards to plans to expand their plant, equipment and hiring. Businesspeople are always on the lookout for the risk of being subject to unfair imposition of regulations or taxes that might damage their business. They will be reluctant to commit to expanding businesses if a multinational company suddenly is hampered in its process of manufacturing goods in various countries as a result of trade barriers.    The whole purpose of a Supply-side tax cut like the one enacted in 2017 is that it is supposed to encourage businesses to expand the economy. But a higher priority than pursuing income

2018-07-11T17:54:48-07:00July 11th, 2018|mayflowercapital blog|Comments Off on Trade Conflicts Imply Global Growth to be Lower

Inflation Threat: Is It Real?

      Employment growth is the key to inflation. Today the employment report was released by the BLS. A reasonable 213,000 net new jobs were created yet unemployment rose from 3.76% to 4.05%, which was rounded off to a 0.2% increase. This is because when the economy improves the discouraged hidden unemployed come out of hiding and seek employment. Based on the fact that the prime age group aged 25-55 used to have an 83% participation rate and this is now about 1.3% lower, then that may signal that there are at least 1.3% hidden unemployed, although this needs to be calibrated with the total work force and not merely prime age group.     People worry about rising wage inflation but

2018-07-06T10:03:05-07:00July 6th, 2018|mayflowercapital blog|Comments Off on Inflation Threat: Is It Real?

Trade Wars To Create Inflation Or Deflation?

A trade war with a 25% tariff might result in prices rising by a one-time increase of 15%. Consumers would react by reducing purchases of some goods until those less desired goods fell into their own little recession and cut prices. If, so then trade barriers might not be inflationary. However, the convulsions of businesses implementing new policies to cope with a trade war would mean that considerable frictional costs would be generated as businesses move plants and managers back into the U.S. and engage in a bidding war to hire domestic workers. If a business feels it is forced to move back into the U.S. it would have to pay relocation or recruitment costs to deal with moving employees

2018-07-05T15:16:25-07:00July 5th, 2018|mayflowercapital blog|Comments Off on Trade Wars To Create Inflation Or Deflation?

Bond Ratings Wrong Again

   Investment Grade bond prices haven’t been doing very well in the first half of the year. One reason is because rates went up, lowering the value of bonds. Another reason is that the Investment Grade (IG) sector is now 50% in BBB rated, the lowest rating for IG and thus only a tiny step above falling into junk category during a recession. The ratings agencies, once again, are not doing the right thing in rating bonds. The problem is that corporate bonds rated BBB may have a true value of one notch lower (the truth to be exposed during the coming recession). The bond market experts sense this and have begun to sell off this niche, making the price

2018-07-03T15:18:23-07:00July 3rd, 2018|mayflowercapital blog|Comments Off on Bond Ratings Wrong Again