Monthly Archives: September 2018

The Fed Raised the Rate Today: What Happens to the Economy?

             The Fed will keep on raising rates until they reach a level that makes them feel they have returned to normal. This means that real rates for short term rates, in the opinion of the Fed, ought to be about 2%, and if inflation is 2.2% then the Fed Funds rate could reach 4.2%, some 2% higher than today’s new rate. However, in their journey to higher rates they will find the economy is addicted to low rates and the economy will respond by falling into recession. Thus they will have to reverse course before they reach their goal. There is no way to go back to the past. To successfully return to the past when the ten year

2018-09-26T13:20:26-07:00September 26th, 2018|mayflowercapital blog|Comments Off on The Fed Raised the Rate Today: What Happens to the Economy?

Determining the Equity Risk Premium

    The Equity Risk Premium (ERP) is the excess return of stocks over Treasuries. It is used to show what the benefits of owning stocks are compared to bonds. A simple way to calculate it is to use the total return of long term Treasuries subtracted from stocks’ total return averaged out over a period of 30 or 40 years. The problem is that when stocks go up too high in a bubble this makes the ERP artificially high thus creating bubble that feeds on itself. Also when there is a period of severe inflation and high interest rates or extreme central bank tightening with very high rates then bonds may return more than stocks thus creating negative ERP. This

2018-09-05T16:51:13-07:00September 14th, 2018|mayflowercapital blog|Comments Off on Determining the Equity Risk Premium

Fair Trade and Laisse Fare Economics

   Trading with China may result in American companies submitting to the rigged rules of a non-free enterprise country that may result in an unfair outcome. It is interesting that American companies seek to move from high tax, high regulation states like California into low regulation states like Texas, yet they also want to open a branch in China and endure excessive regulations that may transition to a less secure situation if trading and tariff conditions worsen. I believe in free enterprise and in the optimism that if one country exports goods at a loss to another country that this ultimately won’t hurt the country that experiences too many low cost imports that result in a trade deficit. But this

2018-09-05T16:48:39-07:00September 5th, 2018|mayflowercapital blog|Comments Off on Fair Trade and Laisse Fare Economics