Monthly Archives: May 2019

Will Inflation Return?

     Economist Mohamed El Erian wrote that inflation may increase once cost cuts from the gig economy (Uber, Amazon, etc.) have been maxed out and the supply of unemployed people dries up, and corporations get more oligopolistic. I disagree, I believe: The dominant paradigm of the era is cheap EM labor undermining Developed countries resulting in unemployment, foreclosures, low growth in Developed countries. This force is far more powerful than the inflationary force suggested by Mohamed El-Erian. The fundamentals of EM countries are export subsidies, and excess production funded by local banks under political orders to loan money to companies that are not financially sound, so as to create make-work jobs, etc. Ironically as the trade dispute with China acts

2019-05-22T17:25:26-07:00May 22nd, 2019|mayflowercapital blog|Comments Off on Will Inflation Return?

If Stocks Crash Can The Federal Reserve Repair The Damage?

    When the recession comes, stocks will go down. The Fed can’t cut rates enough to prevent or heal a crash. Typically the Fed needs to cut rates by 5% in a crash; since they are now at 2.4% they would have to go to negative 2.6% which can’t be done without destroying the economy, and thus it won’t be cut to a negative rate. The intrinsic value of the SP is 1,800 (the peak was 2,954); the intrinsic value of the SP could even be as low as 1,100. If the Fed can only provide about half of the rate cuts needed to heal the next crash then perhaps stocks would get stuck at halfway between intrinsic value and

2019-05-16T13:33:54-07:00May 16th, 2019|mayflowercapital blog|Comments Off on If Stocks Crash Can The Federal Reserve Repair The Damage?

How Safe Is The U.S. Dollar?

   The U.S. imports far less than it exports; by contrast some countries are very export dependent, for example Germany exports half of what it produces. We export 12% of our GDP and only 6% to places outside of North America. This allows us to have more leverage since the rest of the world needs us more than we need them. This is even more true due to the growth of domestic oil fracking. The result of a trade war would be skewed in the direction of hurting other countries more than the U.S. will be hurt. The U.S. also attracts more skilled immigrants than other countries (vital to manufacturing the winning new technology). The “Middle Income Trap” theory that

2019-05-16T12:54:46-07:00May 16th, 2019|mayflowercapital blog|Comments Off on How Safe Is The U.S. Dollar?

Will China Tariffs Be Inflationary?

     The 25% tariff against imports from China won’t be inflationary. Consumers in the U.S. will simply buy less goods because they have a limited budget. Thus if they chose to buy imported goods from China, that suddenly cost 25% more because of the tariff, they will simply buy less of other items. The higher cost will inspire domestic competition and more likely inspire additional competition from other EM countries that have lower wage costs than China. Based on the fact that China devalued by 50% in 1994 a 25% devaluation by China, in response to the tariffs, will occur. This would trigger a retaliatory devaluation by Japan which has used devaluation to compete and stimulate its economy. This would

2019-05-14T15:06:33-07:00May 14th, 2019|mayflowercapital blog|Comments Off on Will China Tariffs Be Inflationary?

Low Unemployment Yet Declining Interest Rates: Why?

     The Employment report was released today by the BLS. The unemployment rate dropped to a very low percentage of 3.6%, the lowest in 50 years. But factory jobs growth stalled this year. Manufacturing and mining produced the growth of GDP in 2017 and 2018 and now that has stalled. Factory jobs in April declined by 4,000. These good paying jobs are worth more in terms of stimulation and growth than a low wage, entry-level fast food job. The Labor Force Participation Rate has been stuck near 63%, but in 2007 before the crash, it was 66%, which is 4.8% (as a percent of a percent) less than in 2007. If these missing workers reported to the government that they

2019-05-03T15:40:47-07:00May 3rd, 2019|mayflowercapital blog|Comments Off on Low Unemployment Yet Declining Interest Rates: Why?