mayflowercapital blog

A Sudden Drop In Inflation To Occur?

A key component of CPI inflation is rent. 62% of “rent” comes from owner-occupied homes that the BLS uses to calculate a theoretical “owner’s equivalent rent” and is not actual rent. This figure comes from estimates offered by naïve homeowners who get surveyed by the BLS. These homeowners look to actually rented comparable buildings to estimate what their hypothetical rent should be. The fair market value of rent on owner occupied homes should be higher than that of a generic apartment house since they are better quality properties. If the affluent upper-end rental properties suddenly experience a sharp drop in rents then this change will influence owner-occupied hypothetical rent. In recent years much of the new construction of homes and

2017-06-21T14:06:59-07:00 June 21st, 2017|mayflowercapital blog|0 Comments

The Fed Raised Rates: Are They Too High?

The Federal Reserve raised the Fed funds rate by 0.25% today, making it float in a range of 1.0% to 1.25%. This is close to what the two year Treasury Note has yielded (its yield is 1.33%) so the marketplace already anticipated and adjusted for this. Long term Treasuries bond yield dropped from 2.2 to 2.13% today’s a result. The Fed’s rate increase means they are fighting inflation which makes long term bonds more desirable, which explains why they went up in price even though normally bonds go down in price when rates go up. In theory the Fed funds rate should be at least as high as inflation so using a PCE estimate of 1.7% inflation then the Fed

2017-06-14T14:49:45-07:00 June 14th, 2017|mayflowercapital blog|0 Comments

Will Politicians Increase Inflation?

            Recently some comments from House of Representatives members of the House Freedom Caucus (somewhat similar to the Tea Party except the Freedom Caucus membership is limited to members of the House) implied they would tolerate an increased budget deficit to help some of Trump’s stimulus goals. Since this sector of House members usually are Hard Money types rather than the type that would advocate inflationary policies this is a shock.  If the defenders of a strong currency change policies 180 degrees towards an inflation causing increase in the federal deficit then this would lead to an increase in inflation. For this to happen spending plans need to be approved by both houses of Congress. The Senate has the filibuster

2017-06-07T16:32:21-07:00 June 7th, 2017|mayflowercapital blog|Comments Off on Will Politicians Increase Inflation?

Weak Jobs Report: Good News For Bonds

    The monthly employment payroll based report was released by the BLS today showing only a 138,000 jobs gain. When netted against the 125,000 monthly population increase this is almost no net gain at all. The labor force participation rate continues to be about 2% below normal which implies 2% of the population are the hidden unemployed and thus the real unemployment rate is about 6.3% instead of the official 4.3%. The normal trend for wages is for them to increase about 4.5% a year at the top of an economic cycle, yet now despite being near the top of a cycle the wages are only increasing 2.5% a year. This 2% shortfall below expected wage inflation is a sign

2017-06-02T13:20:24-07:00 June 2nd, 2017|mayflowercapital blog|Comments Off on Weak Jobs Report: Good News For Bonds

Why has the Recession Been Delayed?

   The economic cycle bottomed in 2009 and should have had a recession in about seven or eight years (about now) but there are no signs of warning of an imminent recession. Why has the cycle lasted so long? One reason is that the dysfunctionality of Japan and the EU's economies allows the U.S. to prosper by default. Another reason is that the U.S. is more entrepreneurial and welcoming to skilled immigrants. Also there was enormous stimulus from Quantitative Easing, although that ended over two years ago. Monetary stimulus has a two year lag so perhaps so about now the benefit of QE will end. There is stimulus from the stock market going up so much. One key reason for

2017-06-01T12:02:52-07:00 June 1st, 2017|mayflowercapital blog|Comments Off on Why has the Recession Been Delayed?

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

2017-05-24T13:56:08-07:00 May 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

2017-05-17T15:52:57-07:00 May 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

2017-05-16T13:11:08-07:00 May 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

2017-05-10T18:24:11-07:00 May 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

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