debt

The Case for a Strong Dollar

   A popular myth is that the US deficits and recent tax cuts are so huge and out of control that the global investment community will dislike the US economy and sell off their dollar-based assets, making the dollar collapse. Assuming the recent tax cuts aren’t as effective as thought and start to reduce the cuts due to pre-set changes in the law (the whole thing reverts back in less than a decade due to Byrd amendment) then deficits may not get that much bigger. The tax law of December, 2017 actually raised taxes on corporations with offshore operations and closed loopholes such as large personal state income tax deductions, causing some personal form 1040 taxpayers to pay more. The

2018-11-12T15:16:14+00:00November 12th, 2018|mayflowercapital blog|0 Comments

Unaffordably High Rates To Create Recession

   Considering how fragile the economy is and how moderate income people are hurt when they try to buy things using a loan then soon the damage from rising rates will result in recession. Yes, it is fair for the Fed to try to return to “normal” where real rates are 2% and the QE purchases are sold off in a QT program, but that won’t happen because we are in a brave new world of excessive debt balances. This means people simply can’t afford to pay higher rates.    The debt / GDP ratio went from about 150% during much of the past century, before 1996, to 365% today, a huge change. If you earned $50,000 in 1990 and

2018-10-25T14:19:54+00:00October 25th, 2018|mayflowercapital blog|Comments Off on Unaffordably High Rates To Create Recession

How Tax Bill Will Effect Bonds

The new tax bill will make it possible for U.S. multinational corporations to repatriate their liquid assets stored overseas. In theory this would simply be a wash since they currently hold the cash in the form of investments in bonds, so the repatriation could be as simple as telling a bond broker who is their Custodian to simply move the assets to another account based in the U.S. in which case the broker simply makes an accounting entry. However, the move will mean a lesser need for gross borrowing, even if the move doesn’t change the amount of net borrowing. (By net borrowing, I mean the amount borrowed net of the trapped offshore cash). Currently a multinational starves its headquarters

2017-12-05T12:15:11+00:00December 5th, 2017|mayflowercapital blog|Comments Off on How Tax Bill Will Effect Bonds

Congress Unlikely To Create Tax Cut Stimulus Thus Increasing Risks of a Crash

Getting tax cuts, which will then result in stimulation of the economy, is unlikely to happen. The Republicans, over decades, have been eager to offer increased spending programs to compete with Democrats for votes. The total uncontrollable, mandatory spending on social welfare programs is so deeply entrenched and growing that there is no room to cut taxes. The source of huge future deficits will be from the government’s cost of health care programs and this can’t be changed due to demographic patterns. With the 60 vote Senate filibuster limit it takes a considerable consensus to make major changes, one that is unlikely to be achieved in an era where the president was elected by the Electoral College despite getting 3

2017-09-21T14:51:29+00:00September 21st, 2017|mayflowercapital blog|Comments Off on Congress Unlikely To Create Tax Cut Stimulus Thus Increasing Risks of a Crash

Not A Bond Bubble

    An article in FT.com “Bond bubble brews as central banks retreat from QE” today expressed worry that global central banks will end Quantitative Easing thus triggering a rise in rates. I disagree. Ultimately central banks will act to avoid triggering a crisis and will let any tapering plans be controlled by a need to taper gradually so as to avoid a crisis. What is more powerful than central banks and their ownership of bonds is the marketplace. By “marketplace” I mean the global market for all types of goods and services. I expect global GDP to continue to have a weak growth rate with minimal chances of it suddenly improving. Unemployment will also have minimal chances of suddenly improving,

2017-07-24T16:37:45+00:00July 24th, 2017|mayflowercapital blog|Comments Off on Not A Bond Bubble

20th Anniversary Of Asian Currency Crash

Yesterday was the 20th anniversary of the great East Asian financial crash. It started in Thailand then spread to much of Asia over several months. The crash resulted in a huge drop in U.S. interest rates because of the potential disinflation caused by the deep global crash. In the U.S. the economy was running at a very hot pace which implies a significant increase in inflation and interest rates would occur. Yet inflation remained at low levels and interest rates declined. The lesson to learn was that massive money printing in Asia created a fake economic boom there that was killed off by excessive debt. The excess money was related to a significant increase in dollar denominated debt owed to

2017-07-03T10:22:06+00:00July 3rd, 2017|mayflowercapital blog|Comments Off on 20th Anniversary Of Asian Currency Crash

New Year’s Message: Invest In Risk-Off Assets

The New Year will have increased volatility and surprises. This will reward patient risk adverse investors who operate in the area of risk-off assets such as investment grade bonds. The risks to bonds are a rising level of economic growth and rising inflation. I doubt that the global economy will increase its rate of growth in 2017. The problems of Japan, China, the EU, UK outweigh any hope of growth from the US. The rising dollar hurts the finances of EM countries and hurts the ability of U.S. manufacturers to export which could contribute towards creating a recession. If Trump succeeds in helping workers to get higher pay and restricting imports this would reduce corporate profits. The key paradigm of

2017-01-03T13:32:21+00:00January 3rd, 2017|mayflowercapital blog|Comments Off on New Year’s Message: Invest In Risk-Off Assets

No Way To Refute Bearish Points

One of the most shocking economic statistics are the ones showing the difference between the claim that the economy is in full employment mode even though the hidden unemployed are several percentage points higher than the official U-3 unemployment rate of 4.9%. For a while I didn’t let that be a significant concern because I felt perhaps some of the hard core unemployed were so unskilled and deserving of only a minimum wage job that their absence from the economy wouldn’t have made that much of a difference. But reading David Rosenberg say that the Employment to Population ratio is at a level consistent with 8% jobless instead of 5% I felt perhaps this topic needed to more closely reviewed

2017-01-10T23:32:53+00:00August 29th, 2016|mayflowercapital blog|Comments Off on No Way To Refute Bearish Points

Could Trump Create A Global Recession As A Result Of A Trade War?

An alternative to my pro-inflation blog post of yesterday is idea that Trump would be unable to create reflation and instead the economy would fall back into recession. The possibly that Trump’s policies would result in inflation and growth could be wrong, because creating a trade war is deflationary. Much of the world outside of the U.S. and northern Europe is teetering on the edge of recession and has far too much debt, which can also trigger a recession. A popular economic belief is that the economy can be stimulated by government make-work infrastructure spending using borrowed or newly printed money. Even if that is true, its stimulatory effects will have to be stronger than the deflationary forces triggered by

2017-01-10T23:33:00+00:00May 26th, 2016|mayflowercapital blog|Comments Off on Could Trump Create A Global Recession As A Result Of A Trade War?

China Debt Bubble Has Reached Saturation Point

Michael Pettis gave a speech today at the CFA convention where he discussed the massive growth in China over 30 years. He said that China reached its point of saturation of too much debt fueled unneeded development roughly in 1998 or maybe 2003. This would be at the point where additional investment is no longer socially productive, in other words when they are adding far more capacity than needed. Then by definition, debt grows faster than debt service capacity. Thirty countries have had cases since 1945 like this, it always happens where they overdo it with excess debt, he said. It is interesting that Pettis says that the saturation point in China was reached in 1998. That is roughly about

2017-01-10T23:33:01+00:00May 10th, 2016|mayflowercapital blog|Comments Off on China Debt Bubble Has Reached Saturation Point