Low Inflation Rate May Go Even Lower

   Today the BLS released CPI data showing the core rate was 2.1% year over year and 1.6% for the quarter. If one accepts my theory that Owner’s Equivalent rent needs to adjust the CPI downward by 0.25% (or even more), then the 90 day core CPI would be 1.35%. With oil in the mid-50’s, its dramatic drop will surely put more downward pressure of CPI in the future. I remember when oil went up above $40 in 2004 and it seemed like a big deal, a high price at the time. Adjusting for inflation, a $40 price 14 years ago is like $53 this week (it’s now $56 for WTI oil) so we are almost equivalent now to the

2018-11-14T17:32:05+00:00November 14th, 2018|mayflowercapital blog|0 Comments

Elections’ Influence On Investments

    Yesterday’s elections imply the political situation is moving away from a pro-business tax cutting era to a more of a slow growth, centerist era. Over the next two years I expect the liberals and centerists to grow stronger, resulting in a less business friendly climate, including higher taxes. Perhaps political compromises will enable a hidden back door of tax increases. The situation is likely to lead to a lower degree of deficit supplied stimulus and thus the federal deficit may grow at a slightly slower pace. Rising taxes would act to dampen inflation and growth, making yields go down. Taxes could be increased by closing loopholes (like ending excessive depreciation deductions that only businesses would notice) or raising tariffs

2018-11-07T16:42:28+00:00November 7th, 2018|mayflowercapital blog|0 Comments

Stock Market Crash: GDP Report Didn’t Help

    Stocks crashed today, with the SP down 1.73%. Yet the government released the GDP report this morning showing a 3.5% growth. However, buried in the details is the fact the increase was due to one-time figures such as inventory building, rushing to buy before tariffs are implemented, government spending and savings drawdown. If these factors were removed the GDP would have been negative 0.1%. Capital expenditures, vital to fixing the economy and achieving a proper labor market recovery, had been ranging from 10% to 4% in the past three previous quarters but this recent quarter ending 9-30-2018 had only a 0.4% annualized growth. The implication is that the economy has failed to break out of its long term trend

2018-10-26T14:19:10+00:00October 26th, 2018|mayflowercapital blog|Comments Off on Stock Market Crash: GDP Report Didn’t Help

Major Stock Crash; Bonds Improve

    Stocks crashed today, thus rescuing bonds, since yields dropped because of the stock crash. The 10 year Treasury yield dropped 1.6 basis points; in after-market trading the yield dropped even more (a total of 3.5 basis points), like a stone in water. The SP stock index dropped 3.3%; NASDAQ declined 4.08%. The VIX exploded up 44%, making it too hard for speculators to buy put options thus forcing sales of stock out of the hands of short term speculators. Much of the world’s stock indexes have been negative for the YTD. Looks like the U.S. market is moving towards a global stock bear market, as are bond yields. This morning the PPI inflation data was released showing inflation YoY

2018-10-10T14:00:35+00:00October 10th, 2018|mayflowercapital blog|Comments Off on Major Stock Crash; Bonds Improve

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+00:00July 27th, 2018|mayflowercapital blog|Comments Off on GDP Rise Today Not A Sign of Better Economy

Fed Tightening Can Continue Longer Than Expected

    In yesterday’s blog I mentioned a scenario where the Fed would stop tightening in December, 2018. But that was based on logic with no allowance for how emotions hijack investments and economics. I suspect the emotions of the Fed members is such that they may seek to reach the traditional 2% real rate for bond yields and seek to pop the stock market bubble and also empty out their holdings of bonds bought during QE. Assuming they blindly persisted in this, then rates would go 1.2% higher than I forecast regarding the goal to get a 2% real rate, plus rates would go up an additional 0.5% for the effect of unwinding QE. This implies Fed funds rates go

2018-06-15T13:59:04+00:00June 15th, 2018|mayflowercapital blog|Comments Off on Fed Tightening Can Continue Longer Than Expected

Bond Yields Slightly Higher With No Fundamental Reason

    The ten year Treasury closed today at 2.65% yield just a hair over one of several trend lines. News items that may have propelled rates higher are reports that the tax cut will produce slightly more stimulus than expected, and that the unemployment rate in some categories is at record 45 year lows. The tax cut, in my opinion can be best viewed by looking at the incremental increase to the deficit of $150Billion a year which is 0.75% of the total federal debt, which is less than the 1.5% rate of inflation. Thus on an inflation-adjusted basis, taxes were not cut. For individuals they may find they save perhaps $800 a family a year but these cuts expire

2018-01-19T15:14:54+00:00January 19th, 2018|mayflowercapital blog|Comments Off on Bond Yields Slightly Higher With No Fundamental Reason

New Tax Law: Will It Stimulate The Economy?

   The stimulus effect for the tax cut for business owners with pass-thorough entities like an “S” corporation might amount to a $10,000 deduction if single, or $20,000, if married, for small service businesses. It could be a lot more for large non-service business like manufacturers. Suppose a self-employed single person makes a salary of $100,000 and a corporate profit of $50,000 and has no other income. Then the $50,000 corporate profit would be multiplied by 20% to get a $10,000 deduction; assuming the taxpayer was in the 24% bracket then he would save $2,400 in taxes a year.    Assuming a new Congress repeals this in three years then the taxpayer will save $7,200 cumulative over three years. That

2017-12-20T16:30:27+00:00December 20th, 2017|mayflowercapital blog|Comments Off on New Tax Law: Will It Stimulate The Economy?

Tax Cut Scaring Bond Market?

    The new tax cut bill will probably be approved very soon. This has made the bond market worry that stimulus will result in higher rates, thus hurting bonds. The ten year Treasury bond’s yield went up from 2.36% to 2.46% since yesterday, which is a significant move. The stimulus will come in the form of personal tax cuts averaging $17 a week ($884 a year) for the average person in 2025. The tax cut will result in a gain of 1.2% in after-tax income, less than the 1.7% inflation rate. If the average person makes about $55,000 a year from employment that implies a tax cut of $660 attributable to employment income. This is not enough to stimulate the

2017-12-19T12:32:36+00:00December 19th, 2017|mayflowercapital blog|Comments Off on Tax Cut Scaring Bond Market?

Deflationary Aspects of the Proposed Tax Bill

The new tax bill won’t cut taxes (using a discounted model of future behavior by Congress). Currently the average corporation pays a 13% rate (another study claimed they pay 26%). The problem with the tax bill is that it permanently takes away a corporation’s ability to have a foreign subsidiary that is immune from U.S. tax law and instead imposes a modest tax rate of 12% on foreign subsidiaries (supposedly a one-time tax) on foreign earnings regardless of whether earnings are firewalled off and kept offshore or are imported to the parent company. The risk for corporations is that each year, assuming a change in Congress, tax rates can gradually be raised on this, thus whittling away any benefit. Discounting

2017-12-14T11:52:23+00:00December 14th, 2017|mayflowercapital blog|Comments Off on Deflationary Aspects of the Proposed Tax Bill