fiscal stimulus

Rising Rates: Markets Getting Nervous

    Fitch said EM debt up 4x in 10 years so they’re vulnerable to a rising dollar; Carmen Reinhart says the next EM crash will be worse than the previous cycle’s crash. Argentine Peso exchange rate to US dollar now 24:1, was 4:1 (an 85% drop in 8 years) in my 2010 trip; 6:1 on my 12-2012 trip. Horseman Capital said now in a peak spending era (where it will have to be reduced) as funding sources like subprime auto loans getting maxed out. David Rosenberg worried about inflationary stagflation, and rising yields. He said Fed said neutral rate is 2.875% (probably that was said by Dudley, but I think Bullard is satisfied with current level of 1.7%) but I

2018-05-17T14:31:29+00:00May 17th, 2018|mayflowercapital blog|Comments Off on Rising Rates: Markets Getting Nervous

Tax Cut Stimulation to Boost Economy?

The new law of last month requires corporations to pay 12.5% tax on future foreign earnings of their subsidiaries. How will that effect the economy? Currently many U.S. corporations pay 12.5% to Ireland or 8.8% to Zug, Switzerland. These foreign taxes can be netted against the new U.S. foreign tax rate of 12.5% so the U.S. parent of a Swiss subsidiary would have to pay the U.S. a 3.7% tax. Thus the tax law may raise very little tax money from foreign subsidiaries.   The trend likely to emerge is that U.S. small companies that are too small to have offshore tax advantages or too weak to need tax savings may be bought out by giant multinational companies who would

2018-01-29T11:49:44+00:00January 29th, 2018|mayflowercapital blog|Comments Off on Tax Cut Stimulation to Boost Economy?

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+00:00June 7th, 2017|mayflowercapital blog|Comments Off on Will Politicians Increase Inflation?

Gridlock May Be Disinflationary

    The future of politics is that Congressional Republican leaders don’t want Trump to boss them around or gain control so these leaders will maintain the status quo of the Senate filibuster and thus allow it to help the Democrats to block legislation, thus creating gridlock that is coming from inside of the Republican party but which can be blamed on Democrats.  Then Trump will be unable to create dramatic fiscal stimulus and will end up being a do-nothing president. House Speaker Paul Ryan doesn’t want to unite with Democrats to create a majority voting block that can bypass the Freedom Caucus. By announcing that policy he is basically refusing to play politics with Trump and is allowing the Freedom

2017-04-04T15:16:08+00:00April 4th, 2017|mayflowercapital blog|Comments Off on Gridlock May Be Disinflationary

Will Tax Cuts Create Inflationary Stimulus?

    The Trump administration seeks massive tax cuts to stimulate the economy. The textbook economic response is that tax cuts stimulate the economy and cause inflation. However generic textbooks assume debt loads are much lower than today’s debts. High debts act to slow down consumption so the extra after-tax income from a tax cut may simply go to debt service instead of simulative consumption. The other problem is that the political will by Congress to cut taxes is lacking. When Reagan was elected in 1980 the tax code had no inflation indexing and thanks to the horrific inflation of the 1970s tax rates for moderate income workers were pushed into high brackets thus creating an unearned windfall for the IRS

2017-03-28T13:34:01+00:00March 28th, 2017|mayflowercapital blog|Comments Off on Will Tax Cuts Create Inflationary Stimulus?

Tax Cuts and Import Duties: How Will They Affect Investments?

The Trump administration seeks tax cuts on personal income and tax increases on imports. Assuming a taxpayer gets a three percent tax cut but also loses the deductibility of state income tax (which is 9.3% to 13.3% in California) they may not get a net income tax cut. If a consumer earns $100 and gets $67 after-tax and spends 20% on tangible goods subject to the Border Adjustment Tax they may pay 35% in hidden taxes (paid by the corporate importer) on the 20% that they spend on goods. That’s 7% of their after-tax income or about 4.6% of before-tax income, enough to wipe out the personal income tax cut benefit. If someone owns a corporation they will experience lower

2017-01-24T13:16:46+00:00January 24th, 2017|mayflowercapital blog|Comments Off on Tax Cuts and Import Duties: How Will They Affect Investments?

The New Administration: Will It Be The Man With The Pin?

Today Trump is inaugurated as president. Trump said stocks are a bubble. I agree. I remember Jeremy Grantham saying no leader wants to be the one with the giant pin who pops the bubble, which explains why the bubbles keep getting bigger. But Trump, who sold off his stocks recently, may end up doing society a favor and be “the man with the pin”. In Dec., 1989 in Japan there was a massive bubble and central bank governor Meino popped it, leading to a horrible but much needed crash. The possibility exists that similar things may happen in the U.S. Our society will be better off. Once people realize it is foolish to play with bubbles then people will focus

2017-01-19T21:58:45+00:00January 20th, 2017|mayflowercapital blog|Comments Off on The New Administration: Will It Be The Man With The Pin?

Rising Tariff Taxes To Start Recession

If consumers have a choice between paying 22% more (because of new tariffs) for imported goods or paying far higher prices for domestic goods then they will continue to use imported goods. If workers in EM counties get $2 an hour versus $22 in the U.S. and labor is half the cost of domestic goods and services then EM labor has an unbeatable advantage over domestic labor, even with a 45% tariff. I doubt the new administration’s attempt to bring back the lost jobs will work. Instead, people will have to put up with higher costs and they will be forced to cut something else out of their budget, thus creating unemployment for the unlucky producer of goods and services

2017-01-12T12:45:28+00:00January 12th, 2017|mayflowercapital blog|Comments Off on Rising Tariff Taxes To Start Recession

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

Rising Stocks And Sinking Bonds: Is This The Bubble Top?

Some experts like Jeremy Grantham have warned a few years ago that the current stock market cycle is not big enough to become a true bubble until it is at least 2 Standard Deviations which would be 2,250 for the SP. It is now there. Typically a stock top is a blow off formation on a chart where prices go parabolic and then collapse, like an airplane going into a stall because it went up at too steep of an angle. The enthusiasm over Trump’s policies are causing investors to make an emotional leap of faith that the economy will receive fiscal stimulus that will enable a new era of growth which will help stocks. As long as people believe

2017-01-10T23:32:50+00:00December 9th, 2016|mayflowercapital blog|Comments Off on Rising Stocks And Sinking Bonds: Is This The Bubble Top?