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Will Bonds Perform the Same as in the 1970’s Inflation Era?

   During the 1970’s there was a significant increase in inflation in the US and the UK which made interest rates rise, thus damaging long term bonds. Gold’s price rose during the 1970’s and was the best asset during that era. Stocks spent the inflationary era of 1966 to 1982 going down 50% and then their prices returned to their starting points after a 16 year bear market, so on a nominal price return basis investors made no gains, however they did get dividends. Could this time be different where yields are repressed by central banks and not allowed to rise in tandem with inflation? There was a precedent for that in the UK in the 1970’s the real rate

2019-07-12T16:11:06-07:00July 12th, 2019|mayflowercapital blog|0 Comments

Surprise Jobs Increase is Misleading

   The headline new employment rose 224,000 last month, far in excess of the 171,000 three month average. The global economy is reducing its economic activity, so the increase in domestic jobs looks suspicious. Half the jobs gain came from the hypothetical birth-death model. Employment growth in five months from actual data from companies (not from the birth-death model) has been zero. Multiple job holders increased 301,000, if not for them, the jobs number would have been negative. Almost 60% of Household survey employment growth was from self-employed people. So these could be starving rookie independent contractor sales reps, not people with real jobs. The age 25-55 prime aged sector only increased by 29,000 last month and for the past

2019-07-05T17:45:04-07:00July 5th, 2019|mayflowercapital blog|0 Comments

Will The U.S. Become a Bankrupt Banana Republic?

   Looking 30 years ahead the growing federal deficit as forecast by a Congressional agency implies the U.S. will become a Banana republic with high interest rates and an unaffordable gigantic budget deficit. Since people may become alert to this and take steps ahead of time to overcome the problem then I expect the following things to occur: * Defense spending greatly reduced, resulting in less global stability and greater flight capital into the US and similar countries. The increased flight capital puts downward pressure on interest rates. * Social Security starting age raised to 72, forcing more workers to delay their retirement, creating a surplus of job seekers, which is deflationary. * Medicare and Medicaid spending reduced through new

2019-06-26T17:52:47-07:00June 26th, 2019|mayflowercapital blog|Comments Off on Will The U.S. Become a Bankrupt Banana Republic?

Complex Theories May Confuse You About The Stock Market’s Hidden Risk

    In the 1997-2007 mortgage housing bubble the enablers of the bubble tried to rationalize using the Gaussian Copula theory that a Mortgage Backed Security holding mortgages from different states would act diversify the risk of a default. But that rationale was wrong because it was assumed that the successful borrowers would offset the damage caused by the losers. Instead the winners, who are borrowers, are not obligated to bail out the loser or to pay extra to the lender to make up for the loss caused by the defaulting borrower, so the “diversification” was bogus. A similar phenomenon is happening where financial experts assume the central banks can bail out the economy by cutting rates deeply. The problem is

2019-06-19T17:06:19-07:00June 19th, 2019|mayflowercapital blog|Comments Off on Complex Theories May Confuse You About The Stock Market’s Hidden Risk

Negativity About the U.S. Dollar Is Wrong

    It seems a many financial advisors and financial commentators are making an increasing amount of negative comments about the U.S. dollar and U.S. Treasuries. I disagree with them. I remember the 1970’s when there were many scary headlines about the end of Bretton Woods monetary agreement, Watergate, Nixon’s resignation, the U.S. defeat in Vietnam, the two OPEC oil shortages of 1973 and 1979 that severely damaged the economy, and the US embassy hostage situation in 1979 in Iran, etc. The dollar went down in value and the economy performed poorly while inflation increased dramatically in the 1970’s. Gold went up from $43 in August, 1971 to a peak of $880 in January, 1980. The inflation-adjusted price return of the

2019-06-14T17:25:55-07:00June 14th, 2019|mayflowercapital blog|Comments Off on Negativity About the U.S. Dollar Is Wrong

Employment Market Weakens, Recession Coming Soon

    The Employment report was released by the BLS today showing only 75,000 new jobs created, less than the 100,000 a month needed to keep up with population growth. Thus, on a relative population-adjusted basis, employment shrank by 25,000 jobs. Based on employment to population percentages before the GFC of 2008, the hidden unemployed are roughly 1.0% to 1.5% of the workforce, thus the unemployment rate is close to 5% instead of the official 3.6%. Many workers are labeled by the BLS as employed even though they have a speculative, high risk self-employment occupation with almost no income or they may have a waiter’s “job” with a $2.50 an hour minimum wage. The inverted yield curve of bond yields implies

2019-06-07T14:57:58-07:00June 7th, 2019|mayflowercapital blog|Comments Off on Employment Market Weakens, Recession Coming Soon

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?