inflation

Employment Report Shows Weak Economy Justifies Low Yields

   Today the employment report was released by the government’s BLS showing unemployment dropped to 4.1%. This occurred only because of a massive number of discouraged jobseekers who dropped out of looking for work. The Labor Force Participation Rate dropped from 63.1% to 62.7%, which is more than the percentage improvement in unemployment. There is no wage inflation when compensation costs are covered by increasing productivity. Unit labor costs fell 0.1% YoY rate. Most of the loss of jobs to EM low wage countries is hurting the least skilled people who are inherently less productive than highly skilled people. If there is a predominance of highly skilled people remaining in the labor force and they are increasing their productivity then

2017-11-03T14:02:09-07:00 November 3rd, 2017|mayflowercapital blog|Comments Off on Employment Report Shows Weak Economy Justifies Low Yields

Political Events Imply Continuation of Status Quo of Low Yields

    The proposed tax cuts offered today in Congress are not a huge game changer that will stimulate the economy and trigger inflation. Regardless of which party is in power, the problem is a bipartisan problem, that the country’s excessive debt and government spending commitments mean the government is trapped and can’t afford a serious tax cut. When people or a government have too much debt then they become debt slaves and are unable to engage in increasing consumption and instead have to labor long hours just to keep their credit score from crashing. The appointment of Jerome Powell to be Federal Reserve chief is an affirmation of a continuation of traditional Federal Reserve moderate bubble making policies. He will

2017-11-02T13:29:16-07:00 November 2nd, 2017|mayflowercapital blog|Comments Off on Political Events Imply Continuation of Status Quo of Low Yields

Stop Worrying: Yields Aren’t Going Up

    Yesterday the “Bond King” Jeff Gundlach said the bond bull market is over since the ten year Note hit 2.4%. He’s has been concerned that rates will rise a lot. I disagree. I strongly believe in fundamentals rather than technicals. So what if a data point broke thru a line on a chart? The fundamentals for bonds are ultimately governed by unemployment. But unemployment data is misleading and unclear since people with fake jobs like independent contractors, temps, rookie Realtors with no customers, Uber drivers, waiters with a tipable job with a $2.50 an hour minimum wage are distorting labor market data. First these people lost a good traditional job, then they remained unemployed several years, and finally re-enter

2017-10-25T19:20:29-07:00 October 25th, 2017|mayflowercapital blog|Comments Off on Stop Worrying: Yields Aren’t Going Up

Counterintuitive Economic Activities May Hurt Stocks, Help Bonds

The economic research firm ECRI wrote an article showing that wage growth can increase when the number of hours worked decreases. For example, when it is layoff time the boss lays off the weakest, lowest paid workers, because he prefers to keep the strongest, best qualified ones. This is called labor hoarding, which is useful for the company in case it suddenly becomes time to expand. Thus the weakening of the economy that leads to less hours worked actually raises average wages, creating a hugely misleading signal. When a worker who has suffered a devastating decline in employment opportunities seeks to reenter the labor force they will need to take whatever minimum wage job they can find instead of holding

2017-10-09T12:07:46-07:00 October 9th, 2017|mayflowercapital blog|Comments Off on Counterintuitive Economic Activities May Hurt Stocks, Help Bonds

Fed’s Inflation Predictions Failed: Why?

   Janet Yellen wonders why inflation remains low and why traditional metrics no longer work to predict inflation. I believe this is explained by structural changes over three eras since the 1929 crash. The first era was during the depression of 1930s and continued through to the great inflation era of the 1970’s business managers were very cautious not to over-expand their businesses and thus there was a tight correlation between wage inflation, and economic growth, etc. The second era was when people got used to the 1970’s inflation they forgot some of the lessons of the Great Depression and began to take on more risk. But even then, they still made reasonable decisions not to unduly over-expand their businesses.

2017-09-26T16:04:59-07:00 September 26th, 2017|mayflowercapital blog|Comments Off on Fed’s Inflation Predictions Failed: Why?

Political Situation Reinforces Low Rates

   Recent political developments regarding Trump’s repositioning his policies away from Republicans and towards Democrats implies that the administration will end up being a meaningless one with minimal policy changes or new tax laws enacted, etc. over four years. It may end up being a ceremonial photo-op administration nominally leading the country that is actually run by a narrowly divided Congress. By that I mean that after adjusting for the independent nature of Senators and the filibuster that effectively it is impossible for Trump to get anything out of the Senate and thus Congress is pseudo-gridlocked. By repositioning himself Trump may incur the wrath of the House Freedom Caucus thus fracturing the Republican control over the House. It is truly

2017-09-14T15:08:19-07:00 September 14th, 2017|mayflowercapital blog|Comments Off on Political Situation Reinforces Low Rates

Employment Report Supports Bonds

     Today the BLS issued the monthly employment report showing only 156,000 new jobs were added but the unemployment rate increased by 0.1% to 4.4% as more people entered the labor force. Since the population increase of 100,000 new workers a month means that the jobs increase was really only 56,000 ahead of the population increase, that means on an annualized rate, unemployment will be reduced by only 0.46% in a year, before counting the actions of discouraged job seekers trying to reenter the market. An unemployment rate this low is close to full employment but some economists feel that there are roughly 1.5 percentage points of hidden, discouraged unemployed people, who if counted, would make the true unemployment rate

2017-09-01T15:34:17-07:00 September 1st, 2017|mayflowercapital blog|Comments Off on Employment Report Supports Bonds

Will the Treasury Default and Ruin Bonds?

   On Friday, September 29 it is the deadline to raise the federal budget deficit before a crisis starts on October 1. Trump threatens to not to cooperate unless a border wall is built. To get the budget done Congress would have to authorize paying $30 billion to $60 billion for the wall. But this is a capital expenditure, so the amortized cost might be 3% of the capital cost a year. That’s only $3 to $6 per person a year, plus interest. Trump may find that the senators who can protect him from impeachment are a valuable resource of contacts to build alliances with, rather than to antagonize, so there will be room for compromise. The idea that U.S.

2017-08-23T14:55:37-07:00 August 23rd, 2017|mayflowercapital blog|Comments Off on Will the Treasury Default and Ruin Bonds?

Low Retail Sales Indicates Disinflationary Economy

   Today’s retail sales report by the Commerce Department’s Census Bureau showed sales were down 0.2% from the previous month. The best indicator for consumer spending is restaurants and that dropped 0.6% and has not been positive in four of the past five months. Core inflation, ex-rents or owner’s hypothetical rent, is 0.6%. Since many homeowners have fixed costs or no mortgage then they would be experiencing an inflation rate of 0.6%. Based on an old rule of thumb that the ten year Treasury yield should be equal to nominal GDP then, assuming inflation drops to 0.6%, and GDP comes in at 1.3% then nominal GDP would be 1.9%, thus justifying a sub 2% yield. The yield is 2.32% today.

2017-07-14T13:49:03-07:00 July 14th, 2017|mayflowercapital blog|Comments Off on Low Retail Sales Indicates Disinflationary Economy

Employment Report Casts Doubt On Inflation

    Today the monthly employment report was released showing job gains of 222,000, which is typical. Beneath the surface the data shows that in the private sector job losses were 43,000. In the Prime age group of people aged 20 to 55 employment declined 135,000. Perhaps the net gain in jobs came from senior citizens who got a civil servant job and who are desperate to work to make up for low returns on their bank accounts? The real measure of job growth is wage growth but that only grew at 2.5% YoY, not much over inflation. Typically this late in the cycle job growth should be manifested in a bidding war for workers resulting in significant wage growth. The

2017-07-07T14:56:21-07:00 July 7th, 2017|mayflowercapital blog|Comments Off on Employment Report Casts Doubt On Inflation