labor market

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|0 Comments

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?

Low Unemployment Yet Declining Interest Rates: Why?

     The Employment report was released today by the BLS. The unemployment rate dropped to a very low percentage of 3.6%, the lowest in 50 years. But factory jobs growth stalled this year. Manufacturing and mining produced the growth of GDP in 2017 and 2018 and now that has stalled. Factory jobs in April declined by 4,000. These good paying jobs are worth more in terms of stimulation and growth than a low wage, entry-level fast food job. The Labor Force Participation Rate has been stuck near 63%, but in 2007 before the crash, it was 66%, which is 4.8% (as a percent of a percent) less than in 2007. If these missing workers reported to the government that they

2019-05-03T15:40:47-07:00May 3rd, 2019|mayflowercapital blog|Comments Off on Low Unemployment Yet Declining Interest Rates: Why?

Should Bond Investors Increase Portfolio Duration?

        Yesterday’s pseudo-capitulation by the Fed chief during a speech was interpreted by the market as a sign that the Fed is very close to ending its rate increasing campaign. More experts are tilting towards the possibility of recession next year. If recession comes then yields will drop, in which case investors who own money market funds would miss out on the chance to lock in intermediate term yields. When yields drop deeply then bond issuers refinance (they “call” the bond in) and investors are then forced to reinvest at lower yields. An exception to that is that Treasuries have lifetime restrictions and Munis usually have 10 year restrictions on calling in outstanding debt. Assuming that the paradigm that recessions

2018-11-29T12:12:45-07:00November 29th, 2018|mayflowercapital blog|Comments Off on Should Bond Investors Increase Portfolio Duration?

The Fed Can’t Afford to Raise Rates

      I calculate the appropriate interest rate by using the ten year Treasury Note’s real yield, now 1.09%, and subtract that from a historical average benchmark of 2.08%. The difference is 0.99%, which is the amount of real increase needed to return to “normal”. However, one “little” problem: we can’t return to what used to be normal because that would require returning to a pre-GFC 2008 crash era when the EU and Japan had far less debt and no zero rate or negative rate programs. A second “little” problem is the extremely weakened ability of workers to go on strike and demand wage increases means that employment (the alleged threat to bonds) is intrinsically weak compared to several decades ago.

2018-11-28T19:24:19-07:00November 28th, 2018|mayflowercapital blog|Comments Off on The Fed Can’t Afford to Raise Rates

Improving Labor Market Unlikely to Hurt Low Duration Bonds

    The BLS Employment report was released today showing 134,000 new jobs. Adjusting for 125,000 monthly population growth, of those likely to want to work, implies the net increase was only a few thousand jobs in a nation of 144million job holders and is thus a near zero growth rate. The unemployment rate decreased because less people attempted to participate in the workforce. When the unemployment rate is this high it is a sign of an overheated economy that will fall into recession in a year. Stocks may anticipate this a half year early so if recession come sin 12 months then stocks could crash in 6 months.    100% of the increase in employment went to those with no

2018-10-05T09:49:08-07:00October 5th, 2018|mayflowercapital blog|Comments Off on Improving Labor Market Unlikely to Hurt Low Duration Bonds

Bond Yields May Have Topped Out

    Yesterday’s dramatic bond market crash may make some people worry about rising rates, but I disagree. First, this year has seen an unusual degree of tax cut stimulus with huge federal deficits. This stimulus acted to make economic statistics including employment, hotter than normal, which resulted in rising interest rates. However, the typical scenario of a big stimulus package is a 5.5% GDP growth, not the 3.2% for the first half of 2018. The fact that the economy is growing 2% slower than it should (based on tax cuts) implies the stimulus may soon fade away and thus reduce the risk of inflation. During the two days before the monthly BLS Payroll Employment report bond yields tend to go

2018-10-04T12:56:32-07:00October 4th, 2018|mayflowercapital blog|Comments Off on Bond Yields May Have Topped Out

Interest Rates Up A Lot: Are Bonds Doomed?

  Today the yield on the ten year Treasury went up 0.12%, about three or four times the typical day’s movement. Reasons for yields to go up are that the economy is growing and experiencing rising wages and a shrinking jobless rate. Based on old cliché-like paradigms of the pre-2008 crash era the ten year bond yield should be the sum of inflation and GDP growth, about 4.5% total (today it's 3.18%). Also, the real yield should be about 2% (1% higher than today) which means, if inflation is 2.2%, then nominal yields should be 4.2%. So based on old-style fundamentals the ten year Treasury could go to a range of 4.2 to 4.5%. The effect of bond yields rising

2018-10-03T15:30:01-07:00October 3rd, 2018|mayflowercapital blog|Comments Off on Interest Rates Up A Lot: Are Bonds Doomed?

Inflation OK For Now But Prepare For Risk Of Higher Rates

The monthly PCE inflation figures were released today. Rents, as measured, act to exaggerate reported inflation. My opinion is that inflation is about 0.25% lower than the PCE because of a problem calculating inflation. The most recent Dallas Fed Trimmed Mean PCE, which is for May, was released today. For the Core Trimmed Mean PCE the 6 months data annualized figure is 2.0%; assuming an adjustment was made regarding the error in housing shelter costs then this would be 1.75%. During the last year of a business cycle inflation usually has a sudden spurt upwards which may provoke the Fed into tightening excessively, thus triggering a recession. Be prepared for the possibility of a spurt in inflation and interest rates

2018-06-29T12:24:52-07:00June 29th, 2018|mayflowercapital blog|Comments Off on Inflation OK For Now But Prepare For Risk Of Higher Rates

Repeating The Inflationary Labor Market of 1965-1979?

  The idea that today’s drastically low unemployment rate will cause inflation is ridiculous. To create inflation requires workers to get sustainable “real” pay raises. An analogy is to compare labor force participants to soldiers. The hot, inflationary labor market of the 1965-1979 era was like a well-trained, disciplined modern army with the best equipment. By contrast, today’s labor force would be like a ragtag, undisciplined, irregular army armed with flintlock rifles, etc. They are unable to get inflation-causing pay raises and unable to generate sustainable income that facilitates inflation-generating bank lending, thus no significant inflation is or will be created by today’s workers. During the 1960’s workers were unionized and employers found it way too inconvenient to move jobs,

2018-06-08T16:54:12-07:00June 8th, 2018|mayflowercapital blog|Comments Off on Repeating The Inflationary Labor Market of 1965-1979?