Wednesday, December 17, 2014

What Lies Beneath the Rubles?

The following chart shows the 13-week moving average of the spread between the 2-year treasury yield and the 1-year treasury yield.

Click to enlarge.

Nice parabolic trend floor and failure.

December 17, 2015
2014 Monetary Policy Release

Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.

The next chart shows the 10-year inflation expectations as seen when subtracting the 10-year inflation protected treasury yield from the 10-year nominal treasury yield.

Click to enlarge.

The Fed might want to cut the deflationary anchor loose. We're in danger of being pulled under by it again, not that many seem to notice or care.

The Committee expects inflation to rise gradually toward 2 percent as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate.

Good luck on that. I am at least 80% confident that the treasury market, as a whole, is smarter than a small group of relatively detached elitist policy makers meeting behind closed doors. Yeah, call me crazy if you must.

For what it is worth, and as a holder of long-term treasury bonds (with inflation protection), I also remain 80% confident that the Fed will not raise interest rates in 2015 and that the 30-year nominal treasury yield will not exceed 3% in 2015.

As a side note, I've said this before and it is worth repeating. My long-term treasury bonds have inflation protection for the same reason my house has fire insurance. I do not expect my house to burn over the long-term. I do not expect inflation to be a problem over the long-term. That said, I'm only 80% confident. The insurance is for the remaining 20% of the time. Further, I do not root for heavy inflation any more than I would root for my house to burn.

Those sitting in inflation protected treasuries actively rooting for high inflation clearly do not understand the situation. One does not get wealthier paying heavy taxes on heavy inflationary gains (each and every year). That's a path to the poor house. Of course, those without any inflation protection during such a period would be riding a bullet train to the poor house, so it's all relative I guess.

The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. - Alan Greenspan, 1966

Pick your poison. I've picked mine. This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart #1
St. Louis Fed: Custom Chart #2

Great Depression Déjà Vu

The following chart shows personal consumption expenditures for services (ex health care) divided by disposable personal income.

Click to enlarge.

Who knew the 1932 resistance level would be so difficult to punch through?

Other than the failure of the trend in red and the fact that we're at 1932 levels, everyone knows our service economy just keeps getting stronger and stronger over time. It's common knowledge. There's no point even debating it. 70 years of economic history can't be wrong. Ignore the 80 years of economic history I say! This trend only goes up over the long-term! Right?

What's the worst that could happen from here?

The Mason-Overy Debate: "The Flight into War" theory

In Mason's view in the period between 1936–41, it was the state of the German economy, and not Hitler's 'will' or 'intentions' that was the most important determinate on German decision-making on foreign policy. Mason argued that the Nazi leaders were deeply haunted by the November Revolution of 1918, and was most unwilling to see any fall in working class living standards out of the fear that it might provoke another November Revolution.

This is a different world. I think we can pretty much rest assured that countries are willing to see falls in working class living standards. Take Russia for example. Let the ruble fall where it may. And China? I'm sure they only want aircraft carriers for their amusement parks.

Chinese aircraft carrier programme

Through various ventures, China has also purchased the ex-Soviet carriers Minsk and Kiev. These carriers have become floating amusement parks for tourists.

October 14, 2014
Why is the US Navy practising for war with China?

China's People's Liberation Army Navy is still no match for the US Navy, and won't be for a very long time. Instead, China has been developing other weapons designed to keep America's precious carriers far away from China's shores.

These include new quieter submarines, long-range hypersonic anti-ship missiles and, perhaps most worrying, very accurate medium range ballistic missiles that have been dubbed "carrier killers".

January 23, 2013
PLA 'sinks' US carrier in DF-21D missile test in Gobi

"It can be used like a stick to hit the dog intruding on our backyard, but it can never be used to attack the house where the dog comes from," the paper's commentary said.

Speaking of dogs and carriers, there may actually be a dog carrier glut. Just look at them all. Won't stop me from investing in the Chinese dog carrier market though! If there is one thing I learned from the housing bubble, it's that I gotta get my share of this infinitely growing industry before I'm priced out forever!

This is not investment advice.

See Also:
Sarcasm Disclaimer

Source Data:
St. Louis Fed: Custom Chart

A Parabolic Headwind for Our Long-Term Service Economy

The following chart shows the 10-year moving average of personal consumption expenditures for services divided by disposable personal income.

Click to enlarge.

If you are a permabull, then I suggest you concentrate on three hopes.

1. This parabolic trend fails soon (it must eventually).
2. It does not fail to the downside.
3. Health care services do not grow to the moon.

If you are a permabear, then I suggest you concentrate on one thing.

1. Don't ditch the handbasket. Over the long-term, the ride may just be getting started. Sigh.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

Tuesday, December 16, 2014

The Sarcasm Report v.201

Two sarcasm reports within 24 hours?

O frabjous day! Callooh! Callay!'

December 10, 2014
Report: Restaurant same-store sales growth slows in November

“It wasn’t a good month,” MillerPulse cofounder Larry Miller said. “It took sort of a turn for the worse. It’s surprising and unexpected. It seemed like everything was picking up and comparisons weren’t any harder.”

Out of curiosity, was there any surprising and unexpected weather in November?

Miller suggested that a cold snap that hit much of the country in the middle of the month might have kept some people at home.

I knew it! Cold weather! In November! For part of the month! Oh, the humanity!

But given the overall improvement of the economy, Miller said the result was still a surprise.

Everyone loves parabolic surprises! I bet you can't wait to see what's coming next!

“It honestly doesn’t add up,” he said.

You know what really doesn't add up? Sustainable restaurant employment parabolas! Rumor has it that if restaurants keep expanding at the rate that they are, then eventually same store sales cannot keep up. I know! It's crazy math! Which idiot started the rumor? Me! Right now! Woohoo!

The following chart shows the 12-month moving average of the annual change in the number of food services and drinking places employees.

Click to enlarge.

Pardon my language, but nice @#$%ing parabola.

I'm sure glad the unintended parabolic consequences of ZIRP were confined to the subprime oil industry though. We certainly don't want anything bad to happen to 10.8 million restaurant jobs. Like the shale industry, restaurants are one of our best growth industries since the bottom fell out of our economy. It's amazing what "cheap" money and intense competition can do.

’Twas brillig, and the slithy toves! Did gyre and gimble in the wabe: all mimsy were the borogoves, and the mome raths outgrabe!

I can't speak for you, but I am most outgrabed by the absurdity of it all. Sigh.

Source Data:
St. Louis Fed: Custom Chart
Jabberwocky by Lewis Carroll

1-Unit Housing Permits: Nobody Expects the Parabolic Inquisition

December 16, 2014
Calculated Risk: Comments on November Housing Starts

A year ago, for November 2013, housing starts were reported at 1.091 million on a SAAR basis (seasonally adjusted annual rate), up 29.6% from November 2012. Starts in November 2013 have since been revised up to 1.105 million. That huge increase in starts was probably one reason that many analysts, myself included, were overly optimistic for housing starts in 2014.

Nobody expects the parabolic inquisition.

Note the exceptionally low level of single family starts and completions. The "wide bottom" was what I was forecasting several years ago, and now I expect several years of increasing single family starts and completions.

In order for that prediction to work out, we may need to see some building permit growth. So let's look for it!

The following chart shows the 12-month moving average of new private housing units authorized by building permits (in structures with 1 unit).

Click to enlarge.

Uh, oh. Let's zoom in for a closer look.

Click to enlarge.

I spy, with my little eye, a whole lotta nothing burger.

You expected a different video? What is this? Some sort of Parabolic Inquisition?

Source Data:
St. Louis Fed: New Private Housing Units Authorized by Building Permits - In Structures with 1 Unit

The Sarcasm Report v.200

July 6, 2009
Jim Rogers Sells Dollars, Plans to Short Treasuries

“The idea that anybody would lend money to the U.S. government for 30 years at 3 or 4 or 5 or 6 percent interest is mind-boggling to me.”

The 30-year treasury yielded 4.35% then. It is 2.72% today. 24 1/2 years to go.

April 25, 2011
JIM ROGERS: Short Treasuries And Buy Commodities, Especially Silver

I plan to sell short US government bonds sometime in the next few weeks, months. Interest rates all over the world are going to go higher. We have inflation, staggering debt problems and currency problems facing us. So interest rates are going to go higher.

Silver was $46.25 per ounce then. The 30-year treasury yielded 4.46%.

October 15, 2012
I'd Rather Invest in Russia Than the US: Jim Rogers

"I'm convinced things are changing in Russia for the first time." Change

When the winds of change blow hard enough, the most trivial of things can turn into deadly projectiles.

March 30, 2014
Investor Jim Rogers: 'This Is the Time to Buy Russia'

"Russia's stock market right now is one of the cheapest in the world, and probably one of the most hated," said investor and commodities guru Jim Rogers, chairman of Rogers Holdings, in Singapore. "This is the time to buy Russia." Perseverance

The courage to ignore the obvious wisdom of turning back.

April 30, 2014
Sanctions Are Not Going to Hurt Russia At All-Jim Rogers

I mean, sanctions are not going to hurt Russia at all. Hope

May not be warranted at this point.

November 10, 2014
Russia Says Sanctions Hurting as Bank Moves to Defend Ruble

Russia’s financial guardians made their broadest acknowledgment yet that sanctions are sinking the economy, as the central bank moved to protect the ruble after the currency’s worst week in more than a decade.

December 12, 2014
Jim Rogers Is Bullish On Russia

"Well, I don’t quite see it as a crisis. They still have huge foreign currency reserves. This is helping their balance of trade, obviously. They still get paid for oil in dollars. And it’s certainly not – it’s not causing imports to go up in Russia with the currency collapsing. So I don’t see it as a crisis. They have many debts coming due – U.S. dollar debts, which I would suspect they can finance. But, again, I haven’t sat down and put pencil to paper to really determine whether it can be done or not."

December 16, 2014
Ruble Continues Its Decline in Russia, Despite Interest Rate Increase

“We are seeing an economic crisis,” Natalia V. Akindinova, a professor at the Higher School of Economics, said in a telephone interview. “We are seeing a sharp devaluation of the ruble at a time when the central bank doesn’t have the reserves to influence the market, as it did in the past crises.” Consistency

There is something to be said in doing things wrong the exact same way every time.

And for that, Jim Rogers, I honor you with my 200th sarcasm report! Well played, sir! Well played, indeed!

Monday, December 15, 2014

Everything You Need to Know About the Recovery in One 6 Second Video

Rosalia, WA: Another Boulevard of Broken Dreams (Musical Tribute)

April 3, 1994
Rosalia Is Thriving Again Despite Effects Of Highway Bypass

Rosalia's recovery is one of several cited in a new Washington State University analysis suggesting a state highway bypass doesn't have to sound the small-town death knell. Other towns in the study - Omak, Okanogan, Prosser and Sunnyside - all have managed to prosper.

I grew up in Rosalia in the 1970s and early 1980s. Analysis in the 1990s found prosperity? Big shocker. Unfortunately, the 1990s are over. I wonder what that same analysis would suggest today.

May 8, 2013
Rosalia on list of struggling locations

Still, “the likelihood of cities going bankrupt or dissolving is relatively small,” McCarty said. Mostly, “it’s the recession that’s catching up to them.”

1. Relatively small compared to what?
2. Recession? That was 4 years prior.

This area is going to be a big tourist destination,” Konishi said. “Rosalia is the gateway to the Palouse byway.”

A big tourist destination? Good luck on that.

~240 views since the video was put on YouTube a year ago. Note the lack of tourists (and cars, and people). I can say this with 99.9999% certainty. Rosalia will not be the next Disneyland. Sigh.

Deep down, all of us want to cling to hope. Unfortunately, hope doesn't pay the bills. Sigh.