Friday, October 24, 2014

Bonus Exponential Trend Failure of the Day: New Home Prices vs. Hourly Wages

The following chart shows the median sales price for new houses sold divided by the average hourly earnings of private production and nonsupervisory employees. The result shows the number of hours the average production and nonsupervisory employee would need to work to pay for the median new house with cash.


Click to enlarge.

The exponential trend in red failed big time, not that many seem to notice or care. So what happened to the missing 1,400 hours of labor in September (in order to stay on the unsustainable exponential trend)? Well...



Seriously. As seen in the chart, didn't we already go through this once? Housing bubble? Hello?

Source Data:
St. Louis Fed: Custom Chart

Exponential Trend Failure of the Day: New Home Sales per Capita

The following chart shows the quarterly average of new one family houses sold per capita (seasonally adjusted annual rate). I have added a median in blue, the rut of 1982:Q2 in purple, and the current recovery's exponential trend line in red.


Click to enlarge.

Let's zoom in for a closer look.


Click to enlarge.

As seen in the chart, the rut of 1982:Q2 appears to be offering some resistance. Since the Fed Funds rate averaged 14.51% in 1982:Q2, I think the answer to our housing problem is simple. If we want to get through this rut again, then the Fed simply needs to lower interest rates from here! Genius!

The Fed Funds rate is currently only 0.09%? Seriously? WTF! Oh, well. Maybe we'll get lucky and the trend unfails all on its own. It better hurry up though, because everyone needs a new place to safely park their new subprime cars!



Deep sigh.

Source Data:
St. Louis Fed: Custom Chart

Subprime Quote(s) of the Day (Musical Tribute)

October 24, 2014
Subprime Auto Loan Probe Widens as GM Discloses Subpoenas

We are keeping a close eye on the deterioration,” in subprime auto-loan performance, the New York-based analysts wrote.

This brings me great comfort, much like the calming words of Fitch Ratings analyst Bob Curran from 2005.

April 7, 2005
Home foreclosure listings surged in March

"It may simply reflect our overleveraged society and the fact that people are carrying more debt on everything and it doesn't take a lot to affect a small percentage of them in terms of moving them from homeownership to not," Curran said.

"It's hard to make a case, based on what I see here, that all of a sudden it's become an enormous trend." He said the economy is improving and employment is growing, which bodes well for a homeowner's ability to make mortgage payments.

See? No worries. Let's combine the two quotes. Maximize that tranquility!

We are keeping a close eye on the deterioration!

It may simply reflect our overleveraged society and the fact that people are carrying more debt on everything and it doesn't take a lot to affect a small percentage of them in terms of moving them from car ownership to not!!

It's hard to make a case, based on what I see here, that all of a sudden it's become an enormous trend!!! The economy is improving and employment is growing, which bodes well for a car owner's ability to make auto payments!!!! Mwuhahaha!!!!!

Oops, sorry about that. I was attempting to provide calming words. I may have overdone it with the exclamation points and sarcasm. Please allow me to make it up to you.



I can see clearly now the rain is gone
I can see all obstacles in my way
Gone are the dark clouds that had me blind

Relax and enjoy the lyrics of this optimistic song from 1972! Don't let the oil crisis of 1973 enter your thoughts!! It would be hard to make a case, based on what was seen in 1972, that all of a sudden the pain of the 1970s would become an enormous trend!!! Nobody could have seen it coming!!!! Mwuhahaha!!!!!

Oh, crap. I ruined the moment. Sorry. :(

Thursday, October 23, 2014

Median CPI: Resistible Force Meets Immovable Wall (Musical Tribute)

According to research from the Cleveland Fed, the Median CPI provides a better signal of the inflation trend than either the all-items CPI or the CPI excluding food and energy.

The following chart shows the quarterly change in the median CPI.


Click to enlarge.

The resistible force (ZIRP) met the immovable wall in 2014:Q2. The wall held.

Mighty Fed, keep pushing on that string! Push on it! Something's bound to morph!



Source Data:
St. Louis Fed: Custom Chart

Weekly Layoff Odds Approaching New Record Low: Time to Embrace Long-Term Risk?

This is my response to every financial expert on CNBC and Bloomberg TV who states that this is definitely an excellent time for long-term investors to embrace risk (a no-brainer so to speak).

The following chart shows weekly initial claims divided by total nonfarm employees.


Click to enlarge.

Excellent times to embrace long-term risk:

1. September 1982. The bad started getting better.
2. July 1992. We actually got through the early 1990s recession.
3. March 2009. We [barely] avoided Great Depression II.

Disastrous times to embrace long-term risk:

1. May 1969. We launched a man to the moon in July 1969.
2. April 2000. We launched dotcom stocks into orbit.
3. February 2006. We launched housing prices into the stratosphere.

September 2014?

Count me out! I know, big shocker. As seen in the chart, the 1980s and 1990s are over. In 2004 (when I turned permabearish on our economy), I debated a Capital One Financial bull on the Yahoo message boards on a regular basis. He kept saying that times were about as good as they'd ever been. I kept saying that it is much better to make long-term investments when they aren't.



October 22, 2014
Mish: Saxo Bank CIO Jakobsen Predicts Another "Shock Drop" in Markets; Addicted to Cheap Money

My view is that 1810 on the S&P would be only the beginning of the bear market that is to come. 1500 or even 1200 on the S&P would not shock me.

If we did revisit 1200, I would feel obliged to do another Rubicon post.

November 30, 2011
Crossing the S&P 500's Rubicon v.30 (Musical Tribute)

Here's a list of dates when the S&P 500 crossed above the 1200 level (at the close compared to the previous trading day's close).

We first crossed 1200 in 1998. We crossed it 29 more times since then. 2001? Yes. 2004? 2005? Yes, yes. 2008? Yes. 2010? 2011? Yes, yes. It's been nearly 3 years since we last crossed it to the upside. Would it shock me if it happens again? Not exactly.

This is not investment advice.

See Also:
Refining the Rubicon
Yahoo! Finance: Capital One Financial: Long-Term Chart

Source Data:
St. Louis Fed: Custom Chart

Wednesday, October 22, 2014

Parabolic Trend Failure of the Day: Human Labor vs. Animal Labor

The following chart shows the consumer price index for personal care services (think haircuts) divided by the consumer price index for meats, poultry, fish, and eggs (1982-84 = 100%).


Click to enlarge.

The future's so bright, I gotta wear shades of green.



Source Data:
St. Louis Fed: Custom Chart

Monday, October 20, 2014

Desert Plains + ZIRP = FAIL (Musical Tribute)

The following chart shows the annual percentage change in Arizona construction employment.


Click to enlarge.

I have added a parabolic trend in red covering the recovery. Why a parabola? Well, let's just say that an exponential growth trend just doesn't fit the data all that well. This begs a question. Wasn't ZIRP supposed to prevent upside down parabolas from forming?

February 21, 2013
A Phoenix Housing Boom Forms, in Hint of U.S. Recovery

The housing market in Phoenix presaged and magnified the collapse in real estate. Now its recovery could reveal much about the prospects for a nationwide turnaround.

Using similar logic, one wonders what this recovery failure could foretell.



Full moon is rising
The sky is black
I heed your call I'm coming back

Source Data:
St. Louis Fed: Custom Chart

Sunday, October 19, 2014

Our Economy Can't Tolerate Exponentially Decaying Interest Rates

As hard as this may be to believe, I would argue that our economy requires interest rates to decay even faster than exponentially.

The following chart shows the natural log of the M2 money supply interest rate. When using natural logs, constant exponential growth (or in this case, decay) can be seen as a straight line.


Click to enlarge.

I have added a linear trend line in blue that represents the interest rate ceiling. Note that it is a nearly perfect fit of the data. At the high end, interest rates have therefore been decaying exponentially. There is little doubt of that. If we reach the blue line, very bad things happen (see 2000 and 2007 in the chart). Further, each visit to the blue line created more pain than the previous visit. The last visit gave us the Great Recession. Nice job Bernanke!

Time Magazine: Ben Bernanke: Person of the Year 2009

His creative leadership helped ensure that 2009 was a period of weak recovery rather than catastrophic depression, and he still wields unrivaled power over our money, our jobs, our savings and our national future.

I have no doubts that his creative leadership helped ensure that 2009 was a weak period. As seen in the chart, some might even argue that his creative leadership gave us the Great Recession. It might have even inspired some to create Illusion of Prosperity blogs in 2007. Who knows!

I have also added a parabolic trend line in red that represents the interest rate floor. Note that it too is a nearly perfect fit of the data. At the low end, interest rates have therefore been decaying more than just exponentially. The description of it is something to behold. Parabolically decaying exponential decay? Two decays for the price of one! Woohoo! Further, note that our last visit to the red trend line is acting a bit like a Roach Motel. We can't seem to free ourselves from the stickiness.

SNL: Bug Off Ad

Roaches are attracted to Bug-Off by a chemical message that says, "Come on in, it's warm and safe in here." Once inside, the roach is held fast by a powerful adhesive, while three pairs of tiny tweezers grab the roach's legs and stretch them in opposite directions, until eventually they snap off. Meanwhile, a red-hot metal coil burns off the roach's reproductive organs, as the roach's own legs are used to beat it senseless. And with the patented clear-view window, you can be sure it's working. Finally, wads of turpentine silk cotton are stuffed into the roach's orifices, while a delicious piece of food is dangled just out of its reach.

True, none of this will actually kill the roach, but it will give it plenty to think about. So stop coddling your roaches. They've had it too good for too long.

Roaches? Savers? Long-term prosperity? It's all good.

Source Data:
St. Louis Fed: Custom Chart