The Short-Term Interest Rate Death Spiral Continues

The following chart shows the natural log of MZM Own Rate (the interest rate the liquid money supply is earning). By using natural logs, exponential growth (or in this case decay) can be seen as a straight line.


Click to enlarge.

There is now $12.4 trillion of liquid money supply attempting to earn interest (up $716.2 billion from just a year ago).

Is it any wonder that short-term interest rates are so low? As of March 2014, MZM is now earning a new record low of just 0.081% (81 cents per thousand dollars per year).

Perhaps I need to do an analogy here.

If I had 12.4 trillion rolls of toilet paper and I started loaning it out to my neighbors, then how much "sheet" interest could I realistically expect to earn per roll? How much negotiation power would I have if they noticed that my hoard had grown by 716.2 billion rolls just over the last year? (Keep in mind that they would notice, as it would clearly not all fit within my house. Some of it would no doubt spill out onto my yard, lol. Sigh.)

This is a feeble analogy by the way. Toilet paper is continually being both created and destroyed. There's always a need for more. What's destroying the money supply though? It would seem that we generally make more whether we need it or not.

If we can't be prosperous with $2.91 trillion earning 2.659% (annual averages in 1995) then perhaps we can be prosperous with $12.4 trillion earning just 0.081% in 2014? Is that the long-term plan more or less?

1995: $2.91 trillion x 2.659% = $77 billion

2014: $12.4 trillion x 0.081% = $10 billion

Note that the total interest paid on the total liquid money supply was nearly 8x more in 1995 than it is now.

Well, you know what they almost say. It takes trillions (money) to make billions (money)! And if we keep it up long-term, then someday they might even say that it takes quadrillions to make millions! Won't that be a hoot for the savers of the future!

Needless to say, I'm sticking with my long-standing theory (when I turned permabearish in 2004) that it is becoming harder and harder to make money off of money.

The short-term interest rate death spiral continues, not that many seem to notice. When will interest rates rise? That's what the financial "experts" keep asking. I have decidedly different questions. When will interest rates stop falling? What could cause them to stop falling? Seriously. It's like a bottomless pit of saving despair.

This is not investment advice.



Source Data:
St. Louis Fed: Custom Chart

Ugly Chart of the Quarter (Musical Tribute)

Click to enlarge.

The 1990s are so over.

Something's wrong, shut the light
Heavy thoughts tonight
And they aren't of Snow White

Source Data:
St. Louis Fed: Custom Chart

How to Spend $403 per Second

I was intending to post a chart today but something more pressing appeared.

Our dog Honey jumped off the couch last night and landed head first right into our heavy stone coffee table. Contrary to the wishes of our dog, the table did not budge.

She knocked herself so silly that she could not stand. Her eyes were swinging back and forth like a pendulum would (and her body attempted to compensate). They would not stop. As I loaded up the car with our dog, I couldn't help but think that it would be the last time I ever saw her. She was looking really dazed and confused, much like those with a serious brain injury would look. The odds of her returning home seemed very low. It didn't help that she had fluid all over the side of her face seemingly originating from her left ear (which hindsight says was just water from our other dog's water bowl kept just below the coffee table).

My girlfriend drove her to the emergency vet. As I still have Shingles (don't even get me started), I was in no condition to join them (nor would anyone want me to be there spreading Chicken Pox vapors).

Fortunately, our dog looks to be making a full recovery. I would never have thought it possible. I have never seen any creature look so incredibly disconnected from the real world (financial "experts" offering advice from within ivory towers notwithstanding).

Honey experienced vestibular disease. Between the visit and the lab tests (to rule out brain bleed conditions), the total came to $403. It took our dog a single second to rack up such an impressive spending habit (not counting the trip to the vet or the hours spent there), but fortunately she could not keep up the pace.

Life is a fragile thing, but our dog has once again persevered it would seem (knock on wood). Keep in mind that she racked up more than $12k in vet bills over the last year or so (and has made a nearly complete recovery from all of that). That makes this month rather light by comparison. D'oh!

I intend on posting a chart tomorrow, should the "illusion of prosperity" gods allow it. I am certainly doing all that I can to make the necessary ritual sacrifices to appease them, lol. Sigh.

In any event, I am grateful that we did not lose a pet in the last 24 hours. It was a close call. Honey is doing great today. Further, her blood work results just came in and show nothing to be worried about. Whew!

Exponential Trend Failure of the Day

Click to enlarge.

It is different this time.



Source Data:
FRB: Motor Vehicle Loans

A Rash of Bad News

The economy?

Well, maybe. This particular rash of bad news of which I speak is located in a band covering the left side of my chest and back though.

If you are wondering why my posting activity has been running a bit light lately then the answer is clear. I've got shingles. It would seem that I had chicken pox when I was very young and it has decided to reactivate.

It's a real party let me tell you. Not! It burns, it burns.

I'm not going to complain too much though. At least it hasn't gotten near my face or eyes (at least so far, knock on wood). It's a textbook case apparently.

I guess I just prefer to see the dark side of things. The glass is always half empty. And cracked. And I just cut my lip on it. And chipped a tooth. - Janeane Garofalo

And has shingles, and caused the Nasdaq to fall 3.1% today, and so on, and so on, lol. Sigh.

Gallows humor. Seriously. Sometimes you just have to laugh it off.

That which does not kill us makes us stronger. - Friedrich Nietzsche

I'm not convinced.

Quote of the Day (Musical Tribute)

April 3, 2014
"5 ETFs for a Relaxed Retired Life"

Vanguard Dividend Appreciation ETF (VIG)

The product returned more than 137% over the past five years.

Vanguard Total Stock Market ETF (VTI)

The fund gained nearly 173% over the past five years...

SPDR Barclays Capital High Yield Bond ETF (JNK)

JNK delivered strong returns of 116% over the past five years.

Ah, yes! Look at the relaxing predictable performance that only stocks and junk bonds can provide! Don't let it concern you that the starting point five years ago was during the Great Recession! We can easily repeat this process by sliding into another Great Recession! So simply extrapolate this performance forward and know that the Fed will never allow anything bad to ever happen again!

So what if VIG and VTI are down 2% since this article was written just two trading days ago (awesome timing by the way)? Relax I tell you! There's no need to panic! There are still ample gains to be realized for those who bought in April of 2009! Heck, the market could drop 50% from here and they'd still have gains! See? No point worrying!

And whatever you do, don't let my excessive use of exclamation points get to you! That's just me trying to inspire extra confidence in these trying times!!

Please take a deep breath, lean back in that La-Z-Boy recliner recently purchased on what's left of revolving credit growth, and relax to the smooth, calming sounds of Dream Theater! Crank it up to the point you cannot hear the screams of Jim Cramer on Mad Money! Drown it out! That's what I say!!

Dream Theater - Panic Attack


This is definitely not investment advice.

Rising Interest Rates: Autoimmune Disease

The following chart shows the "rising interest rate" environment as seen through the eyes of commercial banks offering 48 month new auto loans.


Click to enlarge.

1. Note that auto loans appear to be immune.
2. Check out that Motor Trend (we're right on it).



Autoimmune Disease

The treatment of autoimmune diseases is typically with immunosuppression—medication that decreases the immune response.

Alternatively, the Fed can just keep giving this economy more crack cocaine. Tough call.

Crack Cocaine

Crack cocaine is a substance that affects the brain chemistry of the user: causing euphoria, supreme confidence, loss of appetite, insomnia, alertness, increased energy, a craving for more cocaine, and potential paranoia (ending after use).

Source Data:
St. Louis Fed: Custom Chart

The Fed's (Pig) Lip(stick) Service

Click to enlarge.

As the 10 year treasury yield doubled (black, left scale), the Fed Funds rate was cut in half (blue, right scale).

It would seem that the Federal Reserve Board doesn't have much confidence in rising interest rate theories (based on what they do compared to what they say).

The following chart shows the ratio between the two rates.


Click to enlarge.

Behold the "Great Bond Yield Bubble" of 2011. Been there, done that. (Note that a bond yield bubble is the inverse of a bond price bubble.)


Click to enlarge.

It might not seem like it for long-term savers in despair (or stock market investors still swinging for the fences at any price), but the 10 year treasury yielding roughly 40x the Fed Funds rate is a very rare treat. In the grand scheme of things, it just doesn't come around very often. That's especially true nearly 5 years into a strong and resilient "recovery".

This is not investment advice.

See Also:
Wiktionary: Lip Service
Wikipedia: Lipstick on a Pig

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