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

Saturday, October 18, 2014

The White Picket Fence Dream: Timing the Full Recovery (Musical Tribute)

The following chart shows privately owned 1-unit housing starts per capita. I have added a median in blue and an exponential trend in red. When the two meet, we've fully recovered! Yay!


Click to enlarge.

May 2025! Mark it on your calendars!

The future's so bright, we need a montage!



Source Data:
St. Louis Fed: Custom Chart

Friday, October 17, 2014

Real Annual MZM Interest per Capita: Failure to Launch

The following chart shows what the $12.8 trillion sitting in MZM is earning per capita and adjusted for inflation (August 2014 dollars).


Click to enlarge.

Note that the floor (in red) is decaying exponentially but the ~$800 ceiling (in blue) is going nowhere. Also note that the last two visits to the ceiling required epic bubbles as fuel. Isn't that wonderful!

Fool me once, shame on you. Fool me twice, shame on me. Fool me three times, shame on both of us. - Stephen King

Let's zoom in for a closer look.


Click to enlarge.

It's actually worse than it looks for short-term savers. MZM continues to expand. In order to earn your fair share of annual interest (currently $30 as seen in the chart) you must start with $40,000 and continue to add to it (roughly $2000 per year). Fortunately, income inequality greatly concerns Janet Yellen, so a solution is just around the corner no doubt. Barring that, there are other "failure to launch" solutions of course.



It's going to take a stick of dynamite to get me out of my parents' house.

In hindsight, the timing of the movie was nearly perfect. 2006! Now the next generation can just sit back and live the dream. Sigh.

Source Data:
St. Louis Fed: Custom Chart

Exponential Trend Failures of the Day: Stock Market vs. Real Estate

The following chart shows nonfinancial corporate equities divided by household and nonprofit organization real estate.


Click to enlarge (this chart is larger than normal to show extra detail).

10 Things We Know:

1. From 2009:Q1 to 2014:Q2, the ratio grew exponentially at 10.4%.
2. As of 2014:Q2, the ratio was 2 STD above the long-term average.
3. Since 1952, the ratio's experienced two very serious trend failures.
4. In 1969, we put stocks on the moon.
5. The next decade was not kind to investors.
6. In 2000, we put stocks on the moon.
7. The next decade was not kind to investors.
8. In 2014, we put stocks on the moon.
9. The future's so bright, I gotta wear shades.
10. This is not 1982.



Source Data:
St. Louis Fed: Custom Chart

Thursday, October 16, 2014

On Track for Peak U.S. Industrial Production

That's not exactly the headline you'll find on CNBC, is it? Just trying to balance things out a bit!

The following chart shows the natural log of the industrial production index. When using natural logs, constant exponential growth is seen as a straight line.


Click to enlarge.

Note that the data is not following a straight line. It is following a nearly perfect parabolic trend channel (in red). Growth is therefore slowing parabolically and has been doing so since World War II. Also note that we're very near the peak should this long-term trend continue (and I see little reason to suspect it won't).

Let's zoom in for a closer look.


Click to enlarge.

I have added another trend line in blue. Since it is straight, it shows that the industrial production index has been growing exponentially over the short-term (the last four years). Yay. Due to the amazing and unprecedented consistency of the climb, many assume it has become a sure thing over the long-term too. Hurray. Good luck on that theory though. It is a temporary (cyclical) phenomenon and is not even remotely sustainable over the long-term. That's my opinion of course, but I believe it with every fiber of my being. Calling it a strong opinion would be an understatement.

I theorize that our odds of successfully breaching the long-term trend channel (in red) in a substantial way are about as close to zero as short-term interest rates currently are. The test of this theory will be made soon, when the intersection of the top of the long-term trend channel in red with the short-term trend line in blue occurs. That's currently on track to happen at the end of 2015, assuming that the blue trend doesn't fail even sooner (due to recent global economic weakness).

Why do investors extrapolate short-term euphoria and ignore long-term decay? Misguided optimism? Greed? Hubris? An irrational belief that the Fed can permanently create prosperity to fill the void? Perhaps it shall remain a mystery. The next leg down may have both short-term cyclical forces and long-term structural forces acting on it simultaneously though. Won't that be a hoot, especially if we're still stuck in ZIRP when it happens. Seriously. What a wake up call that would be. Risk abounds.

The long-term future's so blight, I gotta wear an umbrella (an upside down parabola, like the one seen in this post) to protect my eyes from the torrential industrial production downpour that's coming our way (again). It's only a matter of time. Sigh.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

Wednesday, October 15, 2014

The Stock Market: What Could Possibly Go Wrong (Again)?

The following chart shows nonfinancial corporation liabilities and equity divided by annual wages and salary accruals.


Click to enlarge.

$38.2 trillion in debt and equity can't be wrong! Back up the frickin' truck! They're practically giving it away! Get your share of it before the next guy does!

Don't let the recent weakness scare you away.



Stay the course. There's nothing to see here.

See Also:
Sarcasm Disclaimer

Source Data:
St. Louis Fed: Custom Chart

The 1980s and 1990s Are Over (Musical Tribute)

The following chart shows the percentage of federal outlays devoted to paying interest.


Click to enlarge.

The government would love to pay savers more interest, but it's got an economy to hobble along.



Source Data:
St. Louis Fed: Custom Chart