Friday, October 31, 2014

Halloween Fright Fest: Long-Term Housing (Musical Tribute)

The following chart shows annual new privately-owned housing units completed divided by total nonfarm employees.

If the blue exponential trend line (2.1% annual growth rate) represents a delusional long-term prosperity belief, then what does the orange exponential trend line (14.4% annual growth rate) represent?

Here is a hint.

October 29, 2014
Rents are soaring -- and so are evictions

Rents have risen 7% in the past year, while incomes have inched just 1.8% higher -- making it that much harder for people to afford their housing payments. In fact, the average renter now spends 30% of their income on rent, up from a longtime average of about 25%, according to Zillow.

If people can't afford to rent, then how can they afford to save up the money to buy a house?

Happy Halloween!

Source Data:
St. Louis Fed: Custom Chart

Thursday, October 30, 2014

Nonstore Retail Sales Analysis: The Das Boot Edition

October 23, 2014
Amazon posts huge loss, warns of more

The company projected losses as deep as $570 million for the fourth quarter, and revenue of $27.3 billion to $30.3 billion. That's shy of the average $30.9 billion analysts polled by Thomson Reuters had forecast.

The following chart shows nonstore retail sales.

Click to enlarge.

I have added an exponential trend line in red from the low point in 2009 through 2013. So far, 2014 isn't looking all that good.

The next chart shows the deviation from the exponential trend.

Click to enlarge.

Source Data:
St. Louis Fed: Custom Chart

Real Personal Consumption Expenditures per Capita

Click to enlarge.

I've got bad news, bad news, bad news, bad news, and bad news.

First, the bad news. As seen in the chart, thanks to the exponential trend failure during the Great Recession, on average we're each consuming roughly $6,500 less per year now than some would have projected (predictions for 2014 based on conditions from 1991 to 2007).

Now, the bad news. The new exponential growth trend is just 1.4% compared to the previous 2.6%. Since the r-squared is extremely high (0.99) for both trends, it's kind of like we've been permanently hobbled. Perhaps the future is not so bright after all.

Ready for the bad news? Here it comes. The Fed sure did a lot of experiments over the past 5 years. Nothing they did seem to alter the crappy 1.4% growth trend though, not even in the slightest. So why are we hanging on every word they say again? Bernanke once joked, "The problem with QE is that it works in practice, but it doesn’t work in theory." Quite the comedian!

Next, the bad news. There's no guarantee that this new trend in red will not fail again, and if it does then there's a distinct possibility that it too will fail to the downside. Won't that be a party! I say this as a believer in the Illusion of Prosperity since 2007 of course, so perhaps I'm biased.

And finally, the bad news. Since the wealthiest among us are growing their wealth and income much faster than the average among us, the wealthiest among us are more than likely pulling up the average. Put another way, this horrible chart is probably an extremely optimistic way to look at what the typical American is experiencing.

I do have some good news though, and it deserves its own paragraph.

If you are a highly compensated financial analyst and it is your job to predict real personal consumption per capita growth, I suggest sticking with 1.4% from here. What's the point of sifting through all the data when the trend is so solid? Of course, you'll be blindsided during the next trend failure. So what? Nearly everyone will be! You can hardly be blamed for that! So, sit back. Put your feet up on your desk and relax. Surf the web if you like. Look at new high end luxury vehicles. Who is going to know any different? But, and I cannot emphasize this enough, always be ready with a slick PowerPoint presentation once the Analyst of the Decade awards start showing up! You deserve nothing but the best!

Source Data:
St. Louis Fed: Custom Chart


The following chart shows the 4-quarter moving average of personal consumption expenditures divided by GDP.

Click to enlarge.

100% here we come! Straight as an arrow, that one! Not sure what will happen when we hit 100% (psst: guaranteed linear trend failure), but let's not worry about it now! It's a time for celebration!

Let's zoom in for a closer look.

Click to enlarge.

What? Who drew that blue trend line on my optimistic chart? Shame on them!

There are two easy ways to get back to the red long-term trend line. This does not need to end in failure yet!

1. Increase consumption growth! Yay!
2. Reduce GDP growth. Boo!

This is America! If anyone can consume more, it is us. So get out there and do your part! Don't let the blue trend win!

Source Data:
St. Louis Fed: Custom Chart

Food Services and Drinking Places Employee Productivity

The following chart shows food services and drinking places employee productivity (as measured by sales per employee, compared to other retail employees).

Click to enlarge.

The first fully automated restaurant chain is going to make a killing.

And by killing, I really mean:

1. It will break the exponential trend channel in a major way.
2. It will put many non-automated restaurants in immediate peril.
3. 10.7 nonfarm payroll jobs will instantly be at risk.
4. Vehicle miles traveled per capita will drop even more.
5. The homeownership rate will drop even more.
6. The food stamp program will be expanded even more.
7. Deflation and QE Infinity will stick to the headlines.
8. The hyperinflationists will continue to get poned.
9. The Japanese will laugh at the Fed's hubris and futility.
10. CNBC will continue to warn us about rising interest rates.*

* I don't think anything can actually stop CNBC from warning us about rising interest rates. It appears to be a constant in life. Maybe someday they'll get it right, but I somehow kind of doubt it.

December 30, 2010
CNBC: Who's Afraid of Rising Rates? Pros Get Ready For Move

"I would certain want to underweight Treasurys," Kevin Giddis, president of Morgan Keegan's fixed income capital markets division, said in a CNBC interview. "You've got to be cautious from totally getting out of bonds. Stay with the shorter duration, stay with the wide-spread securities and you'll be fine."

Worst advice ever! Me "would certain want" many thing back then. Shorter duration crap, me said. Me buy long end. Mmmm, good. Brave me was. Me still own.

Hey, it's just a Tarzan theory. I'm not a a Pro. This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

Wednesday, October 29, 2014

Food Services and Drinking Places Sales per Employee

The following chart shows the two year moving average of real monthly food services and drinking places sales per employee (using CPI for food away from home, September 2014 dollars).

Click to enlarge.

1. Increasing real sales per employee is good.
2. Declining real sales per employee is bad.

These are universal truths. Taken to an extreme, zero real sales per employee eventually results in those employees visiting the unemployment line.

So if someone says the restaurant industry is strong, healthy, and robust, you might want to take it with a grain of salt. Although the sales are currently impressive and the employee growth is currently impressive, the employee growth has been exceeding the real sales growth (as seen in this chart). This is bad.

Let me summarize. If I was forced to choose between using my life savings to open a restaurant right now or getting a hot poker to one of my eyes, I'd have to give it some serious thought.

October 21, 2014
McDonald's 3Q same-store sales fall 3.3%

Operator faces pressure worldwide

This is not investment advice.

See Also:
New York City's Theoretical Jobs of the Future

Source Data:
St. Louis Fed: Custom Chart

New York City's Theoretical Jobs of the Future

Click to enlarge.

This chart implies that not only will every worker in New York City be working in the food services and drinking places industry at some point in the future, but the trend has accelerated to the upside in recent years. Note the exponential trend failure that began in 2009.

So why do I call it theoretical? Seems fairly clear cut. Right? Well...

A restaurant glut will happen long before we get to 100% on this chart. In fact, it might already be happening.

October 8, 2014
City Restaurants Multiply, Despite High-Profile Closures

The widely held notion that rising rents are making it nearly impossible to survive as a restaurant in the city received its ultimate endorsement this summer when celebrity restaurateur Danny Meyer said the Union Square Café would move from its longtime home on East 16th Street.


Last month, the owner of Angelica Kitchen, a vegetarian institution in the East Village, put out a plea to patrons to come often to help the restaurant stay afloat. The rent has risen to more than $22,000 a month. In its early days at a different location on St. Mark’s Place, the restaurant paid $450 a month. “How many more dragon bowls can I sell?” said owner Leslie McEachern.


Veterans of New York’s unforgiving culinary scene question the staying power of the thousands of new dining spots.

For what it is worth, I question the staying power too. Big time! But what would you expect? I write an Illusion of Prosperity blog. Sigh.

In any event, I offer a prediction that is guaranteed to succeed. We will return to the exponential trend line in the chart at some point in the future and we will fail to the downside. It is a mathematical certainty. For example, it is utterly impossible to stay above the trend once the trend hits 100%. In all likelihood, it will fail much, much sooner than that. Will the failure happen in my lifetime? That I cannot say for sure. I could die early, lol. Sigh.

Source Data:
St. Louis Fed: Custom Chart

The Sarcasm Report v.191

October 28, 2014
7 surprise retirement expenses

As a retiree and a writer of sarcasm reports, how could I resist clicking on that link?

1. Unexpected expenses.

The first surprise retirement expense is a group of surprise retirement expenses? Welcome to the world of recursion! Fantastic! I immediately searched the Internet for more information. As seen in the following link, it turns out that there are 7 unexpected expenses.

October 28, 2014
7 surprise retirement expenses

1. Unexpected expenses.

Help me! I'm caught in a recursion loop. Oh, I see what they've done here. I'm supposed to move on to the second surprise retirement expense in the list. Got it.

2. Don't delay investment decisions.

I'm already retired. No time like the present to stop procrastinating! How is this a surprise retirement expense though? Perhaps I'm missing something.

3. Timing your retirement.

If you time your retirement poorly, surprise! 2000? Bad timing! 2007? Bad timing! 2014? Who knows?

4. Playing it too safe. We need income in retirement, and the temptation is to protect our principle and live off the interest. But that's almost impossible in these days of ultra-low interest rates. Instead, design your portfolio to produce total returns of 6 to 7 percent, even though the interest you get might be closer to 3 percent.

There is definitely a temptation to protect my principle (a basic truth)! Agreed. That's why I write sarcasm reports! Oh, wait. Do you think he meant principal (my nest egg) instead? Well, yeah. I'm trying very hard to protect it too.

I'm reminded of a rhetorical story. I owed the loan shark $10,000 and he wanted the money within a week. I told him that I could scrounge up $5,000 safely, but it was almost impossible to come up with $10,000 in these days of ultra-low interest rates. He said that if I didn't cough up $10,000 then he'd shoot me in the knee cap. That got me to thinking about designing a riskier portfolio that could produce 100 percent returns in just 7 days. Two days and a trip to Vegas later I offered the loan shark the following deal. $0 or bust! Not unexpectedly, he shot me in the knee cap.

It's what he said next that really made me laugh though, "I still need that $10,000 from you!" I replied, "Good luck on that, chump! I lost your $5,000 at the roulette table in Vegas! Just one bet! All or nothing! It was your money and therefore a risk I was willing to take!" Oh how we laughed over that one. He definitely appreciated my sense of humor. That didn't stop him from shooting me in the other knee cap though. What a surprise retirement medical expense that was! Never saw it coming!

That's when I decided to ask how many more bullets he had left in his gun? I can't say that I particularly cared for his answer. It ended well though. Fortunately, I met another loan shark. I needed income in retirement! $10,000 to be precise! I am still working through the details of how I'm going to pay him back. I probably just need to build an even riskier retirement portfolio and head back to Vegas.

5. Figure in inflation.

Surprise! Although inflation has been around for more than a century, this expense still manages to surprise retirees. Why is that? I wish you could have seen my face when reading it. I gasped in horror at the unexpected!

6. Falling victim to fraud.

You mean like designing a retirement portfolio to safely produce total returns of 6 to 7 percent when the 3 month treasury bill yields just 0.02%? That kind of fraud? Because if the retirement portfolio can't safely produce total returns of 6 to 7 percent and I am relying on it to do just that, then hello surprise retirement expense!

7. Selling your life span too short.

I could live long and my nest egg could run dry? This is a really surprising retirement expense. It has never even entered my thoughts! Has anyone else ever considered it?