Thursday, October 27, 2011

Certainty vs. Uncertainty Update

Based on today's extreme volatility in both the stock and bond markets, I think it would be a good time to visit a previous post.

August 9, 2011
More Certainty vs. Uncertainty

Click to enlarge.

Here's where we are now.

Click to enlarge.

On the one hand, the red line is bending towards the blue line. That's a good thing. On the other hand, we're continuing to make a mess of the canvas. Note the big pile of red data points to the lower left of the "You Are Here" point. That's where we've been recently.

Certainty cannot be measured simply by accurately sticking to the blue trend line. How fast we move along the blue trend line is also important. If one thinks as the above chart as a road map then the following chart can be thought of as watching the speedometer/odometer.

Click to enlarge.

Each data point represents the "distance" the treasury yields have moved on the first chart since the previous day.

D = ((X2-X1)^2 + (Y2-Y1)^2)^0.5

D represents the distance.
X2-X1 represents the amount the 10 year TIPS yield has changed.
Y2-Y1 represents the amount the 10 year nominal treasury yield has changed.

As seen in the chart, we traveled quite the distance today. It could be seen in the bond market and it could also be seen in the stock market. That's not exactly the sort of thing that inspires stability and certainty in me.

Note the 100 day moving average. From 2004 to 2007 the markets were growing increasingly certain to the point of complacency. I don't think that's the issue now though. I sense a lot of day-trading fingers hovering over the buy and sell buttons. In my opinion, today was panic selling out of treasuries and a panic buying into stocks. Who knows what tomorrow may bring?

I'm reminded of a joke.

This is your captain. I have good news and bad news. First the bad news. We're hopelessly lost. Now the good news. We're making good time!

As a side note, while the stock market was rallying I was actually visiting my local bank to purchase an
EE Savings Bond (before the new rate most likely falls on November 1st). Go figure.

I welcome the stock market rally and the sell-off in bonds. May it continue. I'll be buying more 10-year TIPS in January to refuel my long-term bond ladder. It's not like I am actually hoping for even lower interest rates.

Somehow I doubt I'll be that fortunate though. Why? As of 2004, I am a permabear. This economy has major problems and about all we're really trying to do is kick the can down the road. Good luck on that one long-term.

Source Data:
FRB: Selected Interest Rates
US Treasury: Interest Rates


Stagflationary Mark said...

Please note that the distance the "You Are Here" point has moved between the first two charts is not as much as it might appear by simply glancing at the charts.

Keep in mind that I had to rescale the chart. (We literally fell into uncharted territory.)

Stagflationary Mark said...

Here's something worth a read.

Obama's New Form of Government!

I won't share the details. You'll just have to find out for yourself, lol. Sigh.

Stagflationary Mark said...

The amusing part to me is that it makes me think that large investment banks elected Obama. I'm not sure that was the intent! ;)

Jazzbumpa said...

Novel approach, and a really interesting way to look at volatility.

Nice work!


Stagflationary Mark said...


I was just reading your post on wealth inequality. I was going to post a comment there but will give you a plug here instead.

Anyway, you should go check it out. If you've been paying attention, you won't be surprised.

I guess I was paying attention. I was not surpised. Sigh.

Troy said...

Here's something worth a read.

"I've been trying to figure out the source of this extreme hatred for the best president we've ever had, causing his haters to spread outright lies"

Over at I posted something about the Laffer Curve BS:

The last FRED graph says it all, I think.

Sigh. My tolerance for conservative idiocy is pretty low these days so I probably skipped over what you found interesting in that thread. (I was hoping to find something interesting in the ripostes, but no such luck)

Clowns to the left of me, jokers to the right.

Stagflationary Mark said...


(I was hoping to find something interesting in the ripostes, but no such luck)

I didn't read the thread. I just thought the post was interesting.

It was clearly intended to bash liberals, but I just saw it differently.


A system of government where the least capable to lead are elected by the least capable of producing [Wall Street?], and where the members of society least likely to sustain themselves or succeed [Lehman Brothers?], are rewarded with goods and services are paid for [bailed out?] by the confiscated wealth of a diminishing number of producers [the taxpayers?].

That's what I thought was amusing when I read it.

I lean towards being a left-wing libertarian apparently and there just aren't a lot of options for those of us who are. It's all about picking the least worst.

Troy said...

LOL I'm a total left-libertarian.

I'd like to think would be sufficient to fix right-libertarianism, but at any rate I consider such interference in the market to be necessary in any overall system.

Discovering Henry George ~10 years ago really opened my eyes -- that the capitalism as ensconced today is more predatory wealth-capturing than actually wealth-creating.

left-libertarian thinking is much too (I want to say "subtle", but) self-conflicting for most people to delve into it I guess.

mab said...

D = ((X2-X1)^2 + (Y2-Y1)^2)^0.5


Nice triangulation!

Keep in mind that the world isn't flat. So measuring eCONomic strangulation with triangulation has it's limits. Also, accounting for curvature isn't nearly as important as accounting for fraud!

Stagflationary Mark said...


Clint Eastwood: Dirty Harry turns 80

Thanks to hard-guy films like the Dirty Harry series, many perceive Eastwood as a huntin’, shootin’ conservative in the Charlton Heston mould. Eastwood, however, considers himself a 'social libertarian. Leave everybody alone. Quit trying to force everything down everybody’s throat.’

Stagflationary Mark said...


Corporate accounting is mathematically complex. It has both real and imaginary components.