Click to enlarge.
This is what the chart tells me.
As our debt grows, the ability to make real money off of the debt market will continue to decline.
I think that statement more than passes the common sense smell test.
I also believe...
1. The debt market is propping up the stock market. It certainly isn't the stock market that's propping up the debt market. Let's just put it that way.
2. The debt market's ability to prop the stock market up is faltering.
3. The ability to make real money off of the stock market will therefore continue to decline (as it has done for more than a decade so far).
Welcome to pension fund hell.
I've been predicting the death of real yields for years. This may be the first chart I've done that's directly tied to the theory.
I can't say we'll slide into deflationary Japan's mess, but if crude oil is any indicator then we could easily slide into a stagflationary version that's even worse. Or alternatively, we toggle between ongoing deflationary and stagflationary messes? Who can really say for sure?
May we live in interesting times.
May you live in interesting times, often referred to as the Chinese curse...
See Also:
Pikers' Peak
Source Data:
St. Louis Fed: Custom Chart
The ability to make real money off of the stock market will therefore continue to decline
ReplyDeleteUnless you maintain mostly short positions. See, all pension funds have to do is sell everything and go massively short. It's a one way trip, but what ride!
Mr Slippery,
ReplyDeleteUnless you maintain mostly short positions. See, all pension funds have to do is sell everything and go massively short. It's a one way trip, but what ride!
I'm not convinced the stock market is a good long-term short. It's not like you would have made a killing continually shorting the S&P 500 starting in 1998. As you know, it's still roughly the same 1200 that it was then. Rubicon!
My main concern is that the stock market merely trades sideways into the distant future (like it did in the 1970s and the 2000s). Inflation offsets dividends? It's like being stuck in a mud pit with bald tires.
Hey, I'm just trying to spread the pain between both bulls and bears. You know, in order to be fair, lol. Sigh.
Take Brinker International for example. As of September 30, 2011 18.0% of its float was shorted.
I'm bearish on the restaurant industry, but that's a whole lot of piling in.
I'd prefer to watch from outside the casino personally, even if it does end up being a good short in hindsight.
Put another way, I think there's a good chance the 1200 rubicon joke has many more years in it. Could be wrong of course. Don't want to bet on it.
Put another way, I think there's a good chance the 1200 rubicon joke has many more years in it. Could be wrong of course. Don't want to bet on it.
ReplyDeleteSounds plausible to me. I was modeling the Nikkei which did grind down over the years but with lots of froth. I did bet on a it going down yesterday, but like most of my trades, will close it out within a day or two.
I am also betting on gold going up long term, as more and more promises in the form of bonds are broken (defaults). And as more and more currency is printed. BoE just launched their QE2, Japan announced some new printing today. Europe will be forced to print or suffer an ugly depression, and of course, Ben loves to print which forces the Chinese to print to maintain their peg. A global print fest!
Of course, I could be wrong, too. ;)
Mark, you always come up with fascinating new charts!
ReplyDeleteMark,
ReplyDeleteWhere in the hell am I supposed to put my 401K money? As of right now it is all in the Vanguard Total Bond Market Index. (70% Govt 30% Corp.) It is up 6.6% YTD, but I'm not sure how long it will last. Long term the fund has an avg. yield 5.4% over 10 years. Choices are limited and most of the fund offerings, with the exception of the one and only V'guard fund have excessive fees. I think I'll stay put for a while.
I can't help but notice the mark of the Beast in this chart too ! It appears 1981-1986 was a pivotal period in this country as far as the economy is concerned ! I wonder why ?!
ReplyDeleteCaution, you're entering a sarcasm zone ->
ReplyDeleteThis country needs a Ronald Reagan, in 1980, wake up call again........and we need it NOW!!!!
Only a really strong leader with an honest belief in the Country can change the attitudes I've seen deteriorate so seriously.
"here in the hell am I supposed to put my 401K money?" I'm considering gold.
ReplyDeleteP.S. Does anyone do an ETF for bananas?
I'm going to short the annual growth rate of PII/TCMDO.
ReplyDeleteMr Slippery,
ReplyDeleteIf nothing else, we're on the gold standard of volatility right now, lol. Sigh.
tj and the bear,
ReplyDeleteI'm always looking for new charts that look like circus tents to adequately represent our clown economy. That could be what you are seeing. ;)
nanute,
ReplyDeleteWhere in the hell am I supposed to put my 401K money?
*shrug shoulders*
In Hell's Kitchen (NYC) and Anonymous,
ReplyDeleteTrickle down, baby. Trickle down.
dearieme,
ReplyDeleteP.S. Does anyone do an ETF for bananas?
Would you settle for a banana republic ETF that's backed by the full faith and credit of the United States?
Where in the hell am I supposed to put my 401K money?
ReplyDelete*shrug shoulders*
Toilet paper and ramen. And you'll be re-using your bath water to cook the ramen.
P.S. Does anyone do an ETF for bananas?
ReplyDeleteIf you look hard enough someone probably has a 3000:1 leverage ETF for everything. Don't expect to actually get any cash or physical commodity when requested and you'll be *rich*.
Charles Kiting,
ReplyDeleteI'm picturing the ad campaign.
His ramen is always Head & Shoulders® above the rest! How does he do it?
trickle-down all the way baby ! just look at that trend curve trickle down, beautiful !
ReplyDeleteAnd you did well coloring red the pre-'86 trend...we were a commie country before the free-market cowboy rode into town and "fixed" us !
And to think days half of the voters want both a Second Coming of St. Ronnie this coming election year AND more tax-cuts for the wealthiest of wealthies !!!!
In Hell's Kitchen (NYC),
ReplyDeleteWould you settle for the second coming of the Great Depression? We're certainly trying!
I think something just trickled down my leg just thinking about it, lol. Sigh. ;)