Monday, October 24, 2011

Pikers' Peak

The following chart shows personal interest income divided by the liquid money supply (MZM).


Click to enlarge.

Behold the power of ZIRP. It's the gift that keeps on giving.

The Secret Language of Crime: Vocabulum Or the Rogues Lexicon By George W. Matsell

PIKER Is a man who plays very small amounts. Plays a quarter, wins, pockets the winnings, and keeps at quarters; and never, if he can help it, bets on his winnings.

Using that definition, I'm a piker.



Ride on the bumper of a screaming 910hp, Twin-Turbo, All-wheel Drive, 150 mph Suzuki SX4 as it races up one of the world's most dangerous hills.

May 8, 2000
Japan, a Nation of Risk-Takers? (int'l edition)

For savers, switching at least some of this mountain of assets to equities would seem to be a no-brainer. Japanese stock markets are still up 40% from their post-bubble lows in early 1998, despite their recent downward lurches. And even if savers converted their yen into, say, sterling in a 12-month Citibank Japan time deposit, they would get 4.1%--double what the post office offers.

Postal savers, however, are a very conservative bunch--not the sort to leap into high-risk investments in stocks, foreign currencies, or global bond funds. One saver, Hisao Ebihara, a 59-year-old accountant, for instance, said he would likely flip over his postal deposit to a time deposit at his commercial bank next year. ''I don't want anything risky,'' he says. ''I won't invest in the stock market or mutual funds.'' His reaction is typical. Seniors aged 60 years and over own about 70% of Japan's $11 trillion in household financial assets. Only 9% of that is directly invested in stocks and a mere 2% in mutual funds. By contrast, one in two U.S. households has equity investments.


Nikkei Stock 225

Nikkei on May 8, 2000: 18,199.96
Nikkei on October 24, 2011: 8,814.17
Gain/Loss: 52% Loss

So much for the "no-brainer" theory.

Disclosure: I appear to have some Japanese "lifeblood" in me. As of 2004, I think a lot like Hisao Ebihara did back in 2000. The only real difference is that I choose/chose U.S. long-term inflation protected treasuries.

Update:

Click to enlarge.

In theory, the -4.5% annual growth rate in this chart could last infinitely long. ZIRP could eventually push the personal interest income numerator towards zero and/or monetary inflation could eventually push the MZM denominator towards infinity.

Is it really any wonder why I backed up the truck on long-term TIPS and I-Bonds?


Source Data:
St. Louis Fed: MZM
St. Louis Fed: Personal Interest Income

21 comments:

Anonymous said...

"...of Japan's...household financial assets[, o]nly 9% of that is directly invested in stocks and a mere 2% in mutual funds. By contrast, one in two U.S. households has equity investments."

Malinvestment.

"The popularity of inflation and credit expansion, the ultimate source of the repeated attempts to render people prosperous by credit expansion, and thus the cause of the cyclical fluctuations of business, manifests itself clearly in the customary terminology. The boom is called good business, prosperity, and upswing. Its unavoidable aftermath, the readjustment of conditions to the real data of the market, is called crisis, slump, bad business, depression."

Stagflationary Mark said...

Anonymous,

I think I named my blog based on your malinvestment quote, lol. Sigh.

getyourselfconnected said...

Love it, you are on fire as of late!

Anonymous said...

Sad but true story:

There's this guy who moved back in with his parents back in February. He's 51. His wife and son followed later in the year. I helped him move his stuff into a self-store after he moved out of his house in June. He was a walk-away, and yes, had been living there "rent-free" for some time.

He's been very candid with me about his situation. His parents are great people and he's a level-headed gentleman.

He has no money. I ask a lot of questions but I'm not going to process the why's and wherefor's of that particular fact. We didn't talk about why.

He recently started a business of sorts. He's become a broker of carpet, hardwood, and tile floor coverings (thus my question in the other post). He used to be an independant salesman of insurance and annuities. He thought he'd find fertile ground in his new area. He didn't, and he was surprised. I wasn't.

This man is betting it all that he will be able to become a carpet broker with agents working for him, sort of like a real estate office model. He knows that simply getting a wage job (like that's possible) isn't going to cover him and his wife for their future. He needs to make a lot of money.

After walking away from this guy yesterday I had a new feeling about this whole situation we're in. Sure, I know the math, but talking to this guy has made it all very, very real. Too real.

Anonymous said...

Bernanke, we’re making changes. You’re one of them.

dearieme said...

"Nikkei on October 24, 2011: 8,814.17": and it's peak was, what, about 40,000?

By the by, that was an awfully good point you made: although exponential growth cannot go on forever, exponential decline can.

dearieme said...

"it's": dear God, my spelling is in decline. Exponentially, no doubt.

Troy said...

Goddamn Delong posted a goddamn Lucas preso.

I want to punch someone.

Delong censors my comments (or his blog just eats them) so here's my response.

The Lucas preso is a humdinger.

"In long run, U.S. production grows at about 3% per year. Per person, 2%"

. . .

"— level of per capita income relative to “best practice”: substantial differences even among the advanced economies–policies do
matter"

The US is not engaging in any "best practice". Since 1980 systemic debt leverage has risen from 3X to 6X:

http://research.stlouisfed.org/fred2/graph/?g=2Z4

"Most recessions–especially since WWII–are not every important events. Who remembers them?"

What an odious ivory tower thing to say. I sure as hell remember every recession of my adult life, since I've lost my job in each of them.

"Most important, in my view, but hardest to measure, were effects of demonization of business -- Businessmen were “malefactors of great wealth” (FDR)

Guy wears his politics on his sleeve at least.

"People extending short term credit to Lehmann and other investment banks to get a slightly higher return than the T-bill rate did not think (or did not admit) that they were taking on risk"

Financial sector debt leverage relative to GDP went from 0.2X in 1980 to 1.2X prior to the crash.

"The economics of the 2008 “credit freeze” following the Lehman Brothers failure were identical to the economics of the 1930s bank runs"

Not hardly. The current recession is due to the loss of the magic money bubble machine that we got working 2002-2007:

Is this chart:

http://research.stlouisfed.org/fred2/graph/?g=2Z7

really that hard to understand???

Here it is with total household debt changed to annual debt take-on:

http://research.stlouisfed.org/fred2/graph/?g=2Z8

where one can see that during the bubble we were collectively borrowing 20% of our incomes!

Turn that money pump back on and we'd have a great economy again.

Why can't anyone see this???

For this clown to mention PPACA as a problem -- something the Heritage Foundation and the Republicans themselves proposed in 1993 -- is utterly hacktacular.

The field of Economics is just totally corrupted by political hacks.

Stagflationary Mark said...

Anonymous,

That is a sad story.

When I was young I lived in a small farming community. There was an established mid-sized grocery store and a smaller grocery store that would be lured in by those looking for the small town life.

Over and over again I'd see a small business owner move into town and think he could compete with the long standing mid-sized grocery store. It always ended the same way.

And then a new highway was put in, which mostly bypassed the town. No big surprise on what that did either.

Go figure.

Stagflationary Mark said...

dearieme,

By the by, that was an awfully good point you made: although exponential growth cannot go on forever, exponential decline can.

I'm reminded of Zeno’s Paradox of the Tortoise and Achilles. It was always a favorite of mine.

1 = 1/2 + 1/4 + 1/8 + ...

Stagflationary Mark said...

dearieme,

"it's": dear God, my spelling is in decline. Exponentially, no doubt.

I can't tell you how many grammar errors I spot just AFTER I hit the publish button. Fortunately, I can edit them. ;)

Stagflationary Mark said...

(That's true except in the comments of course. As you have done, it's often easier to just acknowledge them and walk away, lol.)

Stagflationary Mark said...

Troy,

Don't hold back! Tell us what you really think. ;)

The field of Economics is just totally corrupted by political hacks.

I can't argue with that. Fortunately, I'm neither an economist nor am I fanatically attached to either political party, lol.

Stagflationary Mark said...

Anonymous,

For what it is worth, I tend to turn off as soon as I see a link with Shadowstats in it.

That said, I did agree with many of the points made in your "Bernanke, we’re making changes. You’re one of them." link.

Ben "There Is No Housing Bubble to Go Bust" Bernanke is what I've often called him around here.

Would we really expect anything different though? Can you imagine the carnage if he had said, "Yeah, I think we have an epic housing bubble of biblical proportions."

I can! D'oh! ;)

Anonymous said...

Can you imagine the carnage if he had said, "Yeah, I think we have an epic housing bubble of biblical proportions."

Well, maybe he could have said it in a kinder, gentler way:

"Yeah, I think we have an elevated housing globule on the grandest scale possible on earth."

That would have made me feel so much better.

Stagflationary Mark said...

Anonymous,

Sock it to me? ;)

Charles Kiting said...

In a deflationary environment, near Zero returns are not necessarily bad.

Except that in a deflationary environment tax rates increase so you lose anyway. I think it was all baked into the cake when IRA's/401K's were invented - tax deferral is great as long as the tax rate today is the same as the tax rate 35 years from now. But the tax rate is bound to be higher so your choice is to get beaten with a baseball bat today or beaten with a baseball bat and a hammer when you retire.

Somewhere there has to be an economist with a theory on the time value of taxation.

Charles Kiting said...

By the by, that was an awfully good point you made: although exponential growth cannot go on forever, exponential decline can.

You can only starve to death once. Unless you believe in reincarnation.

Stagflationary Mark said...

Charles Kiting,

You can only starve to death once. Unless you believe in reincarnation.

I cannot solve the starvation problem but I can see to it that we never run out of food.

Hoard a single loaf of bread. Each day only eat half of the bread in the hoard.

Exponential decay for the win! Problem solved! Hurray!

Gallows humor. Sigh.

Scott said...

Will all those elderly Japanese run out and spend their savings before they die?

I don't think so. What happens to all that saving? It's an interesting question.

Stagflationary Mark said...

Scott,

Will all those elderly Japanese run out and spend their savings before they die?

For what it's worth, I plan to die broke. I'm not typical though since I don't have children. Further, there's a very high probability that I will die ahead of worst-case schedule (worst-case being that I live to 100 and fully tap out my nest egg?). That means that although I plan to die broke, I more than likely won't.

What happens to all that saving?

I suspect that much of it will stay within the families.