Monday, October 31, 2011

The Sarcasm Report v.136

October 28, 2011
Week ahead: Doom-and-gloom camp tricked again

Stocks are clearly in a sustainable rally, as the charts show...

October 31, 2011
Sharp Drop for Stocks on Wall Street

Equities fell 2 percent or more, sending the broader market in the United States back into negative territory for the year.

Trading eve of the Hallows, as bulls would confess
Not a creature was bearish, not even the press.
The stock charts were staged by the pumpers with care,
In hopes that more buyers soon would be there.

Investors euphoric with thanks to the Fed,
While sweet dreams of candy in mountains were bred.
With the bears in their bunkers, as I locked the door
The free markets were spooked and they dropped through the floor.

As seen on Wall Street, lifeblood sprays such a splatter,
Was it a test to see which bull was fatter?
Traders out windows! They dropped and they crashed!
The weak hands in the red were vomiting cash.

"To the moon!" cried the bulls for they did not know
The market was drawn by debt down far, far below.
When, what to their greediest "Ayes!" I did sneer,
"It's a very bad day, with nothing but fear."

Corporate Profits vs. Debt

Click to enlarge.

I've packed a lot of information into this chart. Hopefully you will manage to decipher it all.

Theory #1

Real corporate profits per civilian employed are a constant over the long-term. This theory is shown in the dark green median trend line on the chart.

In 2006:Q1, corporate profits were well above the median ("Epic Bubble #1") and in 2008:Q4 they very nearly reverted to the median. They are now well above the median again ("Epic Bubble #2?").

This theory seemed to hold for 50 years (from 1950 to 2000). Once the economy started to fall apart in 2000 things changed though. That brings us to another theory.

Theory #2

Real corporate profits per civilian employed have grown as debt has grown and will continue to do so. I can't offer much to support this theory, but that's what the data seems to be attempting to show.

The red trend line is based on all of the data. The blue trend line is based on the blue points. The orange trend line is based on the orange points.

One reason I feel that this theory is suspect is because it doesn't pass the common sense smell test. Real corporate profits per civilian employed cannot grow to the sky. At the very least, it would seem impossible that real corporate profits can eventually exceed real civilian wages. Further, surely the drag of excessive debt will eventually also take its toll.

Another reason I feel that this theory is suspect is because of the current direction of movement in the chart. Note that we are sliding down and to the left from the most recent peak in 2010:Q2. If the future is so bright, then why are we trying to move back in time?

I strongly believe that increasing one's debt can make one feel pretty good in the short-term. Over the long-term it has the opposite effect though. As far as corporate profits go, in the short-term they've pretty much never felt better. Epic would be a good word to describe them. One wonders how they will feel over the long-term though. Epic fail? One really wonders that. Seriously.

In any event, both theories support the same conclusion. Real corporate profits per civilian employed are probably not going to be heading up in the intermediate term and are at serious risk of falling substantially. In the first theory, they could fall to the green trend line (or even worse). In the second theory, they could fall to the orange trend line. Either way, the fall could be of similar magnitude.

I was working on this chart yesterday but I did not manage to complete it. I probably should have posted it before today's stock market decline. Sorry about that! On the other hand, it's probably a pretty good chart for Halloween. Trick or treat!

Source Data:
St. Louis Fed: Corporate Profits After Tax
St. Louis Fed: Total Credit Market Debt Owed
St. Louis Fed: Civilian Employment
St. Louis Fed: CPI

The "Free Lunch" Weight Loss Plan v.005

Another month already? Where does the time go?

I'm well ahead of schedule.

I sprinted on the 28th and managed to climb the 20 flights in 3 minutes and 8 seconds. That's 22 seconds faster than last month's record time of 3 minutes and 30 seconds.

I had a couple of extra marathon sessions this month as well, but I don't think that explains the extra weight loss. I think at least some of it is the realization that I'm nearing my ultimate goal.

There were days when I was definitely glad that I set the daily goal so low. It's a big deal on days when I might not have gotten enough sleep the previous night. Not climbing 20 flights of stairs in a given day is virtually impossible to rationalize. I'm fairly sure this is now a permanent habit.

It's 5 months down and a lifetime to go. :)

See Also:
The "Free Lunch" Weight Loss Plan v.000

Thursday, October 27, 2011

Inglorious Wage Basterds (Musical Tribute)

I suggest you listen to the music while reading this post. It can't hurt, much.

Click to enlarge.

It looks a lot like the cumulative trade deficit chart. Big shocker.

June 25, 2011
Missing Jobs vs. Trade Deficit

Click to enlarge.

The difference seems to be that the boost to the stock market is/was temporary but the cumulative trade deficit lives on. Behold the staying power of endless debts and deficits.

January 14, 2004
NAFTA's Legacy -- Profits and Poverty by David Bacon

Predictions of U.S. job losses were, if anything, underestimated. By November 2002, the U.S. Department of Labor had certified 507,000 workers for extensions of unemployment benefits under the treaty because their employers had moved their jobs south of the border. Most observers believe that is actually a significant undercount, partly because many workers losing jobs don't know they qualify for trade-related benefits. According to the Economic Policy Institute in Washington, NAFTA eliminated 879,000 U.S. jobs because of the rapid growth in the net U.S. export deficit with Mexico and Canada.

While the job picture for U.S. workers was grim, NAFTA's impact on Mexican jobs was devastating. Before leaving office (and Mexico itself, pursued by charges of corruption), President Carlos Salinas de Gortari promised Mexicans they would gain the jobs Americans lost. In the United States, he promised that this job gain would halt the northward flow of Mexican job-seekers.

NAFTA's first year saw instead the loss of more than a million jobs across Mexico. To attract investment, NAFTA-related reforms required the privatization of factories, railroads, airlines and other large enterprises. This led to huge waves of layoffs. Mexican enterprises and farmers, who couldn't compete with U.S. imports, also shed workers, and the subsequent peso devaluation cost even more jobs. Because unemployment and economic desperation in Mexico increased, immigration to the United States has been the only hope for survival for millions of Mexicans.

This was written when the unemployment rate was 5.7%. It now stands at a whopping 9.1%. It's the gift that keeps on giving. Sigh.

Source Data:
DOL: History of Federal Minimum Wage Rates
St. Louis Fed: Dow Jones Industrial Average

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

Wednesday, October 26, 2011

A Tiny Flaw in the Plan

Click to enlarge.

Something tells me that we won't ever make it back to the blue exponential growth trend line.

Click to enlarge.

Note the roughly $3,000 peak in both charts. Coincidence? I can't say for sure but I'm not willing to bet my nest egg that it isn't.

Click to enlarge.

As bad as this chart is, it gets worse. Note the recent resumption of the downtrend.

We've been borrowing a median of $2,105 per person per year (adjusted for inflation) for 6 decades. How many more years did we really think we could keep up the pace?

Captain Blackadder: There was a tiny flaw in the plan.
Lieutenant George: What was that, sir?
Captain Blackadder: It was bollocks.

Source Data:
St. Louis Fed: Personal Dividend Income
St. Louis Fed: CPI
St. Louis Fed: Population
St. Louis Fed: Total Credit Market Debt Owed
St. Louis Fed: Balance on Current Account

Tuesday, October 25, 2011

Pikers' Peak v.2

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

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.


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

Sunday, October 23, 2011

Over the Mountain (Musical Tribute)

The following chart shows personal interest income divided by wage and salary disbursements.

Click to enlarge.

Alpine Skiing

These trails are even more difficult than Black Diamond, due to exceptionally steep slopes and other hazards such as narrow trails, exposure to wind, and the presence of obstacles such as steep drop-offs or trees. They are intended only for the most experienced skiers.

This trail rating is fairly new; by the 1980s, technological improvements in trail construction and maintenance, coupled with intense marketing competition, led to the creation of a Double Black Diamond rating.

This post inspired by a post on a private blog that I read.

Source Data:
St. Louis Fed: Personal Interest Income
St. Louis Fed: Wage and Salary Disbursements

Turn to Stone (Musical Tribute)

Dimension Stone

Stone (usually granite) countertops and bathroom vanities both involve a finished slab of stone, usually polished but sometimes with another finish (such as honed or sandblasted). Industry standard thicknesses in the United States are 3/4" (2 cm) and 1.25" (3 cm). Often 2 cm slabs will be laminated at the edge to create the appearance of a thicker edge profile.

Click to enlarge.

The "pent-up demand" for a new bubble was intense once the dotcom bubble popped. Is it any wonder that we turned to stone as a long-term store of value?

Click to enlarge.

Craziest bubble ever!

Think about it. In 2006/2007, consumption of dimension stone was way up but real inflation adjusted prices were way down? That's not exactly typical bubble behavior.

It was like dimension stone was literally popping right up out of the ground.

The city streets are empty now [the lights don't shine no more]
and so the songs are way down low [turning turning]
A sound that flows into my mind [the echoes of the daylight]
of everything that is alive [in my blue world]

I turn to stone when you are gone, I turn to stone
Turn to stone when you comin' home, I can't go on

Source Data:
USGS: Historical Statistics
St. Louis Fed: Population
St. Louis Fed: CPI

Saturday, October 22, 2011

Quantum Levitation

163 people disliked this video? How is that possible?

A special thank you to the person who emailed me a link to this video. I'd credit you but I consider emails private.

Friday, October 21, 2011

Insane Quote of the Day (Musical Tribute)

October 22, 2011
Better Ways to Fight Inflation

The second problem is that inflation might meow rather than roar in coming years, leaving TIPS investors with meager returns.

This "problem" is a myth that just keeps circulating over and over.

Even as a TIPS investor, higher inflation only hurts me. The reason is that I will have to pay tax on the inflationary gains. In fact, taken at its extreme it is not hard to see that hyperinflation would financially ruin me.

Here's a chart to show what inflation combined with taxation does to the 1.06% 30-year TIPS yield. Note that higher inflation only hurts.

Click to enlarge.

Here's what 30 years of compounding does to the total return.

Click to enlarge.

If inflation averaged 20% over the next 30 years then two things would happen. First, my large nominal returns would push me into the highest tax bracket. Second, I'd stand to lose the vast majority of my nest egg due to the combination of that high taxation and the high inflation rate. Lose lose. Does that really sound like something that would help me?

Shame on the Wall Street Journal for propagating this common myth that higher inflation somehow magically helps TIPS investors. The inflation protection of TIPS is similar to fire protection for my house. I do not hope for higher inflation any more than I hope that my house burns.

If the Wall Street Journal can't even make sense of simple math (as seen in the charts above), then who can?

Of course, a cynical person might suggest that the Wall Street Journal does have knowledge of simple math but also has ulterior motives and/or biases. The Wall Street Journal does have "Wall Street" in its name. Wall Street has a hard time making profits if investors buy TIPS directly from the government and hold them until maturity. The middleman is completely cut out. A cynical person might suggest that anyway. Thank goodness I'm not cynical!

With my patience gone
Someone take me far from here

Burning that gasoline
Burning that gasoline

Crude Realities

Click to enlarge.

U.S. crude oil production has been an epic exponential growth trend failure since 1970.

Click to enlarge.

Our reliance on foreign oil currently makes the 1970s look like a picnic by comparison. Was oil the pin that popped the housing bubble or was housing the pin that popped the $145 oil bubble? Does it really matter which was the chicken and which was the [nest] egg?

And what about China?

July 18, 2010
China Tops U.S. in Energy Use

China's ascent marks "a new age in the history of energy," IEA chief economist Fatih Birol said in an interview. The country's surging appetite has transformed global energy markets and propped up prices of oil and coal in recent years, and its continued growth stands to have long-term implications for U.S. energy security.

For what it is worth, I am not and have not been at all convinced that China's miraculous growth theory is compatible with high-priced oil. Savvy investors may think otherwise.

October 21, 2011
China Shares End At Another 31-Month Low; Resources Sector Leads Fall

SHANGHAI (Dow Jones)--China's shares ended at another 31-month low Friday because of concerns over the domestic economy, led by declines in the resources sector due to a dismal demand outlook, but gains in banks pared the losses as worries over the debt levels of local governments eased after Beijing said it would allow some of them to sell bonds directly.

There is a lot to think about. I am a pearmabear since 2004 but in the short-term I often toggle between being a deflationary bear and a stagflationary bear. I don't invest for the short-term though. That's why I like and have liked long-term TIPS. They allow me to be relatively agnostic on both short-term and long-term inflation (barring severe hyperinflation which would ruin me).

Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected. - George Soros

I'm not looking to make money any longer. Capital preservation is my #1 priority in this "Age of Turbulence". Although I have not read his book, I figure Greenspan should know. His "easy money madness" certainly helped get us here. Sigh.

This is not investment advice.

Source Data:
EIA: Crude Oil Production
EIA: Crude Oil Consumption

Thursday, October 20, 2011

Debt vs. Profits and Wages

Click to enlarge.

Source Data:
St. Louis Fed: Total Credit Market Debt Owed
St. Louis Fed: Corporate Profits After Tax
St. Louis Fed: Wage and salary disbursements

EE Savings Bond Rate Prediction for November 1, 2011

This is an update to last year's post. Read it for more details. The theory is the same. Only the interest rates have changed.

Based on today's 2.2% 10-year treasury yield and a belief that we are now in permanent crisis mode, I'm predicting that the EE savings bond rate set on November 1, 2011 (fixed for the life of the bond) will be 0.3%. That's down from the current rate of 1.1%.

If you are thinking about buying EE savings bonds this year then you might consider buying them before November 1, 2011.

Keep in mind that if you hold them 20 years, they are guaranteed to double in value. That brings the long-term yield up to 3.53% (2^(1/20)=1.0353).

I want to thank Anonymous for asking my thoughts on this in the comments. This is the best part about having a blog. I bought EE savings bonds last year but hadn't considered buying them this year. I didn't realize that the rate had popped back up to 1.1%.

Today's 1.1% rate beats my online savings account and the long-term yield beats comparable 20 year nominal treasuries by a wide margin (3.53% vs. 2.92%).

I'm a reluctant buyer, just like I was last year. I will repeat what I said then.

For what it is worth, I'm a buyer this week. I do not expect to hold it the full 20 years but I'd like to have the option. In the meantime, I'll be earning a better rate than my online savings account.

I still own last year's EE savings bonds. No complaints so far.

As a side note, if the new rate is as low as I predict it will be, then the government will be indirectly confirming that we are still in crisis mode. Actions speak louder than words.


The government doesn't just set the interest rate. It also has the power to change the time it takes for a given EE savings bond to double in price. Since interest rates have fallen substantially, the odds of a duration change (for new purchases) are increasing substantially.

It would not surprise me to see the original term increase to 22-25 years at some point (perhaps very soon).

Click to enlarge.

Source Data:
Treasury Direct: EE/E Bonds Rates & Terms
U.S. Treasury: Interest Rates

Wednesday, October 19, 2011

I-Bond Prediction for November 1, 2011

I'm predicting a fixed rate of 0.0% and a composite rate of 3.06%.

In March 2011 the CPI-U was 223.467.
In September 2011 the CPI-U was 226.889.

That's a 1.53% increase over the six month period. Inflation has been a bit high, but not too bad.

Fixed rate = 0.00%
Semiannual inflation rate = 1.53%

Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]
Composite rate = [0.0000 + (2 x 0.0153) + (0.0000 x 0.0153)]
Composite rate = [0.0000 + 0.0306 + 0.0000000]
Composite rate = 0.0306
Composite rate = 3.06%

In my opinion, there is no way that they are going to offer a rate greater than 3.06% on these I-Bonds. I therefore predict that the fixed rate will continue to be 0.0%.

If you are thinking about buying I-Bonds this year then you might wish to consider buying them before November 1st. You'll get a 4.60% rate and lock in a bit more of the inflation that we've seen over the past year.

As for me, my next purchase will be in January. 3.06% seems like a fine alternative to my online savings account.

See Also:
I-Bond Rate Prediction for May 1st

Source Data:
St. Louis Fed: CPI-U
I Savings Bonds Rates & Terms

More Port Traffic Stagnation

Import traffic does not imply that there will be a stellar Christmas season. That said, it is hardly the "unprecedented drop" that Mish thinks he sees.

Port traffic on the West coast is down significantly. Expected traffic for September is also way lower. Yet analysts have been busy raising expectations for the holiday season. One thing for sure, one group is wrong.

Both groups seem to be wrong! Seasonally adjusted, September's inbound traffic was actually slightly higher than in August.

The export trend appears to be doing okay. There was a definite uptick in September. Will the upward trend continue? Tell me and we'll both know.

Overall port traffic is definitely stagnating. I would say that the high price of oil is once again creating some drag.

Over the past 3 years, we've made no significant dent in closing the unsustainable trade deficit. We continue to bring in far more than we ship out.

On the one hand, we are well off the levels seen in 2004 so there is some hope. On the other hand, I'm not particularly pleased with the
fastest growing exports of our supposedly advanced economy.

See Also:
Continued Port Traffic Stagnation

Source Data:
Port of Long Beach: Statistics
Port of Los Angeles: Statistics
The X-12-ARIMA Seasonal Adjustment Program

Corporate Profits vs. Retail Sales (Musical Tribute)

Click to enlarge.

Turn off your mind, relax and float down stream
It is not dying, it is not dying

Source Data:
St. Louis Fed: Corporate Profits After Tax
St. Louis Fed: Retail Sales (Discontinued Series)
St. Louis Fed: Retail Sales (New Series)

Tuesday, October 18, 2011

Thomas Friedman's Employment Utopia (Musical Tribute)

October 18, 2011
Imagined in America

We need to focus on “Imagined in America” and “Orchestrated From America” and “Made in America by a smart worker using a phalanx of smarter robots.”

Nothing says job creation like a single smart worker using a phalanx of smarter robots.

Phalanx formation

The phalanx (Ancient Greek: φάλαγξ, Modern Greek: φάλαγγα, phālanga; plural phalanxes or phalanges; Ancient and Modern Greek: φάλαγγες, phālanges) is a rectangular mass military formation, usually composed entirely of heavy infantry armed with spears, pikes, sarissas, or similar weapons.

Let's not stop there though. Let's give each smarter robot in the phalanx its own phalanx weapon.

If there is one "smart worker" and many "smarter robots" then wouldn't it stand to reason that the human worker has been made obsolete?

Welcome to Corporate America

Let's start with the premise that there has been a *constant* amount of real prosperity creation per capita and that it can be measured by adding up real government saving, real personal saving, and real corporate profits.

Click to enlarge.

Well, there you go. Just look at that flat trend line.

Now let's look at the saving part.

Click to enlarge.

Ouch. So where did the prosperity go?

Click to enlarge.

Is our country really going broke or is the money just being funneled to Corporate America?

Why are we borrowing so much money?

Click to enlarge.

Corporate America gets what Corporate America wants.

October 4, 2011
Corporate America seeks cover in arms of small business

(Reuters) - Facing talk of "class warfare" in Washington and protest marches on Wall Street, some of the biggest players in corporate America are linking arms with small business in what observers see as moves to bolster their images at a time of rising public anger.

So what caused the dramatic change in 1990 (as seen in the 2nd and 3rd charts above)? Could it partly be a "free lunch" trade dream?

June 25, 2011
Missing Jobs vs. Trade Deficit

Click to enlarge.

Source Data:
St. Louis Fed: Corporate Profits After Tax
St. Louis Fed: Net Government Saving
St. Louis Fed: Personal Saving
St. Louis Fed: CPI
St. Louis Fed: Population

Monday, October 17, 2011

The Sarcasm Report v.135

October 17, 2011
Calculated Risk: Fed's Evans suggests raising inflation target until unemployment falls below 7%

I think we should consider committing to keep short-term rates at zero until either the unemployment rate goes below 7 percent or the outlook for inflation over the medium term goes above 3 percent. Such policies should enable us to make progress toward our mandated goals.

1. Why not just split the difference? If 2% is too low and 3% seems better, then why not try 2.5% first and see how that goes? Oh wait. Inflation has actually averaged 2.5% over the past decade. Never mind.

2. On average, oil prices have risen 12.7% per year over the last decade. I can't wait to see what raising the inflation target will do. If there is one thing that will bring job creation back to America it is higher oil prices. I can't tell you how many times I think to myself, "Why can't oil prices be higher? It is the only thing holding me back from visiting many of this country's many fine service-based restaurants."

3. We definitely need more inflation to solve our unemployment problem. Just look at what the Phillips Curve shows.

4. If 3% inflation is better than 2%, then surely 4% is better than 3%, and so on, and so on. In fact, if the Fed is willing to compromise on its long-term inflation fighting credibility, then let's swing for the fences and put 39.1 million people to work!

5. Let's adopt Gregory Mankiw's solution too while we are at it. The markets love chaos! If a full-blown currency crisis can't create jobs, then what can?

The Rubicon Line Held

1200.86 on the S&P 500?

The stock market is such a tease.

Thursday, October 13, 2011

Rentier Capitalism

Rentier capitalism

Rentier capitalism is a term used in Marxism and sociology which refers to a type of capitalism where a large amount of profit-income generated takes the form of property income, received as interest, intellectual property rights, rents, dividends, fees or capital gains.

The beneficiaries of this income are a property-owning social class who, it is argued, play no productive role in the economy themselves but who monopolise the access to physical assets, financial assets and technologies. They make money not from producing anything new themselves, but purely from their ownership of property (which provides a claim to a revenue stream) and dealing in that property.

Often the term rentier capitalism is used with the connotation that it is a form of parasitism or a decadent form of capitalism.

In general, what happens when parasites become as big as their hosts?

Click to enlarge.

Click to enlarge.

Can't you just feel the prosperity?

Source Data:
St. Louis Fed: Custom Chart #1
St. Louis Fed: Custom Chart #2

The Illusion of Grocery Store Employee Prosperity

Click to enlarge.

Keep in mind that the data is in 1982-1984 dollars. To convert to August 2011 dollars multiply the values in the chart by 2.26268.

In any event, inflation adjusted weekly earnings have fallen by roughly 20% since peaking in the early 2000s.

BLS: Grocery Stores

Grocery stores provide many young people with their first work experience.

Job opportunities in grocery stores should be plentiful because of the relatively short tenure of the many young and part-time employees in the workforce. Many will need to be replaced when they leave to find new jobs, seek full-time employment, return to school, or stop working.

Good luck on that one. Sigh.

Source Data:
BLS: Database

Wednesday, October 12, 2011

Real Government Expenditures per Civilian Employed

Click to enlarge.

This is fantastic news! We're back on exponential trend! Don't you see what this means? I've extrapolated it out 30 years for your entertainment pleasure. Just look how prosperous we'll be!

October 12, 2011
Anthony Mirhaydari: Forget fear; now's the time to buy

Overall, there is plenty to be optimistic about with pessimism is so high -- setting the stage for a powerful uptrend fueled by short covering and renewed interest in risky assets like stocks.

Oh yes! There's clearly a powerful uptrend. No doubt about it. Here's the best part. It is totally sustainable since it is being propped up by sustainable government spending. Government spending isn't even showing the slightest hint of an exponential trend failure yet. In fact, look where it will be in 100 years!

Real prosperity, baby. There is so much to be optimistic about!


See Also:
Sarcasm Disclaimer

Source Data:
St. Louis Fed: Current Government Expenditures
St. Louis Fed: Civilian Employment
St. Louis Fed: CPI

Crossing the S&P 500's Rubicon v.29 (Musical Tribute)

Here's a list of dates when the S&P 500 crossed above the 1200 level (at the close compared to the previous trading day's close).

1. 12/21/1998
2. 4/18/2001
3. 7/12/2001
4. 7/26/2001
5. 12/14/2004
6. 12/21/2004
7. 2/4/2005
8. 2/11/2005
9. 2/24/2005
10. 6/1/2005
11. 6/9/2005
12. 6/13/2005
13. 6/28/2005
14. 7/5/2005
15. 7/8/2005
16. 10/31/2005
17. 9/16/2008
18. 9/18/2008
19. 9/25/2008
20. 4/14/2010
21. 4/20/2010
22. 4/29/2010
23. 5/3/2010
24. 11/4/2010
25. 12/1/2010
26. 8/15/2011
27. 8/29/2011
28. 9/15/2011
29. 10/12/2011

See Also:
Crossing the S&P 500's Rubicon
Crossing the S&P 500's Rubicon v.22
Crossing the S&P 500's Rubicon v.23
Crossing the S&P 500's Rubicon v.24 (Musical Tribute)
Crossing the S&P 500's Rubicon v.25
Crossing the S&P 500's Rubicon v.26
Crossing the S&P 500's Rubicon v.27
Crossing the S&P 500's Rubicon v.28 (Musical Tribute)
Sarcasm Disclaimer

Source Data:
Yahoo: S&P 500 Historical Prices

Tuesday, October 11, 2011

The Illusion of "Pent-Up Demand" (Musical Tribute)

As seen in the charts, Americans overall are currently spending exactly like we'd spend if everything was perfectly normal. So where is the pent-up demand?

Come to think of it, I'd also like to know when we plan to return to perfectly normal.

October 7, 2011
FEATURES: September 2011 Auto Sales

September new-car sales rebounded to their perkiest pace since April, surprising industry watchers, and, frankly, anyone else who is at all aware of the overall economic picture, which seems to be fading back into recession. Pent-up demand seems to be the consensus explanation for the unexpected surge.

Perhaps the "Masters of Death" have some pent-up demand too. It's been a few years since their last appearance.

Source Data:
St. Louis Fed: Retail and Food Service Sales
St. Louis Fed: Wage and Salary Disbursements
St. Louis Fed: CPI

Uncertainly Doomed

October 11, 2011
Holiday restaurant sales uncertain, but not doomed

Hudson Riehle, senior vice president of the National Restaurant Association’s research and knowledge group, said restaurant industry sales have been running at about a 3-percent increase so far this year, “and there’s no reason to think it will diminish substantially over the fourth quarter.”

Inflation was up 3.8%. The population grew 0.8%.

Even with a growing population, real restaurant industry sales fell (adjusted for inflation).

Consumers have “frugality fatigue,” he noted. “This is the fifth year of economic weakness and the pent-up demand for restaurant dining is still elevated.”

An abundance of real prosperity would certainly put an end to the frugality fatigue. Based on what I named my blog, I'm not exactly holding my breath.

As a side note, there's an even higher "pent-up demand" for historical 8% pension fund returns.

October 10, 2011
Pensions Wrestle With Return Rates

"To target 8% means some aggressive trading," said Jeffrey Friedman, a senior market strategist at MF Global. "Ten-year Treasurys are yielding around 2%, economists say we are headed for a double-dip, and house prices aren't getting back to 2007 levels for the next decade, maybe."

"Good luck to them," Mr. Friedman said of pension managers still striving to hit longstanding targets.

Good luck indeed.

"A new day has dawned," said Morrie Lanning, chairman of the Legislative Commission on Pensions and Retirement in Minnesota, who wants to lower the return target. "It may have made sense in the past, but it's not realistic anymore."

Thinking Robots

October 11, 2011
Japanese scientist unveils 'thinking' robot

"We might ask a robot to bring soy sauce to the dinner table. It might browse the Internet to learn what soy sauce is and identify it in the kitchen," said Hasegawa.

But, cautions the professor, there are reasons to be careful about robots that can learn.

What kinds of tasks should we allow computers to perform? And is it possible that they might turn against us, like in the apocalyptic vision of Stanley Kubrick's film "2001: A Space Odyssey".

"A kitchen knife is a useful thing. But it can also become a weapon," he said.

1. "Robot, safety off."
2. "Robot, go get me some cash."
3. Robot browses the Internet to learn how to get cash.
4. Robot reads its creator's thoughts on kitchen knives.
5. Robot uses kitchen knife to get some cash.

It all seemed perfectly reasonable to me. I assume my robot opened up a new restaurant, right? Why so shocked? What did my robot do? It wielded a knife? Seriously?

May 9, 2010
Researcher offers arm to knife-wielding robot

Without the collision avoidance system, the kitchen knife naturally went right into the slab of pork. But with the system activated, it only penetrated the pig by about 1 millimeter. Haddadin's arm was unscathed. Thankfully, it wasn't subjected to testing with the "safety" off.

Oops. I suddenly feel like the CEO of a bank too large to fail. I only said "safety off" so that the robot would be willing to take on more investment risk. It was using the knife like a gorilla would? How could I have possibly foreseen the unintended consequences of my actions?

I must admit that I was a bit surprised by the enormous profits my robot generated. Perhaps the government can come in and clean up my mess. At the very least, it would seem that I need a
TARP to contain the lifeblood. Can I assume that I can keep the profits that I've already distributed to the robot's one owner though?

Gallows humor!

Monday, October 10, 2011

Stock Market Terrorism

October 7, 2011
'Terrified' of the Stock Market: What Should I Do?

I'm terrified of the stock market these days. I plan to retire in April, but I'm afraid I'll lose everything before then. I want to put my money in a safer place, but I don't know where. Should I sell stocks now or wait to see if they go up in value? What do you think? -- Gerry

I'm shocked that the correct answer was not offered.

Homeland Security: Report Suspicious Activity

If you see suspicious activity, please report it to your local police department.

Surely the Nasdaq being up a whopping 3.50% today but down 50.00% from its all time high set in 2000 would qualify as suspicious activity.

March 10, 2000 Intraday High: 5,132.52
October 10, 2011 Closing Price: 2,566.05
Gain/Loss: -50.00%

In all seriousness, should Gerry sell stocks now to fuel his retirement or should Gerry sell stocks later to fuel his retirement? Those are the only two choices? Stock market investors better hope that the stock market isn't made up of a lot of people like Gerry (soon-to-be retirees).

For what it is worth, I was thinking like Gerry in the fall of 2004. I sold all my stocks to fuel my retirement. I'm done. It's been 7 years. No complaints. One might even say that I thought it best to sell my stocks before Gerry sold his. Go figure.

Source Data:
Yahoo: Nasdaq Historical Prices

Sunday, October 9, 2011

How Bad Can It Get If the Victim Falls Off a Bridge?

October 9, 2011
How bad can it get if the US falls into recession?

But recessions come in many varieties, and most are less scary than the last one.

Out of curiosity, how bad would history suggest that it would get if we were to enter a recession with 9.1% unemployment and a federal funds rate of 0%? victim

2. a person who is deceived or cheated, as by his or her own emotions or ignorance, by the dishonesty of others, or by some impersonal agency: a victim of misplaced confidence; the victim of a swindler; a victim of an optical illusion.

Saturday, October 8, 2011

Oil vs. Wages

Click to enlarge.

This chart shows the dollar value of U.S. oil consumption divided by the dollar value of U.S. wage and salary disbursements (through July).

October 5, 2011
Anthony Mirhaydari: This 'bear' market won't last

All this negativity and fear is unsustainable.

As of 2004, I am firmly planted in the sustainable fear camp.

Source Data:
EIA: Product Supplied
EIA: WTI Spot Prices
St. Louis Fed: Wage and Salary Disbursements

Friday, October 7, 2011

Costco Run

Here's just a sampling of the day's shopping.

Costco raised the price of the Marathon brand toilet paper from 21.89 to 22.99. That's a 5.0% increase. Toilet paper hoarding for the win (compared to three month treasury bills anyway).

There was a $4.60 manufacturer rebate so I added 3 more packs to my hoard. This is not the first time that they've combined a rebate with a price hike. I'll be buying even more if I find myself near the Costco before the sale ends.

At the other end of the spectrum was Progresso soup. I bought 32 cans of clam chowder for 90.375 cents per can ($9.98 per 8-pack minus $2.75 coupon). That's about the best deal I've ever seen.

My tennis shoe hoard continues to go nowhere fast. I bought another pair for $14.99 (the same price it was quite a few years ago). They are made in China. I should probably send Chinese factory workers a condolence card.

Overall, I would say the inflation I'm seeing at Costco continues to be rather subdued.

39.1 Million Missing Jobs

Click to enlarge.

We continue to fall behind the exponential trend that was established between 1939 and 2000. It is virtually impossible to return to the red trend line.

The next chart shows the difference between where we are now and the red trend line.

Click to enlarge.

That's 39.1 million missing jobs.

Click to enlarge.

The chart above shows why it is impossible to return to the red trend line. Over the long-term, we cannot grow employment faster than we grow our population. At the very least, we can no longer add women to the workforce like we once did. Women now make up roughly half of it.

The last chart shows weekly unemployment claims as a percentage of nonfarm payrolls.

Click to enlarge.

We may think unemployment is bad now (and it is), but it can clearly get a lot worse. As seen in the blue arrows, the long-term trend that started in 2000 is not working in our favor.

I remain firmly in the bears' camp long-term.

Source Data:
St. Louis Fed: Total Nonfarm Payrolls
St. Louis Fed: Initial Claims