This year I decided to bring some actual evidence with me. It was my goal to present the bearish case in 5 minutes or less and in 5 charts or less. So here is what I did.
March 9, 2012
39.3 Million Missing Jobs
Click to enlarge.
Pretty much had to start with that one. That exponential trend is over and it is fairly easy to prove beyond any reasonable doubt. We clearly cannot cough up 39.3 million jobs when there are *only* 12.8 million unemployed. Right? So put a fork in it. It's over.
Since we can prove that jobs won't grow like they once did, what does that imply about debt growth?
March 3, 2012
Our Astronomical Debt
Click to enlarge.
Well, there you go. Just past Pluto seems to be our limit. Get out another fork.
We can see what jobs and debt growth are doing. What does that imply about port traffic?
March 14, 2012
Port Traffic Falls Again (Musical Tribute)
Click to enlarge.
Although we do not have proof, I'd suggest getting out another fork. After looking at the chart, she asked me why we were continuing to expand our ports. I simply shrugged my shoulders and said that the data doesn't appear to support it.
So now let us take that information and think about real GDP growth. Real GDP growth clearly cannot grow like it once did if the previous 3 charts have any merit.
March 10, 2012
Cracks in the Dam
Click to enlarge.
I would bet all that I own that we will never return to the red trend line. Does that make it fork worthy? You tell me. I'm certainly not willing to risk it with my nest egg. Let's just put it that way.
So what could one invest in if real GDP growth were to permanently slow (or worse)? I chose treasury inflation protected securities. I wanted to lock in a real yield in the face of falling real growth. And on that note, I present you with the final chart updated today.
Click to enlarge.
I told her that unlike Jeremy Siegel in February 2011, I did not believe that our economy could support high real interest rates. I backed up the truck while he was warning investors to stay away. I also told her that if I am financially ruined (possible) by owning TIPS, then I won't be alone. It is our debt that's propping everything else up. She said that must give me little comfort. I agreed that it didn't.
She asked me twice if she could keep the charts. One only wonders if she will stare at them as long as I have. I once again felt like the bringer of doom.
Am I though? I wake up every day feeling fortunate that I was born when I was and where I was. I've already lived longer than many people throughout history. Perhaps it is fatalistic way of looking at it, but it is how I feel. Whatever happens, happens. I'm not a religious person but in my opinion there is great wisdom in the following quote.
God, grant me the serenity
To accept the things I cannot change,
Courage to change the things I can,
and wisdom to know the difference.
Serenity Prayer
Brilliant in its simplicity, The Serenity Prayer is one of the key spiritual tools used by virtually all 12-step recovery support group members.
Our economy could certainly use a 12-step recovery program.
I accept that the growth rate of this economy won't be what it once was. I have made every effort to adapt to the new reality. That's really all I can do, and in my opinion that's all our next president will be able to do either (at best).
This is not investment advice. It is not an endorsement to buy long-term TIPS. Heck, I don't know what I would do if I had more money to invest right now. All I can say is that I continue to hold the TIPS and I-Bonds that I do own. It was my plan to hold to maturity and that's exactly what I'm doing. As seen in the last chart, February 2011 was the real buying opportunity, much to the dismay of Jeremy Siegel.
And lastly, my taxes were relatively modest this year. The market appreciation of my TIPS did not show up in my taxes. The IRS doesn't care what the market thinks my TIPS are worth, not unless I sell them anyway. I have no plans to do that. I therefore continue to pay taxes on the modest inflationary gains and the modest interest payments. I have no complaints.
Source Data:
FRB: Selected Interest Rates
I suppose this is the way to go if you are not interested in researching individual companies, and you'd rather base your entire personal savings/investment plan on a completely macro theme.
ReplyDeleteBut there are plenty of great companies out there that make excellent investment candidates.
Pacioli,
ReplyDeleteI suppose this is the way to go if you are not interested in researching individual companies, and you'd rather base your entire personal savings/investment plan on a completely macro theme.
I hear where you are coming from but it isn't like I haven't looked. In the good old days, I'd flip through the S&P 500 guide one page at a time looking at all the companies. That worked great for me. It was an era when we had tailwinds instead of headwinds though.
Further, if all it took was researching individual companies, then the typical mutual fund manager would be doing better than the overall market. That's not the case though.
But there are plenty of great companies out there that make excellent investment candidates.
For what it is worth, there are just 4 AAA rated companies left in the S&P 500.
All stocks are risky, especially if you are bearish overall and we're 33 months into an expansion.
I'm just not willing to take that risk. Granted, I'm more of a retired saver than a retired investor. It was a small investment in a small company that ultimately retired me (in 1999). I no longer wish to swing for the fences, nor do I think this economy is the ideal one to be making the attempt. I exited the stock market in 2004 with a profit. I have no intention of returning.
Further, I do not have a job to fall back on. I'm therefore naturally going to be more risk averse than most.
Hindsight will no doubt show that many companies will do better than what I have done. It will also show that many companies will have done worse. If it was so easy to just pick the great companies, then we'd all be rich.
That said, I wish you great success. It is not an impossible task to outperform the market. May you do well in your endeavor. :)
nice words of wisdom...nice writeup..
ReplyDeletecheers and safe investing to ya.
honestcreditguy,
ReplyDeleteThanks for the kind words. Safe investing to you as well. :)
Brilliant. I completely agree.
ReplyDeleteScott,
ReplyDeleteThanks.
I don't know about brilliant in the long-term, but it has certainly been working so far.
There's something about having to explain your thinking to someone else that helps too. It's one reason I like to blog.
I think the non linear curve fits the data much more accurately. These metrics look like they are going to fit to a logistic curve (the "S" curve as you know; the "carrying capacity" of debt has been hit. Sort of like those charts of various wildlife populations. And we all know what happens when an animal population overshoots the ecosystem carrying capacity: a population crash.
ReplyDeleteScott,
ReplyDeleteJapan is finding that out the hard way since their housing bubble crash.
They've come a long way since their "sure thing" status of the 1980s.
Apr. 21, 1980
Business: Capitalism in Japan
Because no nation has come half so far so fast, Japan is envied by capitalists elsewhere and looked upon as an example to emulate.
Well, looks like we've mastered the art of emulation. They had an epic housing bubble and so did we. Sigh.