Tuesday, May 29, 2012

The Era of Effortlessly Making Money

How's it looking?

Take personal income and subtract off wage and salary disbursements. In general, that's fairly effortless work. Right? Then adjust by population growth and inflation. That's what the following chart shows.

The "average" person makes just over $20,000 per year in non-wages. In real inflation adjusted terms, this amount has increased roughly $25 per month since 1959. Oddly enough, it isn't exponential growth. As seen in the chart, it is linear growth and it has grown like clockwork (0.995 correlation) for 50 years or more. It's the closest thing to a "sure thing" that I've ever seen.

So, what seems to be the problem? Let's zoom in a bit to show only the most recent years.

Since 2007, the growth rate has been reduced from $25 per month to just $5 per month. Further, it seems to have lost its "sure thing" clockwork status (0.055 correlation).

Some would argue that our problems are cyclical and the long-term trend will therefore resume. If true, expect the economy to recover, real yields to rise, and for volatility to all but vanish. When treated, time heals all wounds.

Others would argue that our problems are structural and the short-term trend will therefore continue. If true, expect the economy to stagnate, real yields to stay low, and for volatility to be the new normal. Left untreated, time festers all wounds.

I have been in the latter camp since the fall of 2004. It is and has been my opinion that the era of making easy money off of money is over.

And lastly, I want to point out a serious problem with the long-term chart. If we extrapolate back to the 1930s, then real non-wages go below zero. That's impossible. It can't happen. Therefore, it is a fact that the chart does not extrapolate well into the distant past. Since this is definitely true, why would we assume that the chart will extrapolate well into the distant future? Just something to think about as you ponder the "sure thing".

This is not investment advice.

See Also:
Trend Line Disclaimer
The "Sure" Thing

Source Data:
St. Louis Fed: Custom Chart


Jazzbumpa said...

I guess my SS and pension payments are in this mix, as well.

I've never thought in these terms and am trying to wrap my head around what it might mean.

But - couldn't real non-wages go below zero - frex in a big 1929-style asset crash?


Stagflationary Mark said...


I'm in the mix as well. However, over time I expect my personal income to fall.

1. I am spending my nest egg each year. There's less left to generate interest. I'm fine with that. I intend to die with less money than I have now.
2. Interest rates are low. Although I locked in higher interest rates for the long-term, the trend isn't looking good for me ultra long-term.

But - couldn't real non-wages go below zero - frex in a big 1929-style asset crash?

I don't believe so.

Personal Income

PI = Wages Received + Interest Received + Rent Received + Dividends + Proprietors' Income + Transfer Payments

If one person sells a stock (regardless of the price) that generates dividends , then the seller's personal income will fall and the buyer's personal income will rise by the same amount.

For all intents and purposes, it has no effect on overall personal income.

However, selling that stock to a foreign citizen would have an impact, as would falling dividends should the company become less profitable.

In any event, dividends cannot fall below zero. That's the floor.

mab said...

Apparently, the plan is to keep the trend growing exponentially for bankers.

It won't help the majority, but at least the 1% will be better off than their predecessors. We should be happy for them!

Stagflationary Mark said...

In my opinion, the top 0.07% would prefer bonds over a sharp kick to the thunderballs!

And let's not forget that Dr. No "Housing Bubble to Go Bust" Bernanke will be using SPECTRE's monetary beam weapon to restore the illusion of prosperity, once he understands the nearly infinite array of nearly useless control knobs, lol. Sigh.

mab said...

Serious question. Chuck Norris vs. James Bond.

Stagflationary Mark said...


I think Norris would knock Bond out but would delegate the actual killing, perhaps with a memorable monologue/deathtrap. I'm picturing an escape sequence involving 80-100 henchmen dressed as black belts but with "movie extra" level fighting skills. Bond would need a car. A Fiat with a Facebook touch screen? Nobody would expect that!

There should also be a few scantily dressed bond sidekick girls who reduce the henchmen herd while Bond disables the secret lair's counterfeit monetary printing press in an underground helicopter hangar.

I hope I'm not giving too much away. Did I mention he totals the car, much to Q's dismay? Oops! Spoiler!

Stagflationary Mark said...


Serious question. Chuck Norris vs. Sears.

mab said...

Chuck Norris vs. Sears.

Wow, that's a tough one. Chuck Norris is Chuck Norris. But on the other hand, Eddie Lampert is a genius.

Stagflationary Mark said...


It might come down to technique. What would Norris say?

He's a whiz kid who uses a pillar of strength stance. He attempts to hit all the vulnerable low points. It's so predictable! That's not my style. I'd punch him through resistance levels, then kick him into the next century.

mab said...

I've been thinking about this Chuck Norris vs. Sears thing all day.

I was about to go with Chuck Norris (how can one ever go wrong with that?) but then I noticed Sears was down 9% today.

I don't know about you, but I don't like to kick man when he's down only 9% in a day. Not my style!

Stagflationary Mark said...


Gnomes (South Park)

1. Collect Underpants
2. ????
3. Profit

I don't know why I even bring it up. I'm certainly not trying to imply that this is Eddie's business model. Not my style!

Further, either we are joking or we like to buy high and sell low. I just wish I knew which one it was! It's definitely one of the two!

Apologies to readers not in on the inside joke. It is probably best to leave it a mystery, lol.

mab said...

I just wish I knew which one it was!

The one thing I do know is that Sears is the gift that keeps on giving. It's paying some serious dividends!

p.s. Bondmageddon was pwned again today. And what's up with the bond vigilantes? Did they forget rule number one (the golden rule), that it's "impossible" for a Gov't to perpetually spend more than it taxes!

Stagflationary Mark said...


Bondmageddon was pwned again today. And what's up with the bond vigilantes?

It's not my style to create a new post heckling that. Well, not without including Jeremy Siegel anyway.

Lampert and Siegel in the same day? What can it mean? Two-fer Wednesday!