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If the exponential trend failure in that chart hasn't made you gasp in horror then please feel free to examine the following short-term chart closely. There's hope for a good scream yet!
Click to enlarge.
What does this mean?
First, as I have been saying for more than a year, we aren't going to make it back to the long-term (1939 to present) median growth trend this time. And why not? It's an "unexpectedly" weak recovery of course. Duh!
Second, it is definitely time for a musical tribute in honor of yet another economic nail potentially being hammered into the labor market's long-term coffin. The odds of us reversing the downward trend established over the last few years is infinitesimally small in my opinion. The new downward trend is not our friend. Few seem to even notice it, much less talk about it. It was nothing but rationalization after rationalization on CNBC today.
Run to the hills!
Run for your lives!
Run for your lives!
That's about the most advice I would ever dare to offer on this site. I am as bearish on our economy right now as I have ever been. The second chart reminds me in no small part of what the economy looked like when I started this blog back in the fall of 2007 (right down to, in my opinion, the unsustainable stock market euphoria over unsustainable corporate profits).
The bond market sure hasn't bought the rose-colored glasses theory though. Just look at those low yields. As a side note, if this latest employment report is any indicator then so much for the supposed bond bubble popping any time soon. And how about all those hyperinflation predictions? Good luck on those theories too. Probably not gonna happen, at least in the short-term. In the long-term, we're all dead of course.
And on that note, they can pry the long-term TIPS, I-Bonds, and EE-Bonds from my cold dead fingers. Who are they? They are the bond vigilantes of course. They can't ever seem to BUY enough, much to the ongoing dismay of Jeremy Siegel.
As economic growth recovers and real rates rise, the price of Tips will fall leaving Tips investors with large losses in the face of accelerating inflation. - Jeremy Siegel, February 2, 2011
What a frickin' joke that was... every part of it. The 20-Year TIPS yielded 1.82% that day. Today it yields just -0.03%. Yes, that truly is a negative sign in front of it. So much for the recovering economic growth fueling rising real rates theory.
All these questionable recovering prosperity theories need to be taken out behind the woodshed. It pains me to say it, but they need to rest in peace. Sigh.
Source Data:
St. Louis Fed: All Employees: Total nonfarm
20 comments:
Here's an amusing thought that just dawned on me.
When is the last time you saw a "short-term" chart on CNBC that went all the way back to the year 2000?
My definition of "short-term" seems somewhat longer than that of most financial "experts". Perhaps I'm just stubborn. Go figure.
Sequestration + FICA will bite hard going forward, at least until October.
The BoJ move could be a major game changer. They are going to double yen in circulation by the end of 2014. They out-helicoptered Ben. I am patiently waiting for the Japan bond blow up. Everyone is going to feel that one.
There are so many equity bulls and general bulls on the economy, it's hard to believe. Smart people like CR are raging bulls. Makes me wonder.
My gold model came close to breaking this week. I had 1/3 of my physical loaded up in my car ready to sell at my fail price, but it rallied instead. 3 sigma below my model is my fail price and it may hit that soon. I still have profits to take even if I turn out to be wrong (and it looks that way right now).
Mr Slippry,
The BoJ is certainly attempting a grand experiment. Not sure anyone really knows how it will turn out. I sure don't.
They're firing a bazooka. No doubt about that. If the target's a zombie black hole though, perhaps it won't actually do all that much.
As for the economy, there don't seem to be many of us who think there are serious structural problems that first became extremely apparent in 2000.
I didn't start really noticing them until 2004. In my opinion, none of them have gone away. The bond market very much seems to agree with me. Low real yields are not the cause. They are the symptom of our disease!
Those expecting a permanent return to the economy of 1980s and 1990s will be sorely disappointed. It is my continuing opinion that the era of making money off of money is over. The bond market must understand that. The equity market wants to extrapolate the last 3 years and ignore the previous 10. Good luck on that! It only makes sense if we're now recession-proof.
How can we possibly be recession-proof? The economy is in a seriously weakened state. A small gust of wind would topple our camel with all the straw we're piling on its back, lol. Sigh.
As a side note, I moved from 8th to 7th place on Rocksmith's Scale Runner mini-game on the PS3. I managed to move up in just 2 hours tonight (or this morning depending on how you look at it, lol).
The BoJ move could be a major game changer. They are going to double yen in circulation by the end of 2014. They out-helicoptered Ben.
Dunno about that . ..
http://research.stlouisfed.org/fred2/series/BASE
is "monetary base, maybe what the BOJ is talking about doubling.
At any rate they added $2T+, a 13% of GDP add.
http://research.stlouisfed.org/fred2/series/EXCRESNS
is excess reserves
Subtracting b from a:
http://research.stlouisfed.org/fred2/graph/?g=hgc
Shows a 50% 'actual' gain in monetary base.
Now, what Kuroda wants to see is their base double to ¥270T in under 2 years, and he's also going to buy more bonds than currency in circulation, breaking a long-held BOJ rule.
I don't know what all this means, but if the end effect is the yen going to ¥120-140 I see more good things than bad things for Japan.
Japan can feed and supply itself, so it would welcome the protectionism of a weaker yen.
Gasoline prices are $6+ gallon already in Japan (taxes are $3/gallon), this is a 50% margin over our $4 they can eat to keep the new yen regime from shocking their energy market.
The bottom line is Japan dug a very very deep hole for itself 1990-2005 by cutting taxes to stimulate the economy. Their national debt is $200,000 per worker with the yen at 80 and half that with the yen at 150..
Their baby boom is 10M, tops, and they have firm control of cost inflation in their medical sector, so they can to some extent inflate their way out of things.
We can't inflate our way out of our 80M boomer retirement burden that's starting to make itself present and will peak ca 2026.
For all of Japan's problems, I feel more confident that they will address theirs better than we can fix ours.
Their problem 1985-1995 was just being too successful 1960-1990 and letting it go to their heads, allowing a colossal, speculative boom-bubble-bust to blow a big hole in their formerly rather frugal (if always high-debt high-growth) economy.
With a falling population, Japan doesn't need to 'grow' any more.
Our population is going to move from 300M to 400M by 2050. We still need growth, or redistribution, but that's not a word half the policy controllers will allow to be said.
I was expecting your new claims chart -- what happened? ;-)
Mark, I take it you don't buy Stockman's point that rates are low because the Fed's monetizing 70% of all bond issuance and the bond guys are simply profiting from front-running them.
Mr. Slippery, please don't pull a Gordon Brown.
Ha great tune. I guess its a "NEW PARADIGM ECONOMY" where most don't even have a pair-of-dimes to rub together and the few who are rich. Welcome to the recovery. Sigh.
http://research.stlouisfed.org/fred2/graph/?g=hgB
blue is jobs
red is real (2012 dollars) YOY consumer debt take-on + Federal spending (per-capita).
Troy,
Our population is going to move from 300M to 400M by 2050.
For what it's worth, I'll predict less than 400m. I'm saying this because I'm not bullish on our long-term birth rates once this round of prosperity euphoria wears off. Sigh.
TJandTheBear,
Mark, I take it you don't buy Stockman's point that rates are low because the Fed's monetizing 70% of all bond issuance and the bond guys are simply profiting from front-running them.
I will simply offer my theory from the past. I doubt rates would be higher if the Fed had done nothing to fight deflation. In my opinion, we'd be in a Great Depression and would have rates to match.
That said, I do think there is front running. I'm not much of a front runner though. I bought all my bonds with intent to hold to maturity. What the Fed did do, didn't do, and will do wasn't as important to me as what the economy did do, didn't do, and will do.
One thing the economy won't do, in my opinion, is generate historical real GDP growth in a sustainable fashion. Sigh.
GYSC,
most don't even have a pair-of-dimes to rub together
The new economy's dimes are digital and either pay 0.0% interest if you are a saver or cost you 20% if you let the credit card fairy "CHASE" you!
>For what it's worth, I'll predict less than 400m
yeah, we're seeing that already
http://www.bloomberg.com/news/2012-11-29/recession-left-baby-bust-as-u-s-births-lowest-since-1920.html
Here's births by year:
2007 4,315,000
2008 4,247,000
2009 4,131,019
2010 3,999,386
2011 3,953,593
But we're just starting to tick into Gen Y's peak childbirth years . . . Gen Y peak birth year was 1990, so they're just aged 23 +/-9 now. . . the 2005 good times came at a birth-age demographic low when Gen Y was aged 4 to 22 . . .
Birth age mothers (20-34) are going to increase from 29M this year to 31M from 2030 to 2050.
Wow, the constancy of that population is impressive.
This doesn't count immigrants, just native-born.
One thing the economy won't do, in my opinion, is generate historical real GDP growth in a sustainable fashion. Sigh.
http://research.stlouisfed.org/fred2/series/USARGDPC
The 1990s certainly were good. We just need to find another China to go into debt to.
LOL, in the 70s we went into debt to OPEC, 80s was Japan's turn, 1990-00s China.
2010s -- looks like Japan is going to go for glory. I hope they print and buy our bonds, they deserve the good life for inventing so much of the 20th century.
Mark,
If economic activity (or lack thereof) was the sole determining factor for rates then how do you explain the PIIGS? Don't discount risk.
PIIGS had a ponzi economy like ours, yes.
But the flows were different.
Their tax-to-GDP ratios are in the 30 (Greece) - ~40% (PIIS) range.
PIIGS carry default risk. There can not be a default risk with our sovereign debt.
Yes, that is implied printing, but our debt comes from being not taxed enough (and nearly? spending more on our military than the rest of the world combined), not being economic basket cases dependent on real estate pump & dump for growth.
We certainly abused HEW 2002-2007, but we were also more productive in the 2000s, too.
real GDP per worker rose from $85,000 to $95,000 during the boom/bubble.
http://research.stlouisfed.org/fred2/graph/?g=hjX
Now, a lot of that is the bennies we get from running a $500B+ trade deficit I suppose.
We don't technically need debt to grow, we just do it because it's the politically easy (i.e. non-suicidal) way.
TJandTheBear,
If economic activity (or lack thereof) was the sole determining factor for rates then how do you explain the PIIGS?
The PIIGS couldn't print Euros.
Don't discount risk.
The risk, as I saw it, was that real yields would fall and I would not have locked in a good rate before they did. Meanwhile, many others decided to ride it out in short-term treasuries thinking good times might return and rates would rise accordingly.
Troy,
But we're just starting to tick into Gen Y's peak childbirth years
And instead of children many may be trying to figure out how to afford college costs and that first new home in an economy that might not give them the long-term careers they seek?
"I doubt rates would be higher if the Fed had done nothing to fight deflation"
vs
"The PIIGS couldn't print Euros."
So printing saved us from Greece's risk-rates, but the Fed's intervention hasn't kept rates low?
I guess if we were on a hard-money regime like the 1930s were to some extent, we'd have to cut spending and raise taxes into the teeth of the recession, utterly deflationary.
http://research.stlouisfed.org/fred2/graph/?g=hml
money stock for US, 1910-1940
so the safe-haven rates (more money to chase bond prices down) if Bernanke prints, and the 1930s deflationary cross-default collapse rates if he doesn't.
The only way we're going to see high rates again is when J6P gets the money.
The big difference between PIIGS and the US is that we've got Mr Triffin on our side.
OPEC, China and Japan need to run a surplus against us, we're like 'hokay!'
Troy,
The only way we're going to see high rates again is when J6P gets the money.
Yeah, the "hot" money isn't exactly flowing into consumer toilet paper prices yet. I'm not holding my breath either. That said, my TP hoard has definitely outperformed 0% T-Bills. Go figure.
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