Tuesday, July 30, 2013

The Future's So ZIRP (Musical Tribute)

The following chart shows the Leading Index of the United States. I have added a 5-year moving average in red and a trend channel to go with it.

Click to enlarge.

The following chart shows the year over year change in the Leading Index of the United States. I have added short-term trend lines in blue and an apparent long-term floor in red.

Click to enlarge.

The following chart shows the real GDP per capita in the United States divided by the real GDP per capita in Japan. As seen in the chart, real GDP per capita growth has been extremely synchronized between the two countries since 2000 (a flat horizontal line in the chart means we're growing or shrinking at exactly the same pace). I might even argue that we've finally caught their disease.

Click to enlarge.

The 2-year treasury bond in Japan yields 0.11%.
The 1-year treasury bond in the U.S. yields 0.11%.

We don't seem to believe yet that ZIRP could be with us for a long time, even though it has already been with us for nearly 5 years. Perhaps investors expect the leading indicators to start ramping back up again at some point? I think they might, but only after the next recession, and even then only temporarily. Just an opinion. Sigh.

This is not investment advice.

Source Data:
St. Louis Fed: Leading Index for the United States
St. Louis Fed: Leading Index for the United States (YoY Change)
St. Louis Fed: Real GDP per Capita: U.S. vs. Japan


dd said...

Not a problem according to FT Alphaville. The US just needs to "catch up" and restructure GDP by "migrating away from an ‘added material’ value model and increasingly towards ‘knowledge value’ instead." Once the value of all the financial innovation of the last decade is included it's GDP to the moon.
Japan would never think to be so innovative.

Stagflationary Mark said...


After reading what you said, I'm left with several conclusions.

This free "Illusion of Prosperity" blog should add to GDP. We share our knowledge here all the time.

That also means that the more we claim that the economy is doomed, the less doomed it should become!

We're doing God's work! ;)

Jazzbumpa said...

Any idea how the U.S. leading indicator is calculated?


Stagflationary Mark said...


There's a description on the series (not shown in my previous links, you have to back out to the top). It factors in a lot of stuff.

Leading Index for the United States (USSLIND)

The leading index for each state predicts the six-month growth rate of the state's coincident index. In addition to the coincident index, the models include other variables that lead the economy: state-level housing permits (1 to 4 units), state initial unemployment insurance claims, delivery times from the Institute for Supply Management (ISM) manufacturing survey, and the interest rate spread between the 10-year Treasury bond and the 3-month Treasury bill.

Jazzbumpa said...

Pretty complicated.

OK - thnx.