Saturday, August 31, 2013

The Health of Our Service Economy

The following chart shows the ratio of service-providing employees to all non-farm employees.

Click to enlarge.

More than 86% now work in the service-providing industries! Hurray! Never healthier!

The next chart shows the year over year change in the total nominal amount we're collectively spending on services.

Click to enlarge.

There is still 2.5% growth!
Our service economy is therefore still healthy!
The present is still bright!
I still gotta wear shades!

I have mercifully spared you the pain and suffering of short-term and long-term trend lines. Oops. I probably should not have mentioned that. Sorry!

Hey, at least I didn't point out that the current 2.5% growth is almost entirely made up of smoke and mirrors inflation. That really won't add much to "real" services job growth from here if it continues. Oops. I did it again. Sorry!

I'm drawing the line. No amount of torture could make me confess what would happen to services employment if the growth rate in services continues to fall like it did as the dotcom bubble was popping or as the housing bubble was popping. @#$%! There's nothing I can say now to adequately express my remorse over implying the obvious. Shame on me!

I'm determined to end on an upbeat note though, so trust me on this. The future is still so bright! I gotta wear moonshades!

“I guess I just prefer to see the dark side of things. The glass is always half empty. And cracked. And I just cut my lip on it. And chipped a tooth.” - Janeane Garofalo

See Also:
Still Investing

Source Data:
St. Louis Fed: Service-Providing Employees / Total Nonfarm Employees
St. Louis Fed: Personal Consumption Expenditures: Services (YoY)

Monday, August 26, 2013

Long-Term Recession Odds

The following chart shows the odds that a month chosen at random is within a recession.

Click to enlarge.

The 15-year moving average is shown in black. The average since World War II is shown in red.

In my opinion, the odds of the Fed permanently putting a stop to future recessions is about as likely as monkeys magically appearing out of my you know what.

It is also my opinion that the low recession frequency of the 1980s and 1990s is officially over. If so, then we can expect 1 month out of every 6 to be in recession, which oddly enough is the same odds one would have in a game of Russian Roulette.

Feeling lucky?

Source Data:
St. Louis Fed: NBER based Recession Indicators

We're ZIRPing Along on the "Road" to Full Recovery

Click to enlarge.

I can feel us all starting to think about potentially driving another 80 billion miles each year within our lifetimes. It could happen, right? It's certainly within the realm of possibility. I mean the thinking part, not necessarily the driving part.

We just need to be patient and let the trend in red do all the work! Well, once it reverses and starts to really pick up steam anyway.

Fortunately, we have time to be patient. And why is that? We can rule out any other events "driving" this down at an even faster rate. I have it on good authority that the Fed has permanently put a stop to all future recessions! The trick was simple. Cripple the economy so much that it can't possibly fall any further. Genius!

So there you have it. I have 100% confidence in the Fed to never allow another recession! There have been 19 recessions since the Fed was founded in 1913? Yeah, but that old Fed isn't like the new Fed! This time it's different! They've got all kinds of advanced data sets on heavily leveraged economies. They know what to expect now. And let's not forget that the "unexpected" housing bust added a great deal to their understanding, just like the dotcom bubble before it!

See Also:
The Illusion of an Auto Industry "Recovery"

Source Data:
St. Louis Fed: Custom Chart

New Orders: Tactical Advance!

Click to enlarge.

Would you Kindly? a VG Quote Thread

"They are extremely powerful. And quite frankly, we haven't a snowflake's chance in Vulcan's forge of winning here. I suggest a *ahem* tactical advance...directly away from the enemy. Run! Now! Run. Run away. Run away."

No! No! No! What does he know? He's just some Roman General in a video game! Advance towards the enemy! Towards them! Swing for the fencers! Can't lose!

See Also:
Mish: Durable Goods Orders Plunge 7.3%, Nondefense New Orders for Capital Goods Plunge 15.4%; Plunge to Accelerate?

Source Data:
St. Louis Fed: Custom Chart

The Future's Too Bright!

The following chart shows sales at food services and drinking places divided by wages.

Click to enlarge.

Don't think of it as a linear trend failure. Think of it as a transition from happy times into a perpetual happy hour!

Happy Hour

In most cases the "happy hour" lasts longer than a single hour.

Yes! 13 years and counting!

August 25, 2013
Beer here: Wal-Mart’s quiet push to go big on brew

Beer is “a traffic-driving category,” said Colin McGranahan, an analyst at Sanford C. Bernstein & Co. in New York. “High-frequency consumables can help them with their traffic problem. Beer fits that.”

Yes! Beer shines when it comes to solving traffic problems! Just ask any police ocifer!

March 26, 2013
Your Neighborhood Needs More Bars

How NIMBY stupidity is stifling urban bars and restaurants—and blocking a major opportunity for small-business growth.

Yes! We've experienced so many exponential trend failures! Exponential liquor growth for the perma-win!

February 19, 2013
The new United States of Booze

"No one writes happily about liquor," observed John McDonald in a 1961 Fortune story called "The Perplexed Liquor Industry." "Only recently have a few bold distillers in their advertising set forth pictures of men and women in pleasant social settings having drinks. And even now the advertisement almost never shows the women holding drinks in their hands. The drinks just sit on the table in front of them."

Au contraire mon frère! Happy times! Happy hour! Happy! Happy! Happy!

September 7, 2011
7 Steps To Hiding Your Hangover At Work

Step 5: Turn The Brightness On Your Screen Down

Bright things and your eyes are not friends right now. Maybe tomorrow they can reunite like those dudes with Christian the Lion, but right now… fuck lions. Or something. Look just trust me. Turn down the brightness. (But don’t go too low, then you’ll just strain your eyes. This is a balancing act.)

The future isn't just bright, it's too bright!

Source Data:
St. Louis Fed: Custom Chart

Sunday, August 25, 2013

Alternative CredAbility Consumer Distress Index

St. Louis Fed: CredAbility Consumer Distress Index

The Index score is tied to one of 5 general rating categories, which reflect the strength and stability of the consumer’s position.

Less than 60 Emergency / Crisis
60 – 69 Distressed / Unstable
70 – 79 Weakening / At-Risk
80 – 89 Good / Stable
90 and Above Excellent / Secure

What Does the Index Measure?

We measure the 5 categories of personal finance that reflect or lead to a secure, stable financial life—Employment, Housing, Credit, Household Budget and Net Worth. All are equally important, so have given each category equal weighting.

Click to enlarge.

That index is showing a relatively strong recovery from "distressed/unstable" to "weakening/at-risk". Yay.

As seen in the following chart, I have chosen to use the median instead of the average. Why? A few good apples can't purify the barrel! Put another way, I think the median can generally do a better job of describing the core trend (and where we are within it).

Click to enlarge.

As of the first quarter of 2013, the median index value was 65.5 (solidly "distressed/unstable"). The index most responsible for the recent decline in this chart was the household budget distress index. It's doing some serious damage to this alternative consumer distress index (just like it was heading into the last two recessions).

The long-term trend (seen in the red trend line) is definitely not our friend. In my opinion, we're in rearranging deck chairs mode. We can temporarily boost some of the indices apparently (but only at the expense of the others). And why might that be?

Click to enlarge.

The looting will continue until morale improves.

July 30, 2013
PandoDaily: America can kiss its ass and consumer economy goodbye: The view from dystopia

Entrepreneurs and digital marketers spend their days dreaming about the next hot thing that will drive the American consuming class into lucrative paroxysms of purchasing. The looming problem with this dream is that the consuming class appears to be on the endangered list.

A new non-partisan government study confirms that income inequality in America has been rising for four decades and projects it will continue getting worse for at least 22 more years. If this keeps up much longer, eventually the super rich will have all the money and the rest of us will be locked into poverty. Forever.

Nail... on... the... head.

Just opinions! Once again, this is not investment advice.

Source Data:
St. Louis Fed: CredAbility Consumer Distress Indices
St. Louis Fed: Gini Ratio of Families

Friday, August 23, 2013

Real Estate: Stick to the Long-Term Plan!

Click to enlarge.

Reverse mortgages! Don't fail me now!

March 9, 2008
Some Seniors Victimized in Reverse Mortgage Boom

The growth in these mortgages has skyrocketed in recent years. According to a 2007 report from the Department of Housing and Urban Development, the number of reverse mortgages grew from nearly 8,000 in 2001 to more than 107,000 last year. The average loan amount grew 80 percent to $138,700 during the same time period, a 2007 report from the AARP Public Policy Institute found.

December 12, 2012
It’s full-speed ahead for reverse-mortgage industry

Borrowers also are increasingly likely to use reverse mortgages for other purposes than daily living expenses. Many are paying off a traditional mortgage in order to retire early.


Source Data:
St. Louis Fed: Custom Chart

Annual New One Family Home Sales per 25 to 34 Year Old Employed

Click to enlarge.

August 23, 2013
Calculated Risk: Comments on New Home Sales

And even though there has been a large increase in the sales rate, sales are just above the lows for previous recessions. This suggests significant upside over the next few years. Based on estimates of household formation and demographics, I expect sales to increase to 750 to 800 thousand over the next several years - substantially higher than the current sales rate.

For what it is worth, I shall take the under.

Source Data:
St. Louis Fed: Custom Chart

Earning Money Off of Money

Click to enlarge.

The Good News: MZM can apparently generate roughly $800 in interest per month per capita (July 2013 dollars) in a "perfect" economy, regardless of how much MZM has grown.

The Bad News: The economy can apparently only stay "perfect" for a month. Further, the economy is about as far from "perfect" as it can get right now. $11.9 trillion in MZM is currently generating just $28 per capita per month in interest (July 2013 dollars).

As seen in the chart:

* In 1982, the interest earned took just one month to bottom. Nice bounce!

* In 1994, the interest earned took just one month to bottom. Nice bounce!

* In 2003, the interest earned took roughly 18 months to bottom. Sticky bounce!

* In 2009, the interest earned took at least 45 months to bottom. Yet to bounce!

Stickier and stickier!

The bottom of the trend channel cannot trend down forever. There will be a linear trend failure here. Guaranteed. It is impossible for interest earned on MZM to fall below zero. The best it can do is fall to zero and stick there semi-permanently. So what would happen if the economy needs it to fall below zero as part of some future recovery process? Or even this "recovery" for that matter?

December 1999
Japanese Monetary Policy: A Case of Self-Induced Paralysis? - Ben Bernanke

Among the more important monetary-policy mistakes were 1) the failure to tighten policy during 1987-89, despite evidence of growing inflationary pressures, a failure that contributed to the development of the “bubble economy”; 2) the apparent attempt to “prick” the stock market bubble in 1989-91, which helped to induce an asset-price crash; and 3) the failure to ease adequately during the 1991-94 period, as asset prices, the banking system, and the economy declined precipitously.

Talk about the pot calling the kettle black! House prices? Oil prices? Bubble economy? Hello?

The BOJ’s announcement that it would maintain the zero rate policy for the indefinite future is a positive move that may well prove helpful.

Oh, yes. Very helpful. Still doing it indefinitely! I shall end on a bumper sticker idea.

ZIRP Don't Werk!

This might be an "indefinite" money making idea! Well, maybe. Time will tell. Just be sure to have the bumper stickers ready in case the economy ever falls apart again. Keep in mind there is a risk here. I'm assured over and over that it can't ever happen again. The Fed has finally perfected monetary policy. Nothing but biscuits and gravy from here on out! It's therefore more of a contrarian play.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

Thursday, August 22, 2013

There Can Be Only One!

Click to enlarge.

September 25, 2007
Automation and Inequality

If one was to keep extrapolating this trend to its logical conclusion, at some point there will be just one farmer. He'll have all the wages and will simply press the "harvest" button on his desk.

Source Data:
BLS: Occupational Employment Statistics

Wednesday, August 21, 2013

Real Pension Fund Reserves

Click to enlarge.

1. Quite the trend failure!
2. $15 trillion is a lot of money, but is it enough money?
3. Do pension funds still assume unrealistic future returns based on past performance?
4. What will happen when we get another recession?
5. How much will it spur the economy when pension assets are increasingly unleashed?
6. How much damage will it do to the stock and bond markets when pension assets are increasingly unleashed?
7. How much damage will it do to remaining pension assets when pension assets are increasingly unleashed?

Clearly the pension funds would not be worth $15 trillion today if every pension fund manager liquidated assets simultaneously. I'm just curious how much pain the typical pension fund manager (or individual investor for that matter) can expect if the pension assets are unleashed gradually.

August 5, 2013
Pandemic of pension woes is plaguing the nation

Across the nation, cities and states are watching Detroit's largest-ever municipal bankruptcy filing with great trepidation. Years of underfunded retirement promises to public sector workers, which helped lay Detroit low, could plunge them into a similar and terrifying financial hole.

This post inspired by Troy in the comments found here.

Source Data:
FRB: Z.1 Release
St. Louis Fed: CPI

Gold vs. Industrial Commodities

Click to enlarge.

Kinda scary.

Click to enlarge.

Kinda scarier.

Your opinions may vary of course. This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

Food vs. Industrial Commodities

Click to enlarge.

The housing bubble created some "pent-down" demand for industrial commodities (relative to food). Big shocker.

Source Data:
St. Louis Fed: Custom Chart

Tuesday, August 20, 2013

The Middle Management Party Ended in 2000

First, start with the total number of private employees. Second, subtract off those who are production and nonsupervisory employees. Third, divide by the population. That's what the following chart shows.

Click to enlarge.

That's a scary trend, especially for those in college "racking" up student debt while pursuing their MBAs.

Like a child in his fantasy
Punching holes in the walls of reality
All my life I wanted to fly
But I don't have the wings, and I wonder why
I can't break away
I can't break away

January 7, 2013
There Are Officially Too Many MBAs

Universities are now conferring 74 percent more business degrees than they did in the 2000-2001 school year. Much of that torrid growth has been driven by part-time and executive MBA programs at less-than-prestigious institutions looking to cash in.

June 16, 2011
Your Well-Paid, Middle-Class Job Is in Danger

"A lot of traditional middle-class, upper-middle-class jobs have been disappearing. If you look at general managers and middle-management jobs, those are ones that have been in decline and will decline further," he said.

December 19, 2012
The Future of Middle Management - Scott Adams

When you imagine the upcoming Age of Robots, you probably see the robots replacing humans in jobs that involve manual labor. An assembly line is a good application for robots, for example. And I assume fast food workers will soon be replaced by robots too.

But I predict that one of the first occupations that will be entirely replaced by robots will be middle management, not skilled labor.

Source Data:
St. Louis Fed: Custom Chart

The Housing Bubble in One Chart

Click to enlarge.


Source Data:
St. Louis Fed: Custom Chart

Monday, August 19, 2013

Credit Cards: Magic Plastic

Click to enlarge.

Credit card interest rates are shown in red.
The Fed Funds rate is shown in blue.

I guess we can't count on the Fed to lower credit card interest rates any further. We're apparently stuck at the low, low rate of just 1% per month. A steal at any price!

December 27, 2007
Yahoo! Answers: Is it ok to buy stocks with a credit card?

Absolutely! I just read an article that says the world is doing okay!

December 19, 2007
No Recession, But...

With help from the Fed, consumers and businesses should be able to manage the crunch. "While consumers are likely to grow more cautious in 2008, solid income growth should prevent a sharp contraction in spending," says Ethan S. Harris at Lehman Brothers (LEH). Businesses will continue to expand their outlays and payrolls, since they are not overextended with debt, excess production capacity, or inventories, and the lower dollar is providing a stimulus for exports, especially since the rest of the world is doing O.K. But without effective Fed action, the credit vise could begin to squeeze too hard.

Oops. My bad. Lehman Brothers! Bah! ;)

Source Data:
St. Louis Fed: Custom Chart

Yields vs. Money (Musical Tribute)

Click to enlarge.

Although we've been in ZIRP for more than 4 years so far, conventional wisdom now believes that we're in a long-term rising interest rate environment (and not just a cyclical short-term one). I am repeatedly told this by nearly every financial "expert" on CNBC. Call me skeptical.

I could be a believer if someone could convince me that disposable personal income will grow faster than the money supply well into the distant future. I'm not going to be easy to convince though. I've embraced the "the death of real yields" story for roughly a decade so far. The following sentence sums up that belief.

It will be increasingly difficult to make money off of money!

As seen in the chart, it appears that monetary policy is "tight" again. As of 8/19/13, interest rates are well above "normal" again. I believe that Ben Bernanke will someday regret the day he uttered the word "taper" in public. That's assuming he doesn't already regret it of course. There's certainly been a "whole lotta" back-pedaling since it was uttered.

And lastly, there are a "whole lotta rosy" outlooks regarding where this economy is headed long-term. I have but one thing to say. Shun the nonbeliever!

Three More Years of Goldilocks? - Larry Kudlow, November 21, 2007

Just opinions! This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

Sunday, August 18, 2013

Retail Trade Employment Hours Gone Wild!

The following chart shows the total number of hours worked per week by all production and nonsupervisory retail trade employees divided by the population.

Click to enlarge.

First off, how about that parabola? I can just feel the employment growth about to pick up in the last half of this decade. No doubt about it.

If history is any indicator, then it is probably best not to swing for the fences when we're at the top of the channel. Note that we *are* already back to the top of the channel. Where does the time go? Perhaps it doesn't feel like we're near the top because the top has come down to meet us? Behold the power of upside down parabolas.

1973? Bad!
1989? Bad!
2000? Bad!
2007? Bad!

2013? Bad? Maybe?

Just a thought! Then again, perhaps it is different this time. How else can we explain the rise from 666 on the S&P 500 in 2009 to 1656 today? It must be different! Permanent prosperity has been achieved and *all* risk has been eliminated! No more recessions! Puzzle finally solved! Hurray!

BLS: Occupational Outlook Handbook: Retail Sales Workers

Employment of retail salespersons is expected to grow 17 percent from 2010 to 2020, about as fast as the average for all occupations.

In my opinion (heavily based on the declining trend in the chart above), the only way we're going to make that 17% employment growth target is if each employee works fewer hours *and* we don't have a recession before 2020. Keep in mind that our population has only grown 9% over the past decade.

Well, there is one other way we could hit the 17% target I suppose. In 2020, we could make first contact with an alien race whose sole motivation is to purchase personal care products at our malls. Why the malls? Chances are the aliens would not have credit cards to make online purchases. They'd therefore probably start off selling their advanced technology in exchange for our paper dollars! So pull out those shovels and start digging up that hoarded paper from your backyards before the next person does!

Forehead. Desk. Whack. Whack. Whack.

This is not investment advice.

See Also:
Sarcasm Disclaimer
Trend Line Disclaimer

Source Data:
BLS: Employment Database
St. Louis Fed: Population

Saturday, August 17, 2013

Professional & Business Services Employees per Capita

Click to enlarge.

Surely we can get this to 6% if we give it one more shot! Just throw the whole kitchen sink at it Ben! For the love of all that is holy, do not taper! We need it all!

It peaked at 5.951% in November of 2000. Good times.

It peaked at 5.950% in May of 2007. What a party.

In July of 2013, it reached 5.872%. So close! At the rate it's climbing, it's practically a "sure thing" to breach 6% by June of 2014, although a new record could be set as early as February. There's only one Christmas season left between us and the ultimate goal! With nearly 19 million jobs at stake, what could possibly go wrong (again)?

There's nothing magical about the 6% barrier of course, other than the fact that we've failed to go through it twice so far. Maybe the third time's the charm? Or maybe it isn't? Who knows?

And as for 6%, I wake up every day thinking that for every 16 humans or so that I know (including babies and the elderly), at least one needs to be a professional & business services employee (accountant, lawyer, janitor, landscaper, groundskeeper, financial manager, office clerk, security guard, and so on). That's the only way our country can truly prosper. Never mind that we only needed about 1/3rd as many 60 years ago. Those were crazy times and not at all as prosperous as what we have now.

If we don't have very nice places for lawyers to do their lawyering and for financial managers to do their managerizing, then what will become of this great country of ours!

This is not investment advice.

See Also:
BLS: Industries at a Glance: Professional and Business Services

Source Data:
St. Louis Fed: Professional & Business Services Employees per Capita

Health and Personal Care Store Sales Have Gone Parabolic!

Click to enlarge.

If you are an optimist, I bet you were hoping that the parabola would be right side up. No such luck.

Should the 2nd order polynomial trend continue to its logical conclusion, then say goodbye to 1 million health and personal care store employees someday. Sigh.

Mall Rat Rap

If it's sold at a mall
Then it's due for a fall

If you pay with a card
Then online is not hard

If you get there with gas
Then just stay home and pass

If it fits in a box
Then do not buy the stocks

For those counting on Ben
He cannot change the trend!

Sorry, just a bit of e-commerce and monetary policy gallows humor, in very poor taste I might add.

This is not investment advice, but damn.

This post inspired by the following comment (as seen here).

I think "hanging out" and "being seen" account for a good deal of mall traffic. - Luke Smith

See Also:
Trend Line Disclaimer

Source Data:
St. Louis Fed: Custom Chart

Friday, August 16, 2013

Quote of the Day

August 16, 2013
Amazon’s Secret Plan to Sell You Everything!

Forget your local grocery store. Grocers in Manhattan have been in decline for years without competition from Amazon. If that warehouse in New Jersey really is going to be home to AmazonFresh, it's simply going to end those puny, low-margin grocery chains' misery. It marks the beginning of the end of shopping as the whole world knows it; malls will collapse, chains will disappear. "Running errands" will no longer mean jumping from the grocery store to the pharmacy and then to the mall.

Have I mentioned lately that we live in the era of exponential trend failures?

When "Sure Things" Break Part II (Musical Tribute)

Click to enlarge.

In your house I long to be;
Room by room patiently,
I'll wait for you there like a stone.
I'll wait for you there alone.

See Also:
When "Sure Things" Break (Musical Tribute)

Source Data:
St. Louis Fed: Custom Chart

When "Sure Things" Break (Musical Tribute)

Click to enlarge.

Some trends are just not what they appear to be.

See Also:
Gold vs. Crude Foodstuffs & Feedstuffs

Source Data:
St. Louis Fed: Custom Chart

Gold vs. Crude Foodstuffs & Feedstuffs

In theory, how far could gold drop in price relative to the basic necessity of food?

In the following chart, I'm adjusting the price of gold for inflation but instead of using the CPI I'm using the producer price index for crude foodstuffs and feedstuffs (which has doubled since 2000).

Click to enlarge.

It appears to me that gold could drop quite a bit more (relative to crude foodstuffs and feedstuffs). The exponential trend in blue has failed and the median is a long ways away. That doesn't mean that gold will drop of course. I'm simply saying that it could.

How to Live on a Deserted Island

5. Find food sources. The ocean is filled with life. Try constructing a low V shaped wall out of stones at low tide, with the point of the V pointing out to the sea. At high tide, fish should swim inside but become trapped as the tide flows out.

12. Find food... There are lots of edible roots and berries, but watch out! Some are poisonous. Only eat them if you are sure they are safe. The best, and most reliable source of food is bugs. Yes, bugs. They are everywhere and an excellent source of protein. If deciding to fish with the bugs instead, a hook can be fashioned by carving out a stick into a hook shape and putting a barb on it. Tie string to it and you're in business.

Note that there is no mention of borrowing money to buy gold.

Monex: How to Buy Gold

Or, you may elect financing of your precious metals, using as little as a 25% down payment and taking advantage of investment leverage of as much as 4-to-1, through our exclusive Atlas Account program.

I love the term "exclusive" to describe the account. Who would Monex exclude? Investors who would fold under the massive weight of a margin call?

As of 2006, I no longer own gold nor do I have any desire to buy it back at these prices (relative to the price of toilet paper anyway). That said, I figure it never hurts to buy a few extra large bags of rice at Costco though. Things happen.

In my opinion, we've replaced risk-free investments with risky free lunch investments. I'm not referring to gold specifically. I'm referring to the entire system. For example, here's another exponential trend failure. Check out dividends compared to crude foodstuffs and feedstuffs. Kind of ominous don't you think? That one definitely requires its own post. Coming soon to a blog near you! (Well, within 24 hours more than likely anyway.)

There is no safe store of value. - Alan Greenspan (1966)

We live in an era of epic exponential trend failures. Be careful out there. This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

Thursday, August 15, 2013

Initial Claims vs. Employment (Musical Tribute)

Click to enlarge.

Return to the mean?

Never! A new era of permanent prosperity was unleashed thanks to the popping of the dotcom bubble, the popping of the housing bubble, and a nearly endless supply of ZIRP permanently putting a stop to all future recessions! Yes! It's a brand new day!

Source Data:
St. Louis Fed: Custom Chart

Macy's Recovery

The following chart shows Macy's net income during the Christmas season in nominal dollars (not adjusted for inflation).

Click to enlarge.

My how the fallen have bounced!

About the only thing driving net income growth per diluted share lately has been an ongoing reduction in the number of diluted shares, and even that will face serious limits should the trend in this chart continue (might not).

Put another way, the cracks in this dam were evident long before Macy's latest warning.

August 14, 2013
Macy's Shoppers Remain Cautious

After reporting disappointing quarterly results and trimming its full-year earnings forecast, Macy's Inc. on Wednesday said it would boost its marketing efforts in the second half of the year to address a troubling slowdown in store traffic.

Good luck on that one! Boosting marketing efforts sounds expensive. For what it is worth, I'm not exactly bracing for a pick up in the second half. Macy's isn't either apparently.

That said, just opinions! Past trends do not necessarily predict the future. This is not investment advice.

Disclosure: I'm neither long nor short Macy's. As of 2004, I have no interest in gambling in the stock market (in either direction).

See Also:
Trend Line Disclaimer

Source Data:
Macy's Investor Relations

The Long-Term Death of Real Yields

Click to enlarge.

The black line shows the real interest rate investors earned on the 10-year treasury from the time of purchase (we don't know what the real yield is until 10 years have elapsed). The blue line shows what the real interest rate investors earned on the 10-year TIPS (we know instantly because the rate is the real yield).

If this downward trend kept the deflation monster at bay, then what's going to happen when the trend ends? Put another way, if 4+ years of ZIRP can't generate much inflation then what can? And how might the trend end? ZIRP has a 0% floor and we're glued to it.

As seen in the chart, interest rates are probably "tight" if the 10-year TIPS currently yields more than 0%. It now yields 0.57%. Tight!

Ben Bernanke should have never said the word taper. Just like the Japanese, we can't handle high interest rates any longer.

Want to know how to lock in Jeremy Siegel's mythical 3.5% real yields? It's really quite easy. First, invent a time machine. Second, travel back in time 16 years to July of 1997. And lastly, invest accordingly! Seriously.

Just opinions!

Source Data:
St. Louis Fed: 10-Year Treasury Rate
St. Louis Fed: 10-Year TIPS Rate
St. Louis Fed: CPI

Wednesday, August 14, 2013

Rental Income Bubbles (Musical Tribute)

Click to enlarge.

Muse - Hysteria

'cause I want it now
I want it now
give me your heart and your soul

I'm not breaking down
I'm breaking out
last chance to lose control

Source Data:
FRB: Z.1 Release

Tuesday, August 13, 2013

The Sarcasm Report v.178

August 13, 2013
Rise in retail sales signals stronger growth

Retail sales jumped in July, unhampered by an increase in fuel prices, according to government data.

Gasoline station nominal sales were unhampered by an increase in fuel prices? Shocking!

Retail Sales for July 2013 (Musical Tribute)

Click to enlarge.

Here's the best part.

July 1, 2013
California 3.5-cent gas tax hike kicks in for drivers

Prices are going up 3.5 cents. California drivers were already paying 36 cents a gallon in state taxes, but the hike means drivers will pay 39.5 cents. Including the other local, state and federal taxes, California drivers will be paying 72 cents in taxes on each gallon alone, making for the highest prices in the nation.

That's like a seventh of our country! Just look at all that unhampered growth in July! Amazing!

Aug 9, 2013
Restaurant sales, traffic sink in July

“July was a very disappointing month for the restaurant industry,” Lynne Collier, an analyst with Dallas-based Sterne-Agee, wrote in a report. “However, it is our view that we are not heading into a protracted downturn.”

Who said anything about protracted downturns? Why are we bringing that up at all? Resilient! Strong! These are the words I wish to hear! Unhampered growth I tell you!

The report said that based on conversations with numerous restaurant companies, Collier believes the downturn in sales resulted from the Fourth of July falling on a Thursday, poor weather and higher spending on big-ticket items such as homes and autos.

Thursday! Yes! Because nobody would ever think to take Friday off too! I certainly never did! Why burn a vacation day on that? Makes no sense! And nobody ever eats out on the 4th when it is a weekday. That's just nuts! No, sir. It's best to just go to bed early and sleep. That's what I love about the 4th: peace and quiet. You could hear a pin drop at 8pm around here. I swear!

Poor weather everywhere in the country! Simultaneously! For the entire month! And let's not forget all that higher spending on big-ticket items such as homes and autos and food and gasoline too!

This concludes the sarcasm report. Not much sarcasm this time let me tell you!

A Serious Plan to Generate 0.2% Annual Inflation

Click to enlarge.

Set the Fed Funds rate at 0% and then patiently wait for the next recession! Oh, and don't forget to mention the word "taper" often!


I'm either half-joking or half-serious. Even I don't know!

Seriously, I don't know. I don't think the Japanese knew. Come to think of it, I doubt Bernanke does either. Does anyone know? What happened the last time the Fed Funds rate was set at 0% for more than 4 years? Surely someone must know.

The plan to get to 0.2% inflation might work, right? That's what the formula in the chart says. Not saying it will work. Not saying it won't. Just saying it might.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

Department Stores vs. Nonstore Retailers: A Zero Sum Game

Click to enlarge.

Click to enlarge.

This is what we know.

1. If the trend continues (might not), department store sales go to zero and department store employees go to zero.

2. If the trend continues (might not), there will be an exponential trend failure in nonstore retailer sales in the not too distant future. Much of the nonstore growth is apparently coming at the expense of department stores. There's only so much blood left to squeeze dry.

3. If the trend continues (might not), then Bill Ackman made an even poorer long-term decision to invest in JC Penney than most believe. What was he thinking?

4. Historically speaking, it was dangerous to invest in the stock market when the the real spending per capita was near its peak. That's assuming Dec 2000 and Feb 2007 would not be considered particularly good entry points of course. As a side note, we may be very near a peak right now. The recent peak was in April at $164.55. As of June, we're down 97 cents to $163.58. It's noisy data. Hard to say if that was the ultimate peak in this cycle. I can say that the peak in the last cycle was $163.67 though. The retailer "recovery" therefore seems complete. Yay.

We don't yet know the data point for July since the CPI for July hasn't been released yet. I suspect that it won't be pretty though. Many nominal dollars were spent on food and gasoline, and there just weren't that many left over.

As always, just opinions! This is not investment advice.

Source Data:
U.S. Census: Retail Trade
St. Louis Fed: CPI
St. Louis Fed: Population

Retail Sales for July 2013 (Musical Tribute)

August 12, 2013
"You Can't Lose on Stocks" - Jeremy Siegel

It is my opinion that the market is "totally spooked" because the retail trade data comes out tomorrow and this ballgame is in its 13th inning (still tied ZIRP to ZIRP).

So just how bad is the report? Let's take a look.

Click to enlarge.

Welcome to the 13th inning.

Source Data:
U.S. Census: Retail Trade

Monday, August 12, 2013

Top 10 Assets of Households and Nonprofit Organizations

Click to enlarge.

Real estate tops the list at #1. I'm sure we'll bounce back someday. Just need to keep pushing this asset higher and higher so that people can finally sell the darned things again (the mortgage liability is not included in the asset chart for somewhat obvious reasons). And as an added bonus, the higher we can push this asset price the higher we can get those property taxes. Everybody wins!

Pension fund reserves come in at #2. Other than record pension underfunding even as the stock market has risen 160% from the bottom in 2009, what could possibly go wrong with that asset class?

Corporate equities come in at #3. It's nice to see them doing so well lately. It does make me wonder though. The people who warn me about the treasury bond bubble also tend to be the ones who tell me that the retail investor hasn't gotten back into the stock market yet. It's very confusing to me because it looks like about 60% of the stock market value is sitting right there in the hands of the retail investor. Very odd.

Deposits come in at #4. Don't forget to load up on the 0.5% 5-year CDs. They might not yield nearly as much as their treasury equivalents, but they are still a bargain at any price. Has anyone ever warned of a certificate of deposit bubble? I think not. Perhaps it is because CDs are held to maturity by default but it takes maturity to hold a treasury to maturity. Just a theory. Of course, if you aren't much of a risk taker then you can pick something with a shorter maturity. You'll have to sacrifice some of that juicy yield though! Mwuhahaha! Sorry, there I go being immature again.

Equity in noncorporate business comes in at #5. I've got to tell you. That takes guts. It's a tough world out there. Could strike it rich. Could be stomped by big business. At least the Great Recession II can't happen. The Fed has permanently put a stop to recessions. I can't personally prove it, but if everyone believes it then it must be true. Only rising rates can cause a recession. Therefore, ZIRP makes recessions impossible. Just because we're very deep into uncharted territory, doesn't mean that investors don't understand exactly how the future will play out. It's self-evident, especially when CNBC repeatedly tells us just how self-evident it is.

Mutual funds come in at #6. There are some bonds in there, but my guess is that the majority is stocks. That would be even more exposure to the equity markets for the retail investor (who I am continually told is missing out on the rally). Mutual funds are the safer way to go of course, because nobody wants to risk a 20% loss all at once when that same 20% loss can be locked in and guaranteed over 20 years (assuming 1% per year in fees). Whatever you do, do not underestimate the power of a "professional" active fund manager to add value just because 76% fail miserably when trying to outperform the market index.

Durable goods come in at #7. That's my favorite! As I've mentioned in the comments recently, the United States dominates the self-storage industry with "almost 90% of the global market". Don't let that deter you from buying even more durable goods to protect your wealth though. One place near me only charges $696 per year for a 5'x5' unit. That's a screaming bargain for someone with too many plastic coat hangars. Paying someone to store them for you is money well spent. Somebody needs to fund the CEO's $3.23 million salary. Do you have any idea how hard it is to manage other people's money stuff? Not just anyone can point a person towards their stuff without actually wanting to do inappropriate things with that stuff when they aren't around. It takes serious discipline. If only the banking system could do the same!

At #8 we've got corporate bonds. They can't ever seem to offer enough to satiate our appetites. I'm especially interested in chasing the yields of the non-investment grade bonds. What's the worst that could happen again?

We're to #9. Finally some safety! Yes, sir. As long as each municipality has its own working monetary printing press (in sharp contrast to Detroit's broken one) and we can work through the serious injuries of the dotcom and housing bubbles, then you'll no doubt sleep very well holding tax-free municipal bonds to maturity and/or racing towards the sell button on your trading platform of choice someday.

And lastly, we've reached #10. It's funny that so much time is spent warning us about a treasury bubble when individually purchased treasury bonds make up such a tiny amount of our personal assets (less than 2%). In my experience, very few people even know how to buy them directly from the government. I'm not judging. I've seen many hours of financial TV in my life and I've never seen anyone offer advice on how to buy a treasury bond. I don't recall the term I-Bond ever coming up either. It's almost like there's no money in it for them if bonds are purchased directly from the government.

This is not investment advice!

Source Data:
FRB: Z.1 Release

"You Can't Lose on Stocks" - Jeremy Siegel

The following chart shows the year over year change in inflation adjusted retail sales per retail trade employee (excluding nonstore retailers). I've used semiannual data to smooth out the trends.

Click to enlarge.

Should the value on the chart drop to zero (we're just barely above it now), retailers will no longer need to hire new workers. Any value below zero means retailers will need to start letting workers go. They will probably be slow to do it at first on the hopes of a rebound. Good luck on that. In any event, a recession probably wouldn't start to hit until they figure it out.

August 6, 2013
Siegel: Keep buying—you 'can’t lose'

"The market is totally spooked by whether QE continues or not," Siegel said, but the Fed "would never accelerate tapering unless the economy was so much stronger, which has got to be good for earnings. So in one way, you can't lose on stocks—either the economy's weak, the tapering will end; or the economy's strong, they'll taper, and earnings will be strong. That's why I think stocks are still a win-win situation."

Professor Siegel, you never cease to amaze me. Stocks are up 160% from the bottom in 2009. Can't lose on stocks? What hubris! No wonder Robert Shiller thinks the stock market bubble is back.

It is my opinion that the market is "totally spooked" because the retail trade data comes out tomorrow and this ballgame is in its 13th inning (still tied ZIRP to ZIRP). As seen in the chart above, the downward trend in growth is even more horrendous (steeper slope) than it was heading into the Great Recession. I see it. Supercomputers using advanced trading algorithms at investment banks no doubt see it too. Meanwhile, Siegel's taking his cues from Ben "There Is No Housing Bubble to Go Bust" Bernanke? Swing for the fences! Can't lose! Forehead. Desk. Whack. Whack. Whack.

That's not to say that the retail trade data will be awful of course. I'm just saying that the trend looks awful and I have no great desire to bet against that trend.

You may be wondering why I excluded nonstore retailers from the chart. They don't create jobs; they automate them. I'm more concerned about the 14.6 million jobs that are left. JC Penney employees are too no doubt. I can tell you first hand what lousy morale can do to a struggling company.

Once again, just opinions! I cannot accurately predict the future. Nobody can. At best, all I can do is offer a somewhat educated guess. This is definitely not investment advice. Alan Greenspan had some good advice back in 1966 though. It did not include "can't lose" in it. That's for sure.

"There is no safe store of value." - Alan Greenspan (1966)

See Also:
Trend Line Disclaimer

Source Data:
St. Louis Fed: Custom Chart

Sunday, August 11, 2013

The Sarcasm Report v.177

August 8, 2013
Obama Urges Greece to Grow Its Economy

In a meeting in the Oval Office, Mr. Obama told Antonis Samaras, the Greek prime minister, that policies focused only on spending reductions would not help Greece return to economic prosperity.

This isn't rocket science. Greece just needs to crank up the monetary passenger car registration printing presses.

Click to enlarge.

Phase 1: Print 30,000 passenger car registrations
Phase 2: ?
Phase 3: Economic prosperity restored

Source Data:
St. Louis Fed: Custom Chart

Household Net Worth vs. Wages

July 17, 2013
Bubbles Forever by Robert J. Shiller

Because bubbles are essentially social-psychological phenomena, they are, by their very nature, difficult to control.

As seen in the following charts, the bubbles are definitely getting increasingly difficult to control. In my opinion, it's not a coincidence that the housing bubble was worse than the dotcom bubble.

Click to enlarge.

The high points form an exponential trend. The low points form a 2nd order polynomial trend. In addition to the extremely high r-squared values, both trends have plenty of data points to support them. If current trends remain in place then the following is what we can expect to see in the distant future.

Click to enlarge.

The risks do not end here. Real wages per capita have fallen since 2000. These charts would imply that wages are very important to real net worth per capita, especially if we ever start to hug that blue trend line again. I could definitely see that happen. Just look at the period from 1952 to 1980 on the charts. There was no growth in the household net worth to wages ratio. The 1980s and 1990s are over. What comes next is anyone's guess.

In my opinion, this is long-term uncertainty of biblical proportions, especially for those who thought we were past the worst of it and have gone all in on risk. I can't speak for others, but baby most definitely does not need new shoes.

This is not investment advice.

See Also:
Trend Line Disclaimer

Source Data:
St. Louis Fed: Custom Chart

Leisure and Hospitality

The following chart shows leisure and hospitality employment as a percentage of all nonfarm employment.

Click to enlarge.

This exponential trend shows no signs of stopping any time soon. Apparently this is where the jobs of the future will be. We keep cranking out college graduates with massive student debt though. Woohoo! Sigh.

The next chart shows leisure and hospitality earnings as a percentage of total private earnings. I'm only including production and nonsupervisory employees.

Click to enlarge.

Generally speaking, these jobs pay about 41% less. It's actually a bit worse than that. Average private earnings are being pulled down by these low paying jobs (more and more so as these jobs expand). Put another way, if leisure and hospitality jobs grow to 100% of employment (which they clearly won't), then leisure and hospitality jobs would pay the same as overall employment. They'd be one and the same thing.

The next chart shows how many years the typical leisure and hospitality production and nonsupervisory employee would have to work to buy a house with cash, assuming 2,000 hours worked per year and no other expenses (like interest on a mortgage loan, home maintenance, appliances, property taxes, income taxes, food, clothing, furniture, gasoline, new car purchases, auto maintenance, health care, and so on).

Click to enlarge.

As seen in the eyes of a leisure and hospitality employee, hello Housing Bubble II. Fantastic. This is where many of the jobs are being created and yet these employees cannot afford to make a median new home purchase. Hello?

The next chart shows how many hours the typical leisure and hospitality production and nonsupervisory employee would have to work to fill a 15 gallon gas tank (assuming no payroll taxes of any kind).

Click to enlarge.

4.6 hours! Is it any wonder that vehicle miles traveled per capita has peaked? This "new and improved" economy apparently requires workers to move very close to where they work. Unfortunately, the old economy was all about trapping people in the 'burbs.

Let's summarize. Leisure and hospitality is apparently the "growth" engine of the future. Production and nonsupervisory leisure and hospitality employees currently earn an average $11.76 per hour. They make roughly 41% less than the typical production and nonsupervisory employee. They have seen their real inflation adjusted earnings fall throughout most of this "recovery" (other than an initial dead cat bounce). They are working 4.6 hours to fill a 15 gallon gasoline tank (with additional hours to pay the payroll taxes on those earnings). They'd have to work 11.3 years to pay for the median house with cash (assuming no other expenses or taxes of any kind).

This is not investment advice. If it was, I'd suggest that the nearly 1.3 million leisure and hospitality employees added since the bottom should probably not be looking at new homes to purchase in the weeks ahead, especially if they have massive student debt. That's just the crazy opinion of a permabear though. What do I know?

Source Data:
St. Louis Fed: Leisure and Hospitality Employment Analysis
St. Louis Fed: Leisure and Hospitality Earnings Analysis
St. Louis Fed: Leisure and Hospitality Housing Analysis
St. Louis Fed: Leisure and Hospitality Gasoline Analysis

Saturday, August 10, 2013

Long-Term Motor Fuel Trends

The following chart shows total vehicle miles traveled divided by total motor gasoline supplied.

Click to enlarge.

The next chart shows fuel efficiency standards.

Click to enlarge.

Like generals fighting the last war, the government is finally adapting to higher oil prices. It only took them 10 years or so to spot the trend.

August 10, 2013
The Illusion of an Auto Industry "Recovery"

The next chart shows the total vehicle miles traveled per capita.

Click to enlarge.

The typical American is adapting much faster than the government. Big shocker. Here is the question of the day. Now that they are both on the same page, what will their combined efforts do going forward?

August 10, 2013
Calculated Risk: Forecasts: Oil and Gasoline Prices expected to decline

I'm not going to lose any sleep thinking about peak oil tonight. I shall dream of perma-ZIRP instead. It's the gift that keeps on giving!

Source Data:
EIA: Motor Gasoline
St. Louis Fed: Vehicle Miles Traveled
Wikipedia: Corporate Average Fuel Economy (CAFE)

One Theory for the Recent TIPS Buying Opportunity

The following chart shows the spread between the 30-year TIPS yield and the 20-year TIPS yield.

Click to enlarge.

The spread was clearly following the surface of Jeremy Siegel's head. I factored in something that most investors did not though. Yields would bounce off his left ear! Genius!

In all seriousness, we almost experienced an inverted yield curve between the 20-year TIPS and the 30-year TIPS. In hindsight (at least so far), the 20-year TIPS therefore became a relatively good buying opportunity. If the bond market is the stock market's smarter brother, then it would be hard to see it in this chart. Once the panic began, crazy things happened.

Some investors might find it difficult to invest in TIPS with his eyes peering at us like that, but all I see is Kilroy!

According to one story, it was reported that German intelligence found the phrase on captured American equipment. This began leading Hitler to believe that Kilroy could be the name or codename of a high-level Allied spy.

I'm not suggesting that Professor Kilroy is a high-level Allied spy, but there have been days when I've been convinced that he's working in counter-intelligence.

Jeremy Siegel

Some have criticized Professor Siegel for being bullish on the stock market back in 2000. In a BusinessWeek interview in May 2000 when asked about the stock market, he replied: "Seven percent per year [average] real returns on stocks is what I find over nearly two centuries. I don't see persuasive reasons why it should be any different from that over the intermediate run. In the short run, it could be almost anything."

Shame on me for creating this chart. I just couldn't help myself! I have a twisted sense of humor and this was way too good to pass up. :)

Source Data:
St. Louis Fed: Custom Chart

The Illusion of an Auto Industry "Recovery"

The following chart shows the 12-month moving average of total vehicle miles traveled.

Click to enlarge.

What recovery? For what it is worth, I do not believe we will ever reach that peak again. If four full years of "recovery" combined with 4+ years of ZIRP hasn't made any progress towards returning to our former illusionary glory, then what can?

This chart implies that there will not be any long-term auto industry growth within the U.S. (other than the temporary pent-up demand created during recessions). How's that for greatly depressing?

The next chart shows the total vehicle miles traveled per capita.

Click to enlarge.

I know this sounds crazy, but ever since yesterday on the road, I've been seeing this shape. Shaving cream, pillows. Dammit! I know this. I know what this is! This means something. This is important. - Roy Neary, Close Encounters of the Third Kind, 1977

As seen in the chart, welcome to 1998. I turned into a permabear in the fall of 2004 (just as the upward trend was beginning to peak). I watched the stock market roar on without me into 2007. I then watched as the stock market come roaring back down. It's roaring back up again on the misguided hopes of luring me back in perhaps. I have but one thing to say.


July 19, 2013
Calculated Risk: DOT: Vehicle Miles Driven increased 0.9% in May

With all these factors, it might take several more years before we see a new peak in miles driven.

Based on what? Put me down for never. Seriously. If we're driving even half as many miles per capita after our population has doubled, then I would be extremely surprised. It would mean that the virtual reality video games of the distant future, pardon my language, suck. It would also mean that hasn't figured out a way to automate most retail sales jobs (or for that matter, jobs in general). I'm certainly not betting on that outcome! This is assuming our population even will double of course. I have my doubts on that as well. Things happen to countries stuck in ZIRP.

Working Age Population in Japan

Click to enlarge.

July 9, 2013
Baby bust? National birthrate hits an all-time low due to weak economic recovery

The recession has been over for four years, but the birth rate in the U.S. continues to fall as many people struggle with a sluggish economy and financial uncertainty.

According to a recent analysis by the Pew Institute, since 2007 when there were a record 4,316,233 births, the number of births has been steadily declining, with 4,007,000 births in 2012 - the lowest number since 1998.

Like I said previously, welcome to 1998.

I'll leave on this bonus thought. If the economy of the future really does stink then perhaps more people will start to carpool. Could there be any more single occupancy vehicles out on the road? I'm not being judgmental. I'm as guilty as the next person. I'm just saying that there is plenty of fat to cut when the fat needs cutting. And as a side note, Ben Bernanke desperately wants us to not cut the fat, lest we experience Great Recession II, return of the killer recession. Sigh.

Source Data:
St. Louis Fed: Moving 12-Month Total Vehicle Miles Traveled
St. Louis Fed: Moving 12-Month Total Vehicle Miles Traveled per Capita
St. Louis Fed: Working Age Population: Aged 15 and Over: All Persons for Japan