Monday, August 19, 2013

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


Stagflationary Mark said...

I recently saw Steve Liesman (CNBC) compare today's higher interest rates to the average interest rates from 1995 to present. From his point of view, interest rates are still very low by historical measures.

On the one hand, he could have gotten more bang for the buck by cherry picking 1980 as the starting point. I guess that would have seemed a bit too much.

On the other hand, he didn't say that our inflation adjusted total credit market liabilities have doubled since 1995 and we're therefore roughly twice as sensitive to interest rate moves (a bit less if 20% net population growth is factored in). Perhaps it wasn't worth mentioning.

dearieme said...

This reminds me of the days decades ago when a British journalist used to mock economics prognosticators by referring to Miss Rosie Scenario.

Stagflationary Mark said...


Speaking of Miss Rosie Scenario...

“The sciences, each straining in its own direction, have hitherto harmed us little; but someday the piecing together of dissociated knowledge will open up such terrifying vistas of reality, and our frightful position therein, that we shall either go mad from the revelation or flee from the deadly light into the peace and safety of a new dark age.” - H.P. Lovecraft

Federal Reserve Economic Data

Download, graph, and track 148,000 US and international time series from 59 sources.

Gallows humor, lol. Sigh.

fried said...

Hi Mark,
this idea of "long-term" rising interest rates is having an interesting effect. Was visiting the folks for a few weeks upstate...Buffalo and suburbs. This is a place that largely skipped the housing bubble. But now, the frenzy has been ongoing for months...especially the high end. Even large family estates along the lake are on the market. Realtors are claiming mid-priced houses are being snapped up in days, over asking. I understand sellers hoping to unload in a rising market, but buyers?? I wonder if rising mortgage rates tied to the 10 year are spooking people? This is not an investors market, and the economy there is marginally better but not great. Maybe just the madness of crowds.

Stagflationary Mark said...


If interest rates are low then there is never a better time to buy a house. The payments are so low!

If interest rates are high, then there is never a better time to buy a house. They are so cheap!

If interest rates are falling, then there is never a better time to buy a house. Just think of the money you'll save when you refinance!

If interest rates are rising, then there is never a better time to buy a house. You must lock in a rate before it is too late!

In summary, regardless of whether rates are low, high, falling, or rising, ithere is never a better time to buy a house!

So how many can I put you down for? If you buy 4 at my regular commission, I'll offer you a 5th one commission-free! ;)

Troy said...

Real per-capita (age 25-54) debt.

When the Volcker beatings stopped, morale certainly improved.

I was completely oblivious to the more recent rocket-ride, 2002-2008, until late 2006 when the Casey Serin story broke -- with that an understanding of the events of the past 5 years fell into place.

Stagflationary Mark said...


October 2, 2012
How to Become a Permabear in One Easy Step

Here's what I said in the comments.

It all started by reading the fine print of the mortgage offers I was getting in my mail. I didn't need a mortgage (my house is paid off) but I am generally a curious person.

I'll share one from memory. It had a great teaser rate but the payments went up 7.5% each year for the next 5 years. I found that pretty shocking.

That made me look into a great many other things about our economy and the more I looked, the more bearish I got.

Still bearish, sigh.

TJandTheBear said...

Economy still weak? Check!
ZIRP still in effect? Check!
Fed still printing $85B/mo? Check!

Hmmmm, how could rates possibly rise in such an environment? Perhaps there are other factors to consider?

Stagflationary Mark said...


Perhaps there are other factors to consider?

We'll just have to wait and see. There are many, many people who assume interest rates can only go up from here. I am not in that camp.