Monday, November 25, 2013

The Fed's Wealth Effect (Musical Tributes)

The following scatter chart compares the real annual change in corporate profits (bottom scale) to the annual change in nonfarm payrolls (left scale).


Click to enlarge.

The Fed apparently believes that increasing corporate profits is the key to job creation. In sharp contrast, I happen to think the key is severely mangled and the lock is rusted over. But hey, maybe that's just me.

Although there appears to be zero correlation between real annual corporate profit growth and annual job creation (as seen in the trend line in blue), the data points in black do point to one trend though. If you stare at them long enough, you should see one of the flying saucers from Godzilla vs. Monster Zero.



King Ghidorah (Monster Zero)

The creature is capable of tremendous destruction due to its size...

Speaking of Japan's Monster Zero, the following chart shows the spread between USA's discount rate and Japan's discount rate.



Monster Zero Interest Rate Policy (MZIRP)! Our monster is now nearly every bit as powerful as theirs! Only one thing can stop us now!

November 5, 2013
Zillow Revenue Up Despite Weak Consumer Housing Appetite

Real-estate marketplace Zillow reported better-than-expected third quarter earnings Tuesday afternoon, a feat considering the rising interest rates that weakened consumer appetites for housing over the summer and into early fall.

Oh God, Zillow. Bernanke should have never said the word taper. Three-headed, two-tailed, armless flying beasts can sense fear.



Godzilla vs. Monster Zero: Quote

Glenn: Mutual trust is a beautiful thing.
Astronaut K. Fuji: That won't buy groceries.

See Also:
Sarcasm Disclaimer

Source Data:
St. Louis Fed: Custom Scatter Chart
St. Louis Fed: Discount Rate Spread: USA vs. Japan

12 comments:

Mr Slippery said...

King Ghidorah is probably my second favorite monster (after old school Godzilla). Way better than Rodan.

MZIRP! Hahaha, love it. We are following the Japanese blueprint, but for some reason, our stocks are soaring to new highs, while Japanese stocks stayed in the toilet. The Fed bubble machine works better than the the BoJ bubble machine.

Stagflationary Mark said...

Mr Slippery,

The Fed bubble machine works better than the the BoJ bubble machine.

We won World War II. We always win. There is nothing that can ever stop us. Not excessive debt. Not lack of job creation. Not slowing real GDP growth. Not dotcom bubbles. Not housing bubbles. Not the next bubble. Nothing!

Oh crap! I thought I was being all clever and what not because I knew I'd be knocking on wood once I said that. It never dawned on me that the wood had been replaced by some cheap plastic junk made in China though.

Now what am I going to do!!!

Knocking on wood

Knocking on wood, or to touch wood, refers to the apotropaic tradition in western folklore[citation needed] of literally touching/knocking on wood, or merely stating that you are doing or intend same, in order to avoid "tempting fate" after making a favourable observation, a boast, or declaration concerning one's own death.

Whew! I guess I'm okay then. I'm knocking on "wood" right now. Sarcastic air quotes for the win! ;)

Jazzbumpa said...

It's not every day you get to see a "ball-of-string" graph. Is that apotropaic, too?

JzB

mab said...

I looked at Japan's monetary system a few years ago. I'm far from an expert, but if memory serves the Fed's target rate is a better comparison to Japan's discount rate.

With the Fed, the discount rate is a "penalty" rate (no joke!). Its purpose is to encourage banks to seek reserves from other banks rather than the Fed. Japan's system is slightly different and I believe their discount rate is non-collateral based. Not that it matters much. At this point they're both fog a mirror based lending systems.

It's amazing and hard to believe but most of these monetary dingbats don't even understand how their reserve systems work. As if trillions in excess reserves are going to help main st.

Even so called "smart" guys like Hussman don't understand reserve based banking. I use quotation marks because Hussman quotes Mish from time to time.

Troy said...

http://research.stlouisfed.org/fred2/graph/?g=oSn

YOY 25-54 pop growth and the Fed hit 0% simultaneously.

Fascinating.

CAPCHA: 45 trydead

Troy said...

The Fed bubble machine works better than the the BoJ bubble machine.

in real terms we're 15% below the 3/2000 high, and just above the 2007 high (1764)

http://allstarcharts.com/inflation-adjusted-sp500-chart/

Japan didn't have much of a bubble machine running, that's how they got their strong yen regime (80).

http://research.stlouisfed.org/fred2/series/EXJPUS

Once Abe took over tho, they've been off to the races:

http://research.stlouisfed.org/fred2/graph/?g=oSu

It was when I realized Japan had the leeway to weaken their yen 50% (!) that I saw maybe Japan wasn't too terribly screwed, at least in the short-term.

In the medium-term (this decade and next) I have no idea how their falling workforce is going to pay off the JGBs the boomers hold.

Taxes basically have to double for them. That's pain.

Rob Dawg said...

Hey. I'm looking to lock up my wealth for anywhere from 7 to 30 years in an asymmetrical disadvantageous contract with a counterparty who can unilaterally abrogate or modify the terms as well as devalue the currency in which I will be repaid.

BONDS!

Stagflationary Mark said...

Jazzbumpa,

It's not every day you get to see a "ball-of-string" graph. Is that apotropaic, too?

It's actually the hairball of a black cat that crossed my path. No big deal! Not a bad omen at all!

Stagflationary Mark said...

mab,

As if trillions in excess reserves are going to help main st.

I think they'd need to be converted to excess preserves. Can't ever have too much strawberry jam to go with the pickle we're in.

Stagflationary Mark said...

Troy,

YOY 25-54 pop growth and the Fed hit 0% simultaneously.

Fascinating.


It's almost like that's the age group that likes to spend money the most. Go figure.

Stagflationary Mark said...

Troy,

Taxes basically have to double for them. That's pain.

Does that count the lack of spending that will occur when the taxes kick in? If so, wouldn't it have to more than double?

Stagflationary Mark said...

Rob Dawg,

That's pretty much what I've done (with long-term TIPS and I-Bonds). Sounds sort of silly when you word it that way.

On the other hand, I've seen worse. I worked at a company that was cooking the books. They did not have a monetary printing press to fall back on once the you know what and the fan met up. Go figure.