Friday, January 31, 2014

Trends with Benefits

The following chart shows the annual growth in private industry worker benefits. I'm using semiannual data to smooth out the data a bit.

Click to enlarge.

Friends with Benefits (2011) - Quotes

Jamie: Why do I get the feeling this is the first real commitment you've ever made?

Dylan: It's not. T-Mobile. Two years. And f@#$ do I regret that one!

Source Data:
St. Louis Fed: Custom Chart

Real Annual Disposable Personal Income per Capita Growth

Click to enlarge.

Who could have guessed that declining real interest rates could eventually lead to less real income growth?

Source Data:
St. Louis Fed: Custom Chart

You Can't Handle the Truth!

The following chart shows the semiannual average of the 30-year conventional mortgage rate.

Click to enlarge.

I have added an exponential decay trend line in blue and an exponential decay channel in red. To create the top of the channel, I multiplied the interest rate in blue by 1.2 (+20%). To create the bottom of the channel, I multiplied the interest rate in blue by 0.8 (-20%).

Over the long-term, does that look like a rising interest rate environment to you? Is there any indication, any indication at all, that the long-term trend is failing? As of the 2nd half of 2013, we're sitting right on the long-term trend line in blue.

You can't handle the truth! Son, we live in a world that hits housing walls and those housing walls have to be guarded by men with continually falling interest rate policies.

Did you see the stock market turn red?
I did the job.
Did you see the stock market turn red?
You're goddamned right I did!

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

Thursday, January 30, 2014

Real Business Inventories per Capita (Musical Tribute)

The following chart shows real business inventories per capita (December 2013 dollars).

Click to enlarge.

Source Data:
St. Louis Fed: Custom Chart

Gaga Over Real Personal Consumption Expenditure Growth! (Musical Tribute)

The following chart shows the annual growth in the annual average of real personal consumption expenditures.

Click to enlarge.

Source Data:
St. Louis Fed: Custom Chart

Parabolic Trend Failure of the Day: Retail Hourly Earnings

The following chart shows the average hourly earnings for retail employees (not adjusted for inflation). I'm using quarterly averages to smooth out the data.

Click to enlarge.

The parabolic trend line in red uses the data points in red. As a side note, I first tried to use an exponential trend line but it turns out that the data was not growing exponentially (not even remotely). Parabolic is so much more fun anyway though! Very sustainable over the long-term (until it isn't)!

Retail employees just lost what little pricing power they had left. Have no fear if you are one of the 15 million retail employees though. We've been told repeatedly that our economy is strong and resilient!

That said, we've also been told that online retailers wouldn't hurt the brick and mortars all that much and that the 10-year treasury yield would be well north of 3% by now (thanks to our strong and resilient economy of course). We're told a lot of things. If we're told enough things, some of it is bound to be true!

Rather than listen to the financial "experts" on CNBC, let's summarize what the chart's trying to say in one rhetorical question or less.

Can you say retail employment glut? :(

This is not employment advice. Sigh.

Source Data:
St. Louis Fed: Custom Chart

Wednesday, January 29, 2014

Financial Activities Employment (Musical Tribute)

The following chart shows the annual change in financial activities employees. I'm using semiannual data to smooth out the data.

Click to enlarge.

That's 7.9 million jobs at stake.

Source Data:
St. Louis Fed: Custom Chart

What to Expect From Janet Yellen's Fed (Musical Tribute)

Q&A: What to Expect From Janet Yellen's Fed

Beyond that, I wouldn't be surprised if the Fed under Yellen lowers the unemployment-rate threshold that could trigger an increase in interest rates. A number of years ago, the Fed introduced this idea of a 6.5% unemployment threshold for considering rate hikes. But that threshold is almost certainly out of date. That's because the unemployment rate continues to drop for the wrong reasons: We keep getting a decline in the number of people looking for work. The Fed wants strong job growth, not people abandoning the labor force. And so it has to decide whether to throw it away or go to lower the level. Our feeling is the Fed will lower it to 6% or perhaps 5.5%.

And how long would we expect that unemployment rate to stay at 5.5%?

The following chart shows the 30 year moving average of the unemployment rate.

Click to enlarge.

Note that 5.5% seems like a pipe dream over the long-term (unless we can somehow magically undo the permanent damage done in the 1970s).

Yellen love you long time.

(Shame on me for going there, lol. Sigh.)

Source Data:
St. Louis Fed: Unemployment Rate

Our Manufacturing Employment Boom Bubble

The following chart shows the annual change in manufacturing employees. I'm using semiannual data to filter out some of the noise.

Click to enlarge.

How can people be optimistic about the future of long-term employment when looking at that chart? Is it because they are looking at the following chart instead (and cherry picking just the good stuff)?

Cherry Picked Goodness

1. The growth rate is still positive! Hurray!
2. It's different this time! Woohoo!
3. Thanks to the Fed, recessions are now impossible!
4. We've lost more than 5 million manufacturing jobs since 2000. 12 million to go.

Can't you see that we're being Khan'd?

He is intelligent, but not experienced. His pattern indicates two-dimensional thinking. - Spock, The Wrath of Khan (1982)

One-dimensional thinking: The growth rate is still positive.
Two-dimensional thinking: The growth rate is positive but slowing.
Three-dimensional thinking: Somethin's poppin' and it ain't popcorn.

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

Source Data:
St. Louis Fed: Manufacturing Employment Growth
St. Louis Fed: All Employees: Manufacturing

Tuesday, January 28, 2014

Real Oil Price: Old Normal vs. New Normal

Click to enlarge.

The Fed wants 2% inflation per year. If real household median income and real household debt per capita can't get us there, then oil will have to do.

Here's the good news. If real household median income starts to fall again, then the Fed may help raise the price of oil to compensate again. In fact, the lower real median income goes, the more help they may offer! Genius!

Put another way, the less you make at work the more it may cost you to get to work! You know, just to balance it out and what not. This is such a great idea. Should give you all the motivation in the world to get paid more.

What label should we use to describe what's going on?

1. Deflation.
2. Inflation.
3. Stagflation.
4. All of the above.

You make the call. As for me, I'm calling it hyperdefstaginflation! We'll need two words to describe what we're feeling as well.

For the optimists: hyperdefstaginfelationed!
For the pessimists: hyperdefstaginfestationed!

As a side note, one can probably deduce the typical feeling based on how little it costs to fill one's gas tank as a percentage of net worth. The closer you are to the top 1%, the more you'll feel hyperdefstaginfelationed! Well, not always. There may be a little bit of whining involved.

January 28, 2014
VC legend Tom Perkins apologizes for comparing attack on rich to holocaust

Perkins told Bloomberg Television that he made the analogy between wealthy Americans and Jews because the rich are a minority, like the Jews who made up just 1 percent of the German population before the Holocaust.

File:If-us-land-mass-were-distributed-like-us-wealth.png (Stephen Ewen)

The 1% minority are being persecuted by that little red dot. Oh the humanity! Although none have lost their lives so far, there's been a great deal of emotional damage. When your net worth is over a billion dollars and you experience even 2% emotional damage, that's tens of millions of dollars! For a 200 pound billionaire, that's easily $6,250 per ounce in tainted self-worth! Don't the poor realize this?

Source Data:
St. Louis Fed: Custom Chart

A Glimpse of Real Prosperity

January 14, 2014

After a month of research and looking through over 10,000 vintage teddy bears on online, I was able to find clues to reconstruct her childhood teddy bear "Whitey." Whitey was given to her as a gift during her mother's baby shower for Jess, so he is technically older than she is!

When I began this venture, Whitey was in two pieces (his head ripped off) and missing an ear, his nose, both eyes, and not to mention half of his stuffing was gone. So, I took him to the Secaucus Doll and Teddy Bear Hospital, and after a week, they were able to restore him to his original glory.

Sometimes the best things in life really do come in small packages. :)

Building Permit Slowdown for Privately Owned 1-Unit Structures

The first chart shows the annual change in new privately-owned housing units authorized by building permits for 1-unit structures. I'm using quarterly averages to smooth out the noise a bit.

Click to enlarge.

Can't we just blame it the weather and call it good?

The next chart shows just the data for Florida, Nevada, and Arizona (three of the previous housing bubble's largest hotspots).

Click to enlarge.

I guess it all depends on how much annual polar vortex activity there was in Florida, Nevada, and Arizona. As seen in the chart, the growth trend has been decelerating at a consistent pace for a full year. We'll therefore need a whole year's worth of polar vortex activity in three of the warmest states. Totally doable with the right spin!

Further, just look at all that volatility in the data since 2005. I can't even begin to tell you how much that fills me with confidence. Slow and steady is so overrated. Anarchy! Random profits and losses! That's what makes the casino life right for me!

This is not investment advice (especially that part about casino life being right for me).

Source Data:
St. Louis Fed: Building Permits for 1-Unit Structures (National)
St. Louis Fed: Building Permits for 1-Unit Structures (Florida + Nevada + Arizona)

A Workin' Man's Growth, Stagnation, and Crash Model

The following chart shows real monthly manufacturers' new orders for nondefense capital goods excluding aircraft per civilian employed (December 2013 dollars). I am using quarterly averages to smooth things out a bit.

Click to enlarge.

Green trend lines represent growth.
Yellow trend lines represent stagnation.
Red trend lines represent "soft patches."

What's the worst that could "unexpectedly" happen again?

January 28, 2014
Durable goods orders unexpectedly plunge in December

(Reuters) - Orders for long-lasting U.S. manufactured goods unexpectedly fell in December as did a gauge of planned business spending on capital goods, which could cast a shadow on an otherwise bright economic outlook.

Source Data:
St. Louis Fed: Custom Chart

Monday, January 27, 2014

The Sarcasm Report v.184

January 27, 2014
Why Norovirus Is So Nasty and Terrifying to Travelers

The virus is not killed by alcohol sanitizers. It survives and can be infectious on surfaces,” he said. "People who are infected will shed the virus for days after their symptoms resolve. This is a real problem for food workers on cruise ships. Lastly, if you go into a bathroom that has been used by someone who has the norovirus, you can get sick.”

Compare and contrast that to the following.

At least one travel agent said her clients seemed unfazed by these occasional outbreaks.

“It’s really nasty,” Peggy Knipp of First In Service Travel in New York City said of the norovirus. “But we haven’t seen any decrease in cruise booking. Unfortunately, it’s as common as getting a cold.”

She said people are more apt to pay attention to hand washing and may bring sanitizers in their luggage, but they don’t want to stay home.

Nothing says paying attention like bringing sanitizers to fight a virus that cannot be killed by alcohol sanitizers!

January 16, 2013
Doctors Warn of New Stomach ‘Superbug’ Hitting U.S.

Because no one has immunity to this new strain, more Americans — perhaps 50 percent more, the CDC says — could become violently ill.

While the flu is spread mostly in the air by sneezes and coughs and a person needs to breathe in as many as 1,000 virus particles to get sick, the norovirus is far more contagious. Just 18 norovirus particles can make a person sick.

My advice? Get yourself into a small enclosed area with many travelers from all over the world. Turn keeping your food down into a game. 50 bonus points for the spicy burrito combo platter with large orange juice! You can't win if you don't play!

And lastly, has there ever been a better time to invest in the shares of Royal Caribbean Cruises? Buy high, sell higher! What's the worst that could happen (again)?

Keep in mind that this *is* a sarcasm report. Any advice offered should be taken with a grain of salt doused in bleach.

The Exquisite Timing of TBT

Click to enlarge.

Yahoo's data didn't start at the inception date, but it's close enough for government work.

Moral of the story? Wall Street always has your back!

File:Stab-in-the-back postcard.jpg

TBT Profile

Annual Report Expense Ratio (net): 0.93%

To put it in perspective, 0.93% is roughly double what the average 5-year CD is paying. That's just adding insult to back injury.

Source Data:
St. Louis Fed: WTI Crude Oil Prices
Yahoo Finance: TBT Historical Prices

New Homes vs. Wages (Musical Tribute)

Click to enlarge.

Source Data:
St. Louis Fed: Custom Chart

The Sarcasm Report v.183

January 22, 2014
Forbes: Protect Yourself From A Treasury Bond Crash

How do you make money from this crash—or at least lessen your losses from it?

January 27, 2014
Wall Street Journal: Treasurys Swing Higher After New-Home Sales Lower

The newly revealed weakness in the nation's housing sector underscored the dependence of the economic recovery on cheaper financing, a key factor that will hold interest rates from racing higher this year.

U.S. Treasurys rallied strongly last week, as a selloff in global equity and currency markets prompted investors to flee risky assets and take shelter in the safe-haven market. Yields on the benchmark 10-year Treasury notes fell to 2.737% at Friday's close, the lowest level in two months.

An Alternative Housing Recovery Story

The following chart shows new home sales divided by existing home sales.

Click to enlarge.

1. New home sales create construction jobs.
2. Existing home sales do not create construction jobs.

The next chart shows residential construction employees per capita.

Click to enlarge.

Note the exceptionally weak recovery in residential construction employment.

rearrange the deck chairs on the Titanic

To do something pointless or insignificant that will soon be overtaken by events, or that contributes nothing to the solution of a current problem.

Source Data:
St. Louis Fed: New Home Sales / Existing Home Sales
St. Louis Fed: Residential Construction Employees per Capita

A Railroad Productivity Miracle (Musical Tribute)

Click to enlarge.

The data in blue shows the annual inflation adjusted rail transportation corporate profits after tax (left scale, billions of December 2013 dollars).

The data in black shows the number of rail transportation employees (right scale, thousands).

It's almost like each additional boxcar on a train does not require an additional worker.

July 24, 2013
Forget the Google Car. The Future is Robotic Trucks.

Everyone seems rightly focused on the coming Google Car. But there are bigger changes lurking for a critical part of our transportation infrastructure: Trucks. And the 5.7 million Americans who drive them.

Source Data:
St. Louis Fed: Custom Chart

Sunday, January 26, 2014

General Fright: Trucking (Musical Tribute)

The following chart shows the annual change in the aggregate weekly hours of production and nonsupervisory general freight trucking employees.

Click to enlarge.

Don't let the chart unnerve you! As we all know, the stock market only goes up!

This is not investment advice.

Source Data:
BLS: Employment

The Fed's Real Accommodation

The following chart shows the monthly change in the 12-month moving average of the aggregate weekly hours of production and nonsupervisory accommodation industry employees.

Click to enlarge.

In case you didn't know, it's an alarm! You're not on a pleasure cruise!

Source Data:
BLS: Employment
NBER: US Business Cycle Expansions and Contractions

Saturday, January 25, 2014

Echoes of 2007

The following chart shows the annual growth rate in retail sales (excluding nonstore retail sales) divided by retail employees (excluding nonstore retail employees). It basically shows brick and mortar retail sales growth per employee. I am not adjusting it for inflation.

Click to enlarge.

The trend lines in blue (artistically placed by me) are exact copies of each other.

If this chart has merit then...

1. Do not expect retail trade hiring sprees from here.
2. The only accelerating this economy will soon be doing is to the downside.

January 24, 2014
Sam's Club laying off 2% of workers

Wal-Mart plans to lay off 2,300 workers at its Sam's Clubs, the company said Friday.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

Friday, January 24, 2014

The Best Economic Freudian Slip of 2014

January 24, 2014
The stock market correction is finally here

Hammered by weak economic data in Asia, South American turmoil and a stream of weak earnings reports from blue chips like IBM (IBM) and McDonalds (MCD), the S&P 500 (^GSPC) is down sharply for the weak and off more than 1% in 2014.

Emphasis added.

I know it is only the 24th of January but I think we have a winner!

Employment Hump Déjà Vu (Musical Tribute)

The following chart shows the annual change in the annual average of the aggregate weekly hours worked by production and nonsupervisory private service-providing employees.

Click to enlarge.

I'm just doing my part to keep you "abreast" of recent developments!

Source Data:
St. Louis Fed: Custom Chart

The Unmentionable Employment Growth Risk

The following chart shows quarterly employment growth using the average of the establishment and household surveys.

Click to enlarge.

I have added a parabolic trend channel in red using the data points in red. I have also added a parabolic trend in blue that uses all of the data points.

If the Fed's only tools to fight gravity are ZIRP and QE, then everything starts to look like a parabola.

This is not investment advice. I do not claim to be able to accurately predict the future based on extrapolating the recent past. That said, you better hope that the chart is just a silly distraction in an endless sea of prosperity. I mean really, you better hope that. The stock market has had quite a run since 2009. No party lasts forever.

Source Data:
St. Louis Fed: Custom Chart

Thursday, January 23, 2014

The Danger Zone (Musical Tribute)

The following chart shows the year over year change in household net worth divided by annualized wages and salaries.

Click to enlarge.

The danger zone represents periods where the change in net worth over a given year actually exceeds all wages and salaries for the year. Here is a comprehensive list of the periods when that has happened.

1. The late 1990s (dotcom prices only go up bubble).
2. The mid 2000s (housing prices only go up bubble).
3. The early 2010s (nothing bad ever happens in ZIRP bubble).

You don't have time to think up there. If you think, you're dead. - Maverick, Top Gun (1986)

As always, this is not investment advice. That said, "Holy @#$%, it's Viper!"

Source Data:
St. Louis Fed: Custom Chart

2013's Existing Home Sales Exponential Trend Failure

Click to enlarge.

I'm using quarterly averages to eliminate some of the noise.

Source Data:
St. Louis Fed: Existing Home Sales

Continued Claims

Click to enlarge.

January 23, 2014
U.S. 10-Year Yield Falls to Six-Week Low After Economic Reports

Treasuries rose, pushing 10-year note yields to a six-week low, after continuing jobless claims rose last week more than forecast and a manufacturing gauge unexpectedly fell this month, reflecting an uneven economic expansion.

This is not investment advice. If slapping parabolic trend lines onto a series of data points could accurately predict the future then historians would all be billionaires. That said, damn. Bad chart. Bad. Bad.

Source Data:
St. Louis Fed: Continued Claims

5% Interest Rates and $500 Gold! Hahaha!

The following chart shows the natural log of the quarterly average of the 10-year treasury yield. When using natural logs, constant exponential growth (or decay) is seen as a straight line.

Click to enlarge.

I have added a parabolic trend channel in red that uses the data points shown in red. I have also added a parabolic trend in blue that uses all of the data points. Note that the correlation of the blue trend line is 0.89.

The long-term trend shows that the 10-year treasury yield has been decaying (not exactly rocket science here). It's not a pure exponential decay though. Since a parabola fits the data extremely well, I think the best way to describe it is as an exponential decay trend that has been accelerating to the downside. In other words, it has been exponentially decaying at a faster and faster rate. Hello Japan?

I know past performance is not necessarily indicative of the future, but where is the actual evidence that we are in a long-term rising interest rate environment? (And not just a short-term cyclical bounce within a declining trend channel?)

You may be wondering why I singled out the 5% interest rate target in the chart (with a natural log of 1.61). Well, wonder no more! It is inspired by the financial "experts" at MSN Money. Long time readers know that I'm not all that bullish on inflation adjusted gold prices at these levels, but I believe that the following article is a study in ridiculousness. I am therefore willing to place a "gold bug" hat on my head, if only for a day. You know, it's just an effort to balance things out a bit.

January 22, 2014
MSN Money: How gold could fall below $500 an ounce

If the 10-year Treasury yield rises to 5 percent, gold will fall to $471 an ounce.

If ifs and buts were candy and nuts then we'd all have a Merry Christmas. What hubris! The price of gold is pegged to 3 digits of "scientific" precision. All you need to know is a future long-term nominal interest rate? Forehead. Desk. Whack. Whack. Whack.

To be sure, a comprehensive model of gold's price needs to include more than just interest rates.

You think? Yeah, inflation might be a good backup plan if nominal interest rates aren't enough I suppose. For example, if inflation is running at 10% and the 10-year treasury yields 5% then I think we can pretty much forget about $500 gold. Call me silly if you must. (This is not a prediction that we will see 10% inflation and 5% interest rates of course. It's just an example.)

But, according to Claude Erb, who conducted these statistical analyses, we should not be too quick to reject his simple "behavioral" model relating gold's price to the 10-Year Treasury yield.

I wish you could have seen how quick I was to reject his simpleminded "behavioral" model. It may have even been a personal best! Unfortunately, I did not have a stopwatch at the time. And even if I had a stopwatch handy, I'm 49 years old and my reflexes aren't what they once were. I'm therefore not entirely sure I could have accurately timed such a short period to 3 digits of "scientific" precision.

In the case of the gold-interest rate correlation over the last decade, Erb told me in an interview, the r-squared is a very high 0.78. ( Click here for a summary of his findings. )

Most correlations on Wall Street don’t come anywhere close to being that high. Indeed, many of the drugs that get FDA approval have lower r-squareds between their use and positive medical outcomes.

Wow! 10 years of cherry picked data offered up a very high 0.78! Color me impressed. Of course, it is based on the premise that my 28 years of cherry picked data (as seen in the chart above) with a much higher 0.89 correlation has to fail spectacularly before his prediction even kicks in. In order to get to 5% interest rates, the natural log needs to rise to 1.61 on my chart. That is well outside the channel and well removed from the blue trend line. It would indeed be a spectacular fail. Could it happen? Of course it will, someday. That someday could be a very, very long time from now though. And in the meantime, who really knows what gold will be doing?

So, in the battle between cherry picked data sets, who are you going to believe? The very highly correlated 10 year model for gold's price that does not concern itself with inflation or the extremely highly correlated 28 year model of long-term interest rates that has a certain Japanese housing bust feel to it?

Put another way, if one assumes that we are in a rising interest rate environment when we very well might not be, then all kinds of crazy predictions are possible. Why stop at 5% interest rates? What will gold's price be if interest rates hit 50%? Better not tell me $47.10 or I will laugh my motherf#$%ing @$$ off! Seriously, lol.

This is not investment advice. I'm simply offering up an alternative theory for where interest rates are headed that matches my own beliefs. It is not proof of anything. If I had a crystal ball that could accurately predict the future, then I certainly wouldn't spend time making charts or offering up gold price predictions with a whopping 3 digits of "scientific" precision. Now would I? No, sir. I'm compelled to heckle instead. It might even be a disease. Please, for the love of all that's holy, someone help me stop! :)

See Also:
The Pulp Fiction of Rising Interest Rates

Source Data:
St. Louis Fed: Custom Chart

Wednesday, January 22, 2014

Vehicle Miles Traveled

Click to enlarge.

Once we get through this post-recession soft patch, things are really looking up!

Source Data:
St. Louis Fed: Moving 12-Month Total Vehicle Miles Traveled

Mount St. Equity

The following chart shows home equity divided by wages and salaries. I have added an exponential decay trend line in red that uses the data points in red.

Click to enlarge.

Time Magazine: Person of the Year (2009)

Congrats to Ben Bernanke for mopping up after the speculative volcano erupted! Price stability! Maximum employment! The Dual Mandate Man had it all!

Source Data:
St. Louis Fed: Custom Chart

Tuesday, January 21, 2014

Grave Creek Mound

Grave Creek Mound - Tim Kiser (w:User:Malepheasant)

Click to enlarge.


Grave Creek Mound

At 62 feet (19 m) high and 240 feet (73 m) in diameter, the Grave Creek Mound in the Ohio River Valley in West Virginia is one of the largest conical-type burial mounds in the United States.

This post inspired by That 80s Show at Dollar Death $piral.

Source Data:
St. Louis Fed: Custom Chart

"Cheap Energy"

I heard this phrase from a guest on CNBC today. Perhaps it is time for a refresher course on the meaning of the word cheap.

The Free Dictionary: Cheap

a. Relatively low in cost; inexpensive or comparatively inexpensive.

Let's attempt to compare the cost of energy to the cost of everything to find out how relatively low in cost energy actually is. The following chart shows the annual average of the consumer price index for energy divided by the consumer price index for all items.

Click to enlarge.

Did I somehow manage to transport myself to a Pulp Fiction alternate universe? It's sure starting to feel that way lately.

Say "cheap energy" one more time! I dare you!

See Also:
The Pulp Fiction of Rising Interest Rates

Source Data:
St. Louis Fed: Custom Chart

Monday, January 20, 2014

If Housing Is the Long-Term Driver of This Economy...

Click to enlarge.

...then we are in big trouble.

The blue trend line uses all of the data points.
The red trend line uses just 3 of them.

The optimists would point to the splendid short-term recovery we've had since the Great Recession (2009 to 2013, as seen in the chart). Well, woo frickin' hoo on that one.

Source Data:
St. Louis Fed: Custom Chart

The Good Fed/Bad Fed Routine

The following chart shows the real home equity loans at all commercial banks per civilian employed (December 2013 dollars).

Click to enlarge.

A linear trend failure *and* an exponential trend failure? All in the same chart? I think I just died and went to trend failure heaven!

October 27, 2005
Bernanke: There's No Housing Bubble to Go Bust

U.S. house prices have risen by nearly 25 percent over the past two years, noted Bernanke, currently chairman of the president's Council of Economic Advisers, in testimony to Congress's Joint Economic Committee. But these increases, he said, "largely reflect strong economic fundamentals," such as strong growth in jobs, incomes and the number of new households.

Wikipedia: Good cop/bad cop

The good cop/bad cop routine is a common dramatic technique in cinema and television, where the bad cop often goes beyond the boundary of legal behavior. A common variant to subvert expectations is to seemingly introduce the 'bad cop' first, only to reveal that he's actually the 'good cop' despite his harshness and that the real 'bad cop' is even worse.

If credit is the lifeblood of this economy, then we just need to work through this "soft patch" and all will be well again. Right?

Investopedia: Soft Patch

This term gained popularity when former Federal Reserve Board Chairman Alan Greenspan used it in his review of the overall U.S. economy. Central banks often cut interest rates in an attempt to spur the economy through the soft patch.

Two quick questions and I'll let you go.

1. Where the @#$% is the good Fed?
2. Is it normal for a soft patch to last more than 5 years?

Source Data:
St. Louis Fed: Custom Chart

The Ultimate Super Bowl

The following chart shows the inverse of manufacturing employment.

Click to enlarge.

Yes! The Ultimate Super Bowl! That's what I'm talking about.

Did you really think that I was going to post something about the Seahawks just because I live in the Seattle area? I'm not even going to dignify that question with a long response.

Go Seahawks!

And um, well, go manufacturing employment too I guess. Yeah, that's right. I'm sure that the long-term trend in the chart is finally reversing. Sure. Why not? Humans are finally winning over robots. Who couldn't see that one coming? Just look at the trend since the end of the Great Recession. The inverse is finally falling. It's clearly sustainable and we should therefore expect everyone to be working in manufacturing within the next few years. Oh, sure. It might be starting to curve upwards again but that's just something a pessimist might say. This is not a day for pessimism! Go Seahawks!

If you eliminate the impossible, whatever remains, however improbable, must be the truth. - Spock

It is common knowledge that the Fed has permanently put a stop to recessions. As seen in the chart, the inverse generally only starts to climb higher during recessions. That leaves us with the improbable. Right? The inverse is therefore not attempting to climb higher! It's all just a figment of our imaginations! Someone back me up on this. This is Puget Sound logical thinking at its finest. Did I say Puget Sound? Oops. Freudian slip! Go Seahawks!

Yes, yes. I'm filled with a renewed sense of irrational truth-seeking optimism and absolute faith in all officials! If everyone says the Fed won't allow another fumble gone bad, then who am I to argue differently? ;)

And lastly, I just have to say one more thing to be absolutely clear here.

Go Seahawks! :)

Source Data:
St. Louis Fed: Custom Chart

Sunday, January 19, 2014

Real GDP Growth Is Broken (Musical Tribute)

Click to enlarge.

Real GDP growth averaged 3.48% per year from 1947 to 2000.

Starting in 2000, this long-term exponential trend began to fail. First the dotcom bubble popped, then came the housing bust. Let's take a close-up look at the most recent recovery for any signs of hope.

Click to enlarge.

From the bottom of the Great Recession, real GDP growth has averaged just 2.28%. That is an especially pathetic growth rate for at least five reasons.

1. "The worse a situation becomes the less it takes to turn it around, the bigger the upside." - George Soros (I think we can all agree that the situation qualified as much worse. So where is the bigger upside in response?)

2. The growth rate is a full 1.2% lower than the long-term average heading into 2000. This pig desperately needs lipstick in my opinion.

3. We can't blame any recessions for it being this low. There haven't been any recessions since the bottom! This data has been cherry picked to be recession free. Duh! I threw the optimists a bone here and it still came up way short! Seriously.

4. We're currently following the exponential growth trend line with great precision (r-squared = 0.988). The last time it failed, it failed to the downside. Historically speaking, recessions tend to do that. I know. Shocking.

5. How much will the 2.28% average drop once the next recession hits? In other words, what will the true growth rate be over a complete business cycle? 3.48%? I doubt it with every fiber of my being. I'd even be willing to leverage up that fiber with Super Colon Blow!

The January 20th cover of Time Magazine calls Janet Yellen the sixteen trillion dollar woman. That's a pretty amazing title and her picture definitely inspires confidence. She's going to need to work some magic to restore prosperity over the full business cycle though. I therefore offer her a musical tribute to help inspire. The monumental task before her is legendary.

In the dead of night
She'll come and take you away
Searing beams of light and thunder
Over blackened plains
She will find her way

I can't speak for you, but I've got a really good feeling about this. Yes, very positive. Haven't been this optimistic in years. Why you ask? Her picture on the cover of Time is on a pitch black background ("over blackened plains she will find her way"). What could possibly go wrong?

See Also:
Sarcasm Disclaimer

Source Data:
St. Louis Fed: Real GDP

Saturday, January 18, 2014

The Masquerade (Musical Tribute)

Click to enlarge.

One by one and two by two
Past eight by tens in shattered frames
The players try to leave the room
Frantic puppets on a string
And all the while the music sings
And still sometimes remember
The masquerade's forever

Source Data:
St. Louis Fed: Fed Funds Rate

The Pulp Fiction of Rising Interest Rates

The following chart shows the annual average of the 5-year CD rate at national banks.

Click to enlarge.

I'm not a religious person, but I do believe Jules would summarize this "rising interest rate" environment best.

The path of the righteous man is beset on all sides by the inequities of the selfish and the tyranny of evil men. Blessed is he who, in the name of charity and good will, shepherds the weak through the valley of darkness, for he is truly his brother's keeper and the finder of lost children. And I will strike down upon thee with great vengeance and furious anger those who would attempt to poison and destroy My brothers. And you will know My name is the Lord when I lay My vengeance upon thee.

I'm certainly not a sarcastic god by any stretch of the imagination, but I am fully prepared to strike down upon Forbes with great sarcastic vengeance and furious sarcastic anger! It certainly wouldn't be the first time.

January 13, 2014
Forbes: Rising Interest Rates: Are They Good Or Bad For Retirees?

Allow me to pull the 10 key points from the article for you (including the title).

1. "...rising interest rates..."
2. "...rising rates..."
3. "...rising interest rates..."
4. "...rising interest rates..."
5. "...rising interest rates..."
6. "...rising interest rate..."
7. "...rising interest rates..."
8. "...rising rates..."
9. "...rising mortgage rates..."
10. "...rising rates..."

And finally, here is one of the true "Jules" of the article. It is the example that set all of this rant in motion.

For example, investors might finally be able to go to the bank and get CDs at 5-6 percent, which is impossible now, offering higher potential income for retirees.

Hahaha! Good motherf@#$ing luck on that motherf@#$ing miracle happening any time soon! The average 5-year CD at national banks currently pays just 0.48% (as of January 8, 2014). That is definitely the lowest rate I have ever personally seen (and I was born in 1964).

This is not investment advice. They are just the free motherf@#$ing opinions (in the spirit of Jules and Pulp Fiction of course) of an anonymous blogger on the Internet. Do with them what you will. :)

Source Data:
St. Louis Fed: Custom Chart

Friday, January 17, 2014

Shocking Quote of the Day

January 16, 2014
Time: How Amazon Crushed the Union Movement

Although Amazon has a high-tech image, blue-collar employees do most of the work. Invariably, they earn much less than high-paid computer programmers.

On the one hand, this is absolutely shocking. Who would have guessed that high-paid white-collar employees invariably earn more than low-paid blue-collar employees? Time hasn't shocked me this much since they declared my snowboard to be a fad in the 1980s. I believe it was doomed to go the way of the hula hoop if memory serves. Oh how I laughed over that one at the time.

News outlets have detailed everything from the exhausting nature of warehouse work (employees can walk as much as 15 miles daily) to ambulances waiting outside a facility to collect workers who overheated because of a lack of air conditioning.

On the other hand, that would definitely suck (pardon my language). I've walked a lot of miles in recent years and anything over 7 miles is risking a blister or two. I can't imagine doing it every day. The thought of an ambulance waiting for me after a long shift is icing on the cake. I can definitely empathize with the frustration.

Look at the Tesla factory - what's the worker to robotic arm ratio in that factory? - polarbear429 (in the comments)

And on that third hand, the more the poorest among us are paid the sooner their jobs will be replaced by automation. Talk about a lose-lose situation for the workers. There is no backup plan once the jobs are permanently gone either, other than to pretend they will all miraculously find work elsewhere. As a side note, the more Amazon and other automated online retailers sell, the less brick and mortar retailers can sell. There are potentially 15 million retail jobs at stake here, and when they go they will no doubt take others with them. Sigh.

This post inspired by Fritz_O who pointed out (in the comments found here) that the Amazon workers opted not to unionize.

Want Scary? (Musical Tribute)

Scary Ozzie - The Icelandic Pony That Frightens Trail Horses

Run for your lives. It's Ozzie

Ozzie for Fed Chairman!

Does nothing! Scares the heck out of nearly everyone! Genius! ;)

Industrial Mining Production vs. Real Gold Price (Musical Tribute)

Click to enlarge.

The black line shows the annual average of the industrial mining production index (left scale). Note that it recently set a new record.

The blue line shows the annual average gold price adjusted by the consumer price index (right scale, December 2013 dollars). It grew exponentially starting in 2000 and very nearly set a new record. It has recently backed off though.

Let's zoom in a bit.

Click to enlarge.

Satellite of love, we're gonna fly

September 23, 2007
Productivity Miracle

If I'm wrong to be a stagflationist, this is the sort of thing that would do me in. It is also something one needs to factor in when hoarding hard assets in general.

May 22, 2013
20 Insane Bitcoin Mining Rigs

If you still had any doubt about their commitment to the mining career, the next pictures will show you that they’re here to stay. These next 20 mining rigs are totally insane!

Mining rocks to hoard? Mining bitcoins to hoard? It's all good if it adds to GDP! Right?

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

And on that note, here are a few bonus opinions. I find it insane that we needlessly waste any of the world's resources to mine bitcoins. Is the world really going to be a better place because of it? Is this the kind of productivity miracle that will lead to future prosperity? It's shameful that bitcoins require any energy at all to create. Good grief. At the very least, they could have made a computer game out of it that's fun to play. But no, it's just automated computers (in ever greater numbers) mining virtual bitcoins (in dwindling numbers). Put another way, it requires ever increasing streams of energy to generate fewer and fewer bitcoins. What a frickin' long-term plan of wasted effort that is (not necessarily from a miner's perspective, but for society in general).

At least gold gives you something shiny to fondle once the mining's complete. I say this as one who owned gold from 2004 to 2006. It treated me very well over that period. No complaints. No desire to buy it again though (at these prices anyway). Your opinions may vary of course.

Source Data:
St. Louis Fed: Custom Chart (Long-Term)
St. Louis Fed: Custom Chart (Short-Term)

MZM Interest vs. Disposable Personal Income

The following chart shows the interest earned on MZM money stock divided by disposable personal income.

Click to enlarge.

Unless one counts cost cutting (and therefore weak employment growth) as a long-term growth strategy, we're apparently fresh out of "genius" ideas.

The chart is especially interesting if one considers how much MZM has grown relative to disposable personal income. It's almost like the more MZM we generate, the harder it is to generate interest off of it. Yeah, it's almost exactly like that. Think Japan.

This coincides well with my long standing belief that it will be increasingly difficult to make money off of money. Those anxiously awaiting higher/juicier real yields over the long-term may be in for serious disappointment, much to the ongoing dismay of Brett Arends at the Wall Street Journal. What a trip down memory lane that link is by the way. 2008, what a year!

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

Thursday, January 16, 2014

Ten Questions for 2014

Now that the consumer price index for 2013 is complete, let's look at the long-term trend of the annual percent change in the average annual CPI.

Click to enlarge.

Ten Questions for 2014

1. How many decades will we be stuck in ZIRP?
2. Will it be as many decades as Japan?
3. Why is the Fed tapering?
4. When will the Fed ramp up QE again?
5. How much more poning can the hyperinflationists take?
6. Why am I so willing to hold long-term TIPS to maturity?
7. Where have all the "bond vigilantes" gone?
8. What are they doing with all their profits?
9. Sears? (It's a rhetorical question.)
10. Why must I use the sarcasm label in nearly every post?

Source Data:
St. Louis Fed: Custom Chart

Wednesday, January 15, 2014

Rise of the Machines

The following chart compares the growth of nonstore retailer sales vs. overall retail sales (in black and red) to the growth of nonstore retailer employment vs. overall retail employment (in blue and orange).

Click to enlarge.

Nonstore retailers are growing their sales exponentially relative to overall retail sales but nonstore employment is decaying exponentially relative to overall retail employment. It doesn't take a rocket scientist to understand the stress that's placing on brick and mortars over the long-term (and the jobs that go with them).

I believe with every fiber of my being that retail employment of the future is going the way of farming employment and manufacturing employment. It won't stop there though. Coming soon to a profession near you!

September 13, 2013
Half of all U.S. jobs will be automated, but what opportunities will be created?

A study out of Oxford University has grim news for U.S. workers: up to 45% of all jobs will be automated within the next 20 years. But there is little mention of what needs to be done to provide more opportunity.

I'm thinking that the answer isn't extreme student loan debt. That's just a hunch though.

Terminator 3: Rise of the Machines (2003)

Dr. Peter Silberman: You're safe now, they can't hurt you. Kate, my name is Doctor Silberman. I'm a post trauma counselor for the Sheriff's Department. How are you feeling?

Kate Brewster: He's not human... he's really, not human.

Dr. Peter Silberman: I know what it's like to be in a hostage situation, I've been there myself. The fear, the adrenaline, you find yourself imagining things, impossible things, crazy things, insane things... takes years to get over it.

Was Kate Brewster a Sears employee? Sigh.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

Tuesday, January 14, 2014

The Oxymoron's Guide to the Stagnating Manufacturing Renaissance (Musical Tribute)

The following chart shows real manufacturers sales per capita (November 2013 dollars).

Click to enlarge.

April 6, 2012
The Wall Street Journal: The Great Reversal: Playing the U.S. Manufacturing Boom

Three trends suggest America's "manufacturing renaissance" is just getting started, says Neil Dutta, U.S. economist at Bank of America Merrill Lynch.

We're told U.S. Manufacturing is booming, and yet the chart clearly shows that it is stagnating. Worse, we're still nowhere near the previous peaks (~$1,700). It's an enigma wrapped up in a conundrum.

When it comes to U.S. manufacturing, says Kristina Hooper, head of portfolio strategies at Allianz Global Investors, "It's time to stop looking in the rearview mirror and start looking ahead."

March 8, 2012
See Frightening Pictures Of A Minivan Impaled By A Log

If you weren't already nervous when traveling behind a logging truck on the highway we're afraid these pictures might inspire some anxiety next time you spot one on the open road.

For the record, the log took out both the front window and the rearview mirror.

It's better than bad, it's good!

Source Data:
St. Louis Fed: Custom Chart

The Auto Sales to Food Sales Ratio

The following chart shows auto and other motor vehicle sales divided by sales at food and beverage stores and food services and drinking places.

Click to enlarge.

Since this is an illusion of prosperity blog, you can probably guess which "sure thing" seems more likely to me over the long term.

1. When the downward trend in blue failed, it failed to the downside.
2. We have fully recovered back to the trend in blue.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

Pour Some Sugar on Me (Musical Tribute)

The following chart shows the import price index for green coffee, cocoa beans, and sugar.

Click to enlarge.

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

June 19, 2012
Def Leppard’s Joe Elliott Can’t Explain the Lyrics to “Pour Some Sugar on Me”

Forget the sugar, let’s just focus on the pouring part. What does a woman pour on you? Even metaphorically?

It’s not for me to tell you, it’s there for you to interpret.

I’m begging you. Give me a hint.

That ruins the fun of it. It’s like playing hide and seek and telling them where you’re hiding. It’s pointless.

You have no idea what “Pour Some Sugar On Me” is about, do you?

[Long pause.] Not a clue. [Laughs.]

Hahaha! Damn, I love that band. Seriously. :)

Source Data:
St. Louis Fed: Import (End Use): Green Coffee, Cocoa Beans, Sugar