Friday, October 31, 2014

A Brick and Mortar 2014 4th Quarter Retail Sales Holiday Prediction

The following stacked chart shows real select brick and mortar 4th quarter retail sales per capita (categories with the strongest December seasonal adjustments).


Click to enlarge.

The following line chart shows a better view of the total.


Click to enlarge.

I have added an exponential decay trend in red using select points (an attempt to avoid the impacts of the housing bubble and bust).

So here's my Halloween prediction. Get out those vampire fangs, because it's going to suck to be a brick and mortar retailer relying on Christmas season joy. But what's new? Sigh.

Source Data:
St. Louis Fed: Retail Trade: Department Stores (Excluding Leased Departments)
St. Louis Fed: Retail Trade: Furniture and Home Furnishings Stores
St. Louis Fed: Retail Trade: Clothing and Clothing Accessory Stores
St. Louis Fed: Retail Trade: Electronics and Appliance Stores
St. Louis Fed: Retail Trade: Sporting Goods, Hobby, Book, and Music Stores
St. Louis Fed: Retail Trade: General Merchandise Stores
St. Louis Fed: Population
St. Louis Fed: CPI

Halloween Fright Fest: Real Disposable Personal Income per Capita (Musical Tribute)


Click to enlarge.

As we head into the Christmas season, what's the worst that could happen?



See Also:
Halloween Fright Fest: Long-Term Housing (Musical Tribute)
Nonstore Retail Sales Analysis: The Das Boot Edition

Source Data:
St. Louis Fed: Custom Chart

Breaking News: United Kingdom Declares Perpetual War on Savers!

Halloween, 2014
Osborne Starts Paying Off World War I Debt 100 Years On

About 218 million pounds ($349 million) of undated debt paying 4 percent a year will be redeemed at par on Feb. 1, Osborne said today.

The United Kingdom seems to think that interest rates will stay below 4% for a considerable time. Using Fed Speak, what would a "considerable time" be? Well, the math says something on the order of infinity. These were "perpetual" bonds after all.

But hey, savers need to think long-term. Don't forget to brace for that rising interest rate environment on long bonds once a nearly infinite number of years have passed!

It seems like only yesterday that we were discussing this perpetual bond in the comments of this blog. Oh, wait. It was yesterday.

At the moment the perpetual Gilt, "War Loan", pays 3.81% p.a. It's "perpetual" in the sense that unless HMG uses its right to "call" it, it runs for ever, or until the end of the UK, whichever comes sooner. - dearieme, October 30, 2014

Excellent use of quotes around the word perpetual! Nicely played, dearieme!

WWI is the "gilt" that keeps on giving! - Stagflationary Mark (me), October 30, 2014

I stand corrected. Perpetual war broke out! Hahaha! Sigh.

I really must apologize to the Japanese savers. They must know I'm joking. Perpetual war clearly broke out in the early 1990s.

And let's not forget about the USA!

August 15, 2013
The Long-Term Death of Real Yields

Click to enlarge.

1. The world war on savers will continue until morale improves.
2. Morale is not likely to ever improve.

Perhaps that's what makes me a permabear.

Halloween Fright Fest: Long-Term Housing (Musical Tribute)

The following chart shows annual new privately-owned housing units completed divided by total nonfarm employees.



If the blue exponential trend line (2.1% annual growth rate) represents a delusional long-term prosperity belief, then what does the orange exponential trend line (14.4% annual growth rate) represent?

Here is a hint.

October 29, 2014
Rents are soaring -- and so are evictions

Rents have risen 7% in the past year, while incomes have inched just 1.8% higher -- making it that much harder for people to afford their housing payments. In fact, the average renter now spends 30% of their income on rent, up from a longtime average of about 25%, according to Zillow.

If people can't afford to rent, then how can they afford to save up the money to buy a house?



Happy Halloween!

Source Data:
St. Louis Fed: Custom Chart

Thursday, October 30, 2014

Nonstore Retail Sales Analysis: The Das Boot Edition

October 23, 2014
Amazon posts huge loss, warns of more

The company projected losses as deep as $570 million for the fourth quarter, and revenue of $27.3 billion to $30.3 billion. That's shy of the average $30.9 billion analysts polled by Thomson Reuters had forecast.

The following chart shows nonstore retail sales.


Click to enlarge.

I have added an exponential trend line in red from the low point in 2009 through 2013. So far, 2014 isn't looking all that good.

The next chart shows the deviation from the exponential trend.


Click to enlarge.



Source Data:
St. Louis Fed: Custom Chart

Real Personal Consumption Expenditures per Capita


Click to enlarge.

I've got bad news, bad news, bad news, bad news, and bad news.

First, the bad news. As seen in the chart, thanks to the exponential trend failure during the Great Recession, on average we're each consuming roughly $6,500 less per year now than some would have projected (predictions for 2014 based on conditions from 1991 to 2007).

Now, the bad news. The new exponential growth trend is just 1.4% compared to the previous 2.6%. Since the r-squared is extremely high (0.99) for both trends, it's kind of like we've been permanently hobbled. Perhaps the future is not so bright after all.

Ready for the bad news? Here it comes. The Fed sure did a lot of experiments over the past 5 years. Nothing they did seem to alter the crappy 1.4% growth trend though, not even in the slightest. So why are we hanging on every word they say again? Bernanke once joked, "The problem with QE is that it works in practice, but it doesn’t work in theory." Quite the comedian!

Next, the bad news. There's no guarantee that this new trend in red will not fail again, and if it does then there's a distinct possibility that it too will fail to the downside. Won't that be a party! I say this as a believer in the Illusion of Prosperity since 2007 of course, so perhaps I'm biased.

And finally, the bad news. Since the wealthiest among us are growing their wealth and income much faster than the average among us, the wealthiest among us are more than likely pulling up the average. Put another way, this horrible chart is probably an extremely optimistic way to look at what the typical American is experiencing.

I do have some good news though, and it deserves its own paragraph.

If you are a highly compensated financial analyst and it is your job to predict real personal consumption per capita growth, I suggest sticking with 1.4% from here. What's the point of sifting through all the data when the trend is so solid? Of course, you'll be blindsided during the next trend failure. So what? Nearly everyone will be! You can hardly be blamed for that! So, sit back. Put your feet up on your desk and relax. Surf the web if you like. Look at new high end luxury vehicles. Who is going to know any different? But, and I cannot emphasize this enough, always be ready with a slick PowerPoint presentation once the Analyst of the Decade awards start showing up! You deserve nothing but the best!



Source Data:
St. Louis Fed: Custom Chart

Consume!

The following chart shows the 4-quarter moving average of personal consumption expenditures divided by GDP.


Click to enlarge.

100% here we come! Straight as an arrow, that one! Not sure what will happen when we hit 100% (psst: guaranteed linear trend failure), but let's not worry about it now! It's a time for celebration!

Let's zoom in for a closer look.


Click to enlarge.

What? Who drew that blue trend line on my optimistic chart? Shame on them!

There are two easy ways to get back to the red long-term trend line. This does not need to end in failure yet!

1. Increase consumption growth! Yay!
2. Reduce GDP growth. Boo!

This is America! If anyone can consume more, it is us. So get out there and do your part! Don't let the blue trend win!

Source Data:
St. Louis Fed: Custom Chart

Food Services and Drinking Places Employee Productivity

The following chart shows food services and drinking places employee productivity (as measured by sales per employee, compared to other retail employees).


Click to enlarge.

The first fully automated restaurant chain is going to make a killing.

And by killing, I really mean:

1. It will break the exponential trend channel in a major way.
2. It will put many non-automated restaurants in immediate peril.
3. 10.7 nonfarm payroll jobs will instantly be at risk.
4. Vehicle miles traveled per capita will drop even more.
5. The homeownership rate will drop even more.
6. The food stamp program will be expanded even more.
7. Deflation and QE Infinity will stick to the headlines.
8. The hyperinflationists will continue to get poned.
9. The Japanese will laugh at the Fed's hubris and futility.
10. CNBC will continue to warn us about rising interest rates.*

* I don't think anything can actually stop CNBC from warning us about rising interest rates. It appears to be a constant in life. Maybe someday they'll get it right, but I somehow kind of doubt it.

December 30, 2010
CNBC: Who's Afraid of Rising Rates? Pros Get Ready For Move

"I would certain want to underweight Treasurys," Kevin Giddis, president of Morgan Keegan's fixed income capital markets division, said in a CNBC interview. "You've got to be cautious from totally getting out of bonds. Stay with the shorter duration, stay with the wide-spread securities and you'll be fine."

Worst advice ever! Me "would certain want" many thing back then. Shorter duration crap, me said. Me buy long end. Mmmm, good. Brave me was. Me still own.

Hey, it's just a Tarzan theory. I'm not a a Pro. This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

Wednesday, October 29, 2014

Food Services and Drinking Places Sales per Employee

The following chart shows the two year moving average of real monthly food services and drinking places sales per employee (using CPI for food away from home, September 2014 dollars).


Click to enlarge.

1. Increasing real sales per employee is good.
2. Declining real sales per employee is bad.

These are universal truths. Taken to an extreme, zero real sales per employee eventually results in those employees visiting the unemployment line.

So if someone says the restaurant industry is strong, healthy, and robust, you might want to take it with a grain of salt. Although the sales are currently impressive and the employee growth is currently impressive, the employee growth has been exceeding the real sales growth (as seen in this chart). This is bad.

Let me summarize. If I was forced to choose between using my life savings to open a restaurant right now or getting a hot poker to one of my eyes, I'd have to give it some serious thought.

October 21, 2014
McDonald's 3Q same-store sales fall 3.3%

Operator faces pressure worldwide

This is not investment advice.

See Also:
New York City's Theoretical Jobs of the Future

Source Data:
St. Louis Fed: Custom Chart

New York City's Theoretical Jobs of the Future


Click to enlarge.

This chart implies that not only will every worker in New York City be working in the food services and drinking places industry at some point in the future, but the trend has accelerated to the upside in recent years. Note the exponential trend failure that began in 2009.

So why do I call it theoretical? Seems fairly clear cut. Right? Well...

A restaurant glut will happen long before we get to 100% on this chart. In fact, it might already be happening.

October 8, 2014
City Restaurants Multiply, Despite High-Profile Closures

The widely held notion that rising rents are making it nearly impossible to survive as a restaurant in the city received its ultimate endorsement this summer when celebrity restaurateur Danny Meyer said the Union Square Caf├ę would move from its longtime home on East 16th Street.

...

Last month, the owner of Angelica Kitchen, a vegetarian institution in the East Village, put out a plea to patrons to come often to help the restaurant stay afloat. The rent has risen to more than $22,000 a month. In its early days at a different location on St. Mark’s Place, the restaurant paid $450 a month. “How many more dragon bowls can I sell?” said owner Leslie McEachern.

...

Veterans of New York’s unforgiving culinary scene question the staying power of the thousands of new dining spots.

For what it is worth, I question the staying power too. Big time! But what would you expect? I write an Illusion of Prosperity blog. Sigh.

In any event, I offer a prediction that is guaranteed to succeed. We will return to the exponential trend line in the chart at some point in the future and we will fail to the downside. It is a mathematical certainty. For example, it is utterly impossible to stay above the trend once the trend hits 100%. In all likelihood, it will fail much, much sooner than that. Will the failure happen in my lifetime? That I cannot say for sure. I could die early, lol. Sigh.

Source Data:
St. Louis Fed: Custom Chart

The Sarcasm Report v.191

October 28, 2014
7 surprise retirement expenses

As a retiree and a writer of sarcasm reports, how could I resist clicking on that link?

1. Unexpected expenses.

The first surprise retirement expense is a group of surprise retirement expenses? Welcome to the world of recursion! Fantastic! I immediately searched the Internet for more information. As seen in the following link, it turns out that there are 7 unexpected expenses.

October 28, 2014
7 surprise retirement expenses

1. Unexpected expenses.

Help me! I'm caught in a recursion loop. Oh, I see what they've done here. I'm supposed to move on to the second surprise retirement expense in the list. Got it.

2. Don't delay investment decisions.

I'm already retired. No time like the present to stop procrastinating! How is this a surprise retirement expense though? Perhaps I'm missing something.

3. Timing your retirement.

If you time your retirement poorly, surprise! 2000? Bad timing! 2007? Bad timing! 2014? Who knows?

4. Playing it too safe. We need income in retirement, and the temptation is to protect our principle and live off the interest. But that's almost impossible in these days of ultra-low interest rates. Instead, design your portfolio to produce total returns of 6 to 7 percent, even though the interest you get might be closer to 3 percent.

There is definitely a temptation to protect my principle (a basic truth)! Agreed. That's why I write sarcasm reports! Oh, wait. Do you think he meant principal (my nest egg) instead? Well, yeah. I'm trying very hard to protect it too.

I'm reminded of a rhetorical story. I owed the loan shark $10,000 and he wanted the money within a week. I told him that I could scrounge up $5,000 safely, but it was almost impossible to come up with $10,000 in these days of ultra-low interest rates. He said that if I didn't cough up $10,000 then he'd shoot me in the knee cap. That got me to thinking about designing a riskier portfolio that could produce 100 percent returns in just 7 days. Two days and a trip to Vegas later I offered the loan shark the following deal. $0 or bust! Not unexpectedly, he shot me in the knee cap.

It's what he said next that really made me laugh though, "I still need that $10,000 from you!" I replied, "Good luck on that, chump! I lost your $5,000 at the roulette table in Vegas! Just one bet! All or nothing! It was your money and therefore a risk I was willing to take!" Oh how we laughed over that one. He definitely appreciated my sense of humor. That didn't stop him from shooting me in the other knee cap though. What a surprise retirement medical expense that was! Never saw it coming!

That's when I decided to ask how many more bullets he had left in his gun? I can't say that I particularly cared for his answer. It ended well though. Fortunately, I met another loan shark. I needed income in retirement! $10,000 to be precise! I am still working through the details of how I'm going to pay him back. I probably just need to build an even riskier retirement portfolio and head back to Vegas.

5. Figure in inflation.

Surprise! Although inflation has been around for more than a century, this expense still manages to surprise retirees. Why is that? I wish you could have seen my face when reading it. I gasped in horror at the unexpected!

6. Falling victim to fraud.

You mean like designing a retirement portfolio to safely produce total returns of 6 to 7 percent when the 3 month treasury bill yields just 0.02%? That kind of fraud? Because if the retirement portfolio can't safely produce total returns of 6 to 7 percent and I am relying on it to do just that, then hello surprise retirement expense!

7. Selling your life span too short.

I could live long and my nest egg could run dry? This is a really surprising retirement expense. It has never even entered my thoughts! Has anyone else ever considered it?

Tuesday, October 28, 2014

Our Dog Honey Changes Bunkers!

This is surely a sign of the economic recovery!

November 22, 2011
Superbunker Mentality

Click to enlarge.

That was then, this is now!


Click to enlarge.

We were watching TV tonight and Honey decided that Cocoa's bed would make a fantastic vacation bunker! She did this all on her own. There was no prompting from us.


Click to enlarge.

Note the strategically placed left rear leg! Yes! She managed to get it in the bunker! Way to go Honey!


Click to enlarge.

Hahaha!

Perhaps I should have not allowed Honey to read my last post?;)

Mount Shafted: Homeownership Rate and Vehicle Miles Traveled per Capita

The following chart shows the homeownership rate in black (left scale) and vehicle miles traveled per capita in blue (right scale).


Click to enlarge.

The next chart shows the change in the homeownership rate over the previous two quarters.


Click to enlarge.

The future's so bright, I better not sell shades for a living (for either homes or cars).

Source Data:
St. Louis Fed: Custom Chart

Cthulhu's Guide to Interest Rate Risk

The following chart shows the weekly average of the overnight AA asset-backed commercial paper interest rate minus the daily fed funds rate.


Click to enlarge.

The Call of Cthulhu by H. P. Lovecraft

The most merciful thing in the world, I think, is the inability of the human mind to correlate all its contents. We live on a placid island of ignorance in the midst of black seas of infinity, and it was not meant that we should voyage far. The sciences, each straining in its own direction, have hitherto harmed us little; but some day the piecing together of dissociated knowledge will open up such terrifying vistas of reality, and of 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.

Theosophists have guessed at the awesome grandeur of the cosmic cycle wherein our world and human race form transient incidents. They have hinted at strange survivals in terms which would freeze the blood if not masked by a bland optimism. But it is not from them that there came the single glimpse of forbidden aeons which chills me when I think of it and maddens me when I dream of it. That glimpse, like all dread glimpses of truth, flashed out from an accidental piecing together of separated things...

Source Data:
St. Louis Fed: Custom Chart

Terminator QE: Rise of the Machinery

The following chart shows the quarterly average of real monthly manufacturers' new orders for machinery per capita (September 2014 dollars).


Click to enlarge.

I have added a linear trend channel in red. As seen in the chart, we seem to be exploring new territory. I think everyone can agree that this is a really great development! We're finally permanently free of the downward long-term trend! Woohoo!

Now let's take a look at construction machinery in particular. The next chart shows the quarterly average of real monthly manufacturers' new orders for construction machinery per capita (September 2014 dollars).


Click to enlarge.

I have added a "klaxon" trend channel in red. Please ignore that commentary in blue (within the chart). It seems a bit alarmist (pun intended). I certainly don't want to pop anyone's optimism bubble. In fact, you should probably just stop reading here. There's no point continuing.

Unlike the machinery data in the previous chart, the construction machinery data for the third quarter of this year has not been released yet. I can say this though. July and August averaged just $15.69 (as seen here). Unless September is a blowout month, the next data point on this chart won't be hugging the top of the red "klaxon" trend channel any longer.

But have no fear! Klaxon trend channels are known for their stability! Nothing to worry about! As time passes, the channel will continue to grow (both to the upside *and* the downside)! Therefore, the odds are high that we actually can stay within the channel over the long-term! Isn't that wonderful? There's very low risk of ever experiencing a klaxon trend failure in this data! That's true even if new orders for construction machinery eventually fall all the way to zero! Woohoo!

The future's so bright, I gotta hear the klaxon!



If Albert Einstein's definition of insanity is doing the same thing over and over again and expecting different results, then we certainly can't accuse the Fed of insanity. They aren't doing exactly the same thing. Based on the increasing volatility in the construction machinery chart, I'd say they are amplifying the "thing" each time! Bigger and badder! That's what I say! Insane? Like a runaway train! Woohoo!

Oh, what the hell. Clown horn time!



See Also:
Sarcasm Disclaimer

Source Data:
St. Louis Fed: Custom Chart (Machinery)
St. Louis Fed: Custom Chart (Construction Machinery)

Exponential Trend Failure of the Day: Investment Fundamentals (Musical Tribute)

The following stack chart shows the 10-year moving average of real annual interest and dividend income per capita (August 2014 dollars).


Click to enlarge.

Now let's look at a line chart of the data and add a few trend lines.


Click to enlarge.

What an epic exponential trend failure that is. The data was following a nearly perfect exponential trend (r-squared = 0.999) in red, right up until it wasn't.

Perhaps the Fed is going to need to offer more "Juice" over the long-term than they currently believe. You know, in case a "pandemic of pension woes is plaguing the nation".

Oh, and that "new and improved" exponential trend in blue with its dubious 0.2% growth rate? Just call it angle of the mourning!



In all seriousness, don't these charts just scream increasing real prosperity? Well, either that or rearranging deck chairs on a ship that's listing (see angle of list). You make the call.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

Sunday, October 26, 2014

The Sarcasm Report v.190 (Musical Tribute)

October 24, 2014
What your dog's costume says about the economy: The week ahead

Macke also asserts, “There are no items on the planet earth as discretionary as dog Halloween costumes.” The National Retail Federation says the average person will spend $77.52 this Halloween, compared to $75.03 last year...

$77.52 / $75.03 = 3.3% Growth Rate

3.3% growth not counting inflation! Woohoo! If this won't drive the 30-year treasury bond yield above 3.3% then nothing will! And with typical hourly earnings growth seemingly topping out at 2.3%, we know 3.3% is sustainable!

November 22, 2011
Superbunker Mentality


I should have never allowed our dog Honey to study the European debt crisis. She entered the superbunker and there's just no getting her out.

Our dog Honey remains bunkered. It's worse now. She seems insulted by the premise that a dog Halloween costume is declared to be the most discretionary item on the planet earth. Surely there is a "softer side" item even more discretionary?

The following chart shows real monthly department stores' sales per capita (excluding leased departments, September 2014 dollars).


Click to enlarge.

1. The linear trend in blue failed in 1999.
2. The exponential decay trend has yet to fail.
3. Just think what that says about the economy!

January 16, 2014
Stores Confront New World of Reduced Shopper Traffic

Anthony Dolphin, 23, a mechanical engineer from Westborough, Mass., said he likes to look up deals online before making the trek to stores. Even so, he only made three or four short trips to stores over the holidays.

"I just buy the essentials and pay off student loans with the rest," he said.



Source Data:
St. Louis Fed: Custom Chart

The Corkscrewed Recovery

The following scatter chart compares real GDP (bottom scale) to the number of nonfarm employees (left scale). There was a time when you could predict one with uncanny accuracy simply by knowing the other. It was a nearly perfect linear relationship. As seen in the chart below, that is no longer the case. It is different this time.


Click to enlarge.

1. The first coming of trend failure was linear. Rejoice.
2. The second coming of trend failure was parabolic. Praise be.
3. The third coming of trend failure was also parabolic. Amen.

Not only did the linear trend fail in the early 1990s, but it was replaced by an upside down parabolic trend that has failed twice so far. For those who believe that the labor force is important to future prosperity in a capitalistic society, that's just sickening.

Let's zoom in for a closer look.


Click to enlarge.

We're finally back to the upside down parabolic trend.

1. The optimists believe that this is a reason for celebration! Woohoo!
2. The realists believe that the corkscrewing will continue until morale improves.
3. The pessimists believe that morale will never improve.

For the record, I am not an optimist. I am very uneasy about the failure in 2007 in particular. It reached the extrapolated parabola from 1992:Q2 to 2001:Q1 and died right then and there, as if the parabola was an impenetrable wall that could not be breached. I'm also very uneasy that we're right back to the wall (as of 2014:Q2).

Is it any wonder the Fed is afraid to raise interest rates? If I was Yellen, then I'd be terrified. Fortunately, I am not Yellen. I can be terrified as a witness instead, lol. Sigh. Assuming the parabola has merit long-term, then good luck postponing the inevitable! ZIRP might work for awhile, but forever?



Source Data:
St. Louis Fed: Custom Chart

Friday, October 24, 2014

Bonus Exponential Trend Failure of the Day: New Home Prices vs. Hourly Wages

The following chart shows the median sales price for new houses sold divided by the average hourly earnings of private production and nonsupervisory employees. The result shows the number of hours the average production and nonsupervisory employee would need to work to pay for the median new house with cash.


Click to enlarge.

The exponential trend in red failed big time, not that many seem to notice or care. So what happened to the missing 1,400 hours of labor in September (in order to stay on the unsustainable exponential trend)? Well...



Seriously. As seen in the chart, didn't we already go through this once? Housing bubble? Hello?

Source Data:
St. Louis Fed: Custom Chart

Exponential Trend Failure of the Day: New Home Sales per Capita

The following chart shows the quarterly average of new one family houses sold per capita (seasonally adjusted annual rate). I have added a median in blue, the rut of 1982:Q2 in purple, and the current recovery's exponential trend line in red.


Click to enlarge.

Let's zoom in for a closer look.


Click to enlarge.

As seen in the chart, the rut of 1982:Q2 appears to be offering some resistance. Since the Fed Funds rate averaged 14.51% in 1982:Q2, I think the answer to our housing problem is simple. If we want to get through this rut again, then the Fed simply needs to lower interest rates from here! Genius!

The Fed Funds rate is currently only 0.09%? Seriously? WTF! Oh, well. Maybe we'll get lucky and the trend unfails all on its own. It better hurry up though, because everyone needs a new place to safely park their new subprime cars!



Deep sigh.

Source Data:
St. Louis Fed: Custom Chart

Subprime Quote(s) of the Day (Musical Tribute)

October 24, 2014
Subprime Auto Loan Probe Widens as GM Discloses Subpoenas

We are keeping a close eye on the deterioration,” in subprime auto-loan performance, the New York-based analysts wrote.

This brings me great comfort, much like the calming words of Fitch Ratings analyst Bob Curran from 2005.

April 7, 2005
Home foreclosure listings surged in March

"It may simply reflect our overleveraged society and the fact that people are carrying more debt on everything and it doesn't take a lot to affect a small percentage of them in terms of moving them from homeownership to not," Curran said.

"It's hard to make a case, based on what I see here, that all of a sudden it's become an enormous trend." He said the economy is improving and employment is growing, which bodes well for a homeowner's ability to make mortgage payments.

See? No worries. Let's combine the two quotes. Maximize that tranquility!

We are keeping a close eye on the deterioration!

It may simply reflect our overleveraged society and the fact that people are carrying more debt on everything and it doesn't take a lot to affect a small percentage of them in terms of moving them from car ownership to not!!

It's hard to make a case, based on what I see here, that all of a sudden it's become an enormous trend!!! The economy is improving and employment is growing, which bodes well for a car owner's ability to make auto payments!!!! Mwuhahaha!!!!!

Oops, sorry about that. I was attempting to provide calming words. I may have overdone it with the exclamation points and sarcasm. Please allow me to make it up to you.



I can see clearly now the rain is gone
I can see all obstacles in my way
Gone are the dark clouds that had me blind

Relax and enjoy the lyrics of this optimistic song from 1972! Don't let the oil crisis of 1973 enter your thoughts!! It would be hard to make a case, based on what was seen in 1972, that all of a sudden the pain of the 1970s would become an enormous trend!!! Nobody could have seen it coming!!!! Mwuhahaha!!!!!

Oh, crap. I ruined the moment. Sorry. :(

Thursday, October 23, 2014

Median CPI: Resistible Force Meets Immovable Wall (Musical Tribute)

According to research from the Cleveland Fed, the Median CPI provides a better signal of the inflation trend than either the all-items CPI or the CPI excluding food and energy.

The following chart shows the quarterly change in the median CPI.


Click to enlarge.

The resistible force (ZIRP) met the immovable wall in 2014:Q2. The wall held.

Mighty Fed, keep pushing on that string! Push on it! Something's bound to morph!



Source Data:
St. Louis Fed: Custom Chart

Weekly Layoff Odds Approaching New Record Low: Time to Embrace Long-Term Risk?

This is my response to every financial expert on CNBC and Bloomberg TV who states that this is definitely an excellent time for long-term investors to embrace risk (a no-brainer so to speak).

The following chart shows weekly initial claims divided by total nonfarm employees.


Click to enlarge.

Excellent times to embrace long-term risk:

1. September 1982. The bad started getting better.
2. July 1992. We actually got through the early 1990s recession.
3. March 2009. We [barely] avoided Great Depression II.

Disastrous times to embrace long-term risk:

1. May 1969. We launched a man to the moon in July 1969.
2. April 2000. We launched dotcom stocks into orbit.
3. February 2006. We launched housing prices into the stratosphere.

September 2014?

Count me out! I know, big shocker. As seen in the chart, the 1980s and 1990s are over. In 2004 (when I turned permabearish on our economy), I debated a Capital One Financial bull on the Yahoo message boards on a regular basis. He kept saying that times were about as good as they'd ever been. I kept saying that it is much better to make long-term investments when they aren't.



October 22, 2014
Mish: Saxo Bank CIO Jakobsen Predicts Another "Shock Drop" in Markets; Addicted to Cheap Money

My view is that 1810 on the S&P would be only the beginning of the bear market that is to come. 1500 or even 1200 on the S&P would not shock me.

If we did revisit 1200, I would feel obliged to do another Rubicon post.

November 30, 2011
Crossing the S&P 500's Rubicon v.30 (Musical Tribute)

Here's a list of dates when the S&P 500 crossed above the 1200 level (at the close compared to the previous trading day's close).

We first crossed 1200 in 1998. We crossed it 29 more times since then. 2001? Yes. 2004? 2005? Yes, yes. 2008? Yes. 2010? 2011? Yes, yes. It's been nearly 3 years since we last crossed it to the upside. Would it shock me if it happens again? Not exactly.

This is not investment advice.

See Also:
Refining the Rubicon
Yahoo! Finance: Capital One Financial: Long-Term Chart

Source Data:
St. Louis Fed: Custom Chart

Wednesday, October 22, 2014

Parabolic Trend Failure of the Day: Human Labor vs. Animal Labor

The following chart shows the consumer price index for personal care services (think haircuts) divided by the consumer price index for meats, poultry, fish, and eggs (1982-84 = 100%).


Click to enlarge.

The future's so bright, I gotta wear shades of green.



Source Data:
St. Louis Fed: Custom Chart

Monday, October 20, 2014

Desert Plains + ZIRP = FAIL (Musical Tribute)

The following chart shows the annual percentage change in Arizona construction employment.


Click to enlarge.

I have added a parabolic trend in red covering the recovery. Why a parabola? Well, let's just say that an exponential growth trend just doesn't fit the data all that well. This begs a question. Wasn't ZIRP supposed to prevent upside down parabolas from forming?

February 21, 2013
A Phoenix Housing Boom Forms, in Hint of U.S. Recovery

The housing market in Phoenix presaged and magnified the collapse in real estate. Now its recovery could reveal much about the prospects for a nationwide turnaround.

Using similar logic, one wonders what this recovery failure could foretell.



Full moon is rising
The sky is black
I heed your call I'm coming back

Source Data:
St. Louis Fed: Custom Chart

Sunday, October 19, 2014

Our Economy Can't Tolerate Exponentially Decaying Interest Rates

As hard as this may be to believe, I would argue that our economy requires interest rates to decay even faster than exponentially.

The following chart shows the natural log of the M2 money supply interest rate. When using natural logs, constant exponential growth (or in this case, decay) can be seen as a straight line.


Click to enlarge.

I have added a linear trend line in blue that represents the interest rate ceiling. Note that it is a nearly perfect fit of the data. At the high end, interest rates have therefore been decaying exponentially. There is little doubt of that. If we reach the blue line, very bad things happen (see 2000 and 2007 in the chart). Further, each visit to the blue line created more pain than the previous visit. The last visit gave us the Great Recession. Nice job Bernanke!

Time Magazine: Ben Bernanke: Person of the Year 2009

His creative leadership helped ensure that 2009 was a period of weak recovery rather than catastrophic depression, and he still wields unrivaled power over our money, our jobs, our savings and our national future.

I have no doubts that his creative leadership helped ensure that 2009 was a weak period. As seen in the chart, some might even argue that his creative leadership gave us the Great Recession. It might have even inspired some to create Illusion of Prosperity blogs in 2007. Who knows!

I have also added a parabolic trend line in red that represents the interest rate floor. Note that it too is a nearly perfect fit of the data. At the low end, interest rates have therefore been decaying more than just exponentially. The description of it is something to behold. Parabolically decaying exponential decay? Two decays for the price of one! Woohoo! Further, note that our last visit to the red trend line is acting a bit like a Roach Motel. We can't seem to free ourselves from the stickiness.

SNL: Bug Off Ad

Roaches are attracted to Bug-Off by a chemical message that says, "Come on in, it's warm and safe in here." Once inside, the roach is held fast by a powerful adhesive, while three pairs of tiny tweezers grab the roach's legs and stretch them in opposite directions, until eventually they snap off. Meanwhile, a red-hot metal coil burns off the roach's reproductive organs, as the roach's own legs are used to beat it senseless. And with the patented clear-view window, you can be sure it's working. Finally, wads of turpentine silk cotton are stuffed into the roach's orifices, while a delicious piece of food is dangled just out of its reach.

True, none of this will actually kill the roach, but it will give it plenty to think about. So stop coddling your roaches. They've had it too good for too long.

Roaches? Savers? Long-term prosperity? It's all good.

Source Data:
St. Louis Fed: Custom Chart

Saturday, October 18, 2014

The White Picket Fence Dream: Timing the Full Recovery (Musical Tribute)

The following chart shows privately owned 1-unit housing starts per capita. I have added a median in blue and an exponential trend in red. When the two meet, we've fully recovered! Yay!


Click to enlarge.

May 2025! Mark it on your calendars!

The future's so bright, we need a montage!



Source Data:
St. Louis Fed: Custom Chart

Friday, October 17, 2014

Real Annual MZM Interest per Capita: Failure to Launch

The following chart shows what the $12.8 trillion sitting in MZM is earning per capita and adjusted for inflation (August 2014 dollars).


Click to enlarge.

Note that the floor (in red) is decaying exponentially but the ~$800 ceiling (in blue) is going nowhere. Also note that the last two visits to the ceiling required epic bubbles as fuel. Isn't that wonderful!

Fool me once, shame on you. Fool me twice, shame on me. Fool me three times, shame on both of us. - Stephen King

Let's zoom in for a closer look.


Click to enlarge.

It's actually worse than it looks for short-term savers. MZM continues to expand. In order to earn your fair share of annual interest (currently $30 as seen in the chart) you must start with $40,000 and continue to add to it (roughly $2000 per year). Fortunately, income inequality greatly concerns Janet Yellen, so a solution is just around the corner no doubt. Barring that, there are other "failure to launch" solutions of course.



It's going to take a stick of dynamite to get me out of my parents' house.

In hindsight, the timing of the movie was nearly perfect. 2006! Now the next generation can just sit back and live the dream. Sigh.

Source Data:
St. Louis Fed: Custom Chart

Exponential Trend Failures of the Day: Stock Market vs. Real Estate

The following chart shows nonfinancial corporate equities divided by household and nonprofit organization real estate.


Click to enlarge (this chart is larger than normal to show extra detail).

10 Things We Know:

1. From 2009:Q1 to 2014:Q2, the ratio grew exponentially at 10.4%.
2. As of 2014:Q2, the ratio was 2 STD above the long-term average.
3. Since 1952, the ratio's experienced two very serious trend failures.
4. In 1969, we put stocks on the moon.
5. The next decade was not kind to investors.
6. In 2000, we put stocks on the moon.
7. The next decade was not kind to investors.
8. In 2014, we put stocks on the moon.
9. The future's so bright, I gotta wear shades.
10. This is not 1982.



Source Data:
St. Louis Fed: Custom Chart

Thursday, October 16, 2014

On Track for Peak U.S. Industrial Production

That's not exactly the headline you'll find on CNBC, is it? Just trying to balance things out a bit!

The following chart shows the natural log of the industrial production index. When using natural logs, constant exponential growth is seen as a straight line.


Click to enlarge.

Note that the data is not following a straight line. It is following a nearly perfect parabolic trend channel (in red). Growth is therefore slowing parabolically and has been doing so since World War II. Also note that we're very near the peak should this long-term trend continue (and I see little reason to suspect it won't).

Let's zoom in for a closer look.


Click to enlarge.

I have added another trend line in blue. Since it is straight, it shows that the industrial production index has been growing exponentially over the short-term (the last four years). Yay. Due to the amazing and unprecedented consistency of the climb, many assume it has become a sure thing over the long-term too. Hurray. Good luck on that theory though. It is a temporary (cyclical) phenomenon and is not even remotely sustainable over the long-term. That's my opinion of course, but I believe it with every fiber of my being. Calling it a strong opinion would be an understatement.

I theorize that our odds of successfully breaching the long-term trend channel (in red) in a substantial way are about as close to zero as short-term interest rates currently are. The test of this theory will be made soon, when the intersection of the top of the long-term trend channel in red with the short-term trend line in blue occurs. That's currently on track to happen at the end of 2015, assuming that the blue trend doesn't fail even sooner (due to recent global economic weakness).

Why do investors extrapolate short-term euphoria and ignore long-term decay? Misguided optimism? Greed? Hubris? An irrational belief that the Fed can permanently create prosperity to fill the void? Perhaps it shall remain a mystery. The next leg down may have both short-term cyclical forces and long-term structural forces acting on it simultaneously though. Won't that be a hoot, especially if we're still stuck in ZIRP when it happens. Seriously. What a wake up call that would be. Risk abounds.

The long-term future's so blight, I gotta wear an umbrella (an upside down parabola, like the one seen in this post) to protect my eyes from the torrential industrial production downpour that's coming our way (again). It's only a matter of time. Sigh.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

Wednesday, October 15, 2014

The Stock Market: What Could Possibly Go Wrong (Again)?

The following chart shows nonfinancial corporation liabilities and equity divided by annual wages and salary accruals.


Click to enlarge.

$38.2 trillion in debt and equity can't be wrong! Back up the frickin' truck! They're practically giving it away! Get your share of it before the next guy does!

Don't let the recent weakness scare you away.



Stay the course. There's nothing to see here.

See Also:
Sarcasm Disclaimer

Source Data:
St. Louis Fed: Custom Chart

The 1980s and 1990s Are Over (Musical Tribute)

The following chart shows the percentage of federal outlays devoted to paying interest.


Click to enlarge.

The government would love to pay savers more interest, but it's got an economy to hobble along.



Source Data:
St. Louis Fed: Custom Chart

Pop Quiz: Furniture Sales

The following chart shows the 12 month moving average of retail sales at furniture and home furnishings stores as a percentage of wage and salary disbursements.


Click to enlarge.

It does not include the pitiful sales for September released today (due to not having wage and salary disbursement data for September yet). As seen in the chart, does it really matter though?

Which answer best describes the data?

1. Strong recovery!
2. Fed rate hike imminent!
3. Ebola fully explains the drop!
4. Hedge funds will soon gamble on furniture too! No worries!
5. The future's so bright, I gotta wear shades!
6. All of the above!

What? You want another choice? Seriously? Okay, okay. For the life of me I can't understand why you need one though. Are you not drinking the Kool-Aid?

7. F@#%ing new normal. Clown horn! Ugh. Deep sigh. :(



Source Data:
St. Louis Fed: Custom Chart

Tuesday, October 14, 2014

There's a Sucker Born Every Minute: 5 Year CDs

The following chart shows the yield that savers are currently getting on 5-Year CDs at banks and what they could be earning by buying 5-Year Treasury Notes from the government directly.


Click to enlarge.

Extreme Suckering!

1. Am I referring to the typical 5-Year Certificate of Deposit buyer getting far less yield than what could be earned on a 5-Year Treasury Note?

2. Am I referring to banks not generally informing CD buyers of this difference in yields?

3. Am I referring to the staggering and unprecedented gap between the two yields?

4. Am I referring to the staggering and unprecedented number of days that this has happened in a row?

5. Am I referring to investors in bank stocks who believe this banker's wet dream can go on forever (pardon my language)? That nobody will notice? That nobody will start posting about suckers being born every minute?

6. Am I referring to the seemingly widespread belief that it is absolutely impossible for the 5-year Treasury Note yield to actually drop from here (to more closely match what banks are generally paying on CDs)?

7. Am I referring to those who believe James Bullard when he says that the markets are wrong about the timing of interest rate hikes?

8. Am I referring to all of the above?

You make the call.

Source Data:
St. Louis Fed: Custom Chart

The Global Recovery's "Dirty" Little Secret


Click to enlarge.

October 14, 2014
Faltering economy hits China's coal sector

The sector has suffered from slumping prices, heavy debts and an onslaught of new domestic capacity – all while the Chinese economy is slowing. More than 70 per cent of China's coalminers are losing money, with half delaying or cutting wage payments, the China Coal Industry Association said in July.

Source Data:
St. Louis Fed: Export (End Use): Metallurgical Grade Coal

Exponential Trend Failure of the Day: 2 Year Treasury Yield


Click to enlarge.

It's always exciting to see an exponential trend failure happen real-time! Woohoo!

Quick! Someone alert James Bullard!

October 9, 2014
My Nomination for Hubris Quote of the Year

Right now, “the markets are making a mistake” and expect the Fed to maintain its ultra-easy policy stance longer than Fed officials themselves currently expect, Bullard said.

The markets now expect the Fed to maintain its ultra-easy policy stance A LOT longer than Fed officials themselves currently expect. You go markets! Show the Fed your adaptability! Attack that hubris! ;)

Source Data:
FRB: Selected Interest Rates
U.S. Treasury: Daily Treasury Yield Curve Rates

Monday, October 13, 2014

Exponential Trend Failure of the Day (Musical Tribute)


Click to enlarge.

Not only is it getting harder and harder to make money off of your money, but it is also getting harder and harder to find a money making job "helping" others make money off of their money! Oh the humanity!



Source Data:
St. Louis Fed: All Employees: Financial Activities

Interest Rates: One Chart to Rule Them All (Musical Tribute)


Click to enlarge.

The left scale (in blue) shows the 10-year treasury yield.
The right scale (in red) shows wages divided by MZM money stock.

If you believe that wage growth will be weak relative to money supply growth over the long-term, then you might feel as I do that interest rates will not be rising over the long-term. And if you strongly believe it, then you might consider explaining this chart to people who think interest rates must rise simply because the government is printing too much money.

Put another way, if the government prints too much money (relative to wages), then there will be ample money available to drive up bond prices (and lower their yields). And what, pray tell, would stop them?



Source Data:
St. Louis Fed: Custom Chart