Friday, January 30, 2015

Bond Yields Reach Supernatural Levels

September 22, 2014
Tiger’s Robertson Says Bond Bubble to End in ‘Very Bad Way’

“Bonds derive their value from interest rates, and interest rates are unnaturally low today,” Marks said on the panel.

Stocks derive their value from unnaturally low dividend yields too. So his point was what exactly? Stuff the trillions in cash under a mattress in the long-term hope that it appreciates? That money has to go somewhere.

The unnatural 30-year treasury bond yield was 3.28% when that was said. Since it is now just 2.24%, it can mean only two things.

1. The supernatural vampire is determined to suck the lifeblood out of this economy's short-term savers until it is permanently satisfied. And if there is one thing I know about supernatural vampires, it is the need to feed never truly goes away, lol. Sigh.

2. Stock market investors will continue to laugh at bond market investors no matter how well the bonds do. That's just a given for those who don't understand what the "wimpy" 1% decline in yields over the past few months means over the course of 30 years.

Scratch one more bond bubble billionaire from the treasuries should be avoided at all costs camp. In hindsight, the timing of that advice was legendarily awful. Perhaps he should have factored in what the price of oil was doing, read up on Japan's economy after their real estate bubble popped in the early 1990s, glanced at a 35 year chart of treasury yields to setup a baseline for what natural means in a long-term declining interest rate environment, looked into the deposit glut of US banks, and/or studied the bond yields in the aftermath of the Great Depression. Just a hunch.

This is mot investment advice. It's actually pure unadulterated heckling of a billionaire though, and there's no telling what that's worth. I can say this. I alone got at least 99 cents of enjoyment out of teasing a financial superior and supposed market expert. Your actual return on reading investment may vary. Past giggling is not necessarily indicative of future laughter outbursts. ;)

Quote of the Day

Center for Science in the Public Interest: Litigation Project - Closed Cases

At the request of a private attorney, CSPI joined in a lawsuit against PepsiCo based on the fact that Tropicana Peach Papaya juice drink (1) contains no peach, (2) contains no papaya, and (3) is not a juice.

Welcome to peach papaya juice economy, lol. Sigh.

In all seriousness, can't you just feel excessive regulations strangling PepsiCo's bottom line? Down with all regulations! Free market capitalism for the win! Oh, wait. I said I was being serious. I meant sarcastic. Sorry about that.

Wednesday, January 28, 2015

Quote of the Day

January 28, 2015
Long-Term Interest Rates Have Been This Low Only Twice In The Last 214 Years

Only one other time — for about two decades following the Great Depression and through the post-World War II era — has the rate on long-term debt been so low.

Hey fellow retirees! Welcome to about two decades of post great construction bust long-term interest rates! That's if we get lucky and Japan opts to bomb Pearl Harbor, Germany invades France, and we can win World War III decisively without resorting to nuclear weapons. Somebody needs to destroy some serious industrial capacity at some point or we may never get out of this funk!

Gallows humor... it's what's for dinner (once the cat food runs out).

In all seriousness, I have built up quite the safety buffer on my prediction for 2015. In early December I claimed, with 80% confidence, that the 30-year treasury yield would stay under 3% every single day this year, in sharp defiance to the rising interest rate theories constantly told to us on CNBC. So far, so good. Knock on wood.

Tuesday, January 27, 2015

The Sarcasm Report v.204

Some naysayers believe that the USA is running a giant economic confidence game, much like the rest of the developed world. I say that could not be further from the truth. Just because we apparently require interest rates to continually fall over the long-term and we're currently stuck to the floor at the short end, it doesn't necessarily mean there's anything to be alarmed about. This could be all perfectly normal.

There's only one thing that would alarm me. I'd need to read a news article that tried to tell me that the only economic report that matters is the one regarding consumer confidence. Since when is consumer confidence a good predictor of future economic activity? That data's just staring right into the rear view mirror. If times were recently good, then people are generally happy. See how that works?

A confidence report is the only report that a confidence game would need to thrive. I can tell you with 100% confidence that nobody will ever suggest that it is the only report that matters. Not going to happen! So we can all just take a deep breath and sigh in relief. This economy is strong, resilient, and built upon the sturdiest of foundations. We don't need to rationalize it by ignoring all the awesome objective economic reports and dwell on one consumer confidence report in their place. That would be crazy talk for an economy as strong as ours.

January 27, 2015
Only One Of Today's Flood Of Economic Reports Really Matters

The market is freaking out over the slew of negative economic data this morning, but let's be real: that great consumer confidence report is the only one that actually matters.

Oh f%#k! It's the g#%^**% f%^king end times!! Why didn't someone warn me?

Hey. It isn't as bad as I thought. This person claims the market is freaking out. Well, I just checked the market and everything seems pretty good to me. That's right. Treasuries are doing fine. Oh, wait. Do you suppose the person meant the stock market? Should have been more specific. I know that many seem to think there's just one market but this only adds confusion and fear for those who know there are more than one. Confusion and fear cannot stop a panic. I thought everyone knew that.

Freaked me out big time to think that the only market that matters to me was freaking out. I almost dumped my long-term inflation protected treasuries and piled into the safe haven that is the USA stock market. Only goes up I'm told. There are no other safe alternatives.

Quote of the Day

January 27, 2015
MORGAN STANLEY: The Fed Isn't Raising Rates Until March 2016

Based on our outlook, a rate hike as early as the Fed's mid-2015 guidance looks increasingly implausible.

Big shocker.

This coincides well with my long standing Murphy's Law of Fed Rate Hiking theory. The timing of the first rate hike will always be twice as far out as you think it will be.

Should you attempt to factor this theory in and therefore double your estimate, then the actual timing of the rate hike will double again as well. Murphy's Law will not be denied!

This does pose a problem for my personal estimate though. I've always thought there was a very high probability we'd be trapped in ZIRP until just this side of forever. Good luck doubling that, lol. Sigh.

Good thing we're not following Japan into a long-term economic death spiral! As we know, long-term interest rates can only go up from here! It was true heading into the 1980s and it is still true today! How will we ever break the consumer price hyperinflationary cycle? What? The price of oil crashed again? Quick! Someone alert ShadowStats! Now is not the time for them to raise subscription prices!!

For all that is holy, beware the sarcasm bubble! ;)

Monday, January 26, 2015

The Bulls in the China Shop

January 26, 2015
China Bull Market Masks Momentum Breakdown

Government efforts to cool the growth of margin loans have curbed one of the biggest drivers of the rally.

Urban Dictionary: Bull in a China Shop

What's worse than a bull in a china shop? A hedgehog in a condom factory.

But what if it is a hedge fund invested in a Chinese condom factory? Then what? Stay tuned for potential hilarity!

Sunday, January 25, 2015

My Nomination for the 2015 Hubris Award of the Year

I know it is only January but I want to get my vote in early!

January 23, 2015
Bond market madness: How to profit from it

Can't you just feel what's coming based on the headline? Strap in folks, this is going to be a rough ride!

“We know higher rates are coming and it will probably be this year,” but what the market can’t predict is when. “Are you going to be able to time the bottom exactly? Who knows?”

We most certainly don't know higher rates are coming. That's what makes it even harder to time. And when I say we I really mean him and me. We, as a group, seem very divided about the future of long-term interest rates over complete business cycles. Further, I would never claim to know the future. I can only strongly suspect. Perhaps it stops me from investing in sure things, you know, like when everyone just sort of agrees that the only direction possible is up.

If everyone truly knows that long-term interest rates can only go higher from here then interest rates would already be higher. I, for one, would have sold all my long-term TIPS. Of course, that would be a problem in a world where nobody was buying them and everyone was selling. Go figure.

Another option, suggests Lydon, can be applied through The Market Vectors Treasury-Hedged High Yield Bond ETF (THHY) which shorts the treasury and is long high yield. “This actually has a short duration, very short, but a yield over 5%, kind of a neat scenario if your are looking at the treasury portfolio and saying I am not really that comfortable at this period in time because we know Yellen is going to be hiking rates.”

We do not know that Yellen is going to be hiking rates just because that's what she likes to talk about any more than we had proof that there was no housing bubble just because the lack of a housing bubble was all Bernanke wanted to talk about. Talk is cheap.

Further, I shall pass on profiting off the bond market madness if it involves shorting treasuries and loading up on high yield junk, no matter how "neat" and "comfortable" that sure thing advice seems to me.

This is not investment advice. We know this. And how do we know this? We don't. Yeah, I just told a lie. I know it isn't investment advice but how could I know that you know?  I therefore cannot speak for you. Sorry about that. Perhaps his hubristic tone is infectious.

If there's one thing we do know, it's that this sarcastic post was a joy to write. Oops. I did it again. Now we're thinking about Britney Spears, aren't we? It's uncanny how we can get inside our heads like that. We learned from the hubris master! Go us! ;)

Thursday, January 22, 2015

Transportation Winners of the New World

One of the more amusing theories of the modern age is that one must own stocks because there are no suitable alternatives. Take Jim Cramer's Winners of the New World. You will note that he did not mention bonds. It was heavily implied, as is the case now, that bonds could not be relative winners of the 21st century.

February 29, 2000
Winners of the New World

So, if you can't own the retailers, and you can't own transports, and you can't own banks and brokers and financials and you can't own commodity makers and you can't own the newspapers, and you can't own the machinery stocks, what can you own?

A-ha, that just leaves us with tech. That's why we keep coming back to it. That's why, despite the 80% increase in the Nasdaq last year, we are looking at another record year now. It is by that process of elimination that I have picked my top 10.

I would like to now extrapolate this "no suitable alternatives" theory to the transportation industry.

We can't own cars. So many people die in cars each year that it has become a travesty. Death traps each and every one of them, and don't even get me started on the financial costs of owning and operating motor vehicles.

We can't own bicycles. We're now forced to wear helmets, and it isn't because bicycles are inherently safe, let me tell you.

We can't own helicopters and airplanes. There just aren't enough places to land them and parking at our local strip malls is just right out.

A-ha, that just leaves us with pogo sticks. What better vehicle could there possibly be to navigate this brave new economy's cyclical ups and downs while simultaneously getting virtually nowhere over the long-term? It is by process of elimination that I have determined the only suitable method of transportation of the new world. The rest? You can have them.

Stocks and pogo sticks for the win at any price! You heard it here first, lol. Sigh.

This is not investment advice.

Wednesday, January 21, 2015

Quote of the Day

January 20, 2015
Honda Warns Against ‘Stupid’ Loans Driving U.S. Sales Gains

“We’ve seen this movie before, we know how it ends, and it’s not pretty,” Webb told reporters at an event before last week’s show. “But I say that it has longer to run, and we have already paid the price of admission. So we might as well stay to the end. You just keep your eyes on the exit door.”

Stupid loans for the win!

This is my first attempt to post from an iPhone. Crossing fingers.

Monday, January 19, 2015

The Death of My PC Is Not Greatly Exaggerated

July 28, 2014
Why PC Sales Have Stalled

The third group covers ages 40-65, and this group's primary device is still a desktop PC or laptop. Yes, many have smartphones or even tablets, but the phones and tablets augment their digital life while the PC and laptop still sits at the center of their digital activities. Interestingly, in consumers, this is this age group that are buying the most PCs and laptops to replace their older models. This group started buying PCs when they were in their early 20s, and until recently these were the only digital tools they had. For them, it is the most efficient and comfortable way to get things done.

You might think this is the end of the story. Not exactly.

There was a power outage at our house yesterday due to a fairly severe wind storm (just before the Seahawks game, but fortunately power was restored in time). I hobbled along on a 10+ year old obsolete desktop computer but that ended with the smell of smoldering electrical wiring. Stick a fork in that computer. It's done. The storm was too much for it.

Although I am in the favorable age group  (for PC purchases mentioned in the link above), I do not intend to replace my computer. Let me explain why. Here is the list of reasons I owned it.

1. Programming. I was a lead software engineer for quite a few years and I enjoyed writing code. Somewhere along the way I stopped doing it. The desktop is well suited for this task but it is a task I no longer do.

2. Finances. I tracked every expense on that computer (to the penny). I stopped in April of last year. That was when I got Shingles. I decided that life is too short to spend so much time on something that didn't really improve my quality of life. I'm a very frugal person. Tracking expenses doesn't really change my behavior. Should I wish to track my expenses in the future, the phone should actually make it easier. No more saving receipts only to reenter them at home. It was useful data to me, but the story isn't changing. I've pretty much seen all I need to see.

3. Bill paying. I expect the phone to work just as well. Time will tell.

4. Health. There was a time when I would track how much exercise I would do and how much I weighed. The personal computer is not ideal for this task. My new phone does a much better job. Heck, the iPhone even has an app that can easily check my pulse. It uses the camera lens and the flashlight to look at changes in my index finger. It also shows me a history of all my readings. I'm currently using it in conjunction with my 2015 goal of climbing 60 miles on the stair stepper. I check my pulse at the 30 minute mark during exercise (at 30 feet vertical per minute). What the trend will be over the full year? Down would be nice.

5. Email. The phone does a better job. The personal computer is obsolete for this task. As some of you may know, I could go more than a week between checking email on my PC. I check my phone at least once a day though (since it is almost always near me).

6. Surfing the web. The phone does a fine job and all from the comfort of wherever I happen to be at the time.

7. Music. I'd transfer data from my CD collection to my mp3 player. I'm currently using Spotify on my phone. I love it. I think of a song, any song, and chances are I can add it to my playlist. There are notable exceptions of course (AC/DC missing!). The phone is my music player now and the personal computer is no longer needed.

8. Gaming. This is a big one. I haven't played a game on a personal computer since the Playstation 3 came out, maybe even since the Playstation 2 came out. I find it much more comfortable to play games from the couch. Maybe that's just me.

And last but not least...

9. Blogging. I enjoy it but there are many things I enjoy. The other things just moved up the list, since most of them are free. Go figure.

So what does this mean? #9 was the only thing left from the original list. This could signal the death of my blog. Charting is what I enjoy most. My tools just died with my old computer. We'll see where it goes from here. Don't hold your breath though. I'm not really motivated to continue. The key here is motivation. I'm definitely lacking it.

One sign that the death of the PC is not greatly exaggerated is how little I have lost when mine died. I do not have much of a personal horror story to tell you. Most of what I've done on my computer still exists right here on this blog (and in the grand scheme of things, the universe would definitely not care if my blog died too). All I'm missing is some personal contact information (phone numbers and addresses) and some upcoming bill payment reminders. That's just about it. Go figure.

In some ways, the death of my PC is rather liberating. It should have died a long time ago. I was still running Windows 2000! I had the means to upgrade but the stubbornness to refuse. As one example of many, the thought of replacing Excel did not appeal to me at all. The old Excel was working fine for my needs. As an added bonus, I can laugh just a little harder every time I see some cheesy "fix my computer" and/or "computer running slow" advertisement on TV. As an even bigger bonus, one of my first thoughts was about this year's hiking season. The desktop anchor is now gone! Hurray!

Sorry Microsoft. It appears that I'm done buying your products (as of about 10 years ago or more). It's been an adventure though. I'll give you that. The blue screen of death adventure was the best of all. I realize that it's been a long time since I've seen one, but the post traumatic stress is with me to this day. ;)

I always liked Apple products better than Microsoft products, if for no other reason than I found them generally less buggy and cleaner (from a programmer perspective). I did far more programming on Apple computers than their Windows equivalents. There was a time at my company when I was forced to justify developing on Macs and simultaneously porting to Windows (vs. the other way around). To the best of my knowledge, we were the only team which did it that way. Upper management really didn't like that idea since most of our sales were not to Apple customers. It wasn't a very difficult fight though. Our team's tech support costs were at or near the lowest in the company. We never shipped with known bugs on either platform (so we must have been doing something right). They therefore let us continue developing as we had been.

In any event, they were wise to not press their point. I probably would have quit out of frustration. At the very least, our productivity would have dropped like a rock as we spent needless energy rewriting much of what we had done. That would have gone very poorly for us, me in particular. It would have been the equivalent of management asking the Captain of the Titanic to speed up just a bit, because they know best. I'm trying to picture what my performance review would have looked like and how many hours of overtime it would have taken to become unsatisfactory. Yeah, quitting would have been a good preemptive move I think. Nothing good would have come from staying. It's ironic though, because I did eventually quit and in hindsight, it was a good plan. Not much is left of that company now. As I left, I truly felt like a rat leaving a sinking ship (survived many rounds of layoffs, writing on the wall).

That said, it does bother me a bit, from a cost perspective, that I'm seemingly permanently trapped in the Apple ecosystem. Once in, it becomes difficult to escape. The cloud is here to stay. I've thought for years that my personal computer should simply be a dumb terminal, if for no other reason than what happened to it this weekend. It died and everything on it died with it. I have backups for much of it, but what good is it to have a backup if one does not plan to get another computer? Not much. No big deal though.

In summary, I cannot speak for others but my personal computer is dead. No amount of life support or heavily discounted sales will bring it back to life. I have no desire at all to replace it (at any price). I've been liberated by a mobile phone and there's no going back. If my phone can't do the task from here on out, then the task won't get done. That's all there is to it.

The irony here is that I'm typing this from my girlfriend's laptop (blogger doesn't fully support my iPhone's browser). I'm hunched over in the dining room. It's not all that enjoyable. This posture is hard on my back (my own fault). I'm making all kinds of typing mistakes since this keyboard has a different feel. This may very well be the last gasp of a dying blog! Those looking for ongoing trend failure charts will be sorely disappointed. Hopefully this economy has given you a lifetime's worth though, lol. Sigh.

Thanks to everyone for being so supportive. I couldn't have asked for better commenters! And for the record, it's not a dead blog. It's just dying. This is probably not my last post. I'm fairly sure I have at least a few more sarcasm reports left in me. Mainstream financial news tends to offer an endless stream of candidates. :)

Friday, January 16, 2015

James Bullard's Linear Trend Failure of the Day (Musical Tribute)

November 14, 2014
Does Low Inflation Justify a Zero Policy Rate?

Market-based measures of inflation expectations have declined to low levels in recent months, but rebounded since mid-October.

Click to enlarge.


Source Data:
St. Louis Fed: Custom Chart

Debt: All You Want (Musical Tribute)

I like to buy before yields fall
This bear believes growth will stall
And although high yields left me behind
There's no sure thing sold for free

As global growth began to slow
Stocks ran on empty, energy's been sold
But I can own the bonds I want
It's not the same with risk gone

Oh you did buy homes
I will give you that

All you want
Is the debt from that boom
All you want

All you need
Is hitting, no undo

It's been six years, it fell apart
But on this blog I did some charts
If only had our debt not grown
If bubbles had not been blown

Oh you can buy homes
I will give you that

All you want
Is the debt from this boom
All you want

All you need
Is hitting, no undo

Interest rates are falling to the floor
Could you please buy housing ever more
You will surely win
Just borrow from your next of kin

Send my regards to Ben
I will give you that

All you want
Is the debt from this boom
All you want

All you need
Is hitting, no undo

I like to buy before yields fall
This bear believes growth will stall

Wednesday, January 14, 2015

Quote of the Day

As seen on the Internet:

I have been playing the game for 32 days and have spent $130 and I am SH 15 and have all tier 3 troops. I am smart with my gold...

Behold the new free to play "Game of War" economy in all its grandeur, lol. Sigh.

Saturday, January 10, 2015

Spirit of '76

The following chart shows the interest rate that $12.9 trillion in MZM money stock is currently earning.

Click to enlarge.

As seen in the blue commentary, that's 5 straight months at 0.076%. We may have found the bottom! Woohoo!

Like all economic parabolic trends, the trend in red is guaranteed to fail at some point, but how will it fail?

1. The optimists might suggest that the rate is like a submarine that gently dove and is now preparing to gently surface. At best, any failure will be many years away. If they are right, then savers can expect more of the same until at least 2020.

2. The pessimists (especially Japanese pessimists) might suggest that the rate is like the Titanic. That ship found the ocean floor in 1912 and remains there to this day.

In spite of a rapidly falling unemployment rate, I lean towards the latter camp. Might get it to budge off the bottom in the short-term, but over the long-term? Let's just say that I'm not optimistic. Interest rates have generally been falling for 30+ years. It's hard for me to imagine how weak hourly earnings growth and an aging population will reverse the trend.

Spirit of '76 (sentiment)

Jefferson and the Second Continental Congress believed the Spirit of '76 "included the 'self-evident' truths of being 'created equal' and being 'endowed by their Creator with certain inalienable rights' including 'life, liberty, and the pursuit of happiness.'"

If the pursuit of happiness includes earning 76 cents in annual interest on each $1,000 deposited, then savers might want to stick to life and liberty.

All right, sweethearts, what are you waiting for? Breakfast in bed? Another glorious day in the Corps! A day in the Marine Corps is like a day on the farm. Every meal's a banquet! Every paycheck a fortune! Every formation a parade! I LOVE the Corps! - Apone, Aliens (1986)

Embrace the interest rate corps(e).

Source Data:
St. Louis Fed: MZM Own Rate