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

Long-Term Real GDP Growth Prediction

If GDP continues to fall relative to disposable personal income like it has since we fell off the gold standard...


Click to enlarge.

And if real disposable personal income growth continues to fall long-term...


Click to enlarge.

Then here is my long-term real GDP growth prediction in one word or less.

Down.

If "ifs" and "buts" were candy and nuts then we'd all have a Merry Christmas. Oh, man. I just had to bring up Christmas. I hope we're not all hanging our hopes on that one again. About the only long-term trend I can see with Christmas is that the retailers keep moving the starting date forward to capture those precious shopping dollars before the competition does, lol. Sigh.

February 2, 2011
More Dangerous Advice from Jeremy Siegel

These healthy rates were not a surprise, since economic theory predicted that real yields should approximate real gross domestic product growth, which averaged between 3 per cent and 4 per cent at that time. - Jeremy Siegel

And yet, the Wharton School wizard believes/believed that "risks abound with inflation-linked bonds". In all fairness, I wouldn't touch his precious "Stocks for the Long Run" with a 10' pole either I suppose, especially that 4th edition released on November 27, 2007 (just 4 days before the Great Recession officially began).

According to Pablo Galarza of Money, "His 1994 book Stocks for the Long Run sealed the conventional wisdom that most of us should be in the stock market."

Siegel argues that stocks have returned an average of 6.5 percent to 7 percent per year after inflation over the last 200 years. He expects returns to be somewhat lower in the next couple of decades.

Here's a little known conventional wisdom fact. We didn't even know what aluminum investing was all about 200 years ago. Why? Aluminum wasn't even discovered until 1825! I would have tweeted it at the time, but my Internet connection was down. Speaking of aluminum, Goldman Sachs apparently opted to disregard the professor's advice and "invest" in the the wondrous element that is used to manufacture empty soda cans. Talk about silly. Why the empty cans? Why not the heavily marked up precious fluids within? And here's an even more interesting conventional wisdom fact. I just browsed data going back to the 7th century. Turns out the U.S. Government has only bailed out General Motors in the last 200 years. There are no indications of previous bailouts as far as I can tell. It's truly baffling. You'd think that if the good professor can use 200 year old data to predict the future then surely I could use today's data to predict the past. Where were the @#$%ing bailouts? It makes no sense! Horses? Horses you say? People drove them back then? That's cool. What kind of mileage did they get? How much did General Motors sell them for? Why is this data so hard to get!

Unlike the wizards and their dreams of frolicking unicorns safely tucked away within enchanted forests, I continue to believe that we'll have ZIRP well past 2014. It's just a hunch. Don't hold me to it!

But hey, it's all biscuits and gravy for now, at least until the next downturn anyway. Have no fear. I'll just be in a figurative bunker awaiting the next rubicon event. Would you believe that it has been almost two years since the last one? I know! Where does the time go. As seen in the data within the link, it's hardly unprecedented though.

This is not investment advice.

Source Data:
St. Louis Fed: GDP / DPI
St. Louis Fed: Real Disposable Personal Income Growth

The "Free Lunch" Weight Loss Plan v.012

I'm still counting on seasonal effects to reverse winter's upward trend. In support of that theory, my weight was stable this month and I have just slipped below the 90 day moving average.

It is tempting to set my new goal to be the S&P 500 divided by 6. That would put my current weight target at 213 (1278 / 6). It is certainly doable in the short-term. I could fast this weekend and get there no problem. There are a couple of downsides though.

1. I'd have to change the name to The Hexed Rubicon Weight Loss Plan.
2. I'd be at risk of losing too much weight if the stock market continues to decline.
3. If the S&P 500 miraculously rose to 1500, then I'd have to glutton myself on all that new prosperity.

No, I think I'll just continue to climb 20 extra flights of stairs every day and let nature take its course. It's probably more sustainable over the long-term.

See Also:
The "Free Lunch" Weight Loss Plan v.000

Charts of the Day

Click to enlarge.

I may want to start firing up the Rubicon machine again. Sigh.

Update:


Click to enlarge.

I should probably mention that the "You Are Here" point was April 2012. We've slid a bit to the left since then.

Source Data:
St. Louis Fed: Custom Chart

Refining the Rubicon

It dawned on me this morning that I was doing a terrible disservice to my readers. The ongoing Rubicon joke is very nearly back in play but there is a serious issue with my methodology.

The Rubicon joke was based on a number pulled directly out of thin air. I aim to rectify that situation today by offering a solid objective estimate of the true Rubicon level using daily S&P 500 data from 1998 to present.


Click to enlarge.

Will wonders ever cease?

Hindsight shows that the Rubcion was 1197.8 on January 3, 1998. It is currently 1186.7. That's roughly a 1 point decline per year. It is also 1% less than the 1200 level I have been actively heckling. Shame on me! I clearly did not factor in its degradation over time.

When one is using 20x to 30x leverage in order to make easy money, a 1% discrepancy could mean billions of dollars in lost profit potential. I apologize for any inconvenience that my earlier ballpark Rubicon estimate may have caused.

In my defense, how could I have possibly known that the S&P 500 wouldn't return to 1500 and therefore pull the trend line up again? All we'd need is another bubble to replace the recent housing bubble and the earlier dotcom bubble. How hard could that be?

Sarcasm!

See Also:
Crossing the S&P 500's Rubicon v.30 (Musical Tribute)

Source Data:
Yahoo: S&P 500 Historical Prices

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).

1. 12/21/1998
2. 4/18/2001
3. 7/12/2001
4. 7/26/2001
5. 12/14/2004
6. 12/21/2004
7. 2/4/2005
8. 2/11/2005
9. 2/24/2005
10. 6/1/2005
11. 6/9/2005
12. 6/13/2005
13. 6/28/2005
14. 7/5/2005
15. 7/8/2005
16. 10/31/2005
17. 9/16/2008
18. 9/18/2008
19. 9/25/2008
20. 4/14/2010
21. 4/20/2010
22. 4/29/2010
23. 5/3/2010
24. 11/4/2010
25. 12/1/2010
26. 8/15/2011
27. 8/29/2011
28. 9/15/2011
29. 10/12/2011
30. 11/30/2011



Wake me up
(Wake me up inside)
I can't wake up
(Wake me up inside)
Save me
(Call my name and save me from the dark)

Wake me up
(Bid my blood to run)
I can't wake up
(Before I come undone)
Save me
(Save me from the nothing I've become)

See Also:
Crossing the S&P 500's Rubicon
Crossing the S&P 500's Rubicon v.22
Crossing the S&P 500's Rubicon v.23
Crossing the S&P 500's Rubicon v.24 (Musical Tribute)
Crossing the S&P 500's Rubicon v.25
Crossing the S&P 500's Rubicon v.26
Crossing the S&P 500's Rubicon v.27
Crossing the S&P 500's Rubicon v.28 (Musical Tribute)
Crossing the S&P 500's Rubicon v.29 (Musical Tribute)
Sarcasm Disclaimer

Source Data:
Yahoo: S&P 500 Historical Prices

Stimulus Physics Update #5 (Musical Tribute)

Here's the original chart and the reasoning behind it.

February 8, 2010
Stimulus Physics


Click to enlarge.

Stimulus was applied. Stocks rose into the air. Many seem convinced that stocks will keep going up. Who knows?

Please don't read too much into this. Almost anything can happen in a world filled with cartoon stimulus and/or cartoon physics.

Here's where we are now (with a new projected trajectory).


Click to enlarge.

The following is an alternate path and one I would prefer if forced to make a prediction.

August 22, 2011
Stagnationary Prediction Update?


Click to enlarge.

A flatlining outcome is fully consistent with a permanent Rubicon environment. You can pretty much guess that it is my personal favorite, if only to keep the ongoing Rubicon joke alive.

The future's so bright, I gotta wear [rose-colored] shades.



This update was requested by Fritz_O in the comments of the last post.

See Also:
Stimulus Physics
Stimulus Physics Update #1
Stimulus Physics Update #2
Stimulus Physics Update #3
Stimulus Physics Update #4
Trend Line Disclaimer

Source Data:
Yahoo: Historical Prices for Dow Jones Industrial Average

The Great Rubicon Reset of November 2011

The S&P 500 closed below 1200? Again? How is this possible?

Operation Rubicon


November 21, 2011. A date which will live in infamy. The United States of America was repeatedly and deliberately attacked by the same deflationary debt forces as the Empire of Japan.

There is some good news though.

We've also got $97 oil and a massive trade deficit with the world. Unlike Japan, we're therefore in a much better position to achieve sustainable growth and prosperity over the long-term.

Sarcasm!

Rubicon = Con the Rubes

See Also:
Crossing the S&P 500's Rubicon v.29 (Musical Tribute)

The Rubicon Line Held

1200.86 on the S&P 500?

The stock market is such a tease.

Crossing the S&P 500's Rubicon v.29 (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).

1. 12/21/1998
2. 4/18/2001
3. 7/12/2001
4. 7/26/2001
5. 12/14/2004
6. 12/21/2004
7. 2/4/2005
8. 2/11/2005
9. 2/24/2005
10. 6/1/2005
11. 6/9/2005
12. 6/13/2005
13. 6/28/2005
14. 7/5/2005
15. 7/8/2005
16. 10/31/2005
17. 9/16/2008
18. 9/18/2008
19. 9/25/2008
20. 4/14/2010
21. 4/20/2010
22. 4/29/2010
23. 5/3/2010
24. 11/4/2010
25. 12/1/2010
26. 8/15/2011
27. 8/29/2011
28. 9/15/2011
29. 10/12/2011



See Also:
Crossing the S&P 500's Rubicon
Crossing the S&P 500's Rubicon v.22
Crossing the S&P 500's Rubicon v.23
Crossing the S&P 500's Rubicon v.24 (Musical Tribute)
Crossing the S&P 500's Rubicon v.25
Crossing the S&P 500's Rubicon v.26
Crossing the S&P 500's Rubicon v.27
Crossing the S&P 500's Rubicon v.28 (Musical Tribute)
Sarcasm Disclaimer

Source Data:
Yahoo: S&P 500 Historical Prices

Operation Twister

I propose that Operation Twist be renamed Operation Twister.



I'm basing this on Wednesday's stock market action (decidedly negative) and the current stock market futures (decidedly negative).

By falling below 1200 on the S&P 500, we have also reset the Rubicon condition. Shocking! I thought for sure that 1200 would hold that time.



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

See Also:
Sarcasm Disclaimer

Crossing the S&P 500's Rubicon v.28 (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).

1. 12/21/1998
2. 4/18/2001
3. 7/12/2001
4. 7/26/2001
5. 12/14/2004
6. 12/21/2004
7. 2/4/2005
8. 2/11/2005
9. 2/24/2005
10. 6/1/2005
11. 6/9/2005
12. 6/13/2005
13. 6/28/2005
14. 7/5/2005
15. 7/8/2005
16. 10/31/2005
17. 9/16/2008
18. 9/18/2008
19. 9/25/2008
20. 4/14/2010
21. 4/20/2010
22. 4/29/2010
23. 5/3/2010
24. 11/4/2010
25. 12/1/2010
26. 8/15/2011
27. 8/29/2011
28. 9/15/2011

We've surfaced again!



Skimming across the sea like a bird on a wing.

See Also:
Crossing the S&P 500's Rubicon
Crossing the S&P 500's Rubicon v.22
Crossing the S&P 500's Rubicon v.23
Crossing the S&P 500's Rubicon v.24 (Musical Tribute)
Crossing the S&P 500's Rubicon v.25
Crossing the S&P 500's Rubicon v.26
Crossing the S&P 500's Rubicon v.27
Sarcasm Disclaimer

Source Data:
Yahoo: S&P 500 Historical Prices

Continued Port Traffic Stagnation

Inbound traffic does not imply that there will be a strong Christmas season. Adjusted for seasonality, August was an absolutely awful month (down a whopping 33,000 containers from July).



Outbound traffic is attempting to move higher. Just like it did in 2007?



Total port traffic is really struggling. I see no hope of ever returning to the red trend line. Much like the other exponential trend failures I've posted on this blog, we continue to drift further and further away.



35% better not be yet another rubicon level, because this is not the first time we've crossed it.

See Also:
Port Traffic Stagnation

Source Data:
Port of Long Beach: Statistics
Port of Los Angeles: Statistics
The X-12-ARIMA Seasonal Adjustment Program

Rubicon! (Musical Tribute)

We are below 1200 again on the S&P 500? Seriously? How is this possible?

I was so sure that #27 would be the final time.

That's it. I'm pulling out all the stops now. The next advance must be the last!

Panzerlied


Panzerlied

If one day we're deserted by treacherous luck,
And we don't return home anymore,
If a deadly bullet hits us, and fate calls us away,

Calls us away,

Then the tank shall become our honorable grave.

Crossing the S&P 500's Rubicon v.27

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).

1. 12/21/1998
2. 4/18/2001
3. 7/12/2001
4. 7/26/2001
5. 12/14/2004
6. 12/21/2004
7. 2/4/2005
8. 2/11/2005
9. 2/24/2005
10. 6/1/2005
11. 6/9/2005
12. 6/13/2005
13. 6/28/2005
14. 7/5/2005
15. 7/8/2005
16. 10/31/2005
17. 9/16/2008
18. 9/18/2008
19. 9/25/2008
20. 4/14/2010
21. 4/20/2010
22. 4/29/2010
23. 5/3/2010
24. 11/4/2010
25. 12/1/2010
26. 8/15/2011
27. 8/29/2011

The wise men apparently presented just three gifts, but the stock market has presented three gifts raised to the third power! 3^3! That's 27 divine gifts!

Turning back now would be an insult to the "powers" that be (TPTB)!

August 22, 2011
Who Will Benefit From the Slowing Economy

Some analysts think stocks, for instance--which have fallen 17 percent from their April peak and are down about 10 percent for the year--are undervalued, with smart investors gradually adding to their stock portfolios over the next several months.

...

A chronically anemic economy will probably keep the value of the dollar low against other major currencies, which would be a boon for exporters and anybody selling goods priced in dollars to foreigners.

Nothing says smart like investing in chronically anemic economies. The proof can be found in the 27 rubicon crossings!

See Also:
Crossing the S&P 500's Rubicon v.23
Crossing the S&P 500's Rubicon v.24 (Musical Tribute)
Crossing the S&P 500's Rubicon v.25
Crossing the S&P 500's Rubicon v.26
Sarcasm Disclaimer

Source Data:
Yahoo: S&P 500 Historical Prices

Nearly Crossing the Rubicon (Musical Tribute)

August 17, 2011
Investors flee stock funds at rate not seen since 2008 panic

NEW YORK — The stock market turmoil caused by the downgrade of the USA's triple-A credit rating caused mutual fund investors to dump U.S. stock funds at a rate not seen since the height of the panic during the last financial crisis in October 2008, the latest fund flow data show.

The S&P 500 was above 1200 for a few hours today but could not stay there.

This comes as a huge shock and disappointment to the followers of the Rubicon cult.

Cheer up! There may be MANY more opportunities to permanently cross 1200 as we usher in a new wave of never-ending debt-based prosperity!



It's impossible to be sad when you listen to this song! You could find out you're going to die in 2 days and your dog could die on that same day but you'd still love life when you listen to this song! :D - Kanine11

Crossing the S&P 500's Rubicon v.26

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).

1. 12/21/1998
2. 4/18/2001
3. 7/12/2001
4. 7/26/2001
5. 12/14/2004
6. 12/21/2004
7. 2/4/2005
8. 2/11/2005
9. 2/24/2005
10. 6/1/2005
11. 6/9/2005
12. 6/13/2005
13. 6/28/2005
14. 7/5/2005
15. 7/8/2005
16. 10/31/2005
17. 9/16/2008
18. 9/18/2008
19. 9/25/2008
20. 4/14/2010
21. 4/20/2010
22. 4/29/2010
23. 5/3/2010
24. 11/4/2010
25. 12/1/2010
26. 8/15/2011

26! Woohoo!

It's like playing with half a deck. Oops. That's not what I meant to say. I'm trying to be optimistic here. Let's try again. I see the house of cards as half full! Ack! I did it again. I mentioned housing. One last try.

Surely this must be the last time we ever cross above 1200! Pure optimism!

What? We're already below 1200 again? Seriously? WTF! I practically slept through one of the most important technical indicators of the last decade!

Okay, I'll let you in on a little optimistic secret. #27 will be the final crossing. I can feel it in my bones this time. It's gonna stick or my name isn't Rip Van Rubicon!

See Also:
Crossing the S&P 500's Rubicon v.23
Crossing the S&P 500's Rubicon v.24 (Musical Tribute)
Crossing the S&P 500's Rubicon v.25
Sarcasm Disclaimer

Source Data:
Yahoo: S&P 500 Historical Prices

The Fourth Horseman of the Rubicon!

I resubmit a post from April in its entirety. The S&P 500 closed that day at 1,360.48. The gallows humor joke now has a punch line.



Just three? Didn't the legend imply that there would be more?

1. Conquest
2. War
3. Famine
4. Death

Which one are we missing?

See Also:
Crossing the S&P 500's Rubicon v.25
Four Horsemen of the Apocalypse
Sarcasm Disclaimer

Source Data:
Yahoo Finance: S&P 500

The Three Horsemen of the Rubicon?

Just three? Didn't the legend imply that there would be more?

1. Conquest
2. War
3. Famine
4. Death

Which one are we missing?

See Also:
Crossing the S&P 500's Rubicon v.25
Four Horsemen of the Apocalypse
Sarcasm Disclaimer

Source Data:
Yahoo Finance: S&P 500

Does Jeremy Siegel Live in a Cave?

March 1, 2011
Crude Realities

The world produces -- and consumes -- about 80 million barrels of crude oil a day. At a $100 a barrel, that amounts to $8 billion dollars or just short of $3 trillion dollars a year. World GDP is about $60 trillion using current dollar exchange rates, and about 20% higher if measured on the basis of purchasing power parity. That means oil consumption is about 4% to 5% of world GDP.

Not one thought is spent analyzing how the price of oil affects the remaining 95% to 96% of world GDP. For example, let's say I was thinking about going out to eat and would have enjoyed the very best that our American service economy offered, but the high price of oil made me stay home instead.

Yet even if oil prices soar, I would be surprised if stock prices fell by much more than 20%.

That's certainly comforting. Let's all make a mental note of that quote for future reference.

March 2, 2011
Rebound in travel industry threatened by fuel prices

"The big trend that is about to hit us is the rise in the price of oil. It is going to underlie everything," travel writer Pauline Frommer predicted in an interview. "That's the dragon looming on the horizon."

March 3, 2011
Declines in restaurant visits are slowing

As encouraging as the latest stats are for restaurants still coping with the prolonged economic downturn, rising gasoline prices could easily stunt the industry's slow recovery, says NPD analyst Bonnie Riggs.

February 24, 2011
Spiking Oil Prices: Time To Worry Yet?

Different industries are watching closely for those crossing-the-Rubicon price points that spell real trouble.

The Rubicon is definitely worth watching. It reminds me of 2008.

March 19, 2008
Gas prices gouge eating, shopping habits, too

Americans are paying more at the pump, and that means that they have less money for everything from the cable bill to eating out.

Update:

March 24, 2008
Jeremy Siegel On The Financial Crisis

The deep downward spikes that we used to get, particularly in manufacturing--those suddenly down-and-then-up spikes of unemployment--have given way in a more service-oriented economy, in a slower, much more muted behavior of unemployment and employment and for a little longer.

The muted behavior of unemployment in our service-oriented economy was certainly a sight to behold.

Since we've talked a couple of weeks ago, the dollar has gone down even further, commodity prices have risen, and oil is now at $110 and going higher. That is my primary concern.

Keep in mind that we officially entered the recession in December 2007 (three months earlier) when oil was under $100. $145+ oil was therefore just insult to injury.

So, my feeling is that we may not pick up until 2009, although I think that 2008 might surprise us in the second half.

The second half of 2008 was quite the shocker. The S&P 500 traded at 1,349.88 when he offered his wisdom. It hit a low of 666.79 on March 6, 2009. For those keeping track at home, that was a 50% loss. So what did he tell investors to do?

Don't get scared and sell anything out. This is not going to be a Great Depression. I know that some people are talking about it, but if you see the way the Fed is moving and making sure that liquidity is in the system, and if you look at what is happening in the real economy--and believe it or not, it's still moving along, with very few people, net, having lost their jobs. I think that you will see that there are a lot of reasons for being confident about the future.

Oil is $100 again. He's telling investors not to get scared again. Wonderful.