Household Net Worth

Behold the household wealth creation of a pandemic combined with ZIRP. Broken window fallacies be damned. Break them, and break them good I say. It's a brand new era of unprecedented prosperity! And should this plan ever start to falter, look for plague, pestilence, and NIRP to save the day!!

Seriously. Other than recent bitcoin and stock market performance, there's absolutely no reason to fear downside risk or reversion towards the mean theories. Even in uncharted territory, the Fed always knows what it's doing. Always has your back!

I know I said I was serious in the last paragraph. It was gallows humor. Sorry about that. I actually just bought more I-Bonds. Not only do they track inflation as seen in the CPI, but they can never deflate. Not that many are all that worried about deflation again. Yet.

Trading Update VII

Sold all VDC @ 192.09 to repurchase equal weightings of KMI @ 16.06 and OKE @ 61.66.

In hindsight, selling pipelines in October to buy consumer staples was very kind to me. VDC gained a clearly unsustainable and somewhat surprising 5.3%. Counting missed high-yielding dividends, KMI lost 8.3% and OKE gained 1.1% since I sold.

Natural gas prices have fallen. That news should be priced in. I'm therefore comfortable reversing the trade and now own more shares of KMI and OKE than I otherwise would have.

Perhaps I should be more concerned about the virus and future mutations. However, even as a homebody introvert, I'm feeling the cabin fever. Can't stay isolated forever.

Apocalypse Fatigue

It's been a rough month.

Our 25-year-old bird is sick. We took her to the emergency vet. She stayed overnight. We think she ate part of her cage. Ingested some metals. She's prone to seizures and these were the most violent we'd ever seen. Feathers and blood everywhere. Not good.

Took her to her regular vet for a followup. She was terrified and escaped their control long enough for even more feathers and blood. Ouch.

We've set up a hospital cage for her made out of a large plastic storage container drilled with holes and filled with towels. It's treating her well so far.

Meanwhile, we ordered a new large steel cage for her. We were fortunate to find one on sale, because they are not cheap. There are SO many out of stock right now. It was originally supposed to be delivered two days ago but there was a delay due to a train derailment. I kid you not. It arrived today and we put it together. Fortunately, that went well. She's not ready for her new and improved home, but it will be ready when she is.

In other news, it's not been a great month for the stock market. I'm still up 10% since I bought back in December, even with today's tobacco stock selloff. The decision to diversify out of utilities is still holding up well. Utilities are not reacting well at all to the rise in the 10-year yield. Had I stayed entirely in utilities, the gains would be cut in half. On a brighter note, still doing better than the 30-year Treasury bond. By. A. Wide. Margin. A 0.37% increase in yield x 30 years is roughly an 11% loss.

No more VPU specific reports. It's only 20% of my IRA now (and my IRA is a relatively small part of my net worth), so my motivation to track it closely just isn't there any longer.

Cabin fever is becoming apocalypse fatigue. Since 2020, it’s starting to feel like we're in the "what can go wrong, will go wrong" era. My hoarding tendencies are on high alert, with each new "out of stock", "shortage", "supply chain disruption", and "Covid" story adding to the personal drama. The drama is real. Any resemblances to the many fine disaster movies I often enjoy are hopefully entirely coincidental, military soldiers driving gasoline tanker trucks in Great Britain notwithstanding. *cringe*

And lastly, my posting frequency will most likely be somewhat reduced in the coming weeks. Looking to take a break. I will definitely continue to post trading updates, not that I have many trading plans. I’m comfortable with what I own. The next purchase will probably be more savings bonds at the start of the new year.

Trading Update V

Sold some VPU @ 150.40 to buy TSN @ 75.63.

New IRA asset allocation:

This is definitely a stock that I intend to hold long-term. I'm overweighting it and bracing for more pain. Not only has Tyson been in falling knife mode for the past month, but the White House isn't at all happy that the company raised meat prices during a pandemic. Makes inflation look bad, as if there aren't enough reasons already that inflation looks bad.

I suspect that the pace of my trading will soon grind to a halt, now that VPU is down to just 20% of my IRA. The buying and selling seems mostly done. Now it's time for the holding. If I thought that there was even a chance that we'd soon see 1% real yields on the 30-year TIPS then I would not be taking such risks.

The Cascading Exponential Trend Failures of Real GDP Growth

The headlines are dominated by talk of robust GDP growth during the recovery. Thought it might be a good time to offset that with a few charts of real GDP reality.

Here is a short-term chart of the natural log of real GDP. When using logarithms, constant exponential growth is seen as a straight line.

Note that, thanks to the virus, we failed to stay in the green channel. We're currently throwing everything at real GDP, including the kitchen sink, just in an attempt to get back to where we were. Also note that real GDP growth was weakening before the virus even hit. The Fed raised rates in 2017 and 2018. In 2019, the Fed was forced to backtrack on that plan. In hindsight, a rate of 2.4% was too draconian. The Fed ended the year at only 1.6%. And then, the virus hit.

So, in the short-term, we're definitely attempting to claw our way back to that green trend channel. But what about long-term?

The red channel is where we once were. That ship has sailed. No hope of ever getting back to it, especially now that we have a Covid baby bust. That exponential trend failed spectacularly, leaving us with a new green channel. The green channel then failed too. Cascading exponential trend failures. That's where we are now.

Here's the good news. We're all in this perma-ZIRP handbasket together and some of us strongly suspect where we are headed. Brush up on your Japanese and enjoy the ride! We might not like the ultimate destination all that much, but the path to get there is filled with easy money. And when I say easy money, I'm not expecting retired savers patiently waiting for interest rates to "normalize" to someday make out like bandits. This isn't a Hollywood movie. If anything, it's more like Gilligan's Island. Being stuck at zero is normal. Interest rates have been exponentially decaying for 40 years. It's just more of the same.

Thoughts on Food, Services, Health, and the Economy

The following chart compares the annual percentage change in personal consumption expenditures of food and services.

Looking forward to a return to normal.

There are three reasons we spent more money on food since the pandemic started. First, we have more food stockpiled. Second, our food has been delivered. Third, we have not been as price conscious. Taking advantage of sales hasn't been nearly as important to us over the past year. All of these things will soon reverse once we are vaccinated.

There is a disturbing fourth reason that food expenditures are up for others.

March 11, 2021
One year later, a new wave of pandemic health concerns

Weight change is a common symptom when people are having difficulty coping with mental health challenges. A majority of adults (61%) reported experiencing undesired weight changes, since the start of the pandemic, with more than 2 in 5 (42%) saying they gained more weight than they intended. Of this group, adults reported gaining an average of 29 pounds (with a median gain of 15 pounds), and 1 in 10 (10%) said they gained more than 50 pounds. For the 18% of Americans who said they lost more weight than they wanted to, the average amount of weight lost was 26 pounds (median of 12 pounds).

50 pounds is a lot to gain in one year, and a surprisingly large number of people managed to do it. Ouch.

For what it is worth, I intentionally lost about 10 pounds. It wasn't from eating less. I chose to walk more. I've averaged 6.7 miles per day during the pandemic. Trying to make a permanent habit out of both walking and cycling. Bought a bicycle late last year and will soon be riding it again. I'm optimistic that even more weight will be lost this summer.

I'm more optimistic in general. I do think inflation will be transitory. I do think interest rates will remain low. If true, I'm not even that concerned about debt. I don't currently see a stock market bubble or a housing bubble (although I do see pockets of great excess). Like Japan, it won't be a great era for savers, but that's okay. There are worse things than ZIRP. Not expecting the roaring twenties, but perhaps the meowing twenties? Could that be a thing?

I'm basing my optimism on a reversion to the mean, or lack thereof. We are continually told that when interest rates normalize, blah, blah, blah. I am arguing that rates have been normalized. They've been decaying exponentially for 40 years. That's what has been normal. Unless someone can give me a good reason why rates will soon stop decaying then I'm going to continue to believe that they will continue to decay. More money deposited in banks certainly won't lead to higher interest rates. Any counterargument based purely on excess money makes no sense to me at all. And man, has there ever been more excess money than right now?

This is not investment advice. My optimism is tempered. A friendly reminder that this is still an Illusion of Prosperity blog. The meowing twenties could easily become the hissing thirties. Sustainable and stable is not the long-term path we find ourselves on. Each economic crisis has been worse than the last.

New York City Restaurant Employment

The exponential growth trend failed in 2015, the Fed started raising rates in 2016, and then the pandemic hit in 2020. What's next? Meteor?



Source Data:
St. Louis Fed: All Employees: Leisure and Hospitality: Full-Service Restaurants in New York City, NY

Where Will You Be Six Years Later?

Forbes: Interest Rates To Scream Higher When Fed Stops The Music

The music has been playing and fixed-income investors have been enthusiastically dancing since 2008. During the past six years the Federal Reserve’s dovish stance has pushed interest rates to all-time lows...

It's true. I can't argue with that. The past six years have been especially brutal for short-term savers. Perhaps things truly will change when the Fed stops the music.

Torsten Slok, PH.D and Chief International Economist at Deutsche Bank Securities believes fixed income investors might be partying today but their hangover will be both abrupt and long term. This hangover will not be the typical frontal lobe variety but instead will be painful for the entire fixed income market. He believes, “the violence of the Fed turning hawkish will depend on positioning at the time and how long it will take fixed income investors to recognize that this will be a regime change away from the carry trade that has worked so well for the past 5 years”.

Scary stuff, to be sure. Combined with a screaming headline, that clever description of a hangover not of the typical frontal lobe variety is enough to send chills down a person’s spine, I must admit.

Where will you be six years later? Some might argue that there's no way to know. Some will argue that rates can only go up. I am not such a person, for I know something with 100% certainty that Torsten Slok, PH.D did not know as he wrote this. The 10-year Treasury yield will fall 1.90%. I know you are skeptical. How can I possibly know with such certainty and precision? It’s easy, actually.

This article was published on June 24, 2014! The 10-year Treasury yielded 2.59% on that day.

Exactly six years later, I was confined to my home during a pandemic, sitting in cash, wondering how and when to redploy recent Treasury bond profits, and staring at an unacceptably low 10-year Treasury yield of just 0.69%! That's where I frickin' was!

You really should have seen it coming. Some of you probably did. If I was willing to tease our beloved German Shepherd in the last post, then I'm certainly willing to tease Torsten Slok, PH.D.

As for any others teased along the way, sorry about the collateral damage! :)

It's tough to make predictions, especially about the future. - Yogi Berra

We’ve Got a Package!

River takes package deliveries very seriously. Due to the pandemic, she's had a lot of practice.

I don't normally tease her like this. Also know that she always gets a treat each time there is a delivery. :)

Derailed

There was an uptick in passenger train travel after the Great Recession. Unfortunately, it was not a permanently high plateau.

It will be interesting to see what what happens after the Covid-19 recession.

Is a train trip a way to enjoy the newfound freedoms offered by the end of a pandemic? Or will it feel more like being stuck in a home with wheels on it? Is train cabin fever a thing?

The Road to NIRP Is Paved with ZIRP Intentions

The following table shows the annualized inflation rate in the 2 years before each recent recession, the inflation rate in the 2 years after each recent recession, and the differences between them.

I am not a believer in the economy will soon overheat theory. A $1.9 trillion stimulus package might sound like a shockingly large sum of money, but let's put this in perspective. Household net worth now stands at $123 trillion and has grown $63 trillion since the Great Recession in 2009. By comparison, $1.9 trillion is like loose change found in the couch.

Our exponentially growing monetary addiction requires ever increasing sums just so the wheels don't fall off. Has anyone actually considered that $1.9 trillion might not be enough?

Ten Rhetorical Stimulus Questions

1. Are we supposed to be shock and awed by a $1.9 trillion stimulus package that's only equivalent to 1.5% of household net worth?
2. What if savers continue to save?
3. Are we counting on savers to spend?
4. Are we counting on spenders to spend what they've already spent?
5. How does one hoard services?
6. If there really is pent-up demand for haircuts, will people be getting twice as many over the next 2 years?
7. How much of a $1400 stimulus check would we need to save to earn $4.20 in annual interest in an online savings account that only has a 0.3% interest rate?
8. Should we use the $1400 instead to buy 100+ fast food meals, 2 shares of Tesla @ $674, or 5 shares of GameStop @ $247?
9. Easy come, easy go. Am I right?
10. Human sacrifice? Dogs and cats living together? Mass hysteria?

Humans needlessly sacrificed, dogs and cats living together, mass hysteria. It's been quite a year.

Mount Deadcatbouncus

The following chart shows the national average of 5-year CD rates on amounts less than $100,000.

As seen in the chart, Mount Deadcatbouncus erupted in the spring of 2019, long before Covid-19 was even a thing.

Thanks to the "rising" interest rate environment we now find ourselves in, savers nationwide are pinning their hopes and dreams on a new and more prosperous Mount Fatchancus forming. May they find much better luck than their predecessors.

The Sarcasm Report v.283

March 4, 2021
CNBC: Cramer says investors are in denial about stocks: ‘The sell-off is real’

“Right now, even after a 6% decline, we’ve still got a ton of denial,” Cramer said. “People don’t want to believe the sell-off is real. The market’s been so good for so long, and many newer investors have never seen this kind of pummeling, so the downdraft does seem pretty surreal.”

I know that many newer investors probably don't want to read up on ancient history, but the 2020 stock market crash also seemed pretty surreal.

The 30 Trillion Dollar Elephant in the Room

The following chart shows household and nonprofit debt. I have added an exponential trend line in red based on the data from 1952 to 2007.

We are now $30 trillion below the consumer debt trend that was in place for 55 years. Ben Bernanke once said that credit is the lifeblood of our economy. The lifeblood is certainly not pumping like it once did. Is it any wonder that Janet Yellen is practically begging for more fiscal stimulus?

While others talk of an economy that will soon temporarily overheat, I ponder what this elephant's continuing long-term impact on real GDP growth will be and if yet another elephant will appear in a post-pandemic world.

See no elephants, hear no elephants, speak no elephants.

Source Data:
St. Louis Fed: Households and Nonprofit Organizations; Debt Securities and Loans; Liability, Level

During Pandemic, Millionaire Regrets Not Having More Money

Here’s the latest from The Onion. They often go over the top with the satire, but they almost always crack me up.

February 11, 2021
Millionaire who bought a home at 26 regrets paying off his mortgage early: 'This is the biggest downside no one tells you'

After being mortgage-free, my and wife and I lived comfortably off the severance checks that we negotiated when we quit our six-figure jobs in finance (by that time, we had amassed a net worth of $3 million), and the $150,000 in annual passive income — mostly from real estate, dividend stocks and bonds.

But my entire attitude slowly changed once I sent that final mortgage check. I stopped aggressively looking for new freelance consulting work. I went from taking on three contracts per month to just one. So instead of working 60 hours, I was only working 20 hours. At around $10,000 per contract, I was losing out on $20,000 of monthly income.

Oops. My bad. It's not The Onion. It's CNBC.

Pent-Up Demand

This would probably be a bad time to remind everyone that my significant other cuts my hair now, does a more than adequate job of it, and will continue doing so in the future.

This would also be a bad time to point out that she is currently learning how to groom our Shih Tzu. We recently bought high-end dog clippers and a folding grooming table from Amazon.

This would defintely be a bad time to point out that it once cost 4 times more to groom our Shih Tzu than to groom me.

Nonstore Retailer Gain

The following chart shows the natural log of the sales of nonstore retailers. Constant exponential growth is seen as a straight line.

What the Great Recession taketh away, the pandemic (temporarily?) giveth back.

Unprecedented Restaurant Pain

The following chart shows the natural log of the sales of food services and drinking places. Constant exponential growth is seen as a straight line.

This is probably the most disturbing exponential trend failure that's ever been posted on this blog. The pandemic makes the Great Recession look like a minor hiccup. Will things ever return to normal? How many restaurants will actually survive?

The Ongoing Baby Bust

January 26, 2021
Brink: The Coming Baby Bust Caused by COVID-19

We’re already down 500,000 to 600,000 births per year from the recent peak in 2007, so now you’re starting to talk about approaching a million fewer babies born per year.

The following chart shows the fertility rate since 2007.

According to the United Nations Population Division, our fertility rate needs to be 2.1 just to maintain our population. Our recent 2007 peak was barely adequate, and it's been downhill ever since.

Over the long-term, those expecting a booming economy and higher real yields on investments will most likely be sorely disappointed. Welcome to Japan. Prepare for endless ZIRP. Brace for continued fertility rate disappointments as more and more come to realize the dire situation we find ourselves in.

For those who thought Trump would make America great again, you might want to look closely at the fertility rate since he was elected in 2016. Chaos and incompetence at the top only led to more uncertainty and divisiveness at the bottom. Chaos, incompetence, uncertainty, and divisiveness are not exactly great underlying conditions for fruitfulness and multiplication, if you catch my meaning.

462 Weeks Later

I first posted this chart on March 27, 2012.


Click to enlarge.

28 Weeks Later Tagline:

When days turn to weeks, the horror returns.

When weeks turn to months...
When months turn to years...