Small Business Pain

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Exponential trend... fail.

October 1, 2007
Credit crunch hits small businesses

(FSB Magazine) -- Three years after scraping together $100,000 from family, friends, and credit cards to bootstrap Zensah (zensah.com), a maker of athletic clothing in Hialeah, Fla., Ryan Oliver wanted expansion capital. He looked where thousands of entrepreneurs have found a ready source of funding - in the value his house. Applying for a $25,000 home-equity loan, he figured he was a shoo-in. shoo-in. His credit score was 750 out of a possible 850, and his house was appraised for $650,000, leaving him about $100,000 in untapped equity. His 15-employee business, which counts among its customers such professional sports teams as the Miami Heat and the New York Jets, had a three-year track record and was profitable.

But three banks - Great Florida, Wachovia, and Washington Mutual - shot him down without specifying why. "It's almost like they'd created new formulas," says Oliver, 34. No kidding. With the subprime mortgage market imploding and house prices slipping, lenders are making it far more difficult for entrepreneurs to leverage their homes to feed their businesses.

Source Data:
St. Louis Fed: Custom Chart

An Exponentially Increasing Exponential Trend

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As seen in the following chart, the exponential growth rates are themselves growing exponentially. In fact, it's nearly a perfect fit.


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If exponential trends are guaranteed to fail at some point (they are), then what does that say about exponentially increasing exponential growth rates?

The failure could be spectacular someday.

This would come as yet another major blow to the true believers of the Chinese economic miracle story. Note that the China Shanghai Composite Index is currently down 66% from the peak set in 2007. With miracles like that, who needs enemies?

November 8, 2012
Foxconn 'considers plan to open factories in US'

In Foxconn's huge assembly halls in China, iPhones and iPads are largely put together by human hands, with very little automation. In the US, sources say Foxconn will specialise in flatscreen TV sets, which are easier to assemble with the help of robots.

See Also:
Definition of Laspeyres Index

Source Data:
St. Louis Fed: Custom Chart

From Bad to Worse

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Source Data:
St. Louis Fed: Median Duration of Unemployment

Mind Blowing Chart of the Day

Yesterday, I posted the following chart.

November 10, 2012
The Interest Rates of World War II

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I realized last night that I had seen that chart shape before. The following chart adds in manufacturing employment as a 2nd data series (in red).


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Let's use 10-year moving averages to remove the short-term cyclical noise.


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Mind blowing! Now let's take that data and put it on a scatter chart.


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This chart is consistent with my view that the 3-month treasury bill rate may remain low for a very, very long time. There are powerful inflationary forces in the world but there are powerful deflationary forces too. Thanks to increasing automation, it is my opinion that global manufacturing employment is definitely not on the rise (at least over the long-term).

Source Data:
St. Louis Fed: Custom Chart

The Interest Rates of World War II

I posted a chart earlier today and thought it would be interesting to see the same data plotted on a log scale.


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Note that we were heading into World War II the last time 3-month treasury bills were yielding so little.

World War II

World War II, or the Second World War (often abbreviated as WWII or WW2), was a global war that was underway by 1939 and ended in 1945.

I'm reminded of a quote.

"I know not with what weapons World War III will be fought, but World War IV will be fought with sticks and stones." - Albert Einstein

It would seem that World War III will be fought with global debt and monetary printing presses. I think it will be slightly less effective at reducing global overcapacity in steel production though. Just a hunch.

This post inspired by Jazzbumpa's comment seen here.

Source Data:
St. Louis Fed: 3-Month Treasury Bill: Secondary Market Rate

The Irrational Exuberance Seen in Short-Term Treasuries

I'm probably not going where you think I'm going based on the title. Sorry about that!


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The six diamond points in red were used to create the two exponential trend channels in red. As seen in the chart, there was a major trend shift in the early 1980s. The diamond points in blue suggest that perhaps stock market investors didn't get the memo.

Many have tried to predict when the next exponential trend channel change will occur.

Dune (1984) - Memorable Quotes

Paul: They tried and failed?
Reverend Mother Mohiam: They tried and died.

In the fall of 2004, my biggest concern was that it would be harder and harder to make money off of money. It is still my biggest concern. I think the chart clearly shows that my concern is/was valid.

As a saver, I pose three serious questions.

1. When will the next major exponential trend channel change occur?
2. What if it doesn't occur within my lifetime?
3. What if our economy actually requires continually falling interest rates?

The latter question is especially interesting to me. If the answer is yes then stock market investors may be taking on a lot more risk than they think they are. At 0%, there isn't a whole lot further rates can come down.

See Also:
Wikipedia: Irrational Exuberance

Source Data:
St. Louis Fed: 3-Month Treasury Bill: Secondary Market Rate

Operation Titty Twister

The following chart shows the Fed's treasury securities maturing in more than 10 years divided by the Fed's treasury securities maturing in 1 to 5 years.


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The twisting will continue until morale improves?

What is Operation Twist?

“Operation Twist” is a program conducted by the U.S. Federal Reserve (“the Fed”) in late 2011 and 2012 to help stimulate the economy. Operation Twist is the nickname for the Fed’s initiative of buying longer-term Treasuries and simultaneously selling some of the shorter-dated issues it already held in order to bring down long-term interest rates.

From Dusk Till Dawn

After successfully reaching Mexico, they arrive at the "Titty Twister", a strip club/brothel in the middle of a desolate part of Mexico, to meet their contact Carlos at dawn.

Coincidence?



What would we do without gallows humor?

Source Data:
St. Louis Fed: Custom Chart

Stock Market Risk

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Feeling lucky?

Source Data:
St. Louis Fed: Custom Chart