Pent-Up Layoff Surprise Demand

The following chart shows nonfarm payrolls divided by initial claims. I'm using quarterly averages to smooth things out a bit (1967:Q1 to 2013:Q4). In my opinion, the higher the ratio, the higher the potential for layoff surprises.


Click to enlarge.

The 3rd order polynomial trend channel in red uses the red data points.

The 3rd order polynomial trend in blue uses all the data points.

I would be among the last to argue that a 3rd order polynomial can accurately predict the future. It can't, especially over the long-term. That said, damn. It's an ugly chart. We all better hope there is absolutely no truth buried within it. Unfortunately, as a permabear since 2004, I do believe there is some truth buried within it (or I would not have made the chart). How much truth remains to be seen.

In any event, I would once again point out that this is not 1982. We are not at the very bottom of the long-term channel with favorable long-term tailwinds. Instead, we are at the top of the channel with winds of a potentially different nature. Sigh.

Is it really any wonder that we're still trapped in ZIRP?



This is not investment advice.

See Also:
Trend Line Disclaimer

Source Data:
St. Louis Fed: Custom Chart

I'm Gonna Pop Some Tags (Musical Tribute)

The following chart shows the 6-month moving average of the annual growth in clothing and clothing accessory store retail sales per capita. Keep in mind that it is not adjusted for inflation.


Click to enlarge.

We've experienced a lot of weather over the past few years. I doubt there's any reason to worry about the trend.



Source Data:
St. Louis Fed: Custom Chart

2014's January Retail Sales Report Autopsy (Musical Tribute)

The following chart shows the retail sales at food services and drinking places divided by the sales at food and beverage stores.


Click to enlarge.

Our service economy apparently requires us to grow the amount we spend at restaurants compared to the amount we spend at food and beverage stores. Put another way, our service economy requires ever increasing amounts of service lest we slip into recession.

I know what you may be thinking. It was very cold. People stayed home. Okay, let's go with that and try a thought experiment. I shall be your consumption guinea pig. Buckle in. It's going to be an laboratory adventure!

I'm sitting at home. The weather is too awful to leave the house. I'm a consumer, and man have I got some pent-up consumption demand. I'm sipping my hot chocolate. I'm looking over at my computer. I take a few more sips. I look at my computer again. I take another sip. I see a smart phone on the coffee table. I drink the last sip from a now empty mug. Empty! Bah! Say it isn't so! I can't stand it! I'm going to make a purchase and have it delivered to me! Snow be damned! It's the only way to end the agony!

The following chart shows the annual growth in nonstore retail sales. We should definitely see the cold weather surge in all its glory! It must be there!


Click to enlarge.

Hmmm. There's a Christmas surge within a declining trend channel and a hangover to go with it. That's not quite what we were looking for with our optimistic cold weather theory. Oh, well. Can't say we didn't try!



Source Data:
St. Louis Fed: Custom Chart #1
St. Louis Fed: Custom Chart #2

The Sarcasm Report v.186

iShares Short Treasury Bond ETF

Average Yield to Maturity: 0.15%

Expense Ratio: 0.15%

Perfect!

It is just like cash, only it isn't cash. It's a professionally managed bond fund! Genius!

Check out the fund's chart. What's not to like? $2.4 billion in assets! Very popular!

July 20, 2009
Focus on short end of yield curve, PIMCO says

Focus as you patiently await the end of ZIRP! 5 years so far! But we really, really, really mean it this time!

It's at an end! Cutting out! Kaput! Finished! Drop the curtain! Break camp! Pull up stakes! Finis! Absolutely, positively it! Not pulling your leg! Down the road! We swear we won't ever be back! Ain't gonna happen! Forget about it! Shutting it down! Lost our lease! Can't find it! Don't care! We're done! Closing shop! Putting up the shutters! Bolting the doors! Slamming them closed! Gonna board the place up! Nailing it shut! Big nails! Nothing gets in or out! Sealing it off! We're history! We really! Really! Really! Mean it! We're not jerking your chain on this! No snow job! Not bluffing! No kidding!

This concludes today's sarcasm report. :)

ZIRP: Great Depression vs. Great Recession

The following chart compares the 3-month treasury bill yield in the aftermath of the Great Depression to the 3-month treasury bill yield in the aftermath of the Great Recession.


Click to enlarge.

For the record, I am not predicting World War III (nor would I expect it to even remotely solve our long-term ZIRP problem as effectively as World War II did).

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

I think you can see why I might be fond of ultra long-term inflation protected treasuries and I-Bonds. You might also understand why I might be somewhat skeptical of rising interest rate theories.

I believe we are trapped in ZIRP much like Japan has been since their housing bubble popped in the early 1990s (which will become all too apparent when the next recession hits, whenever that is).

We might temporarily escape from our padded cell at some point, but we'll never get the straight-jacket off, much less get past the search lights, the dogs, the barbed wire fences, and Janet Yellen, our trusted security guard. That's just asking too much, lol. Sigh.

Gallows humor.

February 11, 2014
Janet Yellen to Emerging Markets: Good Luck

Monetary policy is hard enough without having to worry about the spillover effects to other countries that should take care of themselves.

Contrary to the opinion of those who think the stock market continues to go up easily from here and that vast riches await those willing to swing for the fences at any price, monetary policy is hard. For what it is worth, that's what I'm reading into what she has to say anyway.

This is not investment advice.

Source Data:
St. Louis Fed: 3-Month Treasury Bill: Secondary Market Rate
NBER: US Business Cycle Expansions and Contractions

Disposable Personal Income vs. CPI

The following scatter chart compares annual disposable personal income per capita growth (bottom scale) to the annual increase in the consumer price index (left scale).


Click to enlarge.

From 1960 to 2013:

1. 2009 was the worst year for disposable personal income growth per capita. It was also the record low year for consumer price inflation.

2. 2013 was the second worst year for disposable personal income growth per capita. Once again, inflation came in below expectations.

The following chart shows recent annual disposable personal income per capita growth. I'm using the monthly data instead of the annual averages this time to more adequately show all the gory details.


Click to enlarge.

January 10, 2014
Fed's Bullard: Inflation to pick up in 2014

WASHINGTON (MarketWatch)-- St. Louis Fed President James Bullard said Friday he expects inflation to pick up this year, despite having been surprised by lower prices last year.

1. Good luck on that inflation theory!
2. Brace for more surprises!

jjchandler.com: Tombstone Generator

Click to enlarge.

This is not investment advice, but damn.

Source Data:
St. Louis Fed: Custom Chart #1
St. Louis Fed: Custom Chart #2

Our Economy Distilled (Musical Tribute)

The following chart shows the annual change in beer, wine, and distilled alcoholic beverage wholesalers' sales.


Click to enlarge.

Don't let the trend line concern you. As seen in the next chart, I assure you that we are more than prepared to throw a legendary party!


Click to enlarge.

Just look at all that inventory accumulation. Yes, sir. Somebody must know something. The party's definitely coming!

Saturday night - high
Saturday night - high 'n' dry
Saturday night - I'm high
Saturday night - high 'n' dry

Source Data:
St. Louis Fed: Custom Chart #1
St. Louis Fed: Custom Chart #2

JOLTS of Déjà Vu

The following chart shows the semiannual average of the number of job openings divided by the number of hires (as seen in the Job Openings and Labor Turnover Survey).


Click to enlarge.

Note that this ratio appears to be a leading indicator for the last two recessions (too bad there isn't more data to backtest it further).

When the view out the front window (job openings) looks worse than the view out the rear window (hires), then there may be reason for concern (again).

The next chart shows the annual percentage change in the semiannual data.


Click to enlarge.

Let me guess. We can blame the "recent" decline on two years of bad weather?

The financial experts are bracing for this economy to accelerate in 2014. I have but one question. Which direction? Sigh.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart #1
St. Louis Fed: Custom Chart #2