Sunday, May 2, 2021

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.

Friday, April 30, 2021

VPU Performance v.004

Months Elapsed: 4
Total Growth: 9.20%
Annualized Growth Rate: 30.22%
Distribution Yield (TTM): 3.06%

The 30-year Treasury yield has risen from 1.67% in December to 2.30%. In hindsight, investing in utilities was a much better plan than locking in a 1.67% yield (the red target in the chart). Since I am not even remotely convinced that the long-term bull market in government bonds is over, those locking in 2.30% today might not be similarly disappointed though. That said, it would take a lot to be similarly disappointed. 30 years at 1.67% nets so much less than 30 years at 2.30%.

I suspect one short-term tailwind for utility investors to diminish as Treasury yields stabilize. Picture a recent safety-seeking retiree invested in low-yielding bonds who is looking at massive losses on those bonds, while also watching higher-yielding utilities actually going up in price. Painful. Is it any wonder that some therefore sold government bonds to buy utilities? As utility prices rise and Treasury prices fall, there is a growing temptation for me to sell utilities to buy government bonds though. The 30-year TIPS yield is currently only 0.02%, so the temptation is still very minimal.

4 months down, 196 to go.

Sunday, April 18, 2021

Tech vs. Utilities (Musical Tribute)

The following chart shows the QQQ to XLU ratio since 1999.

Chart courtesy of

The ratio peaked in 2000. 21 years later, we've almost come full circle. What good fortunes will the next 21 years bring? Fully autonomous self-driving cars? Better late than never. Am I right?

This is not investment advice. As a utility investor, I am indifferent when it comes to how utilities perform relative to tech stocks from here. That said, it would not surprise me in the least if utilities outperform Tesla. Keep in mind that I want Tesla to succeed, just as I would have wanted Ford to succeed in the early days if I would have been a gasoline investor.

As a side note, my first mower was gas-powered. My next mower was battery-powered. I really liked how quiet it was, but I did not like that, as it got older, it took more than one charge to mow my lawn (nor did I like that the battery was not easy to swap out). My current mower is gas-powered. Spent more than an hour today cleaning its carburetor. My next mower may be battery-powered, again. As much as the thought of a fully-autonomous self-driving lawn mower appeals to me, I don’t think I’m emotionally prepared to risk having it mow over things that randomly might appear in my lawn completely unsupervised though. You know, like the neighborhood kids and pets.

I’m not even emotionally prepared to risk owning a fully-autonomous self-driving vacuum. We have two dogs and a cat. All it took was one poopocalypse story involving a Roomba to cure me of that desire.

Saturday, April 17, 2021

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.

Monday, April 5, 2021

Mining Productivity Miracle

The following chart shows the mining industrial production index divided by the number of mining employees (thousands).

Bagger 293

Bagger 293 is 96 metres (314.9 feet) tall (Guinness World Record for highest terrestrial vehicle, shared with Bagger 288). It is 225 metres (738.2 feet) long (same as Bagger 287), weighs 14,200 tonnes (31.3 million pounds), and requires five people to operate.

At what point are these fully-automated and/or self-replicating?

Thursday, April 1, 2021

VPU Distribution History

This chart is one reason why I am mostly comfortable holding VPU over the long-term. I say mostly comfortable because:

1. Past performance is not necessarily indicative of future returns.

2. Exponential trends eventually fail. This one will be no exception.

3. VPU's distributions held up great during the Great Recession. However, had the fund existed during the dotcom bubble collapse, it would not have done well. XLU investors buying utilities in 2000 were no doubt greatly disappointed in 2003. Both the price and the distributions fell over the period, and not by a trivial amount. See data here.

4. A return to the 1970s era, which I am not at all predicting, could make the dotcom bubble's utility pain potentially seem tame by comparison. My comfort level is therefore tied to the belief that rising inflation will be transitory and that long-term yields will begin to fall again at some point in the next few years.

My expectations are low. Not trying to hit a home run here. I'd be perfectly happy walking to first base. This investment is mostly just a bond replacement in a TINA world, at least to me. Anything more than that is just a bonus. That said, there is a definite possibility of a substantial bonus, assuming the wheels don't fall off.

Wednesday, March 31, 2021

VPU Performance v.003

Months Elapsed: 3
Total Growth: 5.23%
Annualized Growth Rate: 22.60%
Distribution Yield (TTM): 3.17%

VPU paid a $0.9851 dividend today (a 9.5% increase from 2020 Q1). It was automatically reinvested through a DRIP @ $139.874. VPU closed @ $140.51.

From down 4.59% last month to up 5.23% now, it's been quite a volatile start. Live by the sword, die by the sword, live, die, and so on.

3 months down, 197 to go.

Thursday, March 25, 2021

Revisiting a 2014 Fed Funds Rate Prediction for 2020

September 25, 2014
Illusion of Prosperity: Fed Funds Rate Prediction for 2020 (Musical Tribute)

I'd be tempted to predict a rate between 1.0% and 3.3% based on the "Cone of Decaying Monetary Policy" channel (and using the inverses of the natural logs to predict the rate in the future). However, that would assume we can even get back into that channel and stay there for any appreciable length of time. Can you say exponential trend channel failure?

I therefore predict that the Fed Funds Rate at some point in 2020 will be a mere 0.25%. Think ZIRP + Japan. It just feels right (and oh so wrong). Can it go higher between now and then? Maybe, maybe not. The higher it goes the more likely a monster will be unleashed though. I have few doubts about that.

Dare I double down with the exact same rate prediction for 2030? I do dare! 0.25% at most.

When milk sours over time, more time just means more sour. At no point does the milk start becoming fresh again. Interest rates have been exponentially decaying for 40 years. Old money won’t soon be turning fresh again.

I might sound like a broken record, but this economy can’t afford to reward savers with vast riches any longer. If you are a saver, don’t panic though. This economy also can’t afford stagflation or hyperinflation. The only temporary safe harbor is to keep following Japan’s lead. Won’t work forever, but it may delay the inevitable for far longer than most think possible, in theory.

My opinion and a dollar could pay off the total credit market debt outstanding, if repeated 83,523,750,000,000 times. Unfortunately, I'll run out of dollars long before I run out of opinions!

Wednesday, March 24, 2021

Guard Cat on Duty

Don’t be deceived by the placement of the vent. I assure you that Dexter is guarding the front door. The warm air flow is just a coincidence. 🤪

Revised Estimate for the Upcoming 30-Year Treasury Yield Peak: 2.8% to 3.1%

Steep climbs tend to fizzle out at the end, as the momentum fades. This estimate range of 2.8% to 3.1% assumes a 1 to 2 year delay. For a description and reasoning behind my first estimate of 3.2%, see here.

I see no reason to panic. There is no drama here, at least not yet. The drama would start, for me, if we breach the red line by a sizable margin. Until that point, I continue to strongly believe that the long-term trend in the 30-year Treasury yield will continue to exponentially decay. And not in spite of the M2 money stock growing exponentially, but at least partially because of it.

The king of bonds may thought to be dead, but long live the king!

Wednesday, March 17, 2021

Guard Dog Training

River barks nonstop when trucks deliver packages to our home (or a neighbor's home), but patiently watches when trucks remove packages from our home (or a neighbor's home).

I don't mean to brag, but I think we've done an exceptional job with her training. Perhaps I should write a book? Hahaha! :)

Timing the Corporate Bond Bubble Collapse

The following chart shows nonfinancial corporate debt securities and loans divided by M2 money stock.

For those who are predicting that the corporate bond bubble will soon pop, I offer my congratulations. Relative to the money supply, you've already won! Come collect your trophy!

The distant future
The year 2000
The distant future, the year 2000
The distant future, the distant future

Tuesday, March 16, 2021

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

Monday, March 15, 2021

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. :)

Saturday, March 13, 2021

The Fed’s Been Buying Extra TIPS

March 3, 2021
Forbes: A TIP To The Wise: Don’t Look At TIPS To Protect Against Inflation From Here

Alas, I believe the metric is no longer valid as an informational tool. This is because the Fed has bought more TIPS since the coronavirus crisis started last year than the total amount issued. Digest that for a moment: the Fed bought over $175 billion of TIPS from March 13, 2020 to the end of February, 2021, whereas only $150 billion or so of new TIPs were issued (Source: Bloomberg, Federal Reserve). In percentage terms, the holdings of the Fed have gone from less than 10% over the same period to over 20%. Of the over $1.5 Trillion dollars of outstanding TIPs, the Fed owns over $300 Billion. And yes, the Fed has also bought a very large amount of ordinary, nominal Treasuries.

The metric that seems to be no longer valid is using the difference in rates between nominal Treasuries and inflation-protected Treasuries to determine future inflation expectations.

In theory, by concentratong more on buying TIPS, the Fed is distorting the market's inflation information.

However, I feel like there's a piece of this puzzle that's possibly still missing. If the market itself was buying extra TIPS, it seems possible to ne that the Fed was simply following the market's lead. In that case, the Fed would be buying more in an attempt to not distort the market's inflation information.

In any event, it is certainly very interesting to me that the Fed's been buying more TIPS than have actually been issued lately.

Long-term readers of this blog know that TIPS are a favorite investment of mine, since I value capital preservation and sleep over the potential rewards of growth. I recently sold some TIPS to buy utility stocks. Should the real yield on the 30-year TIPS reach 1% again someday, I'd be very tempted to embrace TIPS fully again. Since I also believe that yields will continue to fall over the long-term, the temporary window of that opportunity happening may be closing. That's especially true if the Fed keeps buying like they have been.

In my very humble opinion, the most likely opportunity will be within a year. Nothing drives real yields higher like "economy overheating" in the headlines. And right now, momentum is driving yields higher. Where it stops nobody knows. It seems extremely unlikely to me that we'll be seeing overheating economy headlines several years from now though, even if we are still stuck in ZIRP. Or perhaps I should say, especially if we are still stuck in ZIRP.

Thursday, March 11, 2021


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 Sarcasm Report v.284

March 10, 2021
Bloomberg: A New ETF Named FOMO Targets Everything From SPACs to Volatility

If it comes to market, FOMO will be the latest in a series of ETFs appealing to the runaway risk appetite sweeping across assets.

Don't forget to buy FOMO on margin. Wouldn't want to risk missing out on the extra returns that leverage can provide when buying an ETF based on the fear of missing out.

Wednesday, March 10, 2021

M2 and Interest Rates

The following chart shows how much interest would be generated if the M2 money supply earned the same interest as the 10-year Treasury bond.

The M2 money supply is growing exponentially. The 10-year Treasury yield has been decaying exponentially. Ignoring volatility, the end result has pretty much been a constant for 40 years. Behold the power of falling off the gold standard.

Although correlation doesn't imply causation, I don't believe this is a coincidence. Deep down, I think we all know what would happen to our economy if interest rates rose to 10%. Saying that it would not be pretty would be an understatement.

Those expecting interest rates to increase because the money supply has suddenly increased may be very disappointed. To support my belief, why would banks raise interest rates to attract more deposits when they are already flooded with deposits?

As a side note, should we be worried that the chart has become more volatile over the past 20 years?

Nothing lasts forever.

Thoughts on CPI and Food

Yawn. What about food?

Yawn. What about producer prices for food?


Can't promise that I won't be screaming in abject terror at some point in the future though, especially if I am wrong about the future of ZIRP, inflation, and/or long-term interest rates.

Tuesday, March 9, 2021

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.

Monday, March 8, 2021

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.

Thursday, March 4, 2021

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.

Sunday, February 28, 2021

TV Show Idea: Soap Bubble

The following chart shows nonresidential construction employees divided by residential construction employees.

With record low housing inventory, record low mortgage rates, a Fed committed to ZIRP for the foreseeable future, and a potential permanent increase in working from home, an acceleration of the downward trend in the chart seems inevitable to me.

Will history repeat? Will 2010 to 2027 play out exactly like 1990 to 2007? Will our next financial crisis be another housing bubble disaster? Will the Fed step in to save the economy with even more ZIRP in 2027? Will long-term Treasury yields continue to temporarily scream higher in a futile effort to resist the overwhelming long-term deflationary forces?

Tune in next week for another exciting episode of Soap Bubble!

Saturday, February 27, 2021

The Lords of Land

The following chart shows the rental income of persons with capital consumption adjustment divided by wage and salary disbursements.

We can't all be the lords of land. At some point, there would be a landlord glut. Might already be there.

The Sarcasm Report v.282

When using a credit card to buy bitcoin, what's the worst that can happen when you profit every time?

Friday, February 26, 2021

VPU Performance v.002

Months Elapsed: 2
Total Growth: -4.59%
Annualized Growth Rate: -24.59%

Thanks to rapidly rising long-term interest rates, the unmitigated utilities disaster in Texas, and possible increased national regulation due to the mostly man-made Texas disaster, it’s now looking more like a crime scene photo than a picture of paint drying.

2.09% of the 4.59% loss happened just today. Perhaps it is a sign of capitulation and March will be better? In any event, I’m in it for the long haul but bracing for more pain.

2 months down, 198 to go.

Wednesday, February 24, 2021

Consumer Prices Have Grown Linearly Since 1982

It is very interesting, at least to me, that prices have consistently been growing linearly (and not exponentially). On average, the consumer price index has been growing by about 4.4 points per year. Was true when the index was only 100. Was still true when the index exceeded 250.

Should the trend continue, the average growth rate of 1.72% per year over the last decade will fall to 1.56% over the next decade.

Of course, the trend won't necessarily continue. And if it doesn't continue, which way will it fail?

I'm leaning heavily towards eventually failing to the downside like Japan. Even if I am ultimately right (certainly not a given), eventually is a very hard thing to time. *shrug*

Source Data:
St. Louis Fed: CPI

Sunday, February 21, 2021

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

Wednesday, February 17, 2021


The following chart shows the natural log of the 30-year Treasury yield. On a log chart, exponential growth (or decay)) is seen as a straight line.

If the long-term exponential decay of the 30-year Treasury bond yield (in red) continues, then the current rise in the yield should max out at no more than roughly 3.2%.

As seen in the yellow line, the long-term trend (in red) and the short-term trend (in green) meet at about 1.17.

e1.17 = 3.2

Declaring that the long-term bull market in long-term Treasuries is over while the natural log of the yield is well below the red trend line seems more than a bit premature to me. Where's the evidence of the bull market's demise?

So, now we wait. Will the line in the sand hold at 3.2%? I think it will but I wouldn't bet my life on it. If it does not hold, things are going to get very interesting. And when I say interesting, I actually mean terrifying. I don't think that our increasingly leveraged consumer society would know how to cope with mortgage rates that no longer fall over the long-term.

Our increasingly leveraged consumer society isn't a bug. It's a feature. It's buy design. (Pun intended.)

Monday, February 15, 2021

Peak Gambling?

The following chart shows personal consumption expenditures for gambling divided by all personal consumption expenditures.

On the one hand, traditional gambling peaked in 2007 at 1.126% of personal consumption expenditures.

On the other hand, this chart doesn't show bitcoin, Tesla, GameStop, and record margin debt.

Sunday, February 14, 2021

Pent-Up Demand Destruction (Musical Tribute)

The following chart shows personal consumption expenditures for durable goods.

Used to take one
Now it takes four
You don't get me high anymore

Saturday, February 13, 2021

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.

Friday, February 12, 2021

I’ve Got Reflation Fatigue

The following chart shows the 3-month moving average of the median CPI.

I'm continually told that the US economy is reflating. So where is it?

According to research from the Cleveland Fed, the Median CPI provides a better signal of the inflation trend than either the all-items CPI or the CPI excluding food and energy. According to newer research done at the Cleveland Fed, the Median CPI is even better at PCE inflation in the near and longer term than the core PCE.

Source Data:
St. Louis Fed: Median CPI

Thursday, February 11, 2021

When Will Savers Be Rewarded?

The following chart shows deposits at commercial banks divided by GDP.

Savers will be rewarded when the cows come home.

After vacationing in Japan for a few decades, the cows recently launched into space and were last seen roaming the Alpha Centauri system.

Wednesday, February 10, 2021

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.

Tuesday, February 9, 2021

The Future of Retail Employment

The following chart shows monthly nonstore retail sales per nonstore retail employee.

In December 2020, there was $132k in nonstore retail sales per nonstore retail employee. That's a whopping $1.6 million per year pace and it’s a pace that continues to grow much faster than inflation.

There really isn't much of a future for retail employment, unless one happens to be a robot.

July 15, 2020
Reuters: Japanese robot to clock in at a convenience store in test of retail automation

TOKYO (Reuters) - In August, a robot vaguely resembling a kangaroo will begin stacking sandwiches, drinks and ready meals on shelves at a Japanese convenience store in a test its maker, Telexistence, hopes will help trigger a wave of retail automation.

Monday, February 8, 2021

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 Fed vs. Long-Term Treasuries

The following chart shows the spread between the 30-year Treasury bond yield and the effective Fed funds rate since 1982. I have added lines in yellow (peak), red (average), and green (minimum trend).

2 predictions for my lifetime:

1. The spread will never reach the yellow line again.
2. The spread will never go below zero again.

I do not believe that our increasingly leveraged economy can tolerate a 4% yield on the 30-year Treasury bond again. If so, the only way to reach the yellow line is if the Fed funds rate actually goes negative while long-term rates are still high. Not going to happen.

The upward slope of the green trend line shows that the Fed is finding it easier and easier to slide us into recessions. I strongly suggest that they acknowledge this trend instead of raising rates until another crash occurs. It just doesn't take as much effort to strangle an increasingly leveraged society.

Note: These are only predictions for my lifetime. If you are much younger than me, sorry about that. If it is any consolation, Rome did not fall in a day. These predictions might hold true for your lifetime as well. I just wouldn't count on it. Once again, sorry about that. Borrowing excessively from the future to pay for today is what we do. Wasn't my plan. Isn't how I prefer to live. Can't go on forever.

Sunday, February 7, 2021

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.

Thursday, February 4, 2021


I’d comment on GameStop (GME) again today, but another picture’s worth another thousand words.

And no, it isn't the same picture as the last one, or a mirrored version of it. Wasn't even taken the same month. I kid you not. If you are experiencing serious déjà vu, blame the GameStop traders.

Wednesday, February 3, 2021

Addicted to Rising Debt and Falling Interest Rates


This chart shows the 10-year Treasury bond yield compared to the inverse of our economy’s total debt securities and loans. It is not a coincidence that they are clearly highly correlated. They are our two linked financial addictions. Our debt is growing exponentially as our interest rates decay exponentially. Can’t really have one without the other.

In theory, our debt can approach infinity if and only if interest rates approach zero. This keeps our “what do you want your payments to be” economy in balance for business, home, and auto loans.

In practice, Japan’s debt is approaching infinity as their interest rates remain zero. We’re following their lead.

For two decades, we’ve been listening to the experts talk of normalizing interest rates. My reaction remains the same. Interest rates are normalized. They’ve been normalized for 40 years. As our debt goes up, interest rates must come down. If interest rates don’t eventually come down, the economy collapses.

We all know this. The whole world knows this. Just imagine what a 6%+ yield on the 10-year Treasury bond would currently do to the housing market. Housing would implode. We saw a yield this high in 2000. 2000 is over though. It’s 2021 and our debt is so much higher now. Can’t live in the past.

For those worried about inflation, we’re so addicted to debt that 4% Treasury yields should be more than enough for a major deflationary event, especially with the stock market’s current level of exuberance and so many people parsing every word out of Powell’s mouth for any signs of tightening.

The party can continue as long as debt rises to stimulate this economy and interest rates fall to stimulate this economy. Don’t think of our economy as a patient in the intensive care unit. Think of it instead as an addict with stimulants in both hands. Over the long-term, this can’t end well. It has has worked for 40 years so far though, so good luck betting on the timing. In the meantime, stimulated life goes on.

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...

Tuesday, February 2, 2021



I’d comment on GameStop (GME) today, but a picture’s worth a thousand words.

Sunday, January 31, 2021

Borrowers vs. Savers: Who Is Winning?

Easy answer. The house is winning. The house always wins.

This chart shows the average interest rate paid on credit cards at commercial banks minus the yield of the 3-month Treasury bill.

There has never been a worse time to buy Treasury bills using a credit card, unless of course, you are the government offering 0% Treasury bills or commercial banks offering 16% credit cards.

The jury is still out on whether or not there has ever been a worse time to buy GameStop stock using a credit card. That said, it might be worth pointing out that Reddit users and Robinhood investors are most certainly not the house.

Friday, January 29, 2021

VPU Performance v.001

As some of you may know, I decided to go all in on the Vanguard Utilities Index Fund (VPU) inside my IRA at the end of December 2020. This is a long-term investment. All dividends will be reinvested back into the fund. I intend to provide an update at the end of each month to show its performance since the purchase was made. This is the first update.

The red target is the 1.67% 30-year Treasury Bond yield at date of purchase. The yellow target is the 3.53% EE Savings Bond yield (if and only if held a full 20 years). The green target is a 6.0% growth rate that combines a 3.1% dividend, 2% inflation, 1% real yield growth, and 0.1% fund expenses.

Since I am using this fund as a bond replacement in a ZIRP world, my expectations are very low. Riding the yellow target would be satisfactory. Anything more is just a bonus. Anything below the red target would be unsatisfactory. Falling off the chart to the downside would clearly be an epic failure.

Months Elapsed: 1
Total Growth: 1.00%
Annualized Growth Rate: 12.67%

So far, so good. One month down, 199 to go. Apologies if this feels like watching paint dry. It is my hope that it will be similarly uneventful for the next 16+ years. One can always hope.

Wednesday, January 27, 2021

Trading Update

Bought all the tax-deferred savings bonds for the year that the government would allow. Didn't see any reason to wait.

1. 0.1% EE Savings Bonds.

Clearly not buying these for the 0.1% interest rate. If and only if they are held 20 years, then they are guaranteed to double though. That works out to 3.53% per year. That's much higher than the 1.6% yield on the 20-year Treasury bond.

2. 0.0% I Savings Bonds.

Clearly not buying these for the 0.0% interest rate. They do appreciate based on the consumer price index though. The 0.0% fixed rate is higher than the -0.29% fixed rate on the 30-year inflation protected Treasury bond (TIPS).

This has nothing to do with today's stock market action, or even the pandemic. I've been buying savings bonds off and on since 2000, and as long as they offer good relative safety and value then I will no doubt continue to do so.

For those curious about my long-term purchase of VPU (and/or enjoy watching paint dry or water boil), I intend to post a chart on (or shortly after) the last trading day of each month. That will allow you to laugh at my risk taking folly and/or watch it slowly grow with me well into the distant future. :)

Tuesday, January 26, 2021

The Sarcasm Report v.281

Some are arguing that there may be excess speculation in the markets, but I take comfort in the bitcoin to GameStop stock price ratio. It’s really starting to stabilize.

Sunday, January 24, 2021

The Clown Horn Report v.002


This chart is for the naysayers who thought we’d never hit 10% total annual credit market growth again. They clearly did not factor in Donald J. Trump’s business and pandemic acumen.

It wasn’t easy starting with $73.49 trillion in Q2 2019. We did make it to $81.08 trillion in Q2 2020 though, for a 10.3% gain.

$7.59 trillion in extra debt here, $7.59 trillion in extra debt there, and pretty soon we’re talking real money.

World War ZIRP

This chart shows money with zero maturity as a fraction of GDP.

1. Over the long-term, I fully expect to see this ratio continue to climb. We know that MZM will continue to climb. The only real question is how fast GDP climbs relative to it. Over the short-term (Q3 2020), GDP is currently winning, as some parts of our economy are rebounding from the pandemic. Over the long-term, I don’t think GDP has any hope of winning though. It’s competing with, in Ben Bernanke’s words, "a technology, called a printing press, that allows it to produce as many dollars as it wishes at essentially no cost."

2. Will more dollars mean more consumer price inflation? Over the short-term, maybe. Pent-up demand may need to work through the system. Over the long-term, I doubt it. And when I say long-term, I only mean in my lifetime. And I’m getting old.

3. As seen in the chart, the rising interest rate problem of the 1970s wasn’t due to too many dollars relative to GDP. Quite the contrary. Those expecting a return to the 1970s need to understand this. I can sympathize with the theory, since I do have stagflationary in my name. However, banks only pay higher interest when they need to attract more deposits. Banks are not charities. Expecting banks to pay much higher interest rates when they are already flooded with money makes little sense to me.

4. Flooding banks with money isn’t just happening in the United States. It’s happening all over the world. As a saver, other than a modest investment in savings bonds each year, there’s nowhere relatively safe left to hide. Think of it as a monetary pandemic. The first outbreak was in Japan. None of us were immune. We’re all infected now. There is no cure. It is way too late for monetary vaccinations.

5. So, cash is trash. Right?  Not so fast. It is my belief that the monetary leaders of every country know that we are all spending above our means. No monetary leader wants the inevitable collapse to happen on their watch. There’s no way out for them either. So, what do they need in order to delay the eventual outcome? ZIRP and low inflation. In theory, ZIRP allows nearly infinite borrowing for everyone at essentially no cost, especially for loans that have interest only payments. Low inflation stops people from hoarding goods. Need both, just like Japan. That’s the only solution there seems to be. When in a hole, dig deeper. A deeper hole is a horrible solution for future generations, of course.

6. Will we see 40 year mortgages in my lifetime? Yes. We’ve seen the duration of auto loans increase. Why not loans on homes? Anything is possible in a world with century bonds. Pretend and extend!

7. I kind of joke. 40-year mortgages are already available. I’m still alive. Yes!

8. This is why I have embraced interest rate sensitive utilities, even as some believe that utilities are in a bubble. If I’m wrong on interest rates, then I’ll be wrong on utilities. It mostly comes down to where interest rates are headed over the next decade or so. I’m sleeping okay since the decision to buy utilities in December. At the very least, ignorance is bliss.

9. Anyone who knows with certainty where we are headed is a fool. We’ve never been in this situation before. Historical data isn’t much more useful than tea leaves. That’s especially true of historical data before we fell off the gold standard. What should the P/E of the stock market be in a world potentially trapped in ZIRP long-term? Perhaps we’ll find out in hindsight. After all, today’s data is tomorrow’s historical data. And so on.

Saturday, January 23, 2021

My Long-Term Inflation Expectations Remain Well-Anchored


This is a can of petite diced tomatoes. Target will currently sell it to us for 49 cents. It’s not on sale. That’s the normal price.

If we spend $35, they will ship it to us for free. If we buy 72 cans, that would cost us $35.28. Each 14.5oz can weighs almost exactly 1 pound (due to the extra weight of the empty can). That means the total shipment weighs a whopping 72 pounds (expect some dented cans).

At the beginning of the pandemic, we also paid 49 cents for these cans at Target. How is it that pandemic hoarding, intermittent shortages, and massive monetary stimulus have not caused the price to go up? How can Target continue to ship us goods this cheap even as online shipping demand has skyrocketed?

It’s not just petite diced tomatoes. I’m only using this as an example. It’s pretty much everything we’ve stocked up on from Target, Costco, Walmart, and Amazon since the beginning of the pandemic.

In related news, it’s not too late to read the 2008 Hyperinflation Special Report on Shadowstats. For what it is worth, I’m personally waiting until their $175 subscription price starts inflating. I need to see them put their money where their mouth is. Even a token one cent increase to $175.01 would attract my attention. Is it too much to ask? It’s been the same price for more than a decade. In my opinion, it’s very difficult to sell a hyperinflation story without at least one subscription price increase in 12+ years!

Our government is definitely taking a “shock and awe” approach to thwarting deflation. Will it be enough to counter the increased pace of automation due to a pandemic though? Robots don’t get sick, nor do they require living wages. Based on Japan’s “success” at thwarting deflation, my long-term bet is on the robots. Their present seems to be our future.

January 1, 2021
NHK World - Japan: Autonomous delivery robots hit Japanese streets

A robot knocks on your door to deliver a freshly brewed cup of coffee, which you ordered just minutes earlier with one tap on your smartphone. This vision of the future could soon turn into reality as Japanese companies have started testing autonomous delivery robots on public streets. This comes as the need for social distancing amid the coronavirus pandemic has pushed up demand for autonomous delivery services.

Monday, January 18, 2021

Trump Was Dune’d to Fail

And Kynes, returning the stare, found himself troubled by a fact he had observed here. This Duke was concerned more over the men than he was over the spice. He risked his own life and that of his son to save the men. He passed off the loss of a spice crawler with a gesture. The threat to men’s lives had him in a rage. A leader such as that would command fanatic loyalty. He would be difficult to defeat. Against his own will, and all previous judgments, Kynes admitted to himself, “I like this Duke.” - Frank Herbert, Dune

I think the similarities between President Donald J. Trump and Duke Leto Atreides are uncanny, other than the 400,000+ American pandemic deaths while Trump spent much of his time golfing, Trump continually throwing his loyal men under the bus to save himself, Trump’s inquiries into self-pardoning, “Sleepy Joe” easily defeating Trump, Trump’s lowest approval rating of his presidency (nearly of any American presidency), and that Trump’s not a fictional character (much to the dismay of most Americans), of course.

Other than that, uncanny!

Earning $1 in Interest


This chart shows how many dollars we need to invest in 30-year Treasury bonds to earn $1 in annual interest. I have added a linear trend channel in red. It’s just another way to look at the chart in my last post.

To infinity and beyond! (Not joking. See German bonds below.)

It continues to be more and more difficult to make money off of money. Those betting on this long-term trend reversing anytime soon will most likely be sorely disappointed.

It’s not a bug. It’s a feature. Nearly infinite borrowing at 0% interest is seen as the least-worst option. We’ve been gliding on this path for decades. Not seeing much that can change the trajectory in my lifetime. (Keep in mind that at age 56, I’m not likely to be alive in 30 years.)

The German government sold 869 million euros of 30-year bonds with a negative yield, for the first time ever, adding to the world’s growing $15 trillion in existing negative yielding debt. - Patti Domm, CNBC, August 21, 2019

Sunday, January 17, 2021

Long-Term Interest Rates: The Newer Normal?


This chart shows the natural log of the 30-year Treasury yield. On a log chart, constant exponential growth is seen as a straight line. In this case, the line is sloping down. That represents constant exponential decay. The half-life has been about 20 years, meaning it takes about 20 years for the 30-year Treasury’s interest rate to get cut in half.

From about 1987 on, there have been no failures to the top of the decaying channel. The Great Recession did cause a failure to the bottom of the decaying channel though. As seen in the chart, a “new normal” bottom appeared with the same slope as the original but offset to the downside. The Covid-19 recession caused an additional failure to the bottom of the decaying trend channel. Will this become a “newer normal” bottom? Will the top of the channel also fail to the downside this time? Would be nice to know.

I keep hearing some experts and pundits say the long-term trend of declining long-term interest rates is finally over. They seem to think long-term interest rates can only go up from here. Where’s the evidence? So far, the only failures to this trend have been to the downside. While I could easily see long-term rates reach the top of the trend channel again, I am not at all convinced that the overall long-term trend is anything but down.

When exponential growth trends fail to the downside, most agree that the trend is over. Up is no longer likely. Apparently, most do not agree when exponential decay trends fail to the downside though. For what it is worth, I still continue to believe that up is no longer likely over the long-term.

What could change my mind? Well, it’s simple. It needs to fail to the upside instead of the downside. That means the yield has to reach the top of the channel and then exceed it. We’re certainly a very long way from that!

This is probably one of the most important investment decisions one could make right now. Where are long-term interest rates ultimately headed? And when I say ultimately, I really mean within one’s lifetime. I don’t think anyone really expects the ultimate conclusion of all this debt to be favorable outside of one’s lifetime. What can’t go on forever, won’t. But there’s still the question of timing. Sigh.