I live in the USA and I am concerned about the future. I created this blog to share my thoughts on the economy and anything else that might catch my attention.
NMHC: "Apartment Market Continues to Loosen"
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Today, in the CalculatedRisk Real Estate Newsletter: NMHC: "Apartment
Market Continues to Loosen"
Excerpt:
From the NMHC: Apartment Market Continues to L...
NVIDIA Revisited
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On August 26, 2023, 5 days before it a new closing hi at 493.55, I wrote a
critical post about NVDA - the stock, not the company. After that, the
stoc...
Going Long
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Made some big moves in retirement accounts in the last couple of months.
The boldest, and luckiest, was going 100% SP500 in one of my accounts at
the end o...
Stay away from popular tech stocks, part II
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Last August, I wrote a blog post arguing that largest technology and
internet companies -- Amazon, Apple, Facebook, Google, Microsoft -- would
never grow i...
Updating the HF Indicators
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I posted this over on Seeking Alpha.
Not much good seems to be happening, and I am concerned about the low pace
of construction and a likely end to the sho...
Yes, Well, It's Still a Friday Night
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I doubt anyone is still reading the old stuff, but I have a quiet Friday
night and figured, why not a Friday Night Rock Blog?
I found this one recently (...
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.
Sold all KMI @ 17.80 and all OKE @ 61.94 to buy VDC @ 182.41.
Sold rapidly appreciating high dividend pipelines and replaced with slowly appreciating low dividend consumer staples. In a world where bull markets make geniuses out of everyone, might not exactly look like a genius move.
Clearly not looking to swing for the fences. Locking in a 13.9% gain might not seem like much, but that's almost the same gain that a 10-year Treasury bought today and held to maturity would net. And it only took a month. I don't want to be exposed to too much risk if the music stops playing, again. What can go up quickly, can also come down quickly.
That said, there should be a lot of upside for pipelines from here. I'm likely leaving a lot on the table (wouldn't be the first time). If I had a job to fall back on or I was more interested in growing wealth than preserving capital, I might have let it ride much longer.
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.
As a group, KMI and OKE have risen 9% since I recently purchased them. The high volatility, even when it works in my favor, makes me more than a bit nervous. A primary goal of mine is to not lose sleep over my investments. A secondary goal is to be especially fearful when investors are especially greedy. Are oil and natural gas investors being especially greedy right now? The following chart suggests that we are not.
I thouht about locking in some oil and natural gas gains and reducing my exposure today. After creating this chart, the feeling passed. There seems to be plenty of room left to run.
Natural Gas Rig Count Declines in US: Natural gas rig count of 99 was lower than the prior-week count of 100. The count of rigs exploring the commodity was, however, higher than the prior-year week’s 75. Per the latest report, the number of natural gas-directed rigs is roughly 94% below the all-time high of 1,606 recorded in 2008.
This is definitely not investment/speculation advice. There's a reason why these stocks have high dividends and are so volatile. With great rewards come great risks. Only hindsight can show if the risk was actually worth it, and even then it might not be. If one bets their life savings on a triple or nothing coin flip, the math says it is a great bet. It would be little consolation if one loses though.
Sold zero shares of pipeline stocks to buy one unit of Pipeline game.
If time is money, then I expect this trade to provide a very negative return on investment. That's the amusing thing about games. The more time they waste, the more value they have. If this one ultimately wastes 50 hours, for example, that will bring its cost down to just $1 per hour. It's a very reaasonable goal for entertainment, in my very humble opinion.
For those interested, there are highly-rated unofficial solo rules available. That's probably how I will mostly be playing this one, assuming I can't talk anyone of the female persuasion in this household into embracing this gaming experience. A fairly safe assumption!
It's just another Panic Monday. No big deal, in the grand scheme of things. I'm comfortable with my current investments. No desire to sell.
Bought a narrow white Billy bookcase at the Seattle area Ikea store yesterday. Would have bought it sooner but it has been out of stock. It's been a day. It's already out of stock again. Out of curiosity, I checked the status of their normal white Billy bookcase. It too is out of stock.
Bought a white 5x5 Kallax at Ikea recently. Would have bought it sooner but it had been out of stock. It was also out of stock shortly after I bought it. It's out of stock right now. Once again, out of curiosity, I checked the status of their other white Kallax shelf units.
4x4? Out of stock.
4x3? Out of stock.
4x2? Out of stock.
4x1? Out of stock.
3x3? Out of stock.
2x2? Out of stock.
It's like we're living in a WW2 supply chain disruption movie. Doesn't seem to be getting better yet. The U-Boats are now seemingly hunting allied cargo ships in packs.
The following chart shows the natural log of the median CPI. When using natural logs, constant exponential growth is seen as a straight line. I have added a trend channel in red.
Once the inflationary extremes are stripped out, it's just more of the same. When combined with exponentially decaying long-term interest rates, it is of little consolation to safety-seeking long-term savers though.
1. This isn't Berkshire's most exciting investment, but could be a great fit for income seekers.
2. It's essentially a utility at this point.
3. To be fair, if I were closer to retirement age, I would probably like Verizon better.
4. It's probably the best dividend stock on this list.
5. What looks more attractive, Verizon or a 30-year Treasury right now?
Of course, this retiree might be more than a bit biased as a dividend and income seeker, who recently bought utilities thinking they were more attractive than the 30-year Treasury, then sold some utilities to buy a stock that is essentially a utility.
They are definitely preaching to the choir. Verizon has not been a good performer in the very short time that I’ve owned it, but I’m keeping the faith. Nothing goes straight up.
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.
Months Elapsed: 8
Total Growth: 12.80%
Annualized Growth Rate: 19.81%
Distribution Yield (TTM): 2.80%
This isn't a sustainable growth rate. There is risk here, especially if inflation isn't transitory and yields don't continue to decay over the long-term. That said, I'm still comfortable holding it.
I did sell about half of my VPU position this month to buy BTI, MO, PM, and VZ. As a group, I'm up 0.66% on those. Would be doing better if I had not overweighted BTI and VZ. No plans to change course though. Feel good about the allocation.
And lastly, also bought platinum Eagles this month. On the one hand, it would cost 3.27% extra to buy them now. On the other hand, I would lose 3.67% if I sold them now. Still fighting the ~7% round trip spread. That was a tough long-term call. Could have bought a platinum fund that charges 0.5% per year instead. I therefore need to hold at least 14 years to make holding the coins the better choice. As an added bonus, holding platinum coins in one's hand beats holding a paper IOU, especially if there comes a time when many paper IOUs become worthless.
The broken-down car was a Mercedes that had come to a stop in a travel lane. The police cruiser was stopped behind it with its emergency lights flashing. The left front of the Tesla Model 3 crashed into the side of the police car, and then hit the Mercedes.
That darn car! What kooky crime caper will it think up next?
Chart shows the producer price index for salmon (blue), halibut (red), and meats (black) each independently divided by the consumer price index for all items. January 1950 = 1. Chart therefore shows how the real producer prices for these items have changed relative to what they were in 1950.
Is anyone keeping track of all the prosperity we've "borrowed" from future generations since the dotcom bubble popped? Seems like there should be a national database for it, you know, for posterity.
On a brighter note, the real producer price for meat is quite a bit cheaper. And to the best of my knowledge, it's not even that soylent yet. That said, meat hasn't exactly been getting cheaper since 2000. You could more easily see that in the chart if salmon and halibut weren't so shocking and awing.
The following chart shows the natural log of retail trade. When using natural logs, constant exponential growth is seen as a straight line.
As the pandemic hit, the exponential growth of retail sales failed to the downside. Using massive and mostly temporary stimulus, retail sales then overshot the historical channel and failed to the upside. Look where it's headed next. Welcome to the world of barely damped harmonic motion.
A broken shock absorber will result in your car bouncing around, as well as excessive rolling, squatting and diving. In other words, it won't be comfortable. Plus, your car will be harder to control, especially at high speeds. For that reason, you should never drive a car with a broken shock absorber at high speeds and avoid sudden turns and abrupt stops.
If you aren't even a bit worried about the current state of the Fed's economic shock absorbers, then maybe you should be?
The following is a list of the recent incoming phone calls on my cell phone.
You would need to be quite the optimist to think the call from Haiti wasn't also a scam. They left a long message trying to convince me otherwise, but their warning that I have not yet renewed my car's extended warranty is something that I've been aware of for several decades. The car was purchased new in 1996.
Last year, Jim Chanos called this the golden age of fraud. Thanks in part to the easy money policies of the Fed and the new and improved speculative nature of the markets, I suspect that we've reached the platinum level. Hopes and dreams with smoke and mirrors? Be careful out there. I doubt history will be kind to those thinking there's never been a better time to swing for the fences.
Regulators may one day decide to disallow vehicle testing with drivers who are not trained professionals on public roads. But for now, no regulation interferes with Tesla’s ability to turn their customers, and everyone they share the road with, into guinea pigs.
Postponing purchase until there are ceiling mounted water bottles, dashboard mounted food pellet dispensers, and floor mat trays with pine wood shavings. Perhaps it is too much to ask, but I want the full experience.
Lured by Verizon's 4.5% dividend that seems reasonably safe, or as safe as an illusion of prosperity blogger could reasonably hope to expect. Safe is relative in a -0.27% 30-year TIPS world, of course.
Bought 1 oz American Platinum Eagles @ 1,083.74 each today. Minor investment. Intend to hold many years. This is my second foray into physical precious metals. The last time was 2004. Bought gold and silver. Intended to hold long-term, but sold in 2006 as they started to go parabolic. No complaints. Was a short profitable ride.
They say that past performance is not necessarily indicative of future returns. I hope that's true of platinum. Those who bought platinum 15 years ago are not only still underwater but have clearly not kept up with inflation. I'm speculating that I do better. And if not, at least I'll have a small collection of premium paperweights to serve as reminders of my bottom-fishing folly.
Sold some VPU @ $145.69 to buy BTI @ $37.67, PM @ $100.47, and MO @ $47.97. New IRA asset allocation now looks like this.
Didn't want to sell VPU, but needed to do it in order to buy these three tobacco stocks. The trade was inspired by this post (and quite a few before it) at Credit Bubble Stocks. The temptation to buy has been growing over the past few months, and I finally pulled the trigger.
Part of the appeal of VPU is the addictive nature of electricity combined with relatively high dividends. Adding the addictive nature of nicotine and even higher dividends to the mix seems like more of the same. As an added bonus, it offers more diversification (and potentially greater rewards). I'm no longer relying on just one industry. I anticipate holding all of these investments for at least a decade.
If you are curious as to why I overweighted BTI, I was intrigued by its ultra low 0.14% short interest (according to TD Ameritrade, as of 7/15/21). Shorting a stock with an 8% dividend yield is not for the faint of heart. You better know something that others don't. Apparently, not many think they do. If so few traders want to sell shares they don't own, perhaps I should be willing to buy more. And so, I did.
And I would walk 500 more, and I would walk 500 more, and I would walk 500 more, and I would walk 500 more. In 2021. Maybe.
6.9 x 365 = 2,518.50
Would definitely be a lifetime personal best to walk that many miles in a single year. Might happen. Feet are holding up well so far. Very motivated. Using OluKai flip-flops almost exclusively. Spotify and audiobooks help too.
The following chart shows the natural log of the 5-year yield. When using natural logs, constant exponential growth is seen as a straight line. I have added two such straight lines in red for your amusement.
At its current yield of just 0.71%, at what point did it ever become abnormal? After all, its natural log is currently centered between the two trend lines. What could be more normal than that?
For those who have $500,000 to invest, I want to tell you about an exciting opportunity that has suddenly appeared in the Treasury markets. And unlike Fisher Investments, this opportunity is provided absolutely free to loyal readers of this blog! There are no fees structured for me to do better as you do better! You will keep 100% of the profits!
As seen in the following chart, this exceedingly rare opportunity can be found in the 1-year Treasury note.
No, it's not the 17% in 1981. I can understand the confusion. Please allow me to zoom in closer.
No, it's not the 6% in 2000 nor the 5% in 2007. This is a current opportunity. Let me zoom in closer.
No, it's not the 2.5% from 2018. Don't we wish. One last zoom should clear this up.
Behold the miracle! After hitting a lifetime low of 0.04% in early June, the yield has risen to 0.07% today! That's an unprecedented 75% increase in less than two months!
If you have $500,000 to invest, gone are the days when you could safely earn $200 per year. Now it's $350! That's almost one dollar each and every day! Do not let this once in a lifetime opportunity pass you by!
As a side note, our pets haven't been this excited about one of my sales pitches since they attended one of my investment timeshare seminars. They endured four hours of presentations for the free dog treats, but it was so worth it. Just look at those smiling faces!
If the news says interest rates are rising, that's a forward looking opinion. It is not a fact. It is a prediction. In sharp contrast, if the news says interest rates have been rising, that’s a verifiable backward looking fact.
As examples, when the temperature recently hit 110 at my home, I would never have said that the temperature is high and rising. 110 was the peak. When a submarine reaches the surface of the ocean, no sane person ever says that the submarine is high and rising. The submarine is obviously done rising.
So why does the news do it with interest rates? It’s subtle. It’s biased. And I wonder if anyone else notices that an opinion often sneaks in there where a fact should go.
If it was so easy predicting where interest rates were truly headed then we could all become heavily leveraged bond day traders and never lose money. And yet, plenty of bond traders do lose money. I suspect most money is lost betting on what the news implies is obvious, while the professionals and algorithms take the other side of those trades.
One would think that since interest rates had been falling for 40 years, the burden of proof would be on those predicting the long-term reversal to rising interest rates. And yet, for at least the past 20 years, the burden of proof has always been on the “Japanificationists” as they continue to simply predict more of the same.
And on that note, I offer my opinions and predictions of more of the same.
1. Although inflation is running temporarily hot, we are not returning to 1970s style interest rates anytime soon, if ever, at least in my lifetime. Bet on long-term interest rates north of 3% over the long-term at your peril.
2. The recent growth of inbound loaded containers into Los Angeles and Long Beach (as seen here) is ridiculously unsustainable over the long-term. The recent growth of shipping costs into Los Angeles and Long Beach is therefore also ridiculously unsustainable over the long-term. Any price inflation seen inside those fully loaded containers due to extreme growth in the number of containers and their associated shipping costs is therefore also ridiculously unsustainable.
3. I don't want to sell anything, buy anything, or process anything inside those shipping containers when a sustainable reality hits. I don't want to sell anything bought or processed, or buy anything sold or processed, or process anything sold, bought, or processed, or repair anything sold, bought, or processed. Yes, I'm having a Say Anything moment. Pent-up demand can easily lead to pent-up demand destruction. I want no part of the latter. We did overshoot to the downside as the pandemic hit. We are overshooting to the upside now. We can easily overshoot to the downside again (like a pendulum with little dampening), especially if the Fed feels the need to fight transitory inflation.
This is obviously not fantastic investment advice. If it was so easy giving fantastic investment advice then we could all become heavily leveraged traders and never lose money. Right? Seriously.
Sorry to bring up heavily leveraged traders twice in the same post. I guess I just have historic margin debt as a percentage of GDP on my mind. Shouldn't be a problem in a temporarily overheating economy filled with sure things like SPACs, NFTs, cryptocurrencies, and Tesla though. What's the worst that could happen?
Months Elapsed: 6
Total Growth: 4.67%
Annualized Growth Rate: 9.56%
Distribution Yield (TTM): 3.02%
Received a distribution of $1.0140 per share this month which was reinvested at $139.29.
On the one hand, it was a bit disappointing. The distribution was down from $1.2578 in June of 2020.
On the other hand, VPU distributions were extremely volatile in 2020. Last year's abnormally high distribution (as seen here) made for a very difficult comparison this year. In theory, this September's upcoming distribution should have a much easier year over year comparison.
In any event, overall performance is more than safisfactory so far. As a long-term Treasury bond substitute, I have no complaints. At least not yet.
Firmly HODLING with cast-iron hands. They are strong hands, but they're also brittle and prone to rusting. ;)
This is the current weather forecast for where I live in Western Washington. I've lived in this home for more than 24 years and have never seen a more dire weather report. July and August are our hottest months, averaging roughly 78 degrees for a high. This is June and a whopping 111 is possible, if not likely.
This is our new homemade swamp cooler. It was built using a styrofoam cooler, 2 leaf blower elbow attachments, and a personal fan. Holds 16+ pounds of ice. Won't cool a room but does offer some relief if sitting in front of it. Designed for two. Each nozzle can be rotated independently.
Current estimated retail value in a world where bitcoin trades at $30k+ (and air conditioning units are in short supply) is conservatively estimated to be $15k+. That's just half a bitcoin for this truly unique and rare limited edition item. Not saying that you should embrace FOMO (fear of missing out) here, but the manufacturer will not be making many more. And don't forget to YOLO (you only live once). Item will be available on or after Tuesday. Free shipping! Personalized handwritten thank you note from the designer included with every purchase! ;)
James Bond: Yes, well, I've worked out a few statistics of my own. Fifteen billion dollars in gold bullion bitcoin weighs ten thousand, five hundred zero tons. Sixty Zero men would take twelve zero days to load it onto two hundred zero trucks. Now, at the most, you're going to have two hours before the army, navy, air force, marines move in and make you put it back.
Bitcoinfinger: Who mentioned anything about removing it?
...
James Bond: I apologize, Goldfinger Bitcoinfinger. It's an inspired deal. They get what they want -- economic chaos in the West -- and the value of your gold bitcoin increases many times.
Bitcoinfinger: I conservatively estimate ten 100 billion times.
Love this advertisement. Let's zoom in for a closer look.
South Park is using obsolete old school thinking. Why limit yourself to a 100% loss? Leverage up! A 459.66% loss for the win! 20 million people can't be wrong!!
Tesla should make digital teslacoin. Each coin would buy one Tesla of your choice. Tesla would sell the coins directly and the price would initially be set to equal the most expensive Tesla currently being sold. The coins are also collectible and transferable. Only 21 million will ever be made, so they should appreciate dramatically in this environment. And if, due to the rarity of these coins, they do appreciate, investors may wish to hoard them instead of using them to actually buy a Tesla. This could transform Tesla into the first auto manufacturer that no longer needs to manufacture any cars. Investors make money. Tesla makes money. Win win.
If this idea is successful, it could spread to all the other areas of our economy. At some point, we may never need to manufacture anything real again. Just go 100% digital. Let them eat cakecoin! Everybody wins!
The line in black shows what the effective Federal Funds rate has been. The line in red is what the Fed thinks the effective Federal Funds rate will be over the longer term.
A stopped analog clock is exactly right twice per day. No idea why I mention it.
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.
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.
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.
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.
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.
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?
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.
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!
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!
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! :)
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
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
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.
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?
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.
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?
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.
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