Almost Back to Abby Normal

The following chart shows personal consumption of goods over services.

I can't speak for others, but I started buying a lot more stuff when the pandemic hit. Stuck at home, not much else to do. Some of that is seen in the chart and was directly responsible for the higher inflation rate in goods. Currently trying to wean myself off of this new temporary behavior.

There's something else going on too though, as seen in the upward slope of the red trend line channel. Here's one theory.

January 22, 2024
Study shows how social media fuels unhappiness and materialism

Clothes, cars, travel, followers: People with a materialistic mindset always want more and, above all, more than others. Social media provides them with ideal opportunities to compare themselves with others, which makes them susceptible to passive and addictive user behavior. This stresses them out and, ultimately, leads to low life satisfaction. This downward spiral, which turns materialists into less happy people, was identified by researchers from Bochum in an online survey of over 1,200 participants. They published their findings in the journal Telematics and Informatics Reports from January, 8, 2024.

Unemployment Level

The following chart shows the natural log of the unemployment level. When using natural logs, constant exponential growth is seen as a straight line. I have added two sets of trend lines to the chart. The lines in red represent the old trend. The lines in blue represent a possible new trend.

Will unemployment growth return to the more manageable red channel? Or will it continue within the much more concerning blue channel? Or neither?

Be careful out there. Might not be the safest time in all of recorded history to swing for the fences.

Not investment advice.

Wage Inflation Pressure

The following chart shows the natural log of U.S. wage and salary disbursements. When using natural logs, constant exponential growth is seen as a straight line.

The Fed does not need to deflate wages back into the long-term channel in green, but rather to return to the slope of that channel. What's done is done. Deflation to undo the high inflation is definitely not the goal.

Some progress is being made. We've noved from the steep slope of the red line to the more moderate slope of the yellow line.

I'm convinced that they can achieve their goal, one way or another. But at what cost? I can be a bit cynical, but there's a high risk here that we're still in the early stages of a no-win situation.

How high will the unemployment rate need to rise to get us back to the healthier wage inflation trend? I have no idea, but I can say with 100% certainty that 100% unemployment would do it. Can't have any wage and salary disbursements if nobody is working.

The bulk of my net worth sits in inflation-protected I-Bonds and TIPS. As of about a year ago, my IRA sits entirely in bonds without inflation protection (TLT). And here's where I sit until I see a reason to take on more risk. Near record unemployment expected to rise, falling house prices, and high interest rates are not things that make me excited about taking on riskier investments.

Not investment advice.

Gimme Shelter

The following chart shows the natural log of the CPI for shelter. When using natural logs, constant exponential growth is seen as a straight line. I have added long-term trend lines in red.

With lofty housing prices and lofty mortgage rates, it seems very unlikely that we're going to make it back to the top of the trend channel anytime soon. Which, if you think about it, is kind of odd. I could swear that the Fed really wanted that. Just not all at once, apparently. Too bad.

If I were a gambling man, I would wager that there is more risk leaving the channel to the downside than to the upside. And maybe I am a gambling man, because I continue to hold TLT. Very encouraged by today's CPI report. One battle doesn't win the war though, of course.

Jerome “The Earl” Powell

The following chart shows the unemployment rate minus the 12-month percentage change in the median CPI. I have added long-term trend lines in red and a short-term arrow in green.

I looked at Earl and his eyes was wide
His lip was curled, and his leg was fried
And his hand was froze to the wheel
Like a tongue to a sled in the middle of a blizzard

I says, Earl, "I'm not the type to complain
But the time has come for me to explain
That if you don't apply some brake real soon
They're gonna have to pick us up with a stick and a spoon"

Net Worth to Total Debt Ratio

The following chart shows household and nonprofit organization net worth divided by total debt in all sectors.

As seen using the red channel, this 60-year linear trend has failed by a large amount in the aftermath of the Great Recession. Epic failure, actually. Should have more of them. Never before has so much additional prosperity been generated by so little additional debt.

Of course, not everyone believes that fairy tales always have happy endings. Here's a scary fable involving bears that's just in time for Halloween.

Net worth has been falling rapidly lately, thanks to the stock and bond markets. We'd be back in the channel if it were to fall another 30% or so, assuming it were to continue to happen rather quickly. And what would be quicker than rapidly rising mortgage rates combined with million dollar homes?

Of course, there's another way to get back in the trend channel. Total credit market debt outstanding is only $91.2 trillion. Yes, only $91.2 trillion. A pittance, really. If we were to quickly increase it by 40% then back in the "safety" of the declining channel we would be. Think what we could do with all that free money! Here's an idea. A $36 trillion Halloween party in the name of world peace! Everyone on the planet could be invited. Nobody goes home empty handed. Woohoo!

Please don't confuse my love of gallows humor for sarcasm, nor my love of sarcasm for gallows humor. It's both. It's almost always both these days, lol. Sigh.

Whip Inflation Now!

The following chart shows the natural log of the 30-year Treasury yield. When using natural logs, constant exponential growth (or decay) is seen as a straight line. I have added long-term trend lines in red and a short-term trend arrow in green.

Will the long-term trend ultimately prevail? Trapped in a world of nearly permanent ZIRP?

Will the short-term trend break everything? Housing! Stocks! Bonds! Employment!

Will it be a combination of both? Or neither?

Stay tuned for the next exciting and terrifying episode of...

Global Devolution!

Job Openings Per Capita

Pop goes the weasel.

Soft Landing?

The following is a chart of QQQ using a log scale. I have added a long-term trend channel in red.

Chart courtesy of StockCharts.com.

THIS IS YOUR CAPTAIN!!

BRACE FOR EMERGENCY SOFT LANDING!!!

The Exponential Path to Dystopia

The following chart shows the natural log of the dividends to wages ratio. When using natural logs, constant exponential growth is seen as a straight line. I have added two trend lines in red (one for the peaks and one for the troughs).

The two trend lines can be traced back to where they meet. The year was roughly 1971. Doubt it's a coincidence. I'm tempted to say that falling off of the gold standard is when the illusion of long-term prosperity truly began. Kind of makes me feel like a prosperity chart archeologist.

As disturbing as that is, I'm not done yet. Note that:

1. Bad things often happen when we move towards the troughs.
2. We've been moving towards a trough lately.
3. Very bad things have been happening lately.
4. Should we ultimately reach the next trough, there's still a very long way to go.

Risky Businesses

The following chart compares the investment performance of XLU (utilities ETF) to TLT (long-term treasury bond fund).

Chart courtesy of StockCharts.com.

The only thing I can say with 100% certainty is that I have absolutely no desire to sell TLT to buy XLU right now, and if I can't buy "safe" XLU then I definitely don't want to own any other stocks.

Not investment advice.

Soft Landing?

The following chart shows the natural log of the median consumer price index. I have added a long-term trend channel in green and a short-term trend line in red.

If the green channel represents the runway and the red line represents our current flight path, then we'll be very lucky not to careen off into the wastelands.

Household Net Worth

The following chart shows the natural log of household net worth. When using natural logs, constant exponential growth is seen as a straight line. I have added a long-term trend channel in red.

SPY vs. TLT

The following chart compares the investment performance of SPY to TLT, as a ratio between the two. I have added 3 trend channels in blue, red, and green.

Chart courtesy of StockCharts.com.

You're a true optimist if you believe any of the following::

1. There's any chance that we'll stay in the green channel long-term.
2. There's a reasonable chance that we'll stay well above the red channel long-term.
3. Entering the blue channel ever again would be absolutely, totally, and in all other ways inconceivable.

I'm not saying that you would necessarily be wrong to be a true optimist, and that the future we will find ourselves in truly could be the best of all possible worlds. However, I am saying that if you are a true optimist right now, at this moment, then I'd sure like to be smoking what you're smoking!

I am not an optimist. You can try to pry the shares of TLT from my cold dead fingers, but I'm not dead yet. Might seem that way as I patiently wait for trends to break though! Trends break. That's what they do. And each time the Fed raises rates, it puts us one step closer to the edge.

Food at Home

The following chart shows the natural log of the consumer price index for food at home. When using natural logs, constant exponential growth is seen as a straight line. I have added a long-term trend channel in green, a steeper short-term trend line in blue (heading into the Great Recession), and an even steeper short-term channel in red (our current trajectory).

The stock market sure doesn't like it. Not one bit. Isn't feeling all that confident about a soft landing. Starting to wonder why the captain's warning of "some pain" while wearing a parachute?

It's not all bad news. Hey, at least we're sitting in the middle of the long-term trend channel. Small comfort, I know.

Illusion of Rationality

The following chart compares the yield of the 20-year Treasury bond (in black) to the average of the 10-year and 30-year Treasury bonds (in red).

Current Yields

10-Year: 3.37%
20-Year: 3.76%
30-Year: 3.53%

The 20-year Treasury bond currently yields a whopping 0.31% more than the average of the 10-year and 30-year Treasury bonds. How likely is that rational?

You could use rational arguments to convince me to sell TLT and take my losses, but don't you dare tell me to sell 20-year Treasury bonds and buy 10-year and 30-year Treasury bonds instead, while simultaneously p$*sing down my back while claiming it's raining. No sir, of all the bonds I'd think about selling right now, the 20-year Treasury bond would be near the very bottom of the list. But hey, maybe that's just me.

Retail Trade Employment per Capita

The good news, if you can call it that, is that we've managed to climb back to the declining trend line in red. Here's the reaction from our cat Dexter:

It's the same look he has when hunting buggies, birbs, bees, and bagholders. Okay, maybe not bagholders. He's just a cat, not a Wall Street professional trader. In a world of predators, it's easy to forget that.

In all seriousness, it would be an understatement to say that I am not optimistic about where retail trade employment heads from here. The short-term recovery tailwinds are gone. The long-term automation headwinds remain. May we live in dangerously interesting times. Sigh.

Producer Price Index

The following chart shows the natural log of the producer price index for all commodities. When using natural logs, constant exponential growth is seen as a straight line.

We've been screaming towards the top of the channel like a runaway train. Our engineer (the Fed) is now desperately attempting to apply the brakes. The odds of a soft train landing seem incredibly low. Beware the rapidly approaching Deadman's Economy Curve. We're likely to derail!

Some might argue that we've already derailed. The worst is now behind us. I'm not convinced. Since when has maximum pain been achieved with near record low unemployment? It seems to me that we still have plenty of pent-up depressionary pain potential. Surely the unemployment rate has not achieved a permanently low plateau, especially given all the financial pain both the stock and bond markets have recently dished out. In fact, it's entirely possible that the pain party might just be getting started. Perhaps the Great Recession will be followed up with an even greater one. *cringe*

This is definitely not financial advice. I am and have been very concerned about our long-term future, much like many must have been during the fall of the Roman Empire. Who is responsible? We all are.

No single raindrop believes it is to blame for the flood.

The Growing Power of Our Lender of Last Resort

Federal debt divided by all debt:

Back in the trend channel and looking good!

Risks of a Hard Landing in One Chart