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

Baffling Headline of the Day

April 24, 2016
Most Dangerous Bond Market in History Divides BlackRock, Allianz

Bond investors are taking bigger risks than ever before.

I read the headline but could not figure out how BlackRock and Allianz could be divided over Weimar Germany's bond market. Investors bought bonds, hyperinflation occurred from 1921 to 1924, and investors lost pretty much everything. That's what history says. It was pretty much the most dangerous bond market ever.

I started thinking some more. Maybe they are talking about the hyperinflation in Zimbabwe? No, that can't be it. Why would BlackRock and Allianz be divided? Doesn't take a German V-1 rocket scientist to understand that hyperinflation is bad for bond investors whenever and/or wherever it happens.

Then I started thinking even harder. Maybe we're hyperinflating right now? Are gasoline prices several hundred trillion dollars per gallon? No, that's just me being silly.

I put on my super thinking cap and opted to maximize the strain of my brain. Could it be that the headline has been sensationalized to maximize the fear factor and/or the click bait? No, I find that impossible to believe.

I'm stumped. Can't make sense of the headline at all. Afraid to read further lest my mind explode.

Guess I'll just continue to hold my long-term inflation protected treasuries to maturity and give a rat's @$$ over the opinions of those who feel differently. It's not like I'm ever looking to sell my bonds to them, so what should I really care what they think?

If I got a dollar every time I was told how dangerous my bonds were, I'd be retired now. As a side note, I'm retired now. Go figure.

Further, if this truly is the most dangerous bond market in all of recorded history, then my sympathies to the stock market investors. We bond investors will be taking you with us when we implode. In case you hadn't heard, the Fed had been buying bonds in the hopes of boosting risk assets. You know, wealth effect, supporting markets, and what not.

And lastly, it has been my long-term theory that long-term real yields have been dying over the long-term for good reason. Our long-term economy is/was deteriorating. I put my money where my mouth was by locking in real yields before they fell even further. The days of making easy money off of easy money are ending. It's just a theory. Your theory may differ. Feeling lucky? You know, in the most dangerous markets in history? Pick your poison.

Quote of the Day

As seen on the Internet:

Tell someone you love them today, because life is short. But shout it at them in German, because life is also terrifying and confusing.

Balance, baby. That's what I'm talking about. Hahaha! :)

The Road Built with Hate but Paved with Indifference

August 13, 2015
The rage that's fed by Donald Trump

But while anger at elites is a permanent fixture, even a healthy one, of democracies, there is a very particular kind of rage in 2015.

It feels as though the economy isn't working in everyone's interests and politicians are only working in their own -- a mood exacerbated by the credit crunch and Barack Obama's failures in office. A lack of strong centrist leaders ultimately creates the vacuum that radicalism fills. Blame for Trump lies as much with Bush, Walker, Christie or even Clinton as it does The Donald himself.

November 3, 2010
Why Did Germans Embrace Him?

At most, the exhibit seems to agree with the British historian Ian Kershaw that "the road to Auschwitz was built by hate, but paved with indifference." At one point, the show claims that the murder of the Jews was "condoned with a mixture of partial approval, moral indifference and growing fears of terrorist measures." Another typical sign tells us that public acts of violence met with "the approval or at least acceptance of the population."

Sigh. :(

The More I Listen to Donald Trump...

I can't speak for others, but the more I listen to Donald Trump the more I realize just how infectious his words are.

And when I say infectious, I don't mean irresistible and compelling in a rapidly spreading influence over me sort of way.

I mean his words give me nausea and fatigue, in a rapidly spreading influenza into me sort of way.

I sure hope that I am not in the minority on this. I can certainly understand the desire to throw *all* the bums out and replace them with someone new. But Trump? Seriously? Where is Ross Perot when we need him?

We should be careful what we wish for. Just as I am a firm believer that there can be a fate worse than death, so too do I believe that there can be a president worse than George Bush and/or Barack Obama (depending on your particular "polarized" political party of choice).

Germany gravitated toward Hitler at one point if you will recall. He brought the country serious change, never really apologized for anything near as I can tell, and ultimately became a dictator. They are still living it down.

And do you want to know what really concerns me? I just typed that knowing that Donald Trump could financially crush me like a bug if he set his mind to it. I don't think I've ever had that thought before when heckling someone in power or one who desired power. Unfortunately, I think it needed to be said though, especially after he attempted to eviscerate Megyn Kelly for asking "tough" questions. It's not like she brought up what happened in Germany after the Great Depression like I just did. D'oh! :(

One Overlooked Advantage of the Amero

North American monetary union

A concern with any unified North American currency is the differing economic situations between each country.

Like Germany and Greece? Hey, if Europe can pull it off then so can we! This is America, dammit! There is nothing we can't do if we put our minds to it!

So what is the overlooked advantage we would have? Well, right now we like to blame the POTUS (President Of The United States) for everything that goes wrong. It doesn't matter if it is a Clinton, a Bush, or an Obama. It doesn't even matter what the problem is. No matter what, the president is always to blame!

I just got off the phone with the Koch brothers, and they say we need to simplify the process. Make it even more clear to the American public who needs to be blamed.

An American Union could do just that. Instead of a POTUS, we would have a SCROTUM.

SCapegoat of 'R' Once Thrivin' United 'Mericas

Why did I lose my job? SCROTUM!
Why did my bank close? SCROTUM!
Why did my taxes rise? SCROTUM!
Why is the crime rate up? SCROTUM!
Why is my Social Security check missing? SCROTUM!
Why does my breath smell bad? SCROTUM!
Why did my wife sleep with the mailman? SCROTUM!
Why did they cancel Gilligan's Island? SCROTUM!

One office to take the blame! One office to protect and deflect! With nothing to gain and everything to lose, what could possibly go wrong? The SCROTUM is our future!! We must not let the European Union win!!

Europe vs. Seattle Mariners

August 2, 2015
Germans fret over Europe's future but still believe

The firestorm of criticism that has rained down on Berlin since the Greek debt deal has triggered a mixture of self-righteous defiance, soul-searching and a quest for new solutions among the German establishment.

July 30, 2015
With storm clouds circling, Jack Zduriencik stays the course

"Of course I understand the fans frustration." says Zduriencik, "I'm frustrated too. This roster was put together with plans and expectations for excellence. Everyone should be frustrated by this. If you're not mad about it I would question how bad you want to compete in this game."

D'oh! Not looking likely that either team will make the playoffs this year. ;)

The Crock of @#$% Report v.022

August 1, 2015
CNBC: Making sense of a wild ride for the Chinese economy

On Friday, China was awarded the 2022 Winter Olympics, which will make it the first country to host both Summer and Winter Games. But that wasn't the big news out of China in the past week.

1932 Summer Olympics

Host city: Los Angeles, California, United States

1932 Winter Olympics

Host city: Lake Placid, New York, United States

Bejing may be the first city to host both the summer and winter games, but China clearly can't be the first country to host them both. When an article starts off with a crock of @#$% "fact", how much credibility should I give its opinions?

CNBC might want to look into the Great Depression someday. There's no telling what else they might find. 1932! What a year!! The United States was unstoppable! Oh, sure. There was a tiny problem with our stock market, but nothing our government couldn't eventually fix!

Well, with the help of Imperial Japan and Nazi Germany anyway. In hindsight, what an awesome global stimulus package that was. Cranking out ships, tanks, planes, and ammunition, taking on debt, bombing factories, rebuilding them, innovating, making the world a better place. Keynesian economic paradise!

Just Added Vacationing in Spain to My Bucket List!

Why? Missed the opportunity to visit Germany from 1933 to 1945!

That said, if you are employed in the Spanish tourism industry then do not hold your breath anxiously awaiting my arrival. I'm not planning to go unless four conditions are met.

1. I have been diagnosed with a terminal disease.
2. I have exhausted my retirement savings.
3. I have less than two weeks to live.
4. I have at least a 50% chance of surviving long enough to reach the front steps of your Ministry of Truth.

I'll be looking to drop off a human fecal sample for the benefit of all mankind!! ;)

July 30, 2015
Mish: Police State "Ministry of Truth" Hits Spain; Man Fined for Calling Police "Slackers" on Facebook

Spring Is in the Air!

July 15, 2015
The Latest: Democratic lawmaker says green plants and interest rates should rise in spring

Rep. Brad Sherman, D-California, said that the Fed should take a page from Mother Nature and wait until next year.

"Spring is when things naturally rise," he told Yellen.

He makes a great point. The year was 1933. Mother Nature was working overtime that spring, making sure things rose to power. Without her help, just think where we would be now.

Hitler's rise and fall: Timeline

March 1933

The Enabling Act passed—powers of legislation pass to Hitler’s cabinet for four years, making him virtual dictator.

He proclaims the Nazi Party is the only political party permitted in Germany. All other parties and trade unions are disbanded. Individual German states lose any autonomous powers, while Nazi officials become state governors.

Pardon my language, but sometimes Mother Nature can be such a cunning bitch, especially in the spring, and especially in the midst of a Great Depression.

Is Greece Germany's Best Friend?

July 10, 2015
Germany Keeps Wiggle Room on Greek Debt

Berlin rejects ‘haircut’ for Greece, willing to consider interest rate trims

This makes perfect sense to me. German Shepherds do not require haircuts but do require nail trims.

Wiggle Room

We hold the philosophy that dogs are companions and family members that deserve to be treated with kindness and positive interaction.

Seeing how Germany treats its pets should give us all hope for a better future.

So, sit up Greece and accept the Euro treat for what it is. Good boy! And if you are really good while I am gone, then we can do another bank run when I come home. There's absolutely no need to panic yet!

The #1 Way to Impress Your Starbucks Barista Today

June 16, 2015
Five Things Everyone Will Be Talking About Today

Hello! May I take your order?

Absolutely, but first how about that Greece situation? Really something, right?

It is. What would you like to order?

That's a good question. I was thinking about it as I was pondering the rise in Spanish bond yields this morning.

And what did you decide?

Well, there are no easy answers now that the confidence of German investors has fallen.

That's very interesting. Is there something you would like to drink?

It's funny you should say that because I've been drinking up the headlines over at Bloomberg Business. Were you aware that Draghi now gets legal backing?

I had no idea. Our Frappuccinos are very popular. Might I get you one so that you can be on your way?

This is why I love coming to Starbucks. You people are always so friendly and helpful. I do find it interesting that Kuroda is pulling a U-turn though, just like I will be doing in this Acura Legend convertible once I order a drink. The irony is not lost on me.

Sir. I don't mean to be rude but the drive-thru line is starting to backup.

I hear you. It's just like the Japanese currency backing up. It never fails to amaze me just how much information is out there on the Internet. Unfortunately, there are only so many hours in the day though. Speaking of which, I'm reminded of a story from my college years. It started one day when I was just a freshman at Harvard. I was heading over to my economics class when I ran into the son of a former president. He and I ended up becoming good friends. To make a very long story somewhat shorter, let's just say that...

Wall Street's Battle of Stall 'N' Grab

March 10, 2015
If Trees Don't Grow to the Sky: The Next 6 Years

The 45% spread between bulls and bears today stands in stark contrast to the -20% spread six years ago. The strongest gains in equity markets are built on a wall of worry and there is no such wall to speak of anymore.

Battle of Stalingrad

Marked by constant close quarters combat and direct assaults on civilians by air raids, it is often regarded as the single largest and bloodiest battle in the history of warfare.

...

The German public was not officially told of the impending disaster until the end of January 1943, though positive media reports had stopped in the weeks before the announcement.

Quote of the Day

January 28, 2015
Long-Term Interest Rates Have Been This Low Only Twice In The Last 214 Years

Only one other time — for about two decades following the Great Depression and through the post-World War II era — has the rate on long-term debt been so low.

Hey fellow retirees! Welcome to about two decades of post great construction bust long-term interest rates! That's if we get lucky and Japan opts to bomb Pearl Harbor, Germany invades France, and we can win World War III decisively without resorting to nuclear weapons. Somebody needs to destroy some serious industrial capacity at some point or we may never get out of this funk!

Gallows humor... it's what's for dinner (once the cat food runs out).

In all seriousness, I have built up quite the safety buffer on my prediction for 2015. In early December I claimed, with 80% confidence, that the 30-year treasury yield would stay under 3% every single day this year, in sharp defiance to the rising interest rate theories constantly told to us on CNBC. So far, so good. Knock on wood.

We Must Keep the Fed Comfortable!

The following chart shows the 5-year moving average of an equal weighting of annual CPI growth and annual hourly earnings growth for production and nonsupervisory employees.


Click to enlarge.

If we watch what they do and ignore what they say, then as seen in the blue median, the Fed seems comfortable when wages and inflation are rising by an average of about 3%.

Let's zoom in for a closer look and remove the smoothing that a 5-year moving average provides.


Click to enlarge.

This chart would imply that the Fed is not as comfortable right now as it once thought it might be.

September 29, 2014
Fed’s Evans: Wait to 2016 to Consider Raising Interest Rates

“I am very uncomfortable with calls to raise our policy rate sooner than later,” Mr. Evans said in a speech in Chicago. “I favor delaying liftoff until I am more certain that we have sufficient momentum in place toward our policy goals.” Mr. Evans spoke before a gathering of the National Association for Business Economics. He made the comment about waiting until 2016 later, in remarks to reporters.

Release the Kraken! Savers must pay for their insolence!



November 17, 2014
Low rates not creating stock bubble: Fed's Powell

"I don't see bubble territory, and we don't see leverage building up."

The sacrifice has been made! Powell has deployed the "I Don't See Bubble Territory" shield that so many have deployed before him. Meanwhile, the Fed as a whole has opened the "We Don't See Leverage Building Up" floodgate! The Kraken is free at last to hunt on the infinite seas of liquidity!

November 17, 2014
The Japan Times: Germany’s secret credit addiction

With recent data showing that German exports fell 5.8 percent from July to August, and that industrial production shrank by 4 percent, it has become clear that the country’s unsustainable credit-fueled expansion is ending. But frugal Germans typically do not see it that way. After all, German household and company debt has fallen as a share of GDP for 15 years, and public debt, too, is now on a downward path. “What credit-fueled expansion?” they might ask.

The answer lies in the reality of our interconnected global economy, which for decades has depended on unsustainable credit growth and now faces a severe debt overhang. Before the 2008 financial crisis hit, the ratio of private credit to GDP grew rapidly in many advanced economies — including the United States, the United Kingdom and Spain. Those countries also ran current-account deficits, providing the demand that allowed China and Germany to enjoy export-led expansion.

Source Data:
St. Louis Fed: Custom Chart

The Sarcasm Report v.173

November 14, 2012
RPT-CORRECTED-UPDATE 1-Congress, Obama face dynamite in 'fiscal cliff' -CEOs

A failure in Washington to solve the crisis by the year's end could prompt major companies to curtail investment plans, said Duncan Niederauer, CEO of NYSE Euronext, operator of the New York Stock Exchange.

"We simply won't be investing in the United States. We will be investing elsewhere where we have more certainty of the outcome," Niederauer said in an interview.

If certainty of the outcome is all that matters then Europe seems the perfect place to invest! Or perhaps China? Rain or shine, their official numbers always seem fantastic!

Sandy Cutler, CEO of manufacturer Eaton Corp, shared his concern.

"Until we solve the fiscal issues (in the United States and Europe), you're not going to get back to normal GDP growth," Cutler told investors on Tuesday.

Normal GDP growth? What a hoot!

July 27, 2012
Real GDP Growth per Capita


Click to enlarge.

Step right up! We're running a special on old normals and new normals! Borrow the money to buy the old normal at the regular price and get a new normal at that same low price!

That "Tanking" Global Economy

The following chart shows the inverse of the 3-Month Treasury Bill yield.


Click to enlarge.

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

I think Einstein may have gotten this one wrong (at least so far). World War III is apparently being fought with monetary printing presses, high frequency trading algorithms, and not much else. Go figure.

Panzer

Two Panzer IIIs during the Battle of Greece, April 1941.

September 10, 2012
Why Germany doesn’t want to kick Greece out of the euro

Of all the dilemmas facing Europe’s leaders, what to do about Greece could prove the most vexing. After two rounds of bailouts, Greece is still struggling to get its deficits under control. So the rest of Europe can either give Greece more time (and money) to solve its debt woes — or eject the country from the euro altogether, with all the chaos that might bring.

See Also:
File:Bundesarchiv Bild 146-1994-009-17, Griechenland, gefangener Neuseeländer.jpg

Source Data:
St. Louis Fed: Custom Chart

One Picture Fully Explains the Euro Crisis

A friend sent me the following link today.

June 21, 2012
The euro crisis, in one picture

A World of Currency Manipulators!

Well, number one on day one is acknowledging something which everyone knows. They're a currency manipulator.

There's nothing I enjoy more than being told what I'm already supposed to know. And when we're done with China, let's go after Germany, Japan, Canada, and Mexico too! All the world is manipulating our world's reserve currency!

The following chart shows our real monthly trade deficit per capita (March 2012 dollars). The black line represents Germany, Japan, Canada, and Mexico. We have large trade deficits with each of them individually. The combination is a bit brutal. The red line represents China.


Click to enlarge.

It would seem that China was late to the currency manipulation party. Keep in mind that China has a whopping 1.3 billion people (roughly 4x more than the combined total of the other countries I have listed here). All things being equal, one would therefore expect to see their contribution to our trade deficit be much larger.

Perhaps China should do the rational thing and break into four smaller countries so that we don't notice them as much. Be like South Korea. Attempt to stay under the radar.

Or, alternatively, we can make China our scapegoat. It won't fix our problems but it will create some applause in a presidential debate. And in the end, isn't applause all that really matters?

Source Data:
St. Louis Fed: Custom Chart