The No @#$% Sherlock Report v.004

September 16, 2015
Time for a hike? World’s central bankers speak out

Elvira Nabiullina, Central Bank of Russia Governor:

"There are two scenarios possible that raising interest rates will have, bearing in mind that market players are expecting this particular event and in many ways have priced it into the valuation of their assets. And in this (first) case there are not going to be any dramatic changes in the market environment," she told CNBC.

"But the second probability is also possible – that markets may respond in a very nervous way and then generally speaking, increase global turbulence that may affect the Russian economy as well."

Scenario Summary:

1. No drama.
2. Drama.

This controversial summary is both approved by Vladimir Vladimirovich Putin and backed by modern mathematical set theory. I therefore have no choice but to trust its conclusion with a high degree of confidence.

There may or may not be drama. Like Elvira Nabiullina, I'd literally be willing to stake my life on it.

The Sarcasm Report v.212

April 7, 2015
Who's to Blame for the Oil Price Crash?

When we think of the recent drop in oil prices, the question is not only who started it, but who's responsible for keeping the prices falling.

Yes! I am outraged! Who is responsible for forcing me to pay less than $60 to fill my gas tank? I need a list of names! I have half a mind to write to my congressman!!

I certainly know who I have to thank for the higher oil prices. The Fed wanted excessive risk taking to "drive" up inflation! It even worked for a little while, bless their hearts. Oil was a sure thing they said. Can't lose. Buy heavily leveraged speculative oil plays now or forever be priced out!

No idea what went wrong, again. Everyone "needs" a place to live and everyone "needs" to fill their gas tank. Sure thing housing and oil, baby. That's what I'm talking about.

Okay, so who has the rope? Let's lynch these commie Russian bastards driving down the price of our magical economic elixir!! We deserve higher oil prices and by God, we need to do something!!

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.

The Fed Is Apparently Trapped Inside a Japanese Pachinko Machine!

The following 30-year treasury chart shows the machine in action.


Click to enlarge.

Look at all those little balls falling down through the channel!

December 18, 2014
Oil’s Drop Hits Big Investors Hard

Those caught flat-footed by the price pullback include Prosperity Capital Management’s Mattias Westman, a longtime investor in Russia whose firm lost more than $1 billion this year, in part on stakes in Russian energy companies OAO Gazprom , OAO Bashneft and Lukoil Holdings .

Nothing says enduring prosperity like a chance at the Big Money Multiplier!

October 2, 2013
The Onion: U.S. Treasury Announces Bonus Financial Quarter Worth Double The Cash

“And you know what that sound means,” Lew said after a loud klaxon suddenly blared in the Treasury press room. “We’re raising the stakes even higher, allowing you to wager your entire 401(k) balance for a chance at the Big Money Multiplier, which could potentially boost your net worth threefold, fivefold, or even tenfold through an investment in an undiversified portfolio of high-yield, high-volatility equities and speculative-grade corporate bonds.”

Jackpot! Woohoo!



Source Data:
St. Louis Fed: Custom Chart
U.S. Treasury: Daily Yield Curve Rates

What Lies Beneath the Rubles?

The following chart shows the 13-week moving average of the spread between the 2-year treasury yield and the 1-year treasury yield.


Click to enlarge.

Nice parabolic trend floor and failure.

December 17, 2015
2014 Monetary Policy Release

Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.

The next chart shows the 10-year inflation expectations as seen when subtracting the 10-year inflation protected treasury yield from the 10-year nominal treasury yield.


Click to enlarge.

The Fed might want to cut the deflationary anchor loose. We're in danger of being pulled under by it again, not that many seem to notice or care.

The Committee expects inflation to rise gradually toward 2 percent as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate.

Good luck on that. I am at least 80% confident that the treasury market, as a whole, is smarter than a small group of relatively detached elitist policy makers meeting behind closed doors. Yeah, call me crazy if you must.

For what it is worth, and as a holder of long-term treasury bonds (with inflation protection), I also remain 80% confident that the Fed will not raise interest rates in 2015 and that the 30-year nominal treasury yield will not exceed 3% in 2015.

As a side note, I've said this before and it is worth repeating. My long-term treasury bonds have inflation protection for the same reason my house has fire insurance. I do not expect my house to burn over the long-term. I do not expect inflation to be a problem over the long-term. That said, I'm only 80% confident. The insurance is for the remaining 20% of the time. Further, I do not root for heavy inflation any more than I would root for my house to burn.

Those sitting in inflation protected treasuries actively rooting for high inflation clearly do not understand the situation. One does not get wealthier paying heavy taxes on heavy inflationary gains (each and every year). That's a path to the poor house. Of course, those without any inflation protection during such a period would be riding a bullet train to the poor house, so it's all relative I guess.

The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. - Alan Greenspan, 1966

Pick your poison. I've picked mine. This is not investment advice.

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

Great Depression Déjà Vu

The following chart shows personal consumption expenditures for services (ex health care) divided by disposable personal income.


Click to enlarge.

Who knew the 1932 resistance level would be so difficult to punch through?

Other than the failure of the trend in red and the fact that we're at 1932 levels, everyone knows our service economy just keeps getting stronger and stronger over time. It's common knowledge. There's no point even debating it. 70 years of economic history can't be wrong. Ignore the 80 years of economic history I say! This trend only goes up over the long-term! Right?

What's the worst that could happen from here?

The Mason-Overy Debate: "The Flight into War" theory

In Mason's view in the period between 1936–41, it was the state of the German economy, and not Hitler's 'will' or 'intentions' that was the most important determinate on German decision-making on foreign policy. Mason argued that the Nazi leaders were deeply haunted by the November Revolution of 1918, and was most unwilling to see any fall in working class living standards out of the fear that it might provoke another November Revolution.

This is a different world. I think we can pretty much rest assured that countries are willing to see falls in working class living standards. Take Russia for example. Let the ruble fall where it may. And China? I'm sure they only want aircraft carriers for their amusement parks.

Chinese aircraft carrier programme

Through various ventures, China has also purchased the ex-Soviet carriers Minsk and Kiev. These carriers have become floating amusement parks for tourists.

October 14, 2014
Why is the US Navy practising for war with China?

China's People's Liberation Army Navy is still no match for the US Navy, and won't be for a very long time. Instead, China has been developing other weapons designed to keep America's precious carriers far away from China's shores.

These include new quieter submarines, long-range hypersonic anti-ship missiles and, perhaps most worrying, very accurate medium range ballistic missiles that have been dubbed "carrier killers".

January 23, 2013
PLA 'sinks' US carrier in DF-21D missile test in Gobi

"It can be used like a stick to hit the dog intruding on our backyard, but it can never be used to attack the house where the dog comes from," the paper's commentary said.

Speaking of dogs and carriers, there may actually be a dog carrier glut. Just look at them all. Won't stop me from investing in the Chinese dog carrier market though! If there is one thing I learned from the housing bubble, it's that I gotta get my share of this infinitely growing industry before I'm priced out forever!

This is not investment advice.

See Also:
Sarcasm Disclaimer

Source Data:
St. Louis Fed: Custom Chart

The Sarcasm Report v.200

July 6, 2009
Jim Rogers Sells Dollars, Plans to Short Treasuries

“The idea that anybody would lend money to the U.S. government for 30 years at 3 or 4 or 5 or 6 percent interest is mind-boggling to me.”

The 30-year treasury yielded 4.35% then. It is 2.72% today. 24 1/2 years to go.

April 25, 2011
JIM ROGERS: Short Treasuries And Buy Commodities, Especially Silver

I plan to sell short US government bonds sometime in the next few weeks, months. Interest rates all over the world are going to go higher. We have inflation, staggering debt problems and currency problems facing us. So interest rates are going to go higher.

Silver was $46.25 per ounce then. The 30-year treasury yielded 4.46%.

October 15, 2012
I'd Rather Invest in Russia Than the US: Jim Rogers

"I'm convinced things are changing in Russia for the first time."

Despair.com: Change

When the winds of change blow hard enough, the most trivial of things can turn into deadly projectiles.

March 30, 2014
Investor Jim Rogers: 'This Is the Time to Buy Russia'

"Russia's stock market right now is one of the cheapest in the world, and probably one of the most hated," said investor and commodities guru Jim Rogers, chairman of Rogers Holdings, in Singapore. "This is the time to buy Russia."

Despair.com: Perseverance

The courage to ignore the obvious wisdom of turning back.

April 30, 2014
Sanctions Are Not Going to Hurt Russia At All-Jim Rogers

I mean, sanctions are not going to hurt Russia at all.

Despair.com: Hope

May not be warranted at this point.

November 10, 2014
Russia Says Sanctions Hurting as Bank Moves to Defend Ruble

Russia’s financial guardians made their broadest acknowledgment yet that sanctions are sinking the economy, as the central bank moved to protect the ruble after the currency’s worst week in more than a decade.

December 12, 2014
Jim Rogers Is Bullish On Russia

"Well, I don’t quite see it as a crisis. They still have huge foreign currency reserves. This is helping their balance of trade, obviously. They still get paid for oil in dollars. And it’s certainly not – it’s not causing imports to go up in Russia with the currency collapsing. So I don’t see it as a crisis. They have many debts coming due – U.S. dollar debts, which I would suspect they can finance. But, again, I haven’t sat down and put pencil to paper to really determine whether it can be done or not."

December 16, 2014
Ruble Continues Its Decline in Russia, Despite Interest Rate Increase

“We are seeing an economic crisis,” Natalia V. Akindinova, a professor at the Higher School of Economics, said in a telephone interview. “We are seeing a sharp devaluation of the ruble at a time when the central bank doesn’t have the reserves to influence the market, as it did in the past crises.”

Despair.com: Consistency

There is something to be said in doing things wrong the exact same way every time.

And for that, Jim Rogers, I honor you with my 200th sarcasm report! Well played, sir! Well played, indeed!

Barking Up the Wrong Tree

The following chart shows annual production and nonsupervisory logging employee hours worked.


Click to enlarge.

That dog don't hunt.

Unless the long-term trend changes, it would seem that about the only logging we'll be doing in the distant future will require a username and password.

October 9, 2013
Here’s the Report That May Have Prompted The Lumber Liquidators Raid

Conservation groups say forests in Russia’s far east are known for large scale illegal cutting operations. Illegal logging brigades comb forests for high-quality varieties like Mongolian oak and Korean pine, cutting down trees in the middle of the night and passing them along to illegal saw mills. From there, traders mix the illegal wood with legal wood and Chinese manufacturers use fake documentation to smuggle so-called black wood out of Russia to sell to Western retailers.

Source Data:
BLS: Employment