New Savings Bond Rates Announced

November 1, 2011
Public Debt Announces New Savings Bonds Rates, Series I to Earn 3.06%, Series EE to Earn 0.60%

I-Bond Fixed Rate: 0.0%
I-Bond Composite Rate: 3.06%
EE-Bond Rate: 0.6%

I predicted 0.0% and 3.06% for the I-Bond. 0.0% was an easy prediction and the 3.06% part was just the math to go with that prediction.

I predicted 0.3% for the EE-Bond. This was the far more difficult of the two predictions because it required extrapolating noisy data into uncharted territory.

EE/E Bonds Rates & Terms

EE Bonds issued May 2005 and after earn a fixed rate of interest. The fixed rate is determined by adjusting the market yields of the 10-year Treasury Note by the value of components unique to savings bonds, including early redemption and tax deferral options.

The EE-Bond rate was set at 0.6% on November 1, 2011. The yield of the 10-year Treasury Note was 2.01% on that day (today).

The EE-Bond rate was also set at 0.6% on November 1, 2010. The yield of the 10-year Treasury Note was 2.63% on that day.

Note that the interest rate fell 0.62% on the 10-year Treasury Note but the EE-Bond rate is the same. They clearly have plenty of discretion when setting the rates. Also note the behavior change from pre-crisis to crisis in the following chart. That's clearly a huge discretion.



The 0.6% rate offered today has "twisted" the red trend line to more closely match the slope of the black trend line. It would therefore be hard to argue that this increase in the rate over what I expected is an indication that we are out of crisis mode. In my opinion, it is simply an indication that the data is/was a bit noisy (doesn't stick firmly to the trend lines).

In any event, this new data point should help me make more accurate predictions in the future. I'm even willing to make my first prediction right now. It is my opinion that we will still be in "crisis mode" 6 months from now. In other words, the EE-Bond rate set on May 1, 2012 will be much closer to the red line than the black line.

Why such a bearish mood? Here comes the sarcasm.

The more we borrow, the more we're saved!

Source Data:
U.S. Treasury: Interest Rates
Treasury Direct: I Savings Bonds Rates & Terms
Treasury Direct: EE/E Savings Bonds Rates & Terms

The Sarcasm Report v.136

October 28, 2011
Week ahead: Doom-and-gloom camp tricked again

Stocks are clearly in a sustainable rally, as the charts show...

October 31, 2011
Sharp Drop for Stocks on Wall Street

Equities fell 2 percent or more, sending the broader market in the United States back into negative territory for the year.

Trading eve of the Hallows, as bulls would confess
Not a creature was bearish, not even the press.
The stock charts were staged by the pumpers with care,
In hopes that more buyers soon would be there.

Investors euphoric with thanks to the Fed,
While sweet dreams of candy in mountains were bred.
With the bears in their bunkers, as I locked the door
The free markets were spooked and they dropped through the floor.

As seen on Wall Street, lifeblood sprays such a splatter,
Was it a test to see which bull was fatter?
Traders out windows! They dropped and they crashed!
The weak hands in the red were vomiting cash.

"To the moon!" cried the bulls for they did not know
The market was drawn by debt down far, far below.
When, what to their greediest "Ayes!" I did sneer,
"It's a very bad day, with nothing but fear."

Corporate Profits vs. Debt

Click to enlarge.

I've packed a lot of information into this chart. Hopefully you will manage to decipher it all.

Theory #1

Real corporate profits per civilian employed are a constant over the long-term. This theory is shown in the dark green median trend line on the chart.

In 2006:Q1, corporate profits were well above the median ("Epic Bubble #1") and in 2008:Q4 they very nearly reverted to the median. They are now well above the median again ("Epic Bubble #2?").

This theory seemed to hold for 50 years (from 1950 to 2000). Once the economy started to fall apart in 2000 things changed though. That brings us to another theory.

Theory #2

Real corporate profits per civilian employed have grown as debt has grown and will continue to do so. I can't offer much to support this theory, but that's what the data seems to be attempting to show.

The red trend line is based on all of the data. The blue trend line is based on the blue points. The orange trend line is based on the orange points.

One reason I feel that this theory is suspect is because it doesn't pass the common sense smell test. Real corporate profits per civilian employed cannot grow to the sky. At the very least, it would seem impossible that real corporate profits can eventually exceed real civilian wages. Further, surely the drag of excessive debt will eventually also take its toll.

Another reason I feel that this theory is suspect is because of the current direction of movement in the chart. Note that we are sliding down and to the left from the most recent peak in 2010:Q2. If the future is so bright, then why are we trying to move back in time?

I strongly believe that increasing one's debt can make one feel pretty good in the short-term. Over the long-term it has the opposite effect though. As far as corporate profits go, in the short-term they've pretty much never felt better. Epic would be a good word to describe them. One wonders how they will feel over the long-term though. Epic fail? One really wonders that. Seriously.

In any event, both theories support the same conclusion. Real corporate profits per civilian employed are probably not going to be heading up in the intermediate term and are at serious risk of falling substantially. In the first theory, they could fall to the green trend line (or even worse). In the second theory, they could fall to the orange trend line. Either way, the fall could be of similar magnitude.

I was working on this chart yesterday but I did not manage to complete it. I probably should have posted it before today's stock market decline. Sorry about that! On the other hand, it's probably a pretty good chart for Halloween. Trick or treat!

Source Data:
St. Louis Fed: Corporate Profits After Tax
St. Louis Fed: Total Credit Market Debt Owed
St. Louis Fed: Civilian Employment
St. Louis Fed: CPI

The "Free Lunch" Weight Loss Plan v.005

Another month already? Where does the time go?





I'm well ahead of schedule.

I sprinted on the 28th and managed to climb the 20 flights in 3 minutes and 8 seconds. That's 22 seconds faster than last month's record time of 3 minutes and 30 seconds.

I had a couple of extra marathon sessions this month as well, but I don't think that explains the extra weight loss. I think at least some of it is the realization that I'm nearing my ultimate goal.

There were days when I was definitely glad that I set the daily goal so low. It's a big deal on days when I might not have gotten enough sleep the previous night. Not climbing 20 flights of stairs in a given day is virtually impossible to rationalize. I'm fairly sure this is now a permanent habit.

It's 5 months down and a lifetime to go. :)



See Also:
The "Free Lunch" Weight Loss Plan v.000

Inglorious Wage Basterds (Musical Tribute)

I suggest you listen to the music while reading this post. It can't hurt, much.


Click to enlarge.

It looks a lot like the cumulative trade deficit chart. Big shocker.

June 25, 2011
Missing Jobs vs. Trade Deficit

Click to enlarge.

The difference seems to be that the boost to the stock market is/was temporary but the cumulative trade deficit lives on. Behold the staying power of endless debts and deficits.

January 14, 2004
NAFTA's Legacy -- Profits and Poverty by David Bacon

Predictions of U.S. job losses were, if anything, underestimated. By November 2002, the U.S. Department of Labor had certified 507,000 workers for extensions of unemployment benefits under the treaty because their employers had moved their jobs south of the border. Most observers believe that is actually a significant undercount, partly because many workers losing jobs don't know they qualify for trade-related benefits. According to the Economic Policy Institute in Washington, NAFTA eliminated 879,000 U.S. jobs because of the rapid growth in the net U.S. export deficit with Mexico and Canada.

While the job picture for U.S. workers was grim, NAFTA's impact on Mexican jobs was devastating. Before leaving office (and Mexico itself, pursued by charges of corruption), President Carlos Salinas de Gortari promised Mexicans they would gain the jobs Americans lost. In the United States, he promised that this job gain would halt the northward flow of Mexican job-seekers.

NAFTA's first year saw instead the loss of more than a million jobs across Mexico. To attract investment, NAFTA-related reforms required the privatization of factories, railroads, airlines and other large enterprises. This led to huge waves of layoffs. Mexican enterprises and farmers, who couldn't compete with U.S. imports, also shed workers, and the subsequent peso devaluation cost even more jobs. Because unemployment and economic desperation in Mexico increased, immigration to the United States has been the only hope for survival for millions of Mexicans.

This was written when the unemployment rate was 5.7%. It now stands at a whopping 9.1%. It's the gift that keeps on giving. Sigh.

Source Data:
DOL: History of Federal Minimum Wage Rates
St. Louis Fed: Dow Jones Industrial Average

Certainty vs. Uncertainty Update

Based on today's extreme volatility in both the stock and bond markets, I think it would be a good time to visit a previous post.

August 9, 2011
More Certainty vs. Uncertainty


Click to enlarge.

Here's where we are now.


Click to enlarge.

On the one hand, the red line is bending towards the blue line. That's a good thing. On the other hand, we're continuing to make a mess of the canvas. Note the big pile of red data points to the lower left of the "You Are Here" point. That's where we've been recently.

Certainty cannot be measured simply by accurately sticking to the blue trend line. How fast we move along the blue trend line is also important. If one thinks as the above chart as a road map then the following chart can be thought of as watching the speedometer/odometer.


Click to enlarge.

Each data point represents the "distance" the treasury yields have moved on the first chart since the previous day.

D = ((X2-X1)^2 + (Y2-Y1)^2)^0.5

D represents the distance.
X2-X1 represents the amount the 10 year TIPS yield has changed.
Y2-Y1 represents the amount the 10 year nominal treasury yield has changed.

As seen in the chart, we traveled quite the distance today. It could be seen in the bond market and it could also be seen in the stock market. That's not exactly the sort of thing that inspires stability and certainty in me.

Note the 100 day moving average. From 2004 to 2007 the markets were growing increasingly certain to the point of complacency. I don't think that's the issue now though. I sense a lot of day-trading fingers hovering over the buy and sell buttons. In my opinion, today was panic selling out of treasuries and a panic buying into stocks. Who knows what tomorrow may bring?

I'm reminded of a joke.

This is your captain. I have good news and bad news. First the bad news. We're hopelessly lost. Now the good news. We're making good time!

As a side note, while the stock market was rallying I was actually visiting my local bank to purchase an EE Savings Bond (before the new rate most likely falls on November 1st). Go figure.

I welcome the stock market rally and the sell-off in bonds. May it continue. I'll be buying more 10-year TIPS in January to refuel my long-term bond ladder. It's not like I am actually hoping for even lower interest rates.

Somehow I doubt I'll be that fortunate though. Why? As of 2004, I am a permabear. This economy has major problems and about all we're really trying to do is kick the can down the road. Good luck on that one long-term.

Source Data:
FRB: Selected Interest Rates
US Treasury: Interest Rates

A Tiny Flaw in the Plan

Click to enlarge.

Something tells me that we won't ever make it back to the blue exponential growth trend line.


Click to enlarge.

Note the roughly $3,000 peak in both charts. Coincidence? I can't say for sure but I'm not willing to bet my nest egg that it isn't.


Click to enlarge.

As bad as this chart is, it gets worse. Note the recent resumption of the downtrend.

We've been borrowing a median of $2,105 per person per year (adjusted for inflation) for 6 decades. How many more years did we really think we could keep up the pace?



Captain Blackadder: There was a tiny flaw in the plan.
Lieutenant George: What was that, sir?
Captain Blackadder: It was bollocks.

Source Data:
St. Louis Fed: Personal Dividend Income
St. Louis Fed: CPI
St. Louis Fed: Population
St. Louis Fed: Total Credit Market Debt Owed
St. Louis Fed: Balance on Current Account

Pikers' Peak v.2

Click to enlarge.

This is what the chart tells me.

As our debt grows, the ability to make real money off of the debt market will continue to decline.

I think that statement more than passes the common sense smell test.

I also believe...

1. The debt market is propping up the stock market. It certainly isn't the stock market that's propping up the debt market. Let's just put it that way.

2. The debt market's ability to prop the stock market up is faltering.

3. The ability to make real money off of the stock market will therefore continue to decline (as it has done for more than a decade so far).

Welcome to pension fund hell.

I've been predicting the death of real yields for years. This may be the first chart I've done that's directly tied to the theory.

I can't say we'll slide into deflationary Japan's mess, but if crude oil is any indicator then we could easily slide into a stagflationary version that's even worse. Or alternatively, we toggle between ongoing deflationary and stagflationary messes? Who can really say for sure?

May we live in interesting times.

May you live in interesting times, often referred to as the Chinese curse...

See Also:
Pikers' Peak

Source Data:
St. Louis Fed: Custom Chart