ZIRP: Big Bang for the Buck

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Big Bang

Extrapolation of the expansion of the Universe backwards in time using general relativity yields an infinite density and temperature at a finite time in the past. This singularity signals the breakdown of general relativity.

In layman's terms, rising interest rate environment my @$$.

Source Data:
St. Louis Fed: Custom Chart

My Take on Construction Spending (Musical Tribute)

The following chart shows the natural log of the combined total of religious construction spending, sewage and waste disposal construction spending, and amusement and recreation construction spending all divided by disposable personal income. I am once again using a natural log so that exponential growth (or in this case decay) can be seen as a straight line.


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Why religious, sewage and waste disposal, and amusement and recreation construction spending you might ask?

1. We have lost faith.
2. The @#$% is hitting the fan again.
3. We are not amused.



"Bond" is certainly having a good year so far (the last few weeks in particular). Shocking.

The 20-year TIPS is back under 1%. Let's just blame the next 20 years on a few months of cold weather and call it good.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

When Will the Next Auto Industry Bailout Occur?

The following chart shows the natural log of annual light auto sales divided by civilian employment. I'm using a natural log so that constant exponential growth (or in this case decay) can be seen as a straight line.


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Behold the two trend channel failures. The first was a massive failure to the downside and the next was a massive failure to the upside. Slow and steady recovery my @$$.

And on that note, I'll leave the exact date of the next auto industry bailout as an exercise for the reader. Sigh.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

Seahawks: A Tale of Two Super Bowl Linear Trend Failures

12 seconds into the game, I opted to do some simple back of envelope extrapolation. The score was 2 to 0 and the game was 1/300th complete (barring overtime).

Expected Final Score: 600 to 0

25 seconds into the game, I saw the error of my folly. My model was breaking down! We were clearly losing momentum!

At halftime, I revised my estimate using a much larger data set. The score was 22 to 0 and the game was 50% complete.

Expected Final Score: 44 to 0

Imagine my surprise when Denver scored a touchdown. Nobody could have expected them to score, on a percentage basis, infinitely more points in the second half than in the first half! Black swan event!

Final Score: 43 to 8

Two linear trend failures and we still won? We sure dodged a bullet up here in Seattle. Nail biter to the very end! Whew!

Go Hawks! :)

The Future of American Baby Manufacturing (Musical Tribute)

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Wikipedia: Optimism

Optimism is a mental attitude or world view that interprets situations and events as being best (optimized), meaning that in some way for factors that may not be fully comprehended, the present moment is in an optimum state. The concept is typically extended to include the attitude of hope for future conditions unfolding as optimal as well.

Hey! Look! A parabola! Woo-hoo!



See Also:
St. Louis Fed: Japan's Working Age Population
Sarcasm Disclaimer

Source Data:
St. Louis Fed: Custom Chart

The "Driver" of American "Prosperity"

The following chart shows personal income divided by personal consumption expenditures.


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No matter how important you think income is, consumption is always more important!

Show of hands: Who thinks this can end well?

January 31, 2014
Consumers spent more than expected last month despite flat incomes

WASHINGTON -- Consumers opened their wallets more than expected last month even though their incomes failed to grow, another indication the economy picked up steam heading into the new year, the Commerce Department said Friday.

Steam power for the win apparently.

Source Data:
St. Louis Fed: Custom Chart

Trading Update

I bought a 19-year TIPS last June. It was actually a bit less than 19 years. It will mature on April 15, 2032. That means it is now an 18-year TIPS. I locked in a 1.06% real yield with intent to hold to maturity.

As of today:

The 20-year TIPS yields 1.07%.
The 10-year TIPS yields 0.53%.

Using interpolation, those purchasing the 18-year TIPS now are now only getting 0.96% (1.07% x 0.8 + 0.53% x 0.2 = 0.96%).

I therefore cannot complain about my most recent purchase (or any previous TIPS purchase for that matter).

Real yields have been falling rather consistently since the early 1980s. It has rarely paid to procrastinate when a real yield became acceptable. For what it is worth (as a permabear), I feel today's long-term real yield is acceptable. If I had more money to deploy (beyond emergency savings), I would buy more long-term TIPS at these levels.

1. There is a whopping $12.2 trillion still willing to earn a nominal yield of just 0.084%. Talk about a slow painful death (of inflation adjusted savings).

2. I think the direction of this economy over the long-term is directly tied to the direction of real yields over the long-term. Waiting around for better real yields is a bit like waiting around for a better economy (temporary bubbles notwithstanding). Good luck on that one.

3. I don't think the global economy can tolerate higher real yields (our economy in particular). I would point to what these "low rates" have done to recent stock market activity, recent emerging market activity, and holiday sales.

4. Where's the hyperinflation? If anything, the CPI is trending down again even though we've been in ZIRP for 5 full years. You may wonder why I like long-term inflation protected bonds when seen in that light. Well, I am a relative inflation agnostic over the long-term. My investments are a pure play on falling real growth instead, and real growth has been falling. Big shocker.

This is not investment advice. As always, just opinions. Maybe I am wrong to be a permabear. You know what? I sure hope I am! It would only help me if real yields rose because the economy was doing better. I'd be able to reinvest the proceeds at higher rates when my bonds mature. I really don't think I will be that lucky though (not by any stretch of my imagination). Sigh.

Source Data:
St. Louis Fed: Custom Chart

Housing's Addiction and Recovery (Musical Tribute)

The following chart shows owner occupied housing units.



Jane's Addiction - Mountain Song

Cash in
Cash in now honey
Cash in now
Cash in now baby
Cash in now honey
Cash in Miss Smith
Cash in now baby

Source Data:
St. Louis Fed: Owner Occupied Housing Units