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The following chart shows real nonfinancial corporate business credit market liabilities per capita (September 2013 dollars).


Click to enlarge.

An exponential trend channel did not fit the data well at all but a parabolic trend sure did.

Parabolic moves are not sustainable over the long-term. This is a mathematical certainty. About the only thing open for debate here is the timing of the failure(s).

There's a reason that so few of the companies in the S&P 500 still have AAA ratings. It is not something pointed out on CNBC though. No, sir. It's just piles and piles of corporate cash that's talked about. Why won't they spend their hoard? Blah, blah, blah, blah, blah.

1. Over the short-term, we're pretty much at the top of the channel again. This data ends in the 3rd quarter of 2013. Keep in mind that 5 months have elapsed since then. This is not even remotely the ideal investment environment that we saw in 1982 (where we were right at the bottom of the trend channel with plenty of room to grow).

2. Over the long-term, to put it bluntly, we are so @#$%ed.

March 21, 2012
Parabolic Moves Always Have Their Reasons


I can't say when the parabolic trend will fail (either in the short-term or the long-term) but I will say this. I became a permabear over debt concerns. I remain a permabear over debt concerns.

When the @#$% hits the fan again, and it certainly will if we continue to follow parabolic debt paths, then I'd much rather be owning "bubbly" inflation protected US treasuries backed by a monetary printing press than "bubbly" corporate debt backed by "private jets, office renovations, and custom-built commodes." Of course, that's just an opinion. Your opinion may vary.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

The following chart shows the natural log of annual change in the CPI less food and energy. When using logs, exponential growth (or in this case, decay) is seen as a straight line.


Click to enlarge.

No matter how hard the Fed tries, it cannot seem to break through the top of the decaying trend channel. So what's the latest tactic? Taper! Good luck on that. Maybe it works. Maybe it doesn't.

As seen in the following chart, the Fed has had substantially more "success" with energy though. The chart shows the annual change in the CPI for energy (not the natural log).


Click to enlarge.

And when I say "success", I really mean "confidence building" chaos. Note that ZIRP has actually helped to calm things down a bit in recent years. Nothing stops chaos like nothing apparently. So here oil is, chugging along at the $100 level looking for forward guidance. Perhaps it wants to believe that the global economy is robust, but it just isn't all that sure. Or perhaps that's just me talking as a permabear? (Hint: Oil can't actually believe anything. It's just a liquid. I may be a permabear, but I'm not entirely crazy, lol. Sigh.)

November 22, 2002
Deflation: Making Sure "It" Doesn't Happen Here


You will note that Bernanke did not mention wages or salaries in that paragraph, nor anywhere else in his speech for that matter. Perhaps the Fed's ability to decrease the value of a dollar is at best like a blunt hammer, and not a surgical instrument.

It would also seem that our government is not all that determined to generate higher spending at a level that could guarantee positive inflation (much like Japan since their housing bust in the early 1990s). Perhaps $100 oil, massive debt relative to disposable personal income, and a congressional approval rating of just 12% has something to do with it. Go figure.


That was then, this is now.

I know not with what weapons Great Recession III will be fought, but Great Recession IV will be fought with sticks and stones. Sigh.

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

Click to enlarge.

What's Plan B?

See Also:
Real Yields: Why They Are Falling (Musical Tribute)

Source Data:
St. Louis Fed: Custom Chart

The following chart shows real GDP.


Click to enlarge.

Four exponential trend lines and their growth rates have been added.

Note that each time an exponential trend fails, it is replaced with an exponential trend of lesser quality. What doesn't kill us, doesn't make us stronger. Go figure.

The next chart shows the long-term trend of those growth rates. I'm using the midpoint of my hand-picked expansions as the x-axis.


Click to enlarge.

The most recent data point is open to serious revision. The growth rate probably won't change much, but the x-axis position may (it could move to the right on the chart). It really comes down to how long this expansion lasts.

Real yields have fallen because real GDP growth has fallen (and continues to fall). It really is just that simple. Put another way, it is becoming harder and harder to make money off of money (current lofty stock market valuations notwithstanding).

Those hoping for a return to normal better hope that the downward trend does not continue, because that's about the only normal thing going on right now.

The future's so bright I gotta werewolves.



See Also:
The Long-Term Death of Real Yields

Source Data:
St. Louis Fed: Real GDP

The following chart shows the annual change in the semiannual average of the producer price index for finished goods.


Click to enlarge.

1. Heckle the Fed for achieving long-term "stable price" certainty?

2. Heckle Jeremy Siegel for warning us that the Fed would raise rates well before 2014?

3. Heckle CNBC for warning us what the taper would do to interest rates?

4. Heckle Shadowstats for misguided hyperinflation theories?

So many many targets! So little time. I may be forced to resort to Sarcastic ZIRP Technology!



File:Minuteman III MIRV path.svg (Fastfission)

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

Click to enlarge.

The blue line shows the annual average of the St. Louis Fed Financial Stress Index and the Kansas City Financial Stress Index.

The red line shows the negative of the annual average of the real S&P 500 Index (December 2013 dollars).

1. The key to maintaining the stock market's currently lofty level is to keep the financial stress at a near record low. That's right. Keep it there permanently. Just say no to stress.

2. The key to maintaining the financial stress at a near record low is to keep the stock market at its currently lofty level. That's right. Keep it there permanently. Just say no to stress.

What could possibly go wrong with this circular reasoning strategy? As seen in the chart, there hasn't been this little financial stress in the system since the top of the housing bubble in the mid 2000s! Oh, what a carefree time that was!

I am very optimistic about our long-term future!! ZIRP! Employment growth! Real GDP growth! Real median household income growth! Uncharted territory growth! You name it! It's going to be an adventure.

February 11, 2014
ASX bets on derivatives clearing

This concludes the sarcasm report.

Source Data:
St. Louis Fed: Custom Chart

...then we are officially @#$%ed.



Credit growth (in red) is slowing.
Savings growth (in blue) is slowing.

Without either of those two, I guess we'll just have to rely on wage growth. Good luck on that one. Sigh.

This is not investment advice.

See Also:
Low CD Rates: Lending Drought and Savings Monsoon

Source Data:
St. Louis Fed: Custom Chart

Click to enlarge.

The data in red (left scale) shows bank credit of all commercial banks divided by total savings deposits at all depository institutions. Think of it as a lending to savings ratio proxy.

The data in black (right scale) shows the 5-year CD rate (national rate of banks).

The data in blue (right scale) shows the 5-year treasury yield.

I would argue that the red data is a primary driver of interest rates (perhaps not the only one). All things being equal, as people deposit more money in banks relative to what banks are lending, interest rates go down. Put another way, banks have no incentive to offer great interest rates on savings when there is so much money being deposited.

Note that the 5-year treasury (in blue) has recently tried to diverge from this pattern. This is not its first attempt. Its last attempt (back in 2011) failed miserably. For what it is worth, I'm not a believer that it will succeed this time either. Rising interest rate environment? I don't think so. Could be wrong of course. Time will tell.

And lastly, note the extreme lack of a recovery in the lending to savings ratio (in red). It's just been down, down, down.

Here is a closer look at that lending to savings ratio over the past year (using weekly data instead of smoothed semiannual data).



Once again, it's just down, down, down. The lending drought and savings monsoon continues. Those patiently waiting for higher CD rates and higher 5-year treasury yields may be very disappointed. But what's new? They've generally been disappointed for 30+ years.

This is not investment advice.

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

The following chart compares the trillions of dollars the monetary base has grown (in blue) to the trillions of dollars household net worth has grown (in red) since the first quarter of 2009.


Click to enlarge.

Each dollar the Fed spends gets us back ten! Why on earth is the Fed tapering the sure thing? We need even moar leverage! Not less!



Why hasn't anyone else thought of this? Genius!

December 17-18, 2013
Minutes of the Federal Open Market Committee


Oops. Please disregard my crazy theory above. It would seem that I was offering the very thing the Fed is most worried about. You have to admit that it seemed like a darned good theory on paper though. I just hadn't factored in any unintended consequences. In my defense, it's really easy to do once I went down the "excessive risk-taking" path (gambling $10.8 trillion on a "sure thing" would definitely qualify).

Marrakesh Night Market



See Also:
Sarcasm Disclaimer

Source Data:
St. Louis Fed: Custom Chart

Click to enlarge.

It would seem that banks are not going to be paying people to take out mortgages after all. Who knew?

Strike one more economic tailwind off the list.

Source Data:
St. Louis Fed: Origination Fees and Discount Points for 30-Year Fixed Rate Mortgage

Click to enlarge.

Who could have guessed that declining real interest rates could eventually lead to less real income growth?

Source Data:
St. Louis Fed: Custom Chart

The following chart shows the semiannual average of the 30-year conventional mortgage rate.


Click to enlarge.

I have added an exponential decay trend line in blue and an exponential decay channel in red. To create the top of the channel, I multiplied the interest rate in blue by 1.2 (+20%). To create the bottom of the channel, I multiplied the interest rate in blue by 0.8 (-20%).

Over the long-term, does that look like a rising interest rate environment to you? Is there any indication, any indication at all, that the long-term trend is failing? As of the 2nd half of 2013, we're sitting right on the long-term trend line in blue.




This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

Click to enlarge.

The Fed wants 2% inflation per year. If real household median income and real household debt per capita can't get us there, then oil will have to do.

Here's the good news. If real household median income starts to fall again, then the Fed may help raise the price of oil to compensate again. In fact, the lower real median income goes, the more help they may offer! Genius!

Put another way, the less you make at work the more it may cost you to get to work! You know, just to balance it out and what not. This is such a great idea. Should give you all the motivation in the world to get paid more.

What label should we use to describe what's going on?

1. Deflation.
2. Inflation.
3. Stagflation.
4. All of the above.

You make the call. As for me, I'm calling it hyperdefstaginflation! We'll need two words to describe what we're feeling as well.

For the optimists: hyperdefstaginfelationed!
For the pessimists: hyperdefstaginfestationed!

As a side note, one can probably deduce the typical feeling based on how little it costs to fill one's gas tank as a percentage of net worth. The closer you are to the top 1%, the more you'll feel hyperdefstaginfelationed! Well, not always. There may be a little bit of whining involved.

January 28, 2014
VC legend Tom Perkins apologizes for comparing attack on rich to holocaust



File:If-us-land-mass-were-distributed-like-us-wealth.png (Stephen Ewen)

The 1% minority are being persecuted by that little red dot. Oh the humanity! Although none have lost their lives so far, there's been a great deal of emotional damage. When your net worth is over a billion dollars and you experience even 2% emotional damage, that's tens of millions of dollars! For a 200 pound billionaire, that's easily $6,250 per ounce in tainted self-worth! Don't the poor realize this?

Source Data:
St. Louis Fed: Custom Chart

The following chart shows the natural log of the quarterly average of the 10-year treasury yield. When using natural logs, constant exponential growth (or decay) is seen as a straight line.


Click to enlarge.

I have added a parabolic trend channel in red that uses the data points shown in red. I have also added a parabolic trend in blue that uses all of the data points. Note that the correlation of the blue trend line is 0.89.

The long-term trend shows that the 10-year treasury yield has been decaying (not exactly rocket science here). It's not a pure exponential decay though. Since a parabola fits the data extremely well, I think the best way to describe it is as an exponential decay trend that has been accelerating to the downside. In other words, it has been exponentially decaying at a faster and faster rate. Hello Japan?

I know past performance is not necessarily indicative of the future, but where is the actual evidence that we are in a long-term rising interest rate environment? (And not just a short-term cyclical bounce within a declining trend channel?)

You may be wondering why I singled out the 5% interest rate target in the chart (with a natural log of 1.61). Well, wonder no more! It is inspired by the financial "experts" at MSN Money. Long time readers know that I'm not all that bullish on inflation adjusted gold prices at these levels, but I believe that the following article is a study in ridiculousness. I am therefore willing to place a "gold bug" hat on my head, if only for a day. You know, it's just an effort to balance things out a bit.

January 22, 2014
MSN Money: How gold could fall below $500 an ounce


If ifs and buts were candy and nuts then we'd all have a Merry Christmas. What hubris! The price of gold is pegged to 3 digits of "scientific" precision. All you need to know is a future long-term nominal interest rate? Forehead. Desk. Whack. Whack. Whack.


You think? Yeah, inflation might be a good backup plan if nominal interest rates aren't enough I suppose. For example, if inflation is running at 10% and the 10-year treasury yields 5% then I think we can pretty much forget about $500 gold. Call me silly if you must. (This is not a prediction that we will see 10% inflation and 5% interest rates of course. It's just an example.)


I wish you could have seen how quick I was to reject his simpleminded "behavioral" model. It may have even been a personal best! Unfortunately, I did not have a stopwatch at the time. And even if I had a stopwatch handy, I'm 49 years old and my reflexes aren't what they once were. I'm therefore not entirely sure I could have accurately timed such a short period to 3 digits of "scientific" precision.


Wow! 10 years of cherry picked data offered up a very high 0.78! Color me impressed. Of course, it is based on the premise that my 28 years of cherry picked data (as seen in the chart above) with a much higher 0.89 correlation has to fail spectacularly before his prediction even kicks in. In order to get to 5% interest rates, the natural log needs to rise to 1.61 on my chart. That is well outside the channel and well removed from the blue trend line. It would indeed be a spectacular fail. Could it happen? Of course it will, someday. That someday could be a very, very long time from now though. And in the meantime, who really knows what gold will be doing?

So, in the battle between cherry picked data sets, who are you going to believe? The very highly correlated 10 year model for gold's price that does not concern itself with inflation or the extremely highly correlated 28 year model of long-term interest rates that has a certain Japanese housing bust feel to it?

Put another way, if one assumes that we are in a rising interest rate environment when we very well might not be, then all kinds of crazy predictions are possible. Why stop at 5% interest rates? What will gold's price be if interest rates hit 50%? Better not tell me $47.10 or I will laugh my motherf#$%ing @$$ off! Seriously, lol.

This is not investment advice. I'm simply offering up an alternative theory for where interest rates are headed that matches my own beliefs. It is not proof of anything. If I had a crystal ball that could accurately predict the future, then I certainly wouldn't spend time making charts or offering up gold price predictions with a whopping 3 digits of "scientific" precision. Now would I? No, sir. I'm compelled to heckle instead. It might even be a disease. Please, for the love of all that's holy, someone help me stop! :)

See Also:
The Pulp Fiction of Rising Interest Rates

Source Data:
St. Louis Fed: Custom Chart

The following chart shows the real home equity loans at all commercial banks per civilian employed (December 2013 dollars).


Click to enlarge.

A linear trend failure *and* an exponential trend failure? All in the same chart? I think I just died and went to trend failure heaven!

October 27, 2005
Bernanke: There's No Housing Bubble to Go Bust


Wikipedia: Good cop/bad cop


If credit is the lifeblood of this economy, then we just need to work through this "soft patch" and all will be well again. Right?

Investopedia: Soft Patch


Two quick questions and I'll let you go.

1. Where the @#$% is the good Fed?
2. Is it normal for a soft patch to last more than 5 years?

Source Data:
St. Louis Fed: Custom Chart

Click to enlarge.

Real GDP growth averaged 3.48% per year from 1947 to 2000.

Starting in 2000, this long-term exponential trend began to fail. First the dotcom bubble popped, then came the housing bust. Let's take a close-up look at the most recent recovery for any signs of hope.


Click to enlarge.

From the bottom of the Great Recession, real GDP growth has averaged just 2.28%. That is an especially pathetic growth rate for at least five reasons.

1. "The worse a situation becomes the less it takes to turn it around, the bigger the upside." - George Soros (I think we can all agree that the situation qualified as much worse. So where is the bigger upside in response?)

2. The growth rate is a full 1.2% lower than the long-term average heading into 2000. This pig desperately needs lipstick in my opinion.

3. We can't blame any recessions for it being this low. There haven't been any recessions since the bottom! This data has been cherry picked to be recession free. Duh! I threw the optimists a bone here and it still came up way short! Seriously.

4. We're currently following the exponential growth trend line with great precision (r-squared = 0.988). The last time it failed, it failed to the downside. Historically speaking, recessions tend to do that. I know. Shocking.

5. How much will the 2.28% average drop once the next recession hits? In other words, what will the true growth rate be over a complete business cycle? 3.48%? I doubt it with every fiber of my being. I'd even be willing to leverage up that fiber with Super Colon Blow!

The January 20th cover of Time Magazine calls Janet Yellen the sixteen trillion dollar woman. That's a pretty amazing title and her picture definitely inspires confidence. She's going to need to work some magic to restore prosperity over the full business cycle though. I therefore offer her a musical tribute to help inspire. The monumental task before her is legendary.




I can't speak for you, but I've got a really good feeling about this. Yes, very positive. Haven't been this optimistic in years. Why you ask? Her picture on the cover of Time is on a pitch black background ("over blackened plains she will find her way"). What could possibly go wrong?

See Also:
Sarcasm Disclaimer

Source Data:
St. Louis Fed: Real GDP

The following chart shows the annual average of the 5-year CD rate at national banks.


Click to enlarge.

I'm not a religious person, but I do believe Jules would summarize this "rising interest rate" environment best.

The path of the righteous man is beset on all sides by the inequities of the selfish and the tyranny of evil men. Blessed is he who, in the name of charity and good will, shepherds the weak through the valley of darkness, for he is truly his brother's keeper and the finder of lost children. And I will strike down upon thee with great vengeance and furious anger those who would attempt to poison and destroy My brothers. And you will know My name is the Lord when I lay My vengeance upon thee.

I'm certainly not a sarcastic god by any stretch of the imagination, but I am fully prepared to strike down upon Forbes with great sarcastic vengeance and furious sarcastic anger! It certainly wouldn't be the first time.

January 13, 2014
Forbes: Rising Interest Rates: Are They Good Or Bad For Retirees?

Allow me to pull the 10 key points from the article for you (including the title).

1. "...rising interest rates..."
2. "...rising rates..."
3. "...rising interest rates..."
4. "...rising interest rates..."
5. "...rising interest rates..."
6. "...rising interest rate..."
7. "...rising interest rates..."
8. "...rising rates..."
9. "...rising mortgage rates..."
10. "...rising rates..."

And finally, here is one of the true "Jules" of the article. It is the example that set all of this rant in motion.


Hahaha! Good motherf@#$ing luck on that motherf@#$ing miracle happening any time soon! The average 5-year CD at national banks currently pays just 0.48% (as of January 8, 2014). That is definitely the lowest rate I have ever personally seen (and I was born in 1964).

This is not investment advice. They are just the free motherf@#$ing opinions (in the spirit of Jules and Pulp Fiction of course) of an anonymous blogger on the Internet. Do with them what you will. :)

Source Data:
St. Louis Fed: Custom Chart

Now that the consumer price index for 2013 is complete, let's look at the long-term trend of the annual percent change in the average annual CPI.


Click to enlarge.

Ten Questions for 2014

1. How many decades will we be stuck in ZIRP?
2. Will it be as many decades as Japan?
3. Why is the Fed tapering?
4. When will the Fed ramp up QE again?
5. How much more poning can the hyperinflationists take?
6. Why am I so willing to hold long-term TIPS to maturity?
7. Where have all the "bond vigilantes" gone?
8. What are they doing with all their profits?
9. Sears? (It's a rhetorical question.)
10. Why must I use the sarcasm label in nearly every post?

Source Data:
St. Louis Fed: Custom Chart

The following chart compares the growth of nonstore retailer sales vs. overall retail sales (in black and red) to the growth of nonstore retailer employment vs. overall retail employment (in blue and orange).


Click to enlarge.

Nonstore retailers are growing their sales exponentially relative to overall retail sales but nonstore employment is decaying exponentially relative to overall retail employment. It doesn't take a rocket scientist to understand the stress that's placing on brick and mortars over the long-term (and the jobs that go with them).

I believe with every fiber of my being that retail employment of the future is going the way of farming employment and manufacturing employment. It won't stop there though. Coming soon to a profession near you!

September 13, 2013
Half of all U.S. jobs will be automated, but what opportunities will be created?


I'm thinking that the answer isn't extreme student loan debt. That's just a hunch though.

Terminator 3: Rise of the Machines (2003)


Was Kate Brewster a Sears employee? Sigh.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

The following chart shows the number of child day care services employees.


Click to enlarge.

That's some recovery we've got there. It's strong and resilient. Yes, sir.

In my opinion, the Japanese should have patented massive economic busts and ongoing zero interest rate policies as effective birth control medicines. Just think of the royalties!

April 17, 2013
Japan's population suffers biggest fall in history


January 8, 2014
CDC: U.S. Fertility Rate Hits Record Low for 2nd Straight Year; 40.7% of Babies Born to Unmarried Women


Source Data:
BLS: Employment