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This is an update to a post I did several years ago.

September 23, 2011
An Employment Trend that Has Not Failed





In hindsight, it has not been easy.

The following chart shows the natural log of financial activities employment divided by manufacturing employment. When using logs, constant exponential growth is seen as a straight line.


Click to enlarge.

This trend is in serious danger of failing. We're at the very bottom of the channel again. We last saw this heading into the dotcom bust. Before that we were heading into several recessions in the late 1970s. We also saw it as we were putting a man on the moon in 1969. Have we colonized the moon yet thanks to our ever growing prosperity? Or are we planning to put that off a few more years?

Do not lose hope. When Mr. FIRE Economy was asked about his recent under-performance relative to manufacturing (relative to the long-term trend) he exclaimed, "Give me recession or give me death!" To which Mr. Manufacturing Economy laughed with great hubris, "Don't be silly! Our new and improved Fed has permanently put an end to all recessions! It's common knowledge. Everyone knows it. It really is different this time!"

In all seriousness, note that the ratio tends to rise most during recessions as manufacturing employment plummets more than financial activities employment. Being at the very bottom of the channel therefore puts us in "great" position for another legendary rise in the ratio. If the trend holds over the long-term (think fully automated manufacturing employment), then it is only a matter of time.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

The following chart shows the average of new private housing units authorized by building permits and new privately owned housing units started.


Click to enlarge.

If cold weather is responsible for the exponential trend failure then, as seen in the chart, it sure has been cold over the past year.

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 US trade deficit with China divided by the price of crude oil (annualized billions of barrels).


Click to enlarge.

It shows the amount of oil China could buy if they were to use their entire trade surplus with us to do so. That's assuming the price of oil would not be driven even higher in response to increased purchases of course, which is no doubt a bad assumption.

The next chart plots the natural log so that constant exponential growth can be seen as a straight line.


Click to enlarge.

China "sent" us ever increasing amounts of stuff that we want, yet we do not seem to be returning the favor by sending them ever increasing amounts of the stuff that they want (barrels of oil). Note that I used "sent" instead of "sends." The next chart explains why. It shows the annual growth rate of imports from China.


Click to enlarge.

As seen in the chart, the nominal growth rate is just about dead now. The growth rate in the middle of the channel is roughly 0%, which oddly enough is what the Fed feels short-term interest rates should be over an "extended period."

ZIRP-a-Dee-Doo-Dah


For what it is worth, I am not even remotely bullish on China (nor have I been since starting this blog in 2007). I also don't believe that I will ever feel the need to bribe a border guard to let me on the last plane to China. You know, as a desperate attempt to protect my future standard of living and freedoms (Patriot Act notwithstanding). Sigh.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart #1
St. Louis Fed: Custom Chart #2
St. Louis Fed: Custom Chart #3

Click to enlarge.

The line in black shows real net corporate dividends.

The line in blue shows the real trade deficit (same scale).

The red line shows the exponential trend in real dividends from 1947:Q1 to 1987:Q1. Note the exponential trend failure (to the upside).

Will real dividends stay permanently elevated? Will profit margins stay permanently elevated? Can we be assured that the worst is behind us? Can we expect future growth in real dividends to match the growth we've seen since the early 1990s? I wouldn't answer a resounding yes to any of those questions. Call me skeptical, to put it mildly. Instead, I would ask the following question.


Put another way, it really helped the corporate bottom line to transition from "Made in USA" to "Made in ____." Mission accomplished. Now what? Persistently high oil prices (financial meltdowns notwithstanding)? Persistently stagnant wage growth? Persistently high unemployment? Increased rate of US (and/or global) financial meltdowns? In and out of ZIRP from here on out (if ever out)? Even more giant sucking sounds?

February 13, 2014
China auto market growth slows sharply in January



Other than corporate executives wishing to boost the value of their net worth and retire before the @#$% really hit(s) the fan, did anyone in power really think this through?

The Chinese drive more. We drive less out of necessity (as seen in annual vehicle miles traveled per capita that fell apart during the Great Recession and has yet to make any sort of recovery). That's our plan for a more prosperous America? Seriously?

Source Data:
St. Louis Fed: Custom Chart

Click to enlarge.

I'm using quarterly averages to eliminate some of the noise.

Source Data:
St. Louis Fed: Existing Home Sales

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

Click to enlarge.

The black line shows the annual average of the industrial mining production index (left scale). Note that it recently set a new record.

The blue line shows the annual average gold price adjusted by the consumer price index (right scale, December 2013 dollars). It grew exponentially starting in 2000 and very nearly set a new record. It has recently backed off though.

Let's zoom in a bit.


Click to enlarge.




September 23, 2007
Productivity Miracle


May 22, 2013
20 Insane Bitcoin Mining Rigs


Mining rocks to hoard? Mining bitcoins to hoard? It's all good if it adds to GDP! Right?

This is not investment advice. As always, just opinions.

And on that note, here are a few bonus opinions. I find it insane that we needlessly waste any of the world's resources to mine bitcoins. Is the world really going to be a better place because of it? Is this the kind of productivity miracle that will lead to future prosperity? It's shameful that bitcoins require any energy at all to create. Good grief. At the very least, they could have made a computer game out of it that's fun to play. But no, it's just automated computers (in ever greater numbers) mining virtual bitcoins (in dwindling numbers). Put another way, it requires ever increasing streams of energy to generate fewer and fewer bitcoins. What a frickin' long-term plan of wasted effort that is (not necessarily from a miner's perspective, but for society in general).

At least gold gives you something shiny to fondle once the mining's complete. I say this as one who owned gold from 2004 to 2006. It treated me very well over that period. No complaints. No desire to buy it again though (at these prices anyway). Your opinions may vary of course.

Source Data:
St. Louis Fed: Custom Chart (Long-Term)
St. Louis Fed: Custom Chart (Short-Term)

The following chart shows the import price index for green coffee, cocoa beans, and sugar.


Click to enlarge.

Have I mentioned lately that we live in the era of "sure thing" exponential trend failures?



June 19, 2012
Def Leppard’s Joe Elliott Can’t Explain the Lyrics to “Pour Some Sugar on Me”


Hahaha! Damn, I love that band. Seriously. :)

Source Data:
St. Louis Fed: Import (End Use): Green Coffee, Cocoa Beans, Sugar

Click to enlarge.

As of November of 2013, 3.28% of our population works in the food services and drinking places industry. That's a new record. Can't ever have too many highly compensated restaurant workers in this brave new world!

As clearly seen in the chart (red trend line), it will only grow exponentially higher from here. Just look at that 0.990 correlation!

What's that blue line you say? Oh, that's an old trend that you need not concern yourself with all that much. With a lower correlation of just 0.988 it was surely doomed to fail at some point. And what a pathetic growth rate it had. That 1.78% annual growth rate pales in comparison to the new and improved 2.42%.

And to think, all we needed to get here was a Great Recession to speed things along. It's only a matter of time before every man, woman, and child in America will be flipping burgers for a living! Hurray! What could possibly go wrong?

Motherboard: Meet the Robot That Makes 360 Gourmet Burgers Per Hour


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

Click to enlarge.

Although we seem very determined to make it to $1000, I'm going to have to go with bust on this one.

1. The blue trend line was a noble effort.
2. The orange trend line offered renewed hope.
3. The red trend line doubled our efforts.

Three attempts. Three exponential trend failures.

Despair.com: Incompetence


I'm told that the economy will soon accelerate from here. If it is true, then I have just one question.


Seriously. At best, the answer seems worthy of a coin toss.

Source Data:
St. Louis Fed: Custom Chart

Click to enlarge.



Source Data:
St. Louis Fed: Custom Chart

I suggest that you watch the following video before reading further. It should really help put you in the right state of mind. Or better still, fire it up and have it playing as the background music for the charts that follow.



The first chart shows domestic financial industry corporate profits divided by overall wages and salary accruals.


Click to enlarge.

It's looking pretty good lately but let's really get into the details. And when I say pretty good, I mean that it isn't actually crashing again right now (even though it appears to be fully primed for another crash).

Three charts to go! The next chart shows the quarterly change.


Click to enlarge.

Note the increasing amplitude of the vibrations. In the next chart, let's just look at the absolute value of the quarterly change. This will give us the magnitude of the increasing chaos that is clearly evident in the system.


Click to enlarge.

In the next chart, let's look at the 5 year moving average of that absolute value and slap an exponential trend on it.


Click to enlarge.

Epic tank-slapper! Epic exponential trend failure! Epic system failure!

I will end with some good news and bad news.

First, the good news. The chaos appears to be receding.

Now, the bad news. Is it actually receding or does it just appear to be receding? Over the short-term? Over the long-term? Who knows! I have doubts. I believe that the tank-slapper is being managed with illusionary and unsustainable dampening. What we can't see yet, can't hurt us yet! It's the modern and financially innovative ostrich effect!

July/August 2009
This Year’s Battle over Mark-to-Market Versus Mark-to-Model Accounting Was Worth the Fight


There's only one thing that determines value better than the free markets. That's a group of corporate executives tweeking financial models as they look to enhance the value of their stock options. Risk on, baby! Risk on!

Too bad we can't apply this same concept to home sellers. I know that you are only willing to pay $150,000 for this house but my economic model clearly shows that it is worth $300,000! You just need to be patient until the economy returns to its "orderly" peak again!

This post once again inspired by Rob Dawg's tank-slapper concept (as seen in the comments of previous posts). I went looking for an epic tank-slapper chart that could really do it justice today. Found one on my first attempt. I didn't even have to call a personal astrologer. Go frickin' figure.

Source Data:
St. Louis Fed: Custom Chart

The following chart shows portfolio management revenue divided by corporate dividends. Keep in mind that portfolio management isn't just about dividend management, but I think the chart offers a fairly good parasite indication.


Click to enlarge.

That's one exponential trend failure I won't lose any sleep over. Hurray! Miracles really do happen!

As the bull market goes on, people who take great risks achieve great rewards, seemingly without punishment. It's like crime without punishment or sex without sin. - Ron Chernow

In a bull market, gotta pay the tapeworm to enhance the return that you could achieve yourself! You need professional expert portfolio management!

In a bear market, gotta keep paying the tapeworm to lose less money than you could lose yourself! You need professional expert portfolio management!

That's what I'm told. The only difference is that professionals just don't use the word tapeworm. "Value added portfolio manager" sounds better.

Over the long-term, how's that plan working out? Seriously.

Manager Value Added


Managers with high MVA add added value and can did beat the index. Past performance is no guarantee of future results.


Great question.


Sohisticated is not a word. They would have known this if they would have used one of the many free value added online spell checkers.

Performance tables compare fund results to index returns, leading investors to conclude, in the majority of cases, that fund managers cannot beat the index.

Yeah, that's pretty much what I conclude.


The orange has bite marks and much of the juice is missing. Just sayin'.

Source Data:
St. Louis Fed: Custom Chart

The following chart shows the consumer price index for services divided by the consumer price index for nondurables.


Click to enlarge.

Goodbye service economy tailwinds.
Hello service economy headwinds.

Perhaps Bernanke can give our service economy some inflation but he sure can't seem to target where it goes. As seen in the chart, we eventually managed to get back to the trend line in the aftermath of the 1970s. We're sure making feeble progress these days though. Fantastic. Get out the party hats.

In fact, I am not confident that we will ever return to the trend line. This is yet another epic exponential growth failure. Using the power of future hindsight, we might even consider ourselves fortunate if we can maintain present levels. Sigh.

Why is this bad? When nondurables rise in price faster than services then this service economy's many, many service employees get the short end of the stick (even less stick than they currently think they are getting).

Durable good

Examples of nondurable goods include fast moving consumer goods such as cosmetics and cleaning products, food, fuel, beer, cigarettes, medication, office supplies, packaging and containers, paper and paper products, personal products, rubber, plastics, textiles, clothing and footwear.

While durable goods can usually be rented as well as bought, nondurable goods generally are not rented.

Nondurables are generally not rented yet? Say what? I sense a business opportunity!

May 4, 2012
Renting Prosperity


Rent the good life! Premium Gasoline! Beluga Caviar! Gurkha Black Dragons! Samuel Adams' Utopias! Lucentis! The Nondurable Rental Corporation of America will fulfill all your nondurable rental dreams and then some with low, low payments amortized over your remaining expected lifespan (with only modest surcharges of course)!

Have I mentioned lately that I'm a permabear? This is not investment advice. It's a business opportunity! Tap those severely tapped consumers before they are entirely tapped-out again! What could possibly go wrong? Genius!

In the epic battle between health care services, college education services, and nondurable fuel prices, which pain will ultimately reign supreme? Stay tuned! It's sure to be a hoot!

Source Data:
St. Louis Fed: Custom Chart

Click to enlarge.

1. Although we cannot see it in all its grandeur, we can infer that there was a failure during the dotcom bust. Note the decline heading into 2002.

2. We can clearly see the failure during the housing bust. The data stopped following the blue line.

3. We now have something new. The data no longer follows the red line and it seems extremely unlikely that it will return to it. Those expecting a surge in growth from here may soon be very disappointed.

I'm repeatedly told that there will be no unhappy ending this time though. So we've got that going for us, which is nice.

Quits and openings are only part of the picture of course. I'm not looking at hires or other separations. I think quits offer a fairly interesting take on how optimistic workers can be. I'd say they are way too optimistic right now. That's especially true of recent retirees who became convinced that recent stock market performance can be extrapolated well into the distant future. Good luck on that theory!

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

The following chart shows the producer price index for intermediate foods and feeds divided by the index of the average hourly earnings of private production and nonsupervisory employees. The low point was achieved in May of 2002 (represented as 1.0 on the chart).


Click to enlarge.

Stick a fork in it. The old trend's over. Welcome to the new trend. Who doesn't like higher asset prices?

Not all of these price increases are making it down to the consumer of course. Value is "added" by heavily processing the food, placing it in cheap boxes and cans, slapping a well known brand name in colorful print on the outside, and then marking up the price. We may not have infinite global food supplies well into the distant future, but at least we have an ample supply of presentation!

September 20, 2013
Our Chat With Jeremy Grantham


November 13, 2013
Experts: world's soil is at risk


What would Carl Spackler say though?
And I say, "Hey, Lama, hey, how about a little something, you know, for the effort, you know." And he says, "Oh, uh, there won't be any money, but when you die, on your deathbed, you will receive total consciousness." So I got that goin' for me, which is nice.

Not everything is inflating of course. Take Redux for example. Some miracle drugs are not all they are cracked up to be apparently.

Redux: The Miracle Weight-Loss Drug

I'm not trying to imply that the Fed's miracle drug won't work over the long run. No, sir. ZIRP is all but guaranteed to restore all lost prosperity and then some! Common knowledge! Everyone knows it! Trapped in ZIRP like the Japanese isn't a long-term curse, it's a long-term blessing! Genius!

See Also:
The Fed's Wealth Effect (Musical Tributes)

Source Data:
St. Louis Fed: Custom Chart

Click to enlarge.

The low points are following a linear trend, implying that growth is slowing over time. If it took 30 years for real net worth per capita to roughly double from 1982 to 2012, then it will take 60 years for it to roughly double again. That's assuming we even should extrapolate past history into the distant future of course. I for one am skeptical, especially now that we've entered a "QE Trap".


The high points are following an exponential trend, implying that the bubbles are growing exponentially over time (relative to the linear base line). I expect an epic failure that even mainstream economists can see coming if we get anywhere near that blue trend line again. Note that the data only goes through June of 2013. The stock market's up another 7% since then. To the moon, Alice!

This chart is more disturbing if one factors in that the federal, state, and local debts are not included in the household net worth as calculated by our government. That's not quite true. We get credit for owning them as households, just not as owing them. Win win. Perhaps we'll someday find an alien species that we can bill instead of American households. That must be the thinking.

If my net worth is $10,000 and I loan it all to the government then the government would claim my net worth is still $10,000. If the government then spends the $10,000 to keep the government running then my net worth is still $10,000. I'd only be in big trouble if the government actually taxed me $10,000 to pay me off. But why do that? Stick with what works! Deficit spending for the win!

The chart is even more disturbing if one factors in rising wealth inequality. I doubt that real median net worth would make such an optimistic looking chart. That's just my way of saying that there are parts of this economy that were financially subprime heading into the Great Recession and they remain financially subprime. In fact, there were 34% more households on SNAP in July 2013 than were on SNAP in October 2009. How's that for a recovery!

And lastly, who would have thought that the Fed could make the average household so much richer simply by helping us earn even less interest on our savings. Genius! And sustainable? Well, who can really say for sure?

Sarcasm abounds. To the moon! Alien species! Government running! Optimistic! Sustainable! Beware, it's a bungle out there. Seriously.

Source Data:
St. Louis Fed: Custom Chart