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February 24, 2014
Coffee Reaches 16-Month High as Sugar Gains on Brazil Drought


But what can wake the sleeping giant?


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The chart shows the 10 year moving average of the Chicago Fed National Activity Index.


Source Data:
St. Louis Fed: Chicago Fed National Activity Index

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


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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

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

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

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

The following chart shows the 6-month moving average of the annual growth in clothing and clothing accessory store retail sales per capita. Keep in mind that it is not adjusted for inflation.


Click to enlarge.

We've experienced a lot of weather over the past few years. I doubt there's any reason to worry about the trend.



Source Data:
St. Louis Fed: Custom Chart

The following scatter chart compares annual disposable personal income per capita growth (bottom scale) to the annual increase in the consumer price index (left scale).


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From 1960 to 2013:

1. 2009 was the worst year for disposable personal income growth per capita. It was also the record low year for consumer price inflation.

2. 2013 was the second worst year for disposable personal income growth per capita. Once again, inflation came in below expectations.

The following chart shows recent annual disposable personal income per capita growth. I'm using the monthly data instead of the annual averages this time to more adequately show all the gory details.


Click to enlarge.

January 10, 2014
Fed's Bullard: Inflation to pick up in 2014


1. Good luck on that inflation theory!
2. Brace for more surprises!

jjchandler.com: Tombstone Generator

Click to enlarge.

This is not investment advice, but damn.

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

The following chart shows the annual average of the Dow Jones Industrial Average adjusted for inflation (December 2013 dollars). It does not account for dividends (which over the long-term can be very important clearly).


Click to enlarge.

This is not 1982. We know this because the Dow Jones Industrial Average is not trading at roughly 1916 levels (adjusted for inflation).

I'm just pointing it out for those who truly believe that this is 1982 and that a whole new era of American prosperity will soon be unleashed. That said, something may soon be unleashed (again). 1999 and 2007 weren't enough warnings?

It is yet another ugly chart, but what's new? As a retiree, I'm generally a risk-off kind of guy, and that's got risk written all over it.

1. Profit margins will stay permanently elevated?
2. ZIRP is guaranteed to work long-term?
3. The business cycle is dead so it's nothing but up from here?
4. There aren't any itchy trigger fingers hovering over sell buttons?
5. The Fed knows exactly what it is doing?
6. We can continue to borrow our way to prosperity forever?
7. America can never have too many restaurants?
8. The rise in Internet commerce won't hurt malls irreparably?


It takes a great deal of faith and/or hubris to answer a resounding "yes" to all those questions. I don't have enough faith to answer yes to any of them.

This is not investment advice, but damn. Surely there were better times in all of recorded history to put money to work in the stock market.

Source Data:
St. Louis Fed: Custom Chart

Click to enlarge.

It is not adjusted for inflation, population growth, or income inequality.



See Also:
Real Annual Disposable Personal Income per Capita Growth
Employment Hump Déjà Vu (Musical Tribute)

Source Data:
St. Louis Fed: Personal Income Growth

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.


Click to enlarge.

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

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

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 annual growth in the annual average of real personal consumption expenditures.


Click to enlarge.



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

I heard this phrase from a guest on CNBC today. Perhaps it is time for a refresher course on the meaning of the word cheap.

The Free Dictionary: Cheap


Let's attempt to compare the cost of energy to the cost of everything to find out how relatively low in cost energy actually is. The following chart shows the annual average of the consumer price index for energy divided by the consumer price index for all items.


Click to enlarge.

Did I somehow manage to transport myself to a Pulp Fiction alternate universe? It's sure starting to feel that way lately.

Say "cheap energy" one more time! I dare you!

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.

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 interest earned on MZM money stock divided by disposable personal income.


Click to enlarge.

Unless one counts cost cutting (and therefore weak employment growth) as a long-term growth strategy, we're apparently fresh out of "genius" ideas.

The chart is especially interesting if one considers how much MZM has grown relative to disposable personal income. It's almost like the more MZM we generate, the harder it is to generate interest off of it. Yeah, it's almost exactly like that. Think Japan.

This coincides well with my long standing belief that it will be increasingly difficult to make money off of money. Those anxiously awaiting higher/juicier real yields over the long-term may be in for serious disappointment, much to the ongoing dismay of Brett Arends at the Wall Street Journal. What a trip down memory lane that link is by the way. 2008, what a year!

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart