Daily news sites

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


But what can wake the sleeping giant?


Click to enlarge.

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

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 compares the growth in the number of retail production and nonsupervisory employees (in black) to the growth in the aggregate weekly hours worked by retail production and nonsupervisory employees (in blue).


Click to enlarge.

We have "successfully" transitioned to a "weaker than appears" retail employment economy. Get out the party hats.

See Also:
Sarcasm Disclaimer

Source Data:
St. Louis Fed: Custom Chart

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 annual growth in the S&P 500 Index divided by the annual growth in retail sales (excluding food services). I offer two data sets. One starts at 2004:Q1 (in black) and the other starts at 2010:Q2 (in blue). A parabolic trend line has been added for each series.


Click to enlarge.

Note that both parabolic trends are nearly identical. So much for the "fool me once shame on you, fool me twice shame on me" theory to investing.

We are currently seeing each 1% of retail sales growth turn into 6% in S&P 500 Index growth (a 6-1 leverage ratio), just like we were heading into the Great Recession. That is not the most disturbing part though. It's how we got here and where investors seem to think we're headed.





The future's so bright I gotta snipe hunt.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

The following chart shows industrial capacity per capita (industrial production index adjusted for capacity utilization and population).


Click to enlarge.

That's a 0.998 correlation over 27 years of data (Jan 1967 to Jan 1994). And then... Boom! Trend broken big time. That has to be one of the most impressive trend failures I've ever posted on this blog. It was so incredibly consistent and predictable right up until it wasn't.

It's not where we've been but where we are headed that concerns me most. Now that we have all this extra capacity, what's the worst that could happen from here?


File:Abandoned Packard Automobile Factory Detroit 200.jpg (Albert duce)

It's not just us.

February 17, 2014
China Crackdown Drives Business Off the Books


February 10, 2014
Guest post: dealing with 500m tonnes of global steel overcapacity


January 27, 2014
China’s Aluminum Overcapacity Seen by Fitch Holding Down Prices


January 23, 2014
PetroChina delays operation of refineries on overcapacity

December 11, 2013
Overcapacity Threatens China Growth


I have never been more permabearish.

This is not investment advice.

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

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 nonfarm payrolls divided by initial claims. I'm using quarterly averages to smooth things out a bit (1967:Q1 to 2013:Q4). In my opinion, the higher the ratio, the higher the potential for layoff surprises.


Click to enlarge.

The 3rd order polynomial trend channel in red uses the red data points.

The 3rd order polynomial trend in blue uses all the data points.

I would be among the last to argue that a 3rd order polynomial can accurately predict the future. It can't, especially over the long-term. That said, damn. It's an ugly chart. We all better hope there is absolutely no truth buried within it. Unfortunately, as a permabear since 2004, I do believe there is some truth buried within it (or I would not have made the chart). How much truth remains to be seen.

In any event, I would once again point out that this is not 1982. We are not at the very bottom of the long-term channel with favorable long-term tailwinds. Instead, we are at the top of the channel with winds of a potentially different nature. Sigh.

Is it really any wonder that we're still trapped in ZIRP?



This is not investment advice.

See Also:
Trend Line Disclaimer

Source Data:
St. Louis Fed: Custom Chart

The following chart compares the 3-month treasury bill yield in the aftermath of the Great Depression to the 3-month treasury bill yield in the aftermath of the Great Recession.


Click to enlarge.

For the record, I am not predicting World War III (nor would I expect it to even remotely solve our long-term ZIRP problem as effectively as World War II did).


I think you can see why I might be fond of ultra long-term inflation protected treasuries and I-Bonds. You might also understand why I might be somewhat skeptical of rising interest rate theories.

I believe we are trapped in ZIRP much like Japan has been since their housing bubble popped in the early 1990s (which will become all too apparent when the next recession hits, whenever that is).

We might temporarily escape from our padded cell at some point, but we'll never get the straight-jacket off, much less get past the search lights, the dogs, the barbed wire fences, and Janet Yellen, our trusted security guard. That's just asking too much, lol. Sigh.

Gallows humor.

February 11, 2014
Janet Yellen to Emerging Markets: Good Luck


Contrary to the opinion of those who think the stock market continues to go up easily from here and that vast riches await those willing to swing for the fences at any price, monetary policy is hard. For what it is worth, that's what I'm reading into what she has to say anyway.

This is not investment advice.

Source Data:
St. Louis Fed: 3-Month Treasury Bill: Secondary Market Rate
NBER: US Business Cycle Expansions and Contractions

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).


Click to enlarge.

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 change in beer, wine, and distilled alcoholic beverage wholesalers' sales.


Click to enlarge.

Don't let the trend line concern you. As seen in the next chart, I assure you that we are more than prepared to throw a legendary party!


Click to enlarge.

Just look at all that inventory accumulation. Yes, sir. Somebody must know something. The party's definitely coming!




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

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

The following chart shows annual food services and drinking places employment growth.


Click to enlarge.

3.7% annual growth! Very impressive. Each time we get a recession (the deeper the recession the better), we get more growth. More recessions for the win! Genius!

We just need to stay in that strong, resilient, predictable, and consistent trend channel long-term, preferably near the top. The long-term trend is so obvious that I don't even feel the need to add a trend line. Did I mention how stable and sustainable the channel is? Just look at it! A few more years of this and it will be almost impossible to leave the channel no matter what happens. Who doesn't love certainty?

The annual data in the first chart doesn't include 2014 yet, but I can give you a glimpse of how the year is starting off using monthly data.


Click to enlarge.

There are a whopping 10.5 million people employed in this rapidly growing industry. Growth appears to have peaked back in July. As of January, the growth is still above 3% though and there's nothing but biscuits and gravy on the horizon! Can't you see it? And with average hourly earnings of production and nonsupervisory workers in this industry coming in at $10.96 (December 2013), what's not to like?

In honor of the charts, I suggest we all try to work Chipotle into our conversations (more than we already do). Start the day off right. When we wake up each morning we should exclaim, "What a great day to Chipotle!" Or alternatively, "The future's so bright I gotta Chipotle!"

January 30, 2014
Traffic jump boosts Chipotle restaurant sales, stock soars


People braved the extreme weather to eat burritos? It's a frickin' polar vortex miracle!



See Also:
Sarcasm Disclaimer

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

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

The following chart shows the quarterly change in the quarterly average of civilian employment.


Click to enlarge.

The blue parabolic trend line uses all of the data points.
The red parabolic trend line uses select low data points in red.

I say we just blame the trends on cold weather and problems in emerging markets. What's the worst that could happen?

Risk on, baby! Risk on!

This is not investment advice.

See Also:
Trend Line Disclaimer
Sarcasm Disclaimer

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

The following chart shows the annual growth in private industry worker benefits. I'm using semiannual data to smooth out the data a bit.


Click to enlarge.

Friends with Benefits (2011) - Quotes


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