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China's Growth Story: Running on Vapor (Musical Tribute)

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

The Stock Market: What Could Possibly Go Wrong?

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.

Will we someday, using the power of hindsight, discover that our massive trade deficit was not the permanent free lunch that it was advertised to be?

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

Lines of cars are pictured during a rush hour traffic jam on Guomao Bridge in Beijing July 11, 2013.

CAAM last month said the auto market would likely grow 8-10 percent in 2014, echoing views from industry experts and analysts that 2014 would be another strong year for China's auto market.

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

A Great Disturbance in the Civilian Labor Force

Click to enlarge.

The blue line (left scale) shows the civilian labor force participation rate of those aged 25 to 54. It peaked in the late 1990s and it has been pretty much going down ever since.

The red line (left scale) shows the civilian labor force participation rate of those aged 55 and over. It bottomed in the early 1990s and it has been generally going up ever since (recent flattening notwithstanding).

The green line (right scale) shows the civilian labor force participation rate of those aged 25 to 54 divided by the civilian labor force participation rate of those aged 55 and over.

In a truly healthy economy, should those aged 25 to 54 really be dropping out of the labor force at faster pace than those aged 55 and over (as seen in that green line since the early 1990s)?

Wikipedia: Giant Sucking Sound

The "giant sucking sound" was United States Presidential candidate Ross Perot's colorful phrase for what he believed would be the negative effects of the North American Free Trade Agreement (NAFTA), which he opposed.

In space no one can hear you ~~scream~~ suck.

Source Data:
St. Louis Fed: Custom Chart

China's Growth Is Slowing? Big Shocker.

The following chart shows the natural log of imports from China divided by disposable personal income. When using natural logs, constant exponential growth is seen as a straight line.

Click to enlarge.

Can you say market saturation?

Source Data:
St. Louis Fed: Custom Chart

Real GDP Growth Is Broken (Musical Tribute)

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.

In the dead of night
She'll come and take you away
Searing beams of light and thunder
Over blackened plains
She will find her way

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

Ten Questions for 2014

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 Cone of Employment Pain

The following chart shows the annual job growth using the quarterly average of the equally weighted government establishment and household employment surveys. I'm using the quarterly average to filter the noise out a bit.

Click to enlarge.

Perhaps an optimist can find something good in that chart, but I certainly can't (at least over the long-term and/or full business cycle anyway).

May 18, 2012
Recession Prediction

They say that predicting the next recession is a fool's game. Well, sign me up. Why not!

I'm going to predict the next recession will hit on or before October 2014.

For what it is worth, the odds of me turning optimistic any time soon are somewhere between slim and none. Just so you know, slim left town. Put another way, I see little reason to change my long-standing prediction.

This is not investment advice. Predicting the future is a fool's game. That said, it might be even more foolish to ignore the risks entirely. It's certainly easy and popular these days though. I'll give you that.

January 6, 2014
Hussman Funds: Confidence Abounds

Confidence abounds. Last week, Investor’s Intelligence reported a surge in advisory sentiment to the highest bullish percentage since October 19, 2007. The National Association of Active Investment Managers (NAAIM) reported that the 3-week average equity exposure among its members increased to the highest level on record.

Hey, what do you know? No sarcasm this time, unless sheer unadulterated long-term employment chart terror counts. I don't think it does but it is certainly open for debate.

See Also:
The Overleveraged Cone of Shame

Source Data:
St. Louis Fed: Custom Chart

Craziest Monetary God Dam Design Ever!

The following chart shows construction and manufacturing payrolls as a fraction of nonfarm payrolls.

Click to enlarge.

That sure looks like a fish ladder to me. The only difference is that the fish aren't supposed to be heading downstream. Down 19% and temporarily holding!

Fish Ladder

The velocity of water falling over the steps has to be great enough to attract the fish to the ladder, but it cannot be so great that it washes fish back downstream or exhausts them to the point of inability to continue their journey upriver.

Oh oh. Sounds like a faulty dam. What went wrong?

Click to enlarge.

Craziest monetary god dam design ever! That's what! Who in their right mind would put the monetary floodgate below the fish ladder?

I said in the past that some posts are mostly for the puns. How could I pass up this post's title once it got stuck in my head? Hahaha! Sigh. I sigh because the data is ugly, especially over the long-term. Gallows humor can't fix that.

See Also:
The "Recovery"

Source Data:
St. Louis Fed: Custom Chart
St. Louis Fed: Monetary Base

$1000 or Bust!

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

When you earnestly believe you can compensate for a lack of skill by doubling your efforts, there's no end to what you can't do.

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

Which direction?

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

Source Data:
St. Louis Fed: Custom Chart

The "Recovery"

The following chart shows goods-producing employment divided by service-providing employment.

Click to enlarge.

Poof.

Let's look at the bigger picture and see where we are.

Click to enlarge.

If transitioning from a goods-producing economy to a service-providing economy is such a good thing, then why does the bulk of the transitioning happen during recessions?

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

The Path to Free Toys!

Click to enlarge.

I wonder if the financial experts telling us all to invest in China were factoring in the price of toys.

November 20, 2013
Walmart's Black Friday, Thanksgiving Plans Try to Control Crowds: Will They Work?

Over 100 toys will be a part of the pre-Black Friday deals that begin on Friday. Among the deals are Hot Wheels cars, which are Walmart's biggest unit mover in its toy department, on sale for 60 cents from 97 cents. A game of Monopoly will be available for $5, down from its usual price of $11.77.

For what it is worth, I remember paying $1 per Hot Wheels car in the 1970s.

Source Data:
BLS: Inflation & Prices

Barking Up the Wrong Tree

The following chart shows annual production and nonsupervisory logging employee hours worked.

Click to enlarge.

That dog don't hunt.

Unless the long-term trend changes, it would seem that about the only logging we'll be doing in the distant future will require a username and password.

October 9, 2013
Here’s the Report That May Have Prompted The Lumber Liquidators Raid

Conservation groups say forests in Russia’s far east are known for large scale illegal cutting operations. Illegal logging brigades comb forests for high-quality varieties like Mongolian oak and Korean pine, cutting down trees in the middle of the night and passing them along to illegal saw mills. From there, traders mix the illegal wood with legal wood and Chinese manufacturers use fake documentation to smuggle so-called black wood out of Russia to sell to Western retailers.

Source Data:
BLS: Employment

Lettuce Prey

Click to enlarge.

Let us pray that the wages of production and nonsupervisory manufacturing workers will finally be able to keep up with the price of lettuce over the long-term.

Click to enlarge.

Let us also pray that the remaining 12 million manufacturing employees (down from nearly 20 million in the late 1970s) will not soon be replaced by even more automated systems and outsourcing.

And lastly, let us pray that SNAP benefits will be cut for all participants in November 2013. May this new era of American manufacturing employment provide all that we could possibly ever want or need and may we remain recession-free well into the distant future.

In Ted Cruz' name we pray. Amen.

October 26, 2013
How Washington’s “Crucifixion” Of Ted Cruz Made Him A Tea Party Saint In Iowa

DES MOINES, Iowa — As an audience of 600 Republicans awaited the arrival of Sen. Ted Cruz Friday night at the Iowa Events Center, conservative Christian activist Steve Scheffler came to the podium to give thanks to God for the Tea Party savior — and plead for more principled conservative leaders like him willing to “be crucified for their belief system.”

The ballroom full of amens that followed went a long way toward explaining why Cruz — fresh off a failed crusade to dismantle Obamacare that resulted in a 16-day government shutdown and a political disaster for his party — has been greeted with such adoration by Tea Party crowds in recent days.

Source Data:
BLS: CPI Database
St. Louis Fed: Average Hourly Earnings of Production and Nonsupervisory Employees: Manufacturing
St. Louis Fed: All Employees: Manufacturing

Gonna Pop Some Tags (Musical Tribute)

The following chart shows the 12-month moving average of annualized production and nonsupervisory apparel (nondurable goods) employee hours worked per capita.

Click to enlarge.

I wear your granddad's clothes
I look incredible
I'm in this big ass coat
From that thrift shop down the road

Source Data:
BLS: Employment
St. Louis Fed: Population

Real Annualized International Trade per Capita

Click to enlarge.

Let's zoom in for a closer look.

Click to enlarge.

Sorry, China. It looks like we're pretty much done being your exponential growth engine.

August 11, 2013
China Faces Years Of Slowing GDP Growth, Top Strategist Says

“We need to get used to the fact that the boom is over,” said Andy Rothman, China macro strategist at brokerage CLSA. “The days when you could just roll out of bed and make money, or the days when you could expect that the growth rate for most things was going to be faster next year — that’s done. We should expect that for the foreseeable future, every year on average, most major economic data points are going to be growing more slowly.”

It could never happen here of course. This is America. Thanks to perma-ZIRP, booms will never end again! Hurray!

Don't mind us we're just spilling our guts
If this is love I don't wanna be hanging by the neck
Before an audience of death

See Also:
Sarcasm Disclaimer

Source Data:
St. Louis Fed: Custom Chart

"Quality" Job Growth (Musical Tribute)

The following chart shows the annual growth in quality nonfarm employment. I am excluding retail trade and food services and drinking places jobs, as these are relatively low paying jobs (and generally do not require a college degree).

Click to enlarge.

1. As seen in red, we're currently attempting to hug the high point long-term declining trend.
2. As seen in blue, the overall long-term declining trend has finally reached 0% growth.

How can one not be optimistic when wearing the proper spectacles? Don't even look at the blue trend line. Just stare at where we are on the red trend line! It's still positive! The glasses are therefore still half full!

Seriously, this economy is to dye for! There's no need to be chicken. Swing for the fences! The Fed has permanently put a stop to recessions! What's the worst that could happen?

Chicken Eyeglasses

The idea behind the glasses is to prevent chickens from attacking and cannibalizing one another. Red-tinted lenses, as opposed to other colors, are said to be effective in stopping the internecine pecking because they disguise the color of blood. As summed up in a 1953 article in Indiana's National Road Traveler newspaper, "The deep rose-colored plastic lenses make it impossible for the cannibal [chicken] to see blood on the other chickens, although permitting it to see the grain on the ground."

Yes! More grain! Less life blood!

This is not investment advice. Don't be a victim of sarchasm!

Source Data:
St. Louis Fed: Custom Chart

Long-Term Promise: More Cash! Less Work!

The following chart shows the 12-month moving average of real currency in circulation per American nonfarm payroll employee (July 2013 dollars).

Click to enlarge.

As seen in the chart, I think it pretty much goes without saying that this is not 1982. It does look a bit like World War II though. Is there another world war right now that nobody told me about?

I have not filed with the Federal Election Commission to run for President of the United States in 2016, but I'd certainly like to keep my options open. I therefore offer the following pledges so everyone knows where I stand on the tough issues facing our country.

If elected, I promise even more than more of the same! Even more cash! Even less work! The more cash and the less work the better!

Who wouldn't like that? In this increasingly digital age, we're currently $500 above trend! The prosperity is practically overflowing!

If you are a guy and you have a job in this more cash and less work environment, then I feel your pain. I'd like to ask you serious questions about the main issue that I assume affects you the most. How do you get your wallet to close with $8,600+ cash inside? Does this country need to make larger denomination bills? As of May 30, 2009, only 342 $5,000 bills were known to exist. What a tragedy!

If elected, I promise even larger denomination bills produced on the same quality paper that the smaller denomination bills are printed on!

On the off chance you are a bit shy of the $8,600+ in cash ($26,000 for a family of 3) then have no fear. Perhaps someone else does and it is on the verge of trickling down to you. I know you've been patient for 30 years so far, but perhaps you just need to be patient for a few more years!

If elected, I promise to patiently watch the cash trickle down with you! In no way, shape, or form shall I inhibit its ongoing progress!

See Also:
Sarcasm Disclaimer

Source Data:
St. Louis Fed: Custom Chart

Dividends Minus Borrowing

Click to enlarge.

It would seem that corporations are already back to borrowing a dollar for every dollar paid in dividends. I wonder what they are doing with it all.

May 1, 2013
Why Fantastically Wealthy Apple Is Borrowing Money

That means Apple can pay out a penny or more for every dollar it raises in bonds, or lose about one-third of every foreign dollar it brings back home. “It’s not hard to do the math there,” Blouin says.

Not every company is as fantastically wealthy as Apple of course.

May 21, 2013
J.C. Penney Said to Reduce Rate on $2.25 Billion Term Loan

The ratings company has a “negative” outlook on J.C. Penney, noting the retailer would “continue to experience a sizable cash flow burn in the second and third quarters of 2013.”

It burns.

Source Data:
FRB: Z.1 Release
St. Louis Fed: CPI

Small Time Deposits vs. Large Time Deposits

Click to enlarge.

Small time deposits have become an endangered species.

There was a temporary exponential trend failure (seen in the break from the blue line) heading into the Great Recession, but we're apparently getting back on trend soon (using the new red line).

Giant Sucking Sound

The phrase, coined during the 1992 U.S. presidential campaign, referred to the sound of U.S. jobs heading south for Mexico should the proposed free-trade agreement go into effect.

North American Free Trade Agreement

The North American Free Trade Agreement (NAFTA) is an agreement signed by Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994.