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


Click to enlarge.

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

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

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

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

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

March 21, 2012
Parabolic Moves Always Have Their Reasons


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

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

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

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


Click to enlarge.

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

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


Click to enlarge.

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

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


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

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


That was then, this is now.

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

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

Click to enlarge.

What's Plan B?

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

Source Data:
St. Louis Fed: Custom Chart

The following chart shows real GDP.


Click to enlarge.

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

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

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


Click to enlarge.

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

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

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

The future's so bright I gotta werewolves.



See Also:
The Long-Term Death of Real Yields

Source Data:
St. Louis Fed: Real GDP

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


Click to enlarge.

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

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

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

4. Heckle Shadowstats for misguided hyperinflation theories?

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



File:Minuteman III MIRV path.svg (Fastfission)

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

Click to enlarge.

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

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

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

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

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

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

February 11, 2014
ASX bets on derivatives clearing

This concludes the sarcasm report.

Source Data:
St. Louis Fed: Custom Chart

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



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

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

This is not investment advice.

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

Source Data:
St. Louis Fed: Custom Chart

Click to enlarge.

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

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

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

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

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

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

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



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

This is not investment advice.

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