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iShares Short Treasury Bond ETF


Perfect!

It is just like cash, only it isn't cash. It's a professionally managed bond fund! Genius!

Check out the fund's chart. What's not to like? $2.4 billion in assets! Very popular!

July 20, 2009
Focus on short end of yield curve, PIMCO says

Focus as you patiently await the end of ZIRP! 5 years so far! But we really, really, really mean it this time!




This concludes today's sarcasm report. :)

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

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

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

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

Click to enlarge.

Big Bang


In layman's terms, rising interest rate environment my @$$.

Source Data:
St. Louis Fed: Custom Chart

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