The Slippery Slope of Hope(lessness)

The following chart shows personal current transfer receipts divided by government current receipts.


Click to enlarge.

On Basilisk Station (David Weber, Copyright © 1994)

"Oh, that’s a wonderful idea!" Frankel snarled. "Those BLS increases are all that’s keeping the mob in check! They supported the wars to support their standard of living, and if we don’t—"

No worries! That quote comes from a book of science fiction. All governments appearing in this work are fictitious. I'm sure that any resemblance to real governments is purely coincidental.

Check out the last three data points at the trough of the long-term channel.

2000:Q1: Good times!
2007:Q2: Better times!
2013:Q2: Best times!

Other than 2000 and 2007, perhaps there has never been a better time to swing for the fences? The stock market only goes up again! What could possibly go wrong? It is possible that the 2013:Q2 data point isn't the actual bottom. I can say this though. First, we bounced off of it. Second, if I exclude the 2013:Q2 data point (which I have tested) then the channel changes insignificantly. Put another way, that's where the channel seems to want to go anyway.

This is not investment advice. It's a chart, some possibly meaningless trend lines, and a potential warning. No crystal ball here. I'm just trying to point out a risk that you won't hear on CNBC. That said, it is a risk that I'm not willing to embrace. I've been "risk off" since 2004 and intend to stay that way permanently. In hindsight, I have no complaints so far.

On Basilisk Station is a favorite book of mine. It is free to download on the Kindle. The second book, Honor of the Queen, is also free to download. I received a Kindle for Christmas. I have no idea how I ever lived without it (especially now that my comfortable reading distance isn't what it once was). The Kindle is one reason I have been posting a bit less lately. (Another reason is that I'm also working very diligently on my New Year's resolution.)

I know what you must be thinking. Free is fine and dandy but how much is it going to cost to download a complete collection of H.P. Lovecraft (my favorite author)? 99 cents. Infinitely more expensive! Right? Just keep telling yourself that the cost per word isn't all that hyperinflationary. That's how I'm planning to do it once I get over the sticker shock anyway. Don't forget to factor in the savings from not driving to the mall to pick it up. That helps too (perhaps not so much for mall employees, but that's a story for a different post).

What an odd economy we have. I've often said that the best things in life are free or nearly free (once basic necessities are covered anyway). Free and/or 99 cents certainly qualifies.

Source Data:
St. Louis Fed: Custom Chart

charts deflation employment inflation sarcasm stock market taxes

Mainstream Hypocrite of the Year Award

December 20, 2013
7 things you should have learned in 2013 -- but didn't

2. Forecasting doesn't work

Sure, some forecasters get it right. But nobody gets it right frequently enough to be depended upon — so stop using investment bank research as your primary source for buy or sell calls. It will only end in disappointment.

If there is one thing I have learned from this article it is that forecasting doesn't work. Got it.

4. Be careful with long-term bond funds

Rates have rolled back a bit, but you can bet they will rise again at some point in 2014.

This is a bond market forecast intended to entice us into gambling ("you can bet"). If we can safely bet that rates will rise again at some point in 2014, then shorting bond funds is a sure thing. Free money! They are practically giving it away!

7.You can't win if you don't play

Oh yeah, and the S&P is up 25 percent, its best year since 2003.

You think it's really all going to stop NOW, after what we've been through?

This is a stock market forecast that uses uppercase ("NOW") inside a rhetorical question as an emotional debate tactic. Since the S&P 500 has risen dramatically, it is implied that it must continue to rise. Gambling on the S&P 500 is therefore a sure thing. Free money! They are practically giving it away!

"I always say, buy high and sell higher." - Suze Orman, April 2000

In a world where "forecasting doesn't work", I sure hope hindsight is kind to his sure thing bond market forecast and his sure thing stock market forecast.

I'm also a bit surprised that he didn't give us a sure thing climate change forecast for 2014 as well to round out the list. Perhaps weather is not his area of prophecy expertise? Perhaps the all-knowing mainstream Nostradamus sees an ice age coming and he's too afraid to share it with us lest we panic? Perhaps there's just no free money in amazingly accurate climate predictions? The world may never know!

In any event, I sure love the hypocrisy here. There is no way we could have learned all 7 things in 2013. We'd be fools to believe that forecasting doesn't work while simultaneously gambling on two of his forecasts.

Is it an elaborate PARADOX to see if we're paying attention?

Uppercase inside a rhetorical question as an emotional debate tactic for the win! Yes!

This is not investment advice. Seriously. I'd be the last person to suggest I knew for sure where bond yields and stock prices are headed in 2014. As a bond investor, I'm actually hoping he's right and that real rates rise in 2014 (and stay elevated). I could then reinvest at higher rates as my bonds mature. I'm not exactly holding my breath over the long run though. This is one long-term trend that has not been kind to procrastinators. And he, with his omniscient wisdom, has decided to bet against it. Good luck!

I'm not quite done yet. Here's a bonus heckle.

3. Stop buying negative yield TIPS

But please don't let your hyperventilation about hyperinflation lose you money — again — in 2014.

Anyone buying TIPS for hyperinflation defense doesn't understand the first thing about TIPS. TIPS would be a horrible investment during hyperinflation.

1. When held outside a retirement account, you'd have to pay massive taxes on the hyperinflationary gains each and every year. Those taxes could easily ruin you financially over time. Keep in mind that you might very well be forced to sell TIPS bonds just to pay the taxes on them. Ouch.

2. There is a lag. TIPS don't respond instantly to rising inflation. Inflation numbers only come out once a month. Hyperinflation could easily mean that you'd wish they came out hourly. Seriously. Think this through. During extreme hyperinflation, are you really going to be happy getting compensated for what milk prices were a month ago? I think not.

I certainly do not buy long-term TIPS as a hyperinflation defense. That's just being silly. I like TIPS as a real yield defense. I believed and continue to believe that it will be harder and harder to make money off of money in the future. That implies real yields fall. It is actually one of my better calls since starting this blog, cherry-picked 2013 notwithstanding. There were no negative yield TIPS when I was doing most of my buying (before the Great Recession). There certainly are now! It's almost like we're stuck in ZIRP. Go figure.

Once again, this is not investment advice. I do not claim to know the future with any certainty. I can say this though. As of 2004, I am risk averse over the long-term and no longer ever wish to swing for the fences. As a retiree, I have no job to fall back on if my "risk on" bets go against me.

fed chairman sarcasm stock market taxes treasuries

Yow 10,000

The following chart shows real federal government current receipts per capita (June 2013 dollars).


Click to enlarge.

Worry not about the steepness of the climb. This bad boy's totally sustainable. I can feel it in my bones.

Yow 10,000! Put on the party hats! Just look at all that momentum! This economy is unstoppable again! Now that one of the last bears has finally capitulated, what could possibly go wrong?

October 20, 2013
Top Bear's Bullish Tilt Has Followers Growling

One of Wall Street's leading bears has turned more bullish, riling some longtime clients.

Gotta love his timing. I guess he just needed confirmation that the stock market was a sure thing. It's climbed 160% over the last 4 years or so. Sure thing it is! Can't lose! What more proof do you need? The government will soon be rolling in too much revenue. We'll be too prosperous! That's right. You heard me. I'm capitulating too!

Mr. Rosenberg became more positive on stocks when he determined that chances of another economic downturn had dropped amid the Federal Reserve's aggressive actions.

No more economic downturns! No unintended consequences! Just genius move after genius move by the very same Fed who could not spot a housing bubble as it was peaking. Hurray! I'm talking directly to you Ben "There Is No Housing Bubble to Go Bust" Bernanke. Well played, sir. Well played.

There's gravy and biscuits in it for you, and by that I mean gobs of money. - Claptrap, Borderlands

Disclosure: I'm not really capitulating. I trust this economy long-term about as far as I can throw up. (Over Fed pun intended.)

Source Data:
St. Louis Fed: Custom Chart

charts fed chairman housing sarcasm stock market taxes

The Sarcasm Report v.178

August 13, 2013
Rise in retail sales signals stronger growth

Retail sales jumped in July, unhampered by an increase in fuel prices, according to government data.

Gasoline station nominal sales were unhampered by an increase in fuel prices? Shocking!

Retail Sales for July 2013 (Musical Tribute)

Click to enlarge.

Here's the best part.

July 1, 2013
California 3.5-cent gas tax hike kicks in for drivers

Prices are going up 3.5 cents. California drivers were already paying 36 cents a gallon in state taxes, but the hike means drivers will pay 39.5 cents. Including the other local, state and federal taxes, California drivers will be paying 72 cents in taxes on each gallon alone, making for the highest prices in the nation.

That's like a seventh of our country! Just look at all that unhampered growth in July! Amazing!

Aug 9, 2013
Restaurant sales, traffic sink in July

“July was a very disappointing month for the restaurant industry,” Lynne Collier, an analyst with Dallas-based Sterne-Agee, wrote in a report. “However, it is our view that we are not heading into a protracted downturn.”

Who said anything about protracted downturns? Why are we bringing that up at all? Resilient! Strong! These are the words I wish to hear! Unhampered growth I tell you!

The report said that based on conversations with numerous restaurant companies, Collier believes the downturn in sales resulted from the Fourth of July falling on a Thursday, poor weather and higher spending on big-ticket items such as homes and autos.

Thursday! Yes! Because nobody would ever think to take Friday off too! I certainly never did! Why burn a vacation day on that? Makes no sense! And nobody ever eats out on the 4th when it is a weekday. That's just nuts! No, sir. It's best to just go to bed early and sleep. That's what I love about the 4th: peace and quiet. You could hear a pin drop at 8pm around here. I swear!

Poor weather everywhere in the country! Simultaneously! For the entire month! And let's not forget all that higher spending on big-ticket items such as homes and autos and food and gasoline too!

This concludes the sarcasm report. Not much sarcasm this time let me tell you!

deflation housing inflation oil sarcasm sarcasm report taxes vehicles

Top 10 Assets of Households and Nonprofit Organizations

Click to enlarge.

Real estate tops the list at #1. I'm sure we'll bounce back someday. Just need to keep pushing this asset higher and higher so that people can finally sell the darned things again (the mortgage liability is not included in the asset chart for somewhat obvious reasons). And as an added bonus, the higher we can push this asset price the higher we can get those property taxes. Everybody wins!

Pension fund reserves come in at #2. Other than record pension underfunding even as the stock market has risen 160% from the bottom in 2009, what could possibly go wrong with that asset class?

Corporate equities come in at #3. It's nice to see them doing so well lately. It does make me wonder though. The people who warn me about the treasury bond bubble also tend to be the ones who tell me that the retail investor hasn't gotten back into the stock market yet. It's very confusing to me because it looks like about 60% of the stock market value is sitting right there in the hands of the retail investor. Very odd.

Deposits come in at #4. Don't forget to load up on the 0.5% 5-year CDs. They might not yield nearly as much as their treasury equivalents, but they are still a bargain at any price. Has anyone ever warned of a certificate of deposit bubble? I think not. Perhaps it is because CDs are held to maturity by default but it takes maturity to hold a treasury to maturity. Just a theory. Of course, if you aren't much of a risk taker then you can pick something with a shorter maturity. You'll have to sacrifice some of that juicy yield though! Mwuhahaha! Sorry, there I go being immature again.

Equity in noncorporate business comes in at #5. I've got to tell you. That takes guts. It's a tough world out there. Could strike it rich. Could be stomped by big business. At least the Great Recession II can't happen. The Fed has permanently put a stop to recessions. I can't personally prove it, but if everyone believes it then it must be true. Only rising rates can cause a recession. Therefore, ZIRP makes recessions impossible. Just because we're very deep into uncharted territory, doesn't mean that investors don't understand exactly how the future will play out. It's self-evident, especially when CNBC repeatedly tells us just how self-evident it is.

Mutual funds come in at #6. There are some bonds in there, but my guess is that the majority is stocks. That would be even more exposure to the equity markets for the retail investor (who I am continually told is missing out on the rally). Mutual funds are the safer way to go of course, because nobody wants to risk a 20% loss all at once when that same 20% loss can be locked in and guaranteed over 20 years (assuming 1% per year in fees). Whatever you do, do not underestimate the power of a "professional" active fund manager to add value just because 76% fail miserably when trying to outperform the market index.

Durable goods come in at #7. That's my favorite! As I've mentioned in the comments recently, the United States dominates the self-storage industry with "almost 90% of the global market". Don't let that deter you from buying even more durable goods to protect your wealth though. One place near me only charges $696 per year for a 5'x5' unit. That's a screaming bargain for someone with too many plastic coat hangars. Paying someone to store them for you is money well spent. Somebody needs to fund the CEO's $3.23 million salary. Do you have any idea how hard it is to manage other people's money stuff? Not just anyone can point a person towards their stuff without actually wanting to do inappropriate things with that stuff when they aren't around. It takes serious discipline. If only the banking system could do the same!

At #8 we've got corporate bonds. They can't ever seem to offer enough to satiate our appetites. I'm especially interested in chasing the yields of the non-investment grade bonds. What's the worst that could happen again?

We're to #9. Finally some safety! Yes, sir. As long as each municipality has its own working monetary printing press (in sharp contrast to Detroit's broken one) and we can work through the serious injuries of the dotcom and housing bubbles, then you'll no doubt sleep very well holding tax-free municipal bonds to maturity and/or racing towards the sell button on your trading platform of choice someday.

And lastly, we've reached #10. It's funny that so much time is spent warning us about a treasury bubble when individually purchased treasury bonds make up such a tiny amount of our personal assets (less than 2%). In my experience, very few people even know how to buy them directly from the government. I'm not judging. I've seen many hours of financial TV in my life and I've never seen anyone offer advice on how to buy a treasury bond. I don't recall the term I-Bond ever coming up either. It's almost like there's no money in it for them if bonds are purchased directly from the government.

This is not investment advice!

Source Data:
FRB: Z.1 Release

charts debt sarcasm stock market taxes treasuries

Housing Starts

The following chart shows the number of single unit housing starts divided by the number of housing starts with 5 units or more.


Click to enlarge.

The "ownership society" is in serious trouble.

The term appears to have been used originally by President Bush (for example in a speech February 20, 2003 in Kennesaw, Georgia) as a phrase to rally support for his tax-cut proposals (Pittsburgh Post - Gazette, Bush OKs Funding Bill for Fiscal '03, Feb 21, 2003 Scott Lindlaw). From 2004 Bush supporters described the ownership society in much broader and more ambitious terms, including specific policy proposals concerning home ownership, medicine, education and savings.

Source Data:
St. Louis Fed: Custom Chart

charts housing taxes

Real Personal Current Taxes per Civilian Employed

Click to enlarge.

An optimist would exclaim, "Yay! The government's going to lower taxes and the number of civilian employed will increase dramatically! That's clearly how we'll make it back to the median trend line in red. No worries!"

Unfortunately, I'm not an optimist.

1. The largest peak was in the early 2000s. We returned to the median. It was painful.
2. The second largest peak was in the late 2007 to early 2008 period. We returned to the median. It was painful.
3. We seem to be peaking again.
4. What's up with that blue trend line?
5. Who's up for a game of fiscal cliff diving?

Source Data:
St. Louis Fed: Custom Chart

charts employment inflation sarcasm taxes