A couple little charts I created today.  You can see my video on Rumble.

Chart 1

Chart 2

The data I used to create these charts is from Robert Shiller’s website. The exact same data but two completely different perspectives. Weird, huh?   

The first graph is the typical “Look at the interest rates, Martha! That’s how Volcker beat inflation back in 1982. What a hero!” Those of the words of the ignorant masses though. 

It’s the second graph that’s actually much more meaningful.  This is log scaled, meaning the graph is reflected by the percentage of change in interest rates not the actual interest rate itself. 

A 2% to 4% interest rate hike is the same, from a percentage perspective, as a 4% to 8%.  But in the first graph you wouldn’t see it like that. You’d think a 2% to 4% increase is equivalent to a 4% to 6% rate hike.  6% is only 50% higher than 4%.  But 4% is a doubling of 2%.  You see the difference there? And it’s huge.

Think about it like this. See this headline from Tuesday, October 20, 1987. 

The market fell 508 points, a 20% decline. If the Dow dropped 508 points today it would be all of a 1.5% decline. 

In the real world, which is worse? A 508 point decline in 1987 or one now? Obviously, the one back then was worse because of the PERCENTAGE loss. The point loss doesn’t matter, it’s the percentage that does.

My portfolio is worth $100,000 at 9:30 am on Monday October 19, 1987. 6:30 hours later after a 508 point loss it’s worth $80,000. 

My portfolio is worth $100,000 today.  After a 508 point drop I’m now down to $98,500. Wow. Such a major loss. I’m jumping off the Empire State Building. 

Allright, so what’s the point? Simple. No one walking this earth, at least in America, has EVER seen a bond market get crushed like we have this year. Ever. Nothing comes remotely close.  Just look at that second graph.  Do you see it?  The incredible increase in interest rates in terms of percentage in 2022? It’s nuts.  And yet what did you do? Did you jump out of the Empire State Building?

You literally just went through worse than the stock market did in 1987 and yet you’re still here, just puttering along, minding your own business.  You stayed firm! You looked out the window and maybe got nervous but you didn’t budge, did you? Well did you?  If not, give yourself a frickin’ pat on the back, amigos!

All the idiot talk about markets collapsing, well guess what? It happened and you lived to tell the tale. I simply can’t believe more people aren’t getting this.  Everyone and their mom talks about chaos and yet when it happens people just move on with their lives. 

How can this not motivate the heck out of you? Oh, and don’t forget, all the while the bond market melted down, the stock market was no reprieve either. It was in a full-fledged bear market itself!  Yet, what did you do? NOTHING!  Congratulations! You are a true CRUSHER. 

Tell the naysayers to pound sand. They gave you their best and you survived.  Doesn’t mean bad times won’t come, just means that if you didn’t panic now, why would you next time?

Interestingly enough, comes this article from Brian Wesbury over at First Trust Portfolios. 

Manufacturing index below 50 means a CONTRACTION, not expansion. Contraction isn’t inflationary. No, this has nothing to do with interest rate hikes either.  That argument is so 1980’s, it’s boring.  Kinda like when I posted a video about Foucault’s Pendulum and true believers came out of the woodwork to call me names.  It’s funny because it’s to be expected when people’s actual world views are being challenged. 

The worldview in economics is, again, Volcker is King! To challenge that makes you a heretic. Just as it does when you say Foucault’s Pendulum doesn’t prove the earth is rotating. I mean Einstein himself stated:

“I have come to believe that the motion of the Earth cannot be detected by any optical experiment, though the Earth is revolving around the Sun.”

Now one could argue it was because of Michelson/Morley’s failed experiment to detect the ether that Einstein was talking about. This quote came many years after 1919 though. Regardless M/M was AFTER Foucault anyway. Thus, who are we to challenge Einstein, huh? 🙂

Anyway, back to Brian Wesbury, he’s a lot more optimistic than I am for future economic output. He writes:
“However, despite declining in today’s report, the production index remains in expansion. This is giving US factories time to catch up on all the existing orders they already have in the pipeline. The result is the first reduction in supply-chain pressures in years.”

We’ll see. But if you think bond rates are bound to go up, well let’s see where the 10 Year Treasury is right now. 

What? How can this be? It’s down to 3.5%?   No way.  Don’t bond traders know that rates must keep going up to beat back this insane inflation??? Are they dumb? What is happening here?

Pardon my sarcasm. But growth isn’t in the cards, my friends. Stagflation? Maybe. Reaganesque growth? Nope. Those days are done.  Which is another reason I’m hoping you think twice when folks say you should increase your stock allocation in your retirement. You can see my video on that here. 

My man James sent the PDF below from 2014 authored by Wade Pfau and Michael Kitces. I have no qualm with their findings.  I just don’t have the same amount of optimism.  This article was written years ago though and I wonder if they’d have the same thinking today. 

We’ll see how things shake out over the next few years. Just remember, as I always say, if you’ve won the game, why play anymore? 

Blessings, 

Josh

P.S.  

The Rumble live stream yesterday was a great success.  Very pleased to see how many people came over for that. So remember, Sundays at 8pm Eastern and Wednesdays at noon. Come on over and hang out. 

P.P.S.

Don’t forget to join me on my Locals channel too. I will be doing a livestream there tomorrow at 4pm.  Turns out I can only do 30 minute livestreams for now, until my channel gets bigger.  But shorter live streams can be fun to do.  I’ll figure out a schedule for Locals streams and will keep you informed.