10-Year Treasury Rate Ends The Week At 2.64%

The 10-year US Treasury Rate ended the week at 2.64%, 43% below the mean level going back to 1871.

Despite the best efforts of the US Federal Reserve to suppress interest rates on behalf of other "investments" like housing and stocks, the current rate of the 10-year Treasury still bests the dividend yield of the S&P500 by 34%, which ended the week at 1.97%. From another perspective, it's even worse than that.

John Hussman noted this week here that based on the ratio of equity market value to national output, you might expect less than zero from the S&P500 going ten years out: 

Likewise, Buffett observed in 2001 that the ratio of equity market value to national output is “probably the best single measure of where valuations stand at any given moment.” On that front, the chart below [follow the link above] shows the value of nonfinancial corporate equities to GDP (imputed from March to the present based on changes in the S&P 500). On this measure, the likely prospective 10-year nominal total return of the S&P 500 lines up at somewhere less than zero. Suffice it to say that our estimates using both earnings and non-earnings based measures suggest a likely total return for the S&P 500 over the coming decade of less than 2.9% annually, essentially driven by dividend income, and implying an S&P 500 that is roughly unchanged a decade from now – though undoubtedly comprising a volatile set of market cycles on that course to nowhere.

In other words, it's possible stocks could return absolutely nothing over the next decade, or just barely beat bonds by less than 10% based on the current 10-year Treasury rate. For sleeping soundly at night, the choice is easy.

The 10-year Treasury rate has backed off about 10% since Ben Bernanke reversed himself on tapering bond purchases this month, seeing how it was knocking on the door of three.

Normalization of the 10-year yield would cost the US government dearly, jacking up interest expense costs over time which are paid from current tax revenues, by nearly double. In the last four years under Obama, interest payments on the debt have averaged $403 billion annually. Increasing those payments 43% would add another $173 billion to budgetary requirements, again, not all at once but over time.

Seymour Hersh, For The Ages: "Our Job Is To Find Out Ourselves"

Here, in the UK Guardian:

"Our job is to find out ourselves, our job is not just to say – here's a debate' our job is to go beyond the debate and find out who's right and who's wrong about issues. That doesn't happen enough. It costs money, it costs time, it jeopardises, it raises risks. There are some people – the New York Times still has investigative journalists but they do much more of carrying water for the president than I ever thought they would … it's like you don't dare be an outsider any more."

Talmudic Asset Allocation Strategy

A third in land, a third in business, a third in reserve. (h/t Mebane Faber)

"And Rebbe Yitzchak said, A person should always divide his money into three: one third in land, one third in commerce, and one third at hand."

-- Babylonian Talmud, Bava Metzia 42a (quoted here)

Defeated Bush 41, Still Compromising With The Victors: Signs As Witness To Lesbian Marriage

Seen here.

The guy's never had a conservative bone in his body.

The Face The Dog Makes When Caught In A Sex Scandal . . .

and the face the cat makes:

h/t Chris

Total Credit Market Debt Has Grown Less Than 9% In The Last Three Years

The debt deflationary depression continues.

Total credit market debt owed (TCMDO), now unhelpfully renamed by the Federal Reserve "All Sectors; Credit Market Instruments; Liability" and perfectly Orwellian in doing away with both information-rich terms "debt" and "owed", has grown 8.76% from the recent April 2010 low to April 2013, about $4.64 trillion.

To put that in context, there have been episodes going back to 1949 when this measure has exploded 50% in three years' time so that doubling times for TCMDO have been as short as 6 years. The longest periods between doubling have been around 11 years long, and since 1949 have averaged about 8 years. The last time the metric doubled was in July 2007, at just under $50 trillion. At almost six years out from that date, we could well have been close to witnessing the number double again to $100 trillion by now based on past experience, or certainly something like half the way there, say to $70-$75 trillion. But here we are instead, at less than $57.6 trillion. It's like we hit a brick wall, the brick wall of a repossessed house most likely.

Say what you will against such a debt-based economy, its fundamental immorality, unsustainability and limits, but that's the economy we have, where the real money in the post-war has been in growth in borrowing, not in the money supply. From this perspective we have entered a long debt-deflationary depression, to get out of which borrowing will have to pick up to at least the point where TCMDO doubles at the extreme of the post-war experience, say by 2018, 11 years on from 2007.

Unfortunately for us, if the last three years are indicative of the new normal pattern of very slow debt expansion, it will take until about the year 2042 for TCMDO to double again to $100 trillion, another 29 years, an unprecedented slowdown in the American way of life.

This is what Chris Whalen meant when he warned in 2010 of decades of economic shrinkage ahead.

Q2 2013 GDP 2.5% Annualized In 3rd Estimate, Nearly 11% Lower Than In 2012

The full GDP report from the BEA is here.

Subdued growth in the last three quarterly reports, 0.1% for the last quarter of 2012, 1.1% in Q1 and now 2.5%, in part reflects on-going effects from Hurricane Sandy last November, little remarked in the press since then probably because of all the heat Obama got in 2011 for blaming exogenous events for poor GDP performance, but correctly forecast by Rosie in the instance.

Since about 25% of GDP is government spending at any given time, the real economy is piddling along at about 1.88%.

Face It, The Heritage Foundation Has Been And Remains Confused (By Liberalism)

As the photo at left demonstrates but conservatives want to ignore, including Erick Erickson here at Red State, a Heritage Foundation representative was present for the signing of RomneyCare in 2006 because Heritage invented the damn idea way back before HillaryCare raised its ugly head and Heritage was happy to see it made into law (so was Senator Ted Kennedy). That was just seven years ago, but now Heritage would just rather have you ignore all that.

Forcing people to sign up for health insurance at the point of a gun has its analog, of course, in forcing people in distant lands to adopt Western-style democracy, something we heard the heir of Republican conservatism, George Bush, incessantly preach: "The long-term solution is to promote a better ideology, which is freedom. Freedom is universal." (Whether they want it or not). To this day, as Molly Ball's article in The Atlantic points out here, "universal coverage" is still Heritage's position:

In my interviews with them, Heritage officials could recite chapter and verse on why Heritage turned against the individual mandate -- a turn, they claim, that occurred before Romney or Obama adopted the idea. “We still believe universal coverage is a good idea,” [Phillip] Truluck [VP and COO] said. But none of the four Heritage officials I interviewed could tell me offhand how the foundation proposes to reform health care and cover the uninsured if Obamacare is scrapped. (Later, an assistant followed up by emailing me links to Heritage papers on “putting patients first,” regulating the health-insurance market, and Medicare reform.)

The place is universally incoherent, and always has been. It has been against Drugs for Seniors as an expansion of big government, but supported the line-item veto, thus expanding the authority of the executive part of government, even as it once used to warn about the imperial presidency. Today it is famously against the current immigration amnesty plan but was pro-immigration for the longest time. It had a founder who has moved notably left liberal, but now it has a libertarian-friendly leader in Jim DeMint. It was for ObamaCare before it was against it. Something about the Heritage Foundation is really off for it to be the home of so many contradictory currents. If conservatism is the negation of ideology, as Russell Kirk taught us, Heritage knows nothing about it.

Maybe they should just rename the place The John F. Kerry Foundation and be done with it.

Time To Ram ObamaCare Up The Donkey's Ass . . . Again

Real Clear Markets Has JP Morgan Predicting Either 4% Up Or 31% Down By Year's End

So, it's either going to be a modest 4% rise in the S&P500 by the end of the year to 1775, or a 31% collapse to 1175. My dartboard could predict as much. If I were JP Morgan, I wouldn't be too happy.

Attention to detail . . . what separates the wheat from the chaff.

Healthcare Groundhog Day: Can You Say HMO-bamacare?

So says Scott Gottlieb, MD, for Real Clear Markets, here:

The new health plans offered in the Obamacare exchanges are going to be narrow network, no frills affairs. Obamacare's exchange based plans will be a throwback to the 1990s style of restrictive HMOs. They will give you fewer choices of doctors and hospitals than the kinds of health plans currently sold in the private, commercial marketplace. The doctor networks that Obamacare plans use will resemble Medicaid plans. But it doesn't end there. Pretty soon, these same bare bones health plans will also become standard fare in the commercial marketplace. You'll get them at work.

Sole Proprietorships 2009-2011

2009 22.7 million

2010 23.0 million

2011 23.4 million

The number of sole proprietorships is up 3.1% over the period. Total revenues have gone from $1.2 trillion to $1.3 trillion over the period, an increase of 8.3%. That's about $55k per sole proprietor in 2011.

If Only It Were So . . .

33% Increase In Dutch Euthanasia Misreported As 13%

The figure for 2011 was 3,136, meaning the 2012 increase to 4,188 is 33%, not 13% as reported here by The UK Telegraph.

Fire The Druncken Interns At Real Clear Markets!

Oops! JP Morgan Chief Strategist Predicts S&P500 To 1775, Real Clear Markets Says 1175!

Video here.

And you have to listen incredulously to nearly the whole thing with all its happy talk to confirm the headline's typo.

Update: Added the headline from the front page just so you understand my surprise.

Should Chief Justice John Roberts Have Recused Himself On ACA Because Of Epilepsy?

Should Chief Justice of the Supreme Court John Roberts have recused himself from the ObamaCare case because he has epilepsy? He had a seizure as early as 1993, and another in 2007.

You know, a guy with a pre-existing condition like that may have felt compelled to help other people with pre-existing conditions by upholding ObamaCare. His own condition may have interfered with his judgment on the merits of the Affordable Care Act.

Striking it down would have meant that that provision of the Act guaranteeing coverage to people with pre-existing conditions such as his would have gone down with it.

The Rise Of Patents From The 1980s Is Basically A New Protectionism, Reducing Innovation

So says Jeffrey Snider, here:

Contrary to popular belief, again assuming I am correct in interpreting it, patents are not about innovation at all. The rise in patent applications was not a proxy for a new wave of innovation, but an era of protectionism. A patent is a legal form of destroying competition. Ostensibly, that is assumed to be a cost to the system worth bearing because we largely believe that patents encourage innovation by giving the innovator some protection to reap the benefits of trying to innovate. But is that really the case? Would innovation suffer from competition at the earliest stages?

Markets develop because market demand exists, and I happen to believe that innovation would be better served with competition right from the start. But to the question at hand, the sharp rise in patent applications starting in the 1980's was likely far more related to reducing competition than signaling the continued advancement of technology revolution.

"In blow to immigration reform, House ‘gang of seven’ bill looks dead"

Story here.

Bond Mutual Fund Prices Remain Expensive, Returns Negative: Cash Has Been King

Bond mutual fund prices remain expensive by historical standards despite the recent carnage, while returns have been negative. For a safe haven, cash has been the place to be over the last year, such as it is.

For example, the short duration bond index fund from Vanguard, VBISX, finished the week at 10.51, 1.05% above the high end of normal (10.40). Vanguard reports returns down -0.27% for this fund in the last year.

The intermediate duration total bond index fund from Vanguard, VBMFX, a mixture of short, intermediate and long bonds, finished the week at 10.61, 1.04% above the high end of normal (10.50). Vanguard reports returns down -2.77% for this fund in the last year.

The pure intermediate duration bond index fund from Vanguard, VBIIX, finished the week at 11.24, 2.18% above the high end of normal (11.00). Vanguard reports returns down -3.66% for this fund in the last year.

Meanwhile the long duration bond index fund from Vanguard, VBLTX, finished the week at 12.51, 4.25% above the high end of normal (12.00). Vanguard reports returns down -10.01% for this fund in the last year.

Add in the insult of all items inflation of 1.5% to these miserable returns over the last year and cash was the place to be for safety even though it is also down because of inflation (gold, by the way, has fallen, per the London Fix, from 1758.50 on September 20th, 2012 to 1349.25 on September 20th, 2013, a decline of 23.3%).

Clearly such bond funds have farther to fall before they become attractive safe havens once again.