Income Charts:
Are outsized economic rents possible in the through interest rates (rates greater than inflation), credit markets (large yield advantages for corporate debt), or equity markets (via wide profit margins)? These charts seek to answer some of these questions.
Falling profits (especially that of ‘proprietors’) may indicate troubles ahead.
Over the long-run, businesses grow profits at about the same rate as nominal economic growth.
Margins decline with rising rates.
Short-term rates are historically at least as high as inflation.
When the yield curve is negative, it often predicts recession. However, this typically occurs when “real” (inflation-adjusted) federal funds rate is also clearly positive.
Negative “real” long-term rates historically don’t last long.
When negative, Fed Fund rates are higher than 3-month t-bills. This indicates that the Fed is possibly ‘hitting the breaks’ harder than bond market participants.
A negative real yield implies rates need to go up (or inflation falls) to normalize.