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Mark's Market Blog

#431 9-4-17: Creeping closer to war

By Mark Lawrence

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I haven't put out a blog in quite some time; I've been busy, and I haven't had much to say. Today I have something to say. The markets are down on the year - all the gains from December and January are wiped out - the total drop is about 9% from the peak.


S&P 500 October 18 2017 to February 9 2018

After dropping 9%, the obvious question is "Is it over?" Few think so, and I don't either. The low for this drop is 2533; I expect we'll at least revisit that, and very possibly go further. If the drop goes much beyond 15% or so I expect the Fed will step in and do something to restore the markets; but the psychological damage has been done: markets do not in fact always go up. After the Fed steps in I expect the markets will revisit their previous high around 2870.

What happens in the longer term? There are indications that things are now out of hand. The Fed practices monetarism - they mess with the money supply to effect the economy. Perhaps their most important equation is MV = PT - the amount of money M times the velocity of money V equals the price level P times the number of transactions. This can be viewed as the definition of V, the velocity of money. Importantly the velocity of money has been decreasing fairly consistently since 1995. This means the Fed could keep printing money with impunity, knowing that so long as the velocity kept dropping prices would not increase. Well, perhaps that's over - just for the past few months the velocity has been increasing. This means there's an excellent chance that inflation will rear its ugly head; bond interest rates will go up; bond prices will go down; there will be crushing implications for foreigners who have issued bonds denominated in dollars; and stocks will drop precipitously. When? Not immediately, I think, but sometime likely later this year. Pension funds are going to find much of their capital is erased, both from lower bond prices and from lower stock prices. The government has been running up huge deficits and paying almost no interest; those days are now numbered. Some think this could get really bad - Jim Rogers said this week, "The next bear market will be worst in my lifetime."

The government is now addicted to deficits and lying. In the table below we see the official budget deficit for each year and also the amount the debt increased that year. It's pretty obvious a lot more money is being spent than the budget allows. Now in 2018 under the new budget deal, independent banks estimate the deficit will go up by $1 trillion. Meanwhile the Fed says they want to sell $1t of debt this year to decrease their balance sheet. This means we need to find people willing to pony up $2 trillion to buy all this debt. Who has it? And is willing to loan it to us, especially in an environment where inflation is increasing and the bonds will lose value?
Budget Deficit and National Debt
Year200720082009201020112012201320142015201620172018
Deficit$161$458$1413$1294$1295$1087$679$485$438$585$666$444
Debt$9008$10025$12000$14000$15000$16066$17000$18000$18900$19573$20245$21250
Debt Increase$500$1,017$1,975$2,000$1,000$1,066$934$1,000$900$673$672$1,005

Inflation means hanging on to cash will prove expensive. Stock and bond market drops mean owning financial investments will be expensive. This will likely prove to be a year to own real estate or gold. What can be done about inflation? We already know this: cheap energy and extremely high interest rates will cure it. It's not completely obvious how we'll get to cheap energy, but you can expect more off shore drilling, more coal, more pipelines. High interest rates is easy: the Fed can manufacture this in a matter of months. Unfortunately the 12%+ interest rates required will destroy the US housing market and bankrupt the government due to interest rate payments. This is why Jim Rogers thinks the future is so bleak: we're out of options. And there's no one out there to save us: Europe, Japan and China look at least as shaky as us. At least. Many noted when Trump was elected that his greatest asset may be his knowledge of bankruptcy and reorganization, and the time is coming soon where this skill set will be put to the test."

As we attempt to sell more and more debt into an inflationary world, our interet payments will only increase, and we'll have to borrow yet more money to cover the interest payments.

Countries invaded by HitlerCountries invaded by Trump
Czechoslovakia Ukraine Belorussia Russia Italy Austria Poland Denmark Norway Belgium The Netherlands France Britain – the Channel Islands Libya Egypt
Genocide by HitlerGenocide by Trump
Jews Gypsies Jehovah's Witnesses Homosexuals Disabled
Forced Sterilization by HitlerForced Sterilization by Trump
Blacks Handicapped
Wars started by HitlerWars started by Trump
WW II

Fox News 83 ballots, each unused, were addressed to different people, all supposedly living in a two-bedroom apartment.

Daily Caller 2.8 million non-citizens voted in the 2008 elections, according to a study published in Electoral Studies journal.

American Thinker ACORN generated an impressive 1.1 million voter registration packages across America in 2008. The problem was that election officials invalidated 400,000 – 36%.

Townhall 14% of non-citizens reported that they were registered to vote, and a not-insubstantial chunk of that subset admitted to casting ballots.

Wall St. Journal One district-court administrator estimated in 2005 that 3% of the 30,000 people called for jury duty from voter-registration rolls were not U.S. citizens. 3% of 200 million registered voters equals six million illegals. In 2013, pollster McLaughlin & Associates surveyed Hispanics. 13% of noncitizens said they were registered to vote.

National Review Kim Strach, director of North Carolina's Board of Elections found 35,750 voters in her state whose first and last names and full date of birth matchwith someone in another state who also voted in the 2012 election.

New York Post Jill Stein's vote recount in Michigan found 248 of Detroit's 662 precincts – 37 percent – tabulated more ballots than the number of actual voters. Guerrilla filmmaker James O'Keefe filmed himself getting 20 ballots in North Carolina without proper ID or evidence of registration.

National Review DOI undercover agents showed up at 63 polling places last fall and pretended to be voters who had died or moved out of town, or who were sitting in jail. 97% of the time they were allowed to vote.

A Pew Charitable Trust report from February 2012 found one in eight voter registrations are "significantly inaccurate or no longer valid." Since 146 million Americans are registered to vote, this translates to 18 million invalid voter registrations.

Powerlineblog.com reports three television stations in Georgia, Florida and Ohio collaborated by obtaining and comparing voter registration rolls in their states. They found 112,000 people who were registered to vote in two states.

The Wall St. Journal About 2.8 million people are registered in more than one state, according to the Pew Center study, and 1.8 million registered voters are dead.

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