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Mark's Market Blog

1-27-13: The End of Republicans?

By Mark Lawrence

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The S&P closed at 1503 Friday, just 4% below its all-time high of 1560 in 2007. After basically not a single negative day this year, I can safely say stocks are never going down again, ever. Mortgage your house, sell your teenage daughter, and buy stocks. More seriously, the VIX also closed up on Friday and the RSI(14) is at a 12 year high. A short correction seems imminent as traders book their profits. So don't actually mortgage your house. If you can get a good price for your daughter, you should probably consider that...


S&P 500 August 1 2012 to January 25 2013

World economists and leaders met this last week at Davos and pronounced the crisis is over. Unemployment is still high in the US and crippling in Europe; there are almost no jobs anywhere in the world for people under 30; there are serious concerns about China; what are they talking about? What they're talking about is they don't think there is further risk of a banking system breakdown or a destruction of the Euro. So if you're worried about your job, or your retirement, or being bankrupt by unexpected medical expenses, or your children's future, take heart: there's no undue risk anymore for Wall Street or London bankers. On the positive side, Obama is about to nominate a rather activist lawyer as head of the Security and Exchange commission, so we can hope some of these bankers who almost ended the world finally get prosecuted.

Apple's earnings were announced and they disappointed. Also iPhone and iMac sales were down. Apple stock promptly lost 9% overnight; Exxon has regained their title as the world's most valuable company. A few months ago Apple was trading at over $700 per share; we're in the 400s now, perhaps headed for the 300s. As of Friday, we've lost an entire year of Apple stock gains. Apple created two markets out of thin air, the iPod and then smart phones, and Apple profited immensely on their creativity; however now Apple must compete and that's never been their strong suit. Last year Samsung Galaxy smart phones outsold iPhones in every quarter. Does Apple have a new breakthrough product in the wings? Few think so.

The Bank of Japan has announced their new policy. They're targeting an inflation rate of 2% - this would be a big change in an economy that's had deflation for 20 years. They hope to accomplish this by buying $20B of Japanese bonds each month, and another $100B of US T-bills each month - $1.2T per year, our entire deficit. This program is to start 12 months from now, January 2014. If they actually follow through on this, the yen will drop in value like a rock. Japanese exports will get relatively cheap, and US manufacturers, starting with the auto industry, will scream bloody murder. These proposed actions in the current economic environment look like the beginnings of a trade conflict. Apparently fighting China over some oil deposits isn't enough, they also want to fight the US and Europe at the same time over trying to export goods and import jobs. I dunno, when I learned history one of the big points was that Hitler's downfall was initiating a war on two fronts. In this case Japan hopes to get the US Navy to contain the Chinese Navy, while they're simultaneously attacking our manufacturing industries. Curious strategy. They may find they have an ally in this scheme: by buying lots of T-bills, Japan will be keeping US interest rates down and effectively funding the US deficit. Politicians will find they can support Detroit or alternatively keep borrowing and spending cheap money for a few more years.

Sometime in the next week or two youth unemployment in Spain will hit 60%. Spanish youth are already leaving the country; those that remain will have their careers permanently effected. Europe's crisis is not over - the banks may be a bit safer, but the economies are basket cases.

Paul Ryan said today that the sequester is happening. This will likely throw the US into a mild recession later this year.

In September the FBI announced it was rolling out a $1 billion nationwide facial recognition software as part of an update to the national fingerprint database. The technology can match a single face from a pool of 1.6 million mug shots/passport photos with 92 percent accuracy in under 1.2 seconds. Such software is widely used at the entrances to sports stadiums, airports, and perhaps sidewalks and shopping malls in larger urban areas. Now a Japanese company is escalating. They have a prototype pair of glasses that have eleven infra-red LEDs on them. Human eyes don't see the LEDs, so you just look like you're wearing some slightly strange clear safety glasses. But digital cameras pick up the LEDs, which blur out your eyes and nose and make facial recognition impossible. Most Japanese already wear breathing masks in public, pretty soon they're all going to look like some sort of Sci-Fi alien insects taking over Tokyo.

Speaker of the House John Boehner warned fellow Republicans this week that President Obama's inaugural address had convinced him that the president was undertaking an effort to "annihilate" the GOP. "Given what we heard yesterday about the president's vision for his second term, it's pretty clear to me -- should be clear to all of you -- that he knows he can't do any of that as long as the House is controlled by Republicans. So we're expecting over the next 22 months to be the focus of this administration as they attempt to annihilate the Republican Party." FDR attempted this and came close to succeeding. Perhaps we'll be a one party system soon - personally, I'm not real impressed with the strategic abilities of the republican leadership. California already is a one party system, so this would not be unprecedented. Perhaps we'll have a new slogan - from roughly my birth to now, it's been "As goes Ohio, so goes the nation;" the new one might be "As goes Detroit, so goes the nation."

Nationwide, union membership is down to 12.5% of the workforce from 13% in 2011. But one state is bucking the trend: California. While US unions overall lost 400,000 jobs last year, California unions signed up 100,000 new members - mostly Latinos who see unions as a way to protect their jobs and get salary increases into the middle class. California is already a one party state, where the democrats control over 2/3 the senate and house seats; unions in California can expect a hearty welcome in Sacramento as they ask for legislation. Most of the new union members work in the field of health care, where prices are already sky-high.

War Watch: In 2010 the Air Force pulled their B1 and B2 strategic bombers out of Guam. Well, they're baa-aack. The Chinese have been running navy war games showing off their ability to fire several hundred guided ship-to-ship missiles simultaneously. The idea is that they will overwhelm the defenses of a US aircraft carrier group and sink some ships, perhaps even a flag ship. We would take the loss of a $4.5 billion aircraft carrier carrying perhaps $15 billion worth of planes and gear and 5,700 Americans rather badly. My read is the B2s are being forward deployed to Guam as a chess move, to let them know such an act might have rather unsettling repercussions. Japan announced that their planes would fire tracer bullets as warning shots near Chinese aircraft that violate Japanese air space. China replied that Japanese aircraft firing tracers near Chinese aircraft would be taken as an act of aggression. A Chinese envoy to Australia reportedly delivered a message to the prime minister that Australia would be well advised to sit this one out, implicitly threatening the Chinese multi-billion dollar mining operations in Australia. The gorillas are screaming and thumping their chests.

Not to be out-done by China and Japan, N.Korea announced a long range rocket test and another nuclear bomb test. The N.Korean government released a statement saying "Settling accounts with the US needs to be done with force, not with words as it regards jungle law as the rule of its survival. We are not disguising the fact that the various satellites and long-range rockets that we will fire and the high-level nuclear test we will carry out are targeted at the United States." It's extremely unlikely that N.Korea has the technology to make a rocket that can hit the US; however we are at a distinct disadvantage here: you cannot threaten to bomb a country back into the stone age if they're already back in the stone age. China joined the rest of the UN security council in condemning these tests.

Troy and Dayna Donovan moved away for a temporary job assignment and left their Colorado house empty for six months. While they were gone, real estate agent Alfonso Carillo sold a deed of adverse possession to a Latino couple for $5,000 which allowed them to take over the Donovans' house as abandoned property. By law a house must be empty for 18 years before it can be claimed like this. When the Donovans returned home and walked in their door, the Latino couple claimed they were afraid for their safety and were granted a restraining order against the Donovans. After an eight month court battle the Donovans were finally granted an eviction notice against the squatters; however the judge ordered the Latinos to vacate within two days. On the second day the Latinos filed for bankruptcy, which stays all eviction notices. The Donovans, living in a relatives basement with their two children, were then back to square one trying to convince a Federal Bankruptcy court that it was their house. A month later the Federal Court granted them possession, and the real estate agents involved were charged with racketeering. This has become a popular play in several states, particularly on foreclosed houses - you buy a deed of adverse possession from a corrupt real estate broker, move into a foreclosed McMansion, and live rent free in a beautiful house for a year or three while the bank decides how to deal with you.

Last week I reported that Tiger had proposed over Christmas to his ex-wife Elin. Now, four weeks later, Elin was seen dating Swedish hockey star Douglas Murray, and Tiger is reportedly close to proposing to Olympic ski champion Lindsay Vonn. Apparently things are not so settled, and apparently Tiger still has woman issues.

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