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Mark's Market Blog

1-29-11: Egypt in flames

By Mark Lawrence

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Last week, I called again for a drop in market prices. It just started. Friday the markets dropped below their 13 day moving average (see chart below, green line is 13 day ma) for the first time in a couple months. On very heavy volume (red bar sticking up at bottom of graph). This drop is overdue. The instant spark is protests in Egypt threatening the government and the Suez canal. I expect the market will drop to perhaps 1170, but it must be remembered that Bernanke is still throwing $5b - $9b out of his helicopter each and every day. This is not a free market. Making the wild presumption that it ever was.


S&P 500 August 21 2010 to January 28 2011

Inflation in food prices was a big part of the protests that brought down Tunisia's government, and of the protests now aimed at bringing down Egypt's, Algeria's, and Yemen's governments. Egyptians feel empowered by the success of the people in Tunisia. There are reports of unrest spreading even to Saudi Arabia; the fear is that this unrest will continue to spread, perhaps bringing down several Arab governments. Don't get too giddy about this: Iraq has shown us clearly that Arab people are not educationally or culturally ready for democracy, and the expectation would be that absent the strong men like Egypt's Mubarak or Iraq's Hussein, these countries are apparently ungovernable. Unrest in the middle east will only drive the price of oil up, not down. At the time of this writing, Mubarak is clinging to power, but the rumor is his family is now in the UK, and I think his days are numbered.

India's stock market is dropping fast, as food inflation hits them hard and brings into question their government's stability.

Here in the US, numbers are mixed: consumer confidence is rising, GM and Ford posted excellent profits last quarter, but the unemployment numbers refuse to budge and housing is getting worse again. The fear is that the rising price of oil will stomp on our little green shoot of growth.

Steve Jobs took a leave of absence from Apple in 2004 to fight his pancreatic cancer. In 2009 he took another leave for a liver transplant, due no doubt to his cancer metastasizing into his liver and clogging it up. He just took another leave. We may safely presume this is due to a recurrence of the cancer. Steve is certainly fighting for his life. I don't know how to evaluate his short term odds as very little information has been released, but his prognosis for the next five years looks bleak.

What does the unemployment picture in the US really look like? Official statistics say we have about 150 million workers, and about 9.6% unemployment, roughly 15 million unemployed. Here's a closer look at the numbers:

127 million people in America are either unemployed, underemployed, not in the labor force or part time employed for non-economic reasons. There are 239 million Americans of working age who are not locked up or in the military. So 47% of working age Americans have a full-time job - less than half of us.

The Fed quietly made an accounting change last week. There were mounting concerns that the Fed's losses on junk bonds could become larger than their capital, effectively bankrupting the Fed. Due to its very kewl name, "The Federal Reserve Bank," you might think the Fed is a part of our government. It's not. It's owned by the banks, and it pays 6% dividends on stock. In their new accounting rules, all future losses to the Fed due to junk bonds losing value will be considered a liability for the Treasury, that is for the taxpayers. Apparently only half of us work, and half of working adults pay no taxes, so that would be a quarter of us backstopping the Fed. Fed profits, of course, stay with the Fed and its stockholders. I'm deeply impressed with this scheme, and I'm going to ask my accountant to fix my books so that any losses of my corporation are also picked up by the Treasury. Congress was never asked nor even told about this change, which means you have to ask yourself the question, "Why do we even bother to hold elections?"

According to a recent study commissioned by the Japanese government, the country’s desire for sex is dropping quickly. 36.1% of Japanese males between 16 and 19 had no interest in or even loathed sex. In 2008, that number was 17.5%. Of girls in that 16-19 age group, 59 percent had no interest in sex, up 12 points from 2008. Forty percent of married people admitted to not having sex within the last month.

Young Japanese men with no sexual desire are known as "grass-eating boys" or "herbivores." They're young men with no real interest in sex, a relationship, a career, or most material things. Unlike earlier generations of Japanese men, they prefer not to make the first move, they like to split the bill, and they're not particularly motivated by sex. If no one’s having sex, Japan’s birthrate can't increase. And it needs to: the country’s population dropped by a record number in 2010.

Why do I care about this? Economically, we're following Japan in many ways, but about 15 years behind. Recently I've noted that our boys are not being educated. For more on this, I recommend The End of Men, a recent article in Atlantic Monthly.

My Packers are going to the Superbowl. And we're going to win. "My Packers:" My boys are 4th generation Green Bay Packer Shareholders.

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