Sorry for missing a couple weeks, I've been really tired. Apparently so is the market. In the last couple of weeks, we continued to climb up a bit on low volume, then seemingly topped out at about S&P 1330 and have since dropped down in a somewhat unconvincing fashion. There are continuing issues with Greece, and Portugal is starting to appear on radar screens. Earnings have been mixed - Apple did great last quarter, most other companies not so much. And the ECB's $690 billion stealth bailout fund has obviously resulted in money flowing into the markets. T-bills and stocks are going up together, which isn't supposed to happen - ask any economist.
S&P downgraded France, Italy, Spain and six other European nations, and the European bailout fund. Fitch downgraded many of these too. S&P then warned of more possible downgrades coming in the near future, perhaps including the US again. No one seems to care. $690 billion will paper over a lot of bad news.
Germans proposed last week that there should be an EU office that can veto member country's budgets if they don't fulfill treaty commitments. A Greek minister proposed that Germany could jump in a lake. No consensus on this issue has emerged yet.
Greece broke off talks with their major creditors. Then started them up again. Then got stuck again. Default really looks like just a matter of time, like within eight to ten weeks. At this point Greece's debt is held by a bunch of European banks, who are being told by the European Central Bank (ECB) to cooperate; by a bunch of hedge funds who have absolutely zero interest in cooperating; and by the ECB itself. The ECB has announced they will take no losses on their bonds. The hedge funds are hoping for a messy default, because then they make a bunch of money on their insurance policies. And the banks wish they had never heard of Greece. Last July the word was 20% losses for bondholders. By October the number was 50%. Now it's 70% losses plus further cash bailouts from Germany and France. What happens next? Can Greece successfully herd a bunch of angry cats? Will hedge funds voluntarily turn in $10,000 ten year notes for $3,000 thirty year notes? No. Greece will default, most likely around March 25th or so. Remember Lehman Bros, which almost brought down the entire world economy? Greece is many times bigger. After Lehman we invented TARP and pumped $700 billion into our banks, a monetary blood transfusion to ward off shock. The Europeans have already preemptively pumped $690 billion into their banks, and they have announced that in February they're going to pump in another trillion dollars. Will it be enough? Stay tuned to this station for more...
Portuguese interest rates are rapidly climbing to Greek levels. Will Portugal default? Not this year, their borrowing for the rest of this year is already arranged by the ECB, the World Bank and the IMF. What about next year? Will the ECB be ready with another couple trillion dollars? If they are, will it be enough, will it work? And if it does, then what happens when Ireland decides to default, and Italy and Spain need haircuts? How long do you think the ECB can play Jenga with the European economy?
The European Union announced Monday it would ban the import of Iranian crude starting in July. The U.S. already bans Iranian oil, and it has placed sanctions on Iran's banks to make it harder for that nation to sell crude. Iran, in retaliation, has threatened to block the Strait of Hormuz, through which one-fifth of the world's oil passes. If that were to happen, experts say oil prices could soar toward $200 per barrel and deliver a blow to already wobbly Western economies. Will there be war with Iran? Difficult to say. Iran would have to be really stupid to start something which could only result in the substantial destruction of their economy and culture. We would have to be really stupid to get involved in a war of occupation that can never end. And the Israelis would have to be really stupid to want such a polarizing conflict with a nuclear power happening in their back yard. Here's the bad news: all three of these governments are, in my humble estimation, really stupid.
It's winter so in most countries camping out is not very pleasant. Youth (16-24) unemployment rates in the Club Med countries suggest that when things warm up a bit, Occupy movements will prosper. I expect the occupy movement to continue to grow and to get much uglier.
For many decades the US economy grew exponentially - every year was about 3% better than the year before. I've been writing for some time that these days are over - increasing populations measured against fixed amounts of fresh water and declining amounts of oil strongly suggest that we need a new science of sustainable economics, not a field that believes that increasing the population without bounds will fix everything. US GDP data from the last 5 years now strongly supports my position. Unbridled population growth in India, sub-saharan Africa and Arabia is going to end very, very badly. Aging and declining populations in China and Japan aren't going to look so great either. And the idea being acted out in the US, that bringing in 15 million uneducated and unwashed Latinos will pump up our economy, is also looking pretty dumb.
Remember when unions promised factory workers a better life? Those days are long gone. Over half of all union workers now work for federal, state or local governments. I seem to recall the point of unions was to protect workers from evil capitalists. If Upton Sinclair were alive today, apparently his novels would be about the injustices perpetrated by evil politicians on the working classes. Gee, maybe I'd like those novels.
The Japanese National Institute of Population and Social Security Research predicts the Japanese population will shrink one third by 2060 and by two thirds by 2110. For 600 years the Koreans have wanted to invade and occupy Japan. Perhaps soon they will be able to simply move into vacant houses, then vacant cities. Maybe we could move North Koreans into Japan, thereby lowering the cost of reunification to something the South Koreans can handle.
The University of Tokyo's Earthquake Research Institute predicts there is a 70% probability that the capital's metropolitan area will experience a magnitude-7 quake within four years and a 98% probability within the next 30 years. The research institute's findings carry great consequences for the 42 million people who live in the Tokyo metropolitan area. The Central Disaster Management Council has estimated that a large-scale earthquake in the next few decades could result in 11,000 deaths and an economic loss of 112 trillion yen (US$1 trillion).
Global warming? Nasa scientists say that the Earth has not warmed in the last 15 years, and we may be heading for a mini ice age, where the Thames river in London freezes over. Why? Sun cycles. We just finished up a set of extra-warm 11 year sun cycles, and it appears now we're going into a few extra cool cycles, starting 15 years ago and running until roughly 2100. Data suggests there's a 92% chance we will go into a sun cycle as deep or deeper than during the little ice age of 1645 to 1715 when the Thames iced up and the canals of Holland froze solid. Warming scientists claim that although the sun will dim, carbon in the atmosphere will keep up warm anyway. Says Henrik Svensmark, director of the Center for Sun-Climate Research at Denmark’s National Space Institute, "It will take a long battle to convince some climate scientists that the sun is important. It may well be that the sun is going to demonstrate this on its own, without the need for their help." "We're now well into the second decade of the pause," said Benny Peiser, director of the Global Warming Policy Foundation. "If we don't see convincing evidence of global warming by 2015, it will start to become clear whether the models are bunk."
A new government study suggests a lot of teenage girls are clueless about their chances of getting pregnant. In a survey of thousands of teenage mothers who had unintended pregnancies, about a third who didn't use birth control said the reason was they didn't believe they could pregnant. Seriously, how many kids from these mothers do you think are going to wind up going to Princeton?
Want to win the lottery? Get a degree in Copology and become a CHP. According to the California Highway Patrol web site, the average CHP with 5 years experience makes $109,147.08. They retire at 90% pay after 20 years of service, typically at about age 52. A college graduate at age 52 expects to live, on average, about 32 more years to age 84. Total retirement salary benefit: $3,143,000 plus the cost of health care, perhaps another $240,000. Total retirement benefit, $3,383,000. Divide that up over their 20 years put in working, and for each year a CHP works they make $109,000 in salary, another $15,000 or so in health care benefits, and another $169,000 in retirement benefits, a total of $293,000 per year in salary and benefits. California prison guards have slightly better pay and benefits.
The nation's largest public pension fund, the California Public Employees' Retirement System, posted a 1.1% return on its investment portfolio in 2011, well below the 7.75% return that is needed to meet current and future obligations to its members. The $229.5-billion CalPERS provides retirement and other benefits for 1.6 million state and local government employees and their families. Who will make up the difference? Guess.
Birthers Arise!!!! On January 26th, Judge Michael Malihi of Georgia heard arguments that Obama did not meet the constitutional criteria of being a "Natural Born Citizen" required to qualify him to be on Georgia's 2012 Presidential ballot. Let's be clear here: Obama is a US citizen, only irrational people claim otherwise. The criteria established by the Supreme Court for "Natural Born Citizen" is more stringent. Obama's attorney Michael Jablonski did everything possible to quash this action and the subpoena issued by Judge Malihi, including putting pressure on the (republican) Georgia Secretary of State Brian Kemp. Mr. Kemp in return fired back a letter telling Jablonski he was free to abandon the case and not participate but that he would do so at his and his clients peril. A summary of the evidence heard:
What happens next? It's considered likely that Judge Malihi will recommend to the Georgia Secretary of State that Obama is not qualified to be a candidate for President on the 2012 Georgia ballot until these questions are cleared up and the SOS independently qualifies him as a Natural Born Citizen. Meanwhile this issue is gaining traction in other states including Alabama, Tennessee, Arizona, New Hampshire, and even Illinois, Obama’s home political base.
When Obama's lawyer wrote a letter to Georgia Secretary of State Brian Kemp last week refusing to attend the hearing on Obama’s eligibility status, he included a copy of the birth certificate image that the White House released last April. He also sent a copy to the court of Judge Malihi. The prosecuting attorney explained that this act effectively gave the court a copy of the White House documentation, and under ordinary rules of evidence the opposing side is supposed to have access to the original to verify the authenticity of the purported copy. On this basis she is requesting a subpoena for the original Hawaiian documents, which Hawaii has previously refused to release. Others consider the original to this document irrelevant, as Obama's own book and submitted birth certificate establish that his father was not a US citizen, a requirement under the Supreme Court decision Minor vs. Happersett in 1875.
Jay Bookman of the Atlanta Journal-Constitution writes "Regardless of what Malihi recommends, Kemp does not want to become the Republican secretary of state who ruled Barack Obama off the ballot in Georgia. Becoming a birther hero would not begin to compensate for the lasting infamy such a step would bring him, especially because such a ruling would be challenged in state or federal court and almost immediately overturned on any number of reasons. Kemp would then look like a fool and put an end to any further political ambitions he might have. I doubt that’s the course he will choose to take."
All I'm sure of is this issue is not going to go away.