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Mark's Market Blog

10-8-11: Steve Jobs

By Mark Lawrence

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The stock market continues to oscillate with a period of about eight to ten trading days. Many continue to call for higher prices; JPMorgan just published a report claiming that the S&P will hit 1475 by the end of this year. Right. Perhaps I'll miss out on a great end-of-year bull market run-up. Perhaps. What's next? Tell me when and how Greece will default and how Ireland and Portugal respond, and I'll tell you. There's a strong assumption in Ireland that Greece will receive a massive bailout / restructuring / debt forgiveness deal, and then Ireland will be offered the same deal. Perhaps.

S&P 500 April 20 2011 to October 7, 2011

Belgium's Dexia bank is failing. They had a bailout about ten months ago, but it didn't take. In Europe, banks are more cooperative with governments than here, and at the wish of the Belgium government Dexia bought a lot of government bonds this year that aren't doing so well now. By itself, Dexia isn't that big of a story - it's about the 20th largest bank in Europe and its failure is manageable. The real question is, is Dexia the Bear Sterns of Europe. Bear Sterns was a middle sized US investment bank that had a managed failure in July of 2008. Two months later Lehman Bros went bankrupt; five days after that it was AIG, tarp, the banking system froze up, and the bottom dropped out from under the markets. As Fred Thompson, or perhaps Tom Clancy so eloquently put it: "This business will get out of control. It will get out of control and we'll be lucky to live through it. "

Local governments in the US employed a peak of about 14,600,000 people in 2008. Since then about 500,000 of these people have lost their jobs. In my opinion, we need another 2 million or so government workers laid off. That's likely to happen in the next couple of years.

How are jobs doing? Here's our favorite jobs graph, updated. We're still on track to recover by 2016 or so. This graph, and the implied cultural impact, are going to cost Obama his job.

Unemployment 2005 through 9/2011

When Obama got elected he sold us all on his big stimulus plan. How did that work out? The White House put out a couple of graphs, the future with and without their stimulus. Below is the White House chart, updated with realty. Perhaps shoveling money at Acorn and various unions wasn't the sure-fire cure for our problems after all.

Unemployment: Obama's projection without stimulus, Obama's projection with stimulus, actual.

A new study by Charles Marohn in his Strong Towns Blog calls the suburbs a Ponzi scheme. His claim is that when you build a suburban development, you have empty land and a lot of equipment handy, which means it's very cheap at that moment to build roads and lay water, gas, and electric lines. You build the infrastructure and then cede it to the local city. 25 years later all that stuff is wearing out and needs major maintenance, but now there's houses and schools and churches all over the place, and digging up lines or repaving roads costs a small fortune - far more than the development brings in with property taxes. This is why many suburbs that are 30 years old or so look relatively decrepit: it's not economic to fix them. It makes more sense to abandon them and build new. So the "investment" in a suburban house will rise for a time, then three decades on or so you run out of next fools and the values start to drop, eventually precipitously.

Science stuff: A pill to treat or even prevent type 2 diabetes could soon be developed, according to scientists. A study on diabetic mice found that nicotinamide mononucleotide, produced naturally by the body, successfully restored their normal blood sugar metabolism. Researchers believe this could lead to people taking the compound like a daily vitamin to stop the condition from developing. Scientists in the US were able to normalize blood sugar levels in diabetic mice by injecting them with the chemical. At the same time the jabs lowered the mice's elevated levels of cholesterol and triglycerides.

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