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Mark's Market Blog

11-1-15: You can have a Second Child!

By Mark Lawrence

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On Wednesday we hit S&P 2085, but stalled there. The dollar is going up again, China, Japan and Europe are lowering interest rates, and it seems more and more likely that this little mini-bull market is doomed. Some, a minority I think, believe markets will continue up until January 1. I'm not confident either way.

S&P 500 May 9 2014 to October 30 2015

China is importing massive amounts of gold - 97 tons last month. Apparently the average Chinese investor has lost all confidence in their stock market and now prefers gold. At the same time their gold purchase have ramped up, gold has risen in price from about $1120 to $1180. Meanwhile oil has dropped from the mid 50s to the low 40s. Oil inventories are at all time highs and continue to build. At some point, likely this year, we will have filled up all the oil storage facilities on the planet and then oil prices will really start to drop.

Last year world imports and exports were continuing to climb, so shipping companies ordered a record number of large container ships. Big mistake. In the current world recession container shipping prices have collapsed to record lows; many of these ships will likely never pay for themselves. No matter how various governments fudge their economic reports, container prices don't lie - the world economy is going through a very rough patch.

Lame ducks Boehner and Obama have come up with a budget deal which will likely be passed with a few republican votes and a lot of democrat votes. It calls for more deficits to fund more growth in defense and entitlements.

Super Mario is considering adding massively to the European Central Bank's QE program. Central banks across the world have bought up well north of $10 trillion in assets in the last eight years to get inflation started again and it hasn't worked in the slightest, so obviously the problem is that we're about four or five trillion short of the magic number. Apparently none of the central bank presidents have every gone to AA, where they would have learned the phrase, "Insanity is going the same thing over and over in the same circumstances and expecting different results." Meanwhile there is a growing number of voices claiming the reason the world has had such unimpressive growth during this recovery period is that too much money is going to debt service and too little to investment and consumption. When a society has no debt adding a bit makes a huge jump in GDP - think the US in the 50s, Japan in the 80s, China last decade. When the debt gets too high, somewhere around 1.5 to 2 times GDP, then it starts to get a choke hold on the economy. The world is a lot closer to 2 times GDP than to none. Italy, Spain, France and Britain have a fine history of canceling all debts and throwing all the bankers out of the country every 150 years or so. The problem now is, where would we send them? Sudan? Tonga? Siberia? I'd certainly be willing to pack our bankers and Wall Street vampires onto planes and ship them somewhere else.

Sweden and Switzerland both now have official negative interest rates. Italy just sold a bunch of two year bonds at -0.023%, meaning people are paying Italy to hang on to their money. There's a campaign in Sweden to outlaw cash, and cash in circulation has dropped every year for the past five. Sweden is the place where, if you use too much cash, banks call the police because they think you might be a terrorist or a criminal. Swedish banks have started removing cash ATM machines from rural areas, annoying old people and farmers. Credit Suisse says the rule of thumb in Scandinavia is: "If you have to pay in cash, something is wrong." The Germans are also headed for negative interest rates, but in Germany credit cards are called "shame cards," so the Germans have an uphill battle to eliminate cash. Here in the US a recent survey found that 40% of those 18-34 would give up cash, 44% would not. Getting rid of cash means you can charge people to hold their money, making spending more attractive. How far can this insanity go?

China has announced the end of their one child policy. They currently have 50 million more men under the age of 30 than women. A Chinese professor recently wrote an op-ed piece saying that China needed to start having marriages where two or more men share one woman, as unmarried men are far more likely to become criminals. The announcement was met with a collective shrug by social-media users, with the topic in eighth place among trending topics on the popular micro-blog site Sina Weibo, well behind other entertainment news. A survey of more than 150,000 people on the Chinese media site Sina on Friday morning found that less than 30% of respondents would have a second child. Commentators on the popular social-media platform Sina Weibo say that even if they wanted a child, they could not afford one. "Apartments are so expensive, now. Who can afford to give birth?" Meanwhile, over the course of my lifetime world population has roughly tripled, resulting in dying oceans and rain forests, polluted air and water, and more and more border wars and immigrants seeking somewhere livable.

Quebec has announced a $1 billion bailout for Bombardier. Bombardier has spend $5.5 billion to date developing an airplane to compete with the immensely successful Boeing 737 and Airbus A320, but after ten years of development the plane hasn't been delivered yet. All Bombardier has gotten to date out of the development is $9 billion in debt. The province is buying a 49% stake in the airplane and hoping to save 18,000 jobs. Bombardier has been successful with their propeller-driven passenger planes, the "puddle jumpers," and their Lear jet Challenger private jets do very well. They're learning that large airlines aren't in a big hurry to make a huge investment in mechanic and pilot training and spare parts inventory for a new jet when they're already stocked up for the 737.

The World Health Organization placed bacon, sausages and salami in the same category as asbestos, arsenic and cigarettes as a major cause of cancer because of a causal link with bowel cancer. Eating red meat is also linked to pancreatic and prostate cancer. They concluded that each 50-gram (1.8-ounce) portion of processed meat eaten daily increased the risk of colorectal cancer by 18%.

On Sept. 19, 2014, the five-day average of Antarctic sea ice extent exceeded 20 million square kilometers for the first time scientists started making satellite maps of Antarctic ice in 1979, according to the National Snow and Ice Data Center. The red line shows the average maximum extent from 1979-2014.

There's a new boss in town in the north east: the coywolf. It's a hybrid, about 1/4 wolf, 2/3 coyote and the rest mostly german shepherd. They're a fair bit bigger than coyotes, maintain the coyotes ability to scavange in cities, but have added in the wolf's pack behavior. They even look both ways before crossing the highway. With larger jaws, more muscle and faster legs, individual coywolves can take down small deer. A pack of them can even kill a moose. They first got their start in Ontario about 100 years ago; now there are over a million.

The US Navy plans to send the USS Lassen destroyer within 12 nautical miles of artificial islands built by China in the South China Sea within 24 hours, a US defense official said on Monday, the first of more regular challenges to China's territorial claims. The destroyer's patrol would go near Subi and Mischief reefs in the Spratly archipelago, features that were formerly submerged at high tide before China began a massive dredging project to turn them into islands in 2014. This reminds me of the Hunt for Red October, where the US secretary of state says to the Russian ambassador, "It would be well for your government to consider that having your ships and ours, your aircraft and ours, in such proximity... is inherently dangerous. Wars have begun that way, Mr. Ambassador."

There are 21 million Americans of the right age to serve in the armed forces. 70% of them are ineligible; nearly half due to academic deficiencies, the rest due to obesity or criminal records. The remaining 30%, about 4.5 million, mostly prefer to go to college or work; only a bit under 400,000 actually get around to signing up. Next time we have a war, and I promise there will be a next time, we're going to be really thin on armed forces talent.

Bob Lutz, who has worked for GM, Chrysler and BMW, is very negative on Tesla's prospects. "Tesla's showing all the signs of a company in trouble: bleeding cash, securitized assets, and mounting inventory," Lutz wrote in Road and Track. "It's the trifecta of doom for any automaker, and anyone paying attention probably saw this coming a mile away. Cheap gasoline isn't helping Tesla's case. Right now, prices around the country are hovering close to $2 a gallon. If that's bad news for the Prius and the Volt, it's worse for the Model S. There's nothing about [Tesla's] battery technology that can't be copied by another car company," he said. "Or it could simply buy batteries."

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