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Mark's Market Blog

11-17-13: Bangladesh.

By Mark Lawrence

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There is now a consensus that there is a Fed-induced stock market bubble, and everyone loves it. 61% of the IPOs this year were companies that are losing money. Stocks started moving up again on news that Yellen's senate inquisitors only tossed her softballs, prompting Wall Street trader Art Cashin to say "They did everything but buy her a corsage."

S&P 500 May 27 2012 to November 15 2013

About a month ago everyone was all abuzz with rumors that Larry Summers would be the next Fed chairman. Didn't happen - he offended too many people in Washington, like when he told the Harvard faculty that the lack of women in science and math could be explained by the well known fact that women aren't as good at high level math. I'm fond of telling my boys that you never get in trouble saying stupid things like the sky is pink with purple paisleys, you get in trouble for saying unwelcome truths. Anyway, Larry still wants to affect policy. This week he gave a speech at the IMF where he said, "it is not over until it is over, and that is surely not right now and cannot be judged relative to the extent of financial panic, and that we may well need in the years ahead to think about how we manage an economy in which the zero nominal interest rate is a chronic and systemic inhibitor of economic activities, holding our economies back below their potential." During times of deflation people like to hoard dollars in their mattresses, knowing that the dollars would be worth more tomorrow. Larry suggested that perhaps we could deal with this by outlawing paper currency, forcing everyone to hold real assets or bank balances. Then negative interest rates could translate into negative interest on your bank balance - each year you have to give perhaps 3% of your money to the bank just to hang on to it. I find this truly fascinating - that he would even think it, and that he would think the government could do this without a revolution. Larry clearly doesn't hold a very high opinion of Joe Plumber and his wife. Lest you think Larry is a lone nutcase, Nobel Laureate Paul Krugman and many other liberal economists immediately praised the ideas.

Some time ago, Obama famously told the Russians to wait until after his next election when he would have more flexibility. Now we're starting to see what that means. Barack Obama is going to spend almost $700 million dollars of taxpayer money to buy Russian helicopters from Rosoboronexport for the Afghan Air Force. When Congress passed the 2013 National Defense Authorization Act, it had an interesting provision, prohibiting the United States buying helicopters from Rosoboronexport. Unfortunately Congress always gives the Regime an escape hatch. The law stated that Obama could buy from Rosoboronexport if the Secretary of Defense certified it was in the interest of National Security which SecDef Chuck Hagel immediately did.

A large typhoon hit the Philippines, causing 3600 deaths, 12,500 injured, 1200 missing, 1.8m displaced. One result of this is the Philippines representative to an international climate change conference has vowed to fast for the duration of the talks. Developing countries have banded together to demand compensation from polluting countries for damage. Unfortunately for their stance, within a decade developing countries will have accounted for more than half of all historical emissions, making them responsible for a large share of any climate impact. Farah Kabir said of his country Bangladesh, "We are in a piece of land which is smaller than Denmark, with a population of 160 million, trying to cope with this extreme weather, trying to cope with the effect of emissions for which we are not responsible," Curiously, I read that quote and the first thing that pops into my mind isn't climate change, it's birth control. With almost exactly the area of Montana, Bangladesh has over half the population of the US and a current birth rate that will double their population by 2060. I don't think their problem is climate change, and I don't think reparations will solve their problems.

There were riots in Bangladesh as garment workers went on strike for higher wages. The current minimum wage in Bangladesh is $38 per month. The government offered to raise the minimum wage to $66 per month, an amount the manufacturers say will cause production to flee the country in this highly competitive part of the world. The workers rejected the government offer and demand a raise to $100 per month. Bangladesh's garment industry currently takes in about $20 billion per year and employs about 4 million workers. Garment production accounts for a bit over 80% of Bangladesh's foreign earnings - the only other thing their low-skill population is good at mass producing is more muslims, and the men don't seem useful for much of anything else. Bangladesh has elections coming up in January and these strikes are backed by the major opposition party. Bangladesh already has problems attracting western buyers since factory building collapsed a year ago and killed 1127 workers, and another factory caught fire and the locked doors caused over 100 more deaths. Because of their bad reputation for safety already purchasers have been moving orders to Indonesia. Garment industry production is dominated by four big players - China ($500/mo), Bangladesh ($38/mo), Vietnam ($130/mo) and Indonesia ($250/mo). In all four countries workers have a standard six day 48 hour week plus overtime. Food price inflation in the region means many of these workers have trouble supporting their families on these wages. Due to western companies trying to shift orders out of relatively high wage China the factories in other countries are booked up nearly a year in advance. There's a "college" teaching sewing machine operation in Indonesia that graduates 12,000 women per year, but planned new factories require 30,000 trained workers next year alone. In spite of Bangladesh's poor safety record their sales continue to increase. Large fashion retailers have tried for years to develop alternatives in Pakistan, India, Africa, Latin America. Pakistan and India are not considered sufficiently organized to support high quality high production, Africa doesn't have enough skilled workers, and Latin Americans aren't interested in operating sewing machines.

Bangladesh is also having massive demonstrations over Islamic law. Millions are taking to the streets demanding tighter censorship of films, a stronger emphasis on Islamic education, more segregation of men and women and the death penalty for people who insult Islam. The government says Bangladesh is a secular democracy and has rejected their claims.

Food inflation is running at nearly 20% per year in India. Wholesale food prices increased 6.46% in September alone. Ms.Yellen wishes she could ignite inflation here: perhaps she's jealous.

In October the US exported more oil than we imported, the first time this has happened since February 1995.

Congress is considering eliminating the law protecting pensions. A coalition of unions and employers are asking for this. As pension funds run out of money, the already-retired are currently guaranteed their full pension, meaning the younger workers retiring later get even less. Will the law pass? Probably not this year, but some day it will.

Congress is also considering legislation to allow or perhaps require insurance companies to continue to offer coverage that doesn't meet Obamacare minimums. Republicans favor the "allow" version, democrats favor the "require" version.

China has a growing problem in their large cities - male infertility. One person in eight of childbearing age is infertile. Many of the rest of the men have low sperm counts and/or low sperm mobility. This is being blamed on the various forms of pollution the Chinese live with.

Take all the people in New York, Florida, and Illinois. Make them all male, all 51m of them. That's how many excess males China has - males that can never be paired up with females because the females were never born. Currently in China there are 120 males born for each 100 females. The Chinese are worried there won't be enough people around to pay for the care of their elders, so they've decided to relax their one-child policy. Henceforth, if one of a married couple is an only child, the couple can have two children. Historically if the first child is a male the sex of the second child is not selected for, so this should result in the second children being about 110 males to 100 females. This presumes young Chinese women are willing to have two children - in Japan the 20-something women mostly aren't willing to get married or have children. If 25% of the 38 million eligible women have second children, that would be 9.5 million new babies. Personally, were I Chinese, I would be a lot more worried about where the next generation will get water, power, clean air, safe food. But in our current world view economic growth trumps all other considerations. "Any unmarried man over the age of 27 is a menace to the community." -- Brigham Young.

On November 1 the "temporary" increase in food stamps from 2009 expired, resulting in a "cut" to benefits of about 6%. Walmart and Target get almost half of this money, so this will likely effect their bottom line. Liberal think tanks are bemoaning the inadequacy of current levels, much less the reduced levels; and as you would expect from liberals it's all about the children. Liberals don't actually have children, they just worry about them a lot. My take: if they want to move children out of poverty they need to end single motherhood, the greatest driver of poverty and unequal wealth distribution. This won't happen anytime soon: there's a huge shortage of 20-something men who have educations and actual jobs. Perhaps we should start exporting excess single women to China.

EU-wide youth unemployment hit 24% this quarter. New records were set in Spain (56.5%), Greece (57.3%), Italy (40%) and France (26%).The World Economic Forum said that "Crime rates will soar, economies will stagnate and Europe's social fabric will deteriorate if policymakers do not act to address youth unemployment. A generation that starts its career in complete hopelessness will be more prone to populist politics and will lack the fundamental skills that one develops early on in their career." In the US, meanwhile, the employment rate among young adults (18-24) is 54% - the lowest point in 64 years. However the American government has perfected the art of obscuring grim reality. Since 1994, all trace has been removed of unemployed workers who have not actively sought a job in the previous four weeks - hence the harmless 7%+ figure regularly trotted out by the Bureau of Labor Statistics. According to John Williams of Shadow Stats the real unemployment figure in the US, calculated according to the method formerly employed by the government itself, is close to 23 percent.

Venezuela proudly announced they had arrested 100 "barbaric bourgeois capitalist parasites," businessmen accused of price gouging. Inflation in Venezuela is running at 50% per month; the black market exchange rate is ten times the official exchange rate. Their new president, Maduro, a former bus driver, says he is waging "economic war" against an amorphously defined opposition seeking to bring down socialism. More than 1400 shops have been raided, many subsequently occupied to enforce the government's edict that prices may not rise.

Dylan Grice, a blogger, had a very interesting thing to say in his latest: "Inflation is not measurable. We can summarize our views on money with similar succinctness: it is poorly understood. And as for the economy, we know only this: it is a complex system. From these observations can be derived a straightforward corollary on economic policy makers: trying to control a variable you can't measure (inflation) with a tool you don't fully understand (money) in a complex system with hidden, unobservable and non-linear interrelationships (the economy) is a guaranteed way to ensure that most things which happen weren't supposed to happen." It's a great article if you want to peruse the gory details of his argument, which is we have confused finance with wealth, capital with money. He demonstrates with a very interesting analysis that our language is changing, reflecting and guiding our thought patterns.

Arizona is going to put a tax on solar installations. Their public utility company says that houses that have solar panels and generate the bulk of their own power, "aren't paying their fair share of costs to maintain the electric grid." The current proposal is for a tax of $0.70 per kilowatt per month, about $5 per month for a typical 7kw home installation. Arizona's solar power market is dominated by companies who lease panels to home owners, saving the homeowners $5 to $10 per month on their power bill, so this tax would likely bring the marketplace to a screeching halt. Meanwhile the utilities say this tax is too far low, and people with solar panels are dodging $18 million per year in annual grid maintenance costs. The Arizona utility has spent $3.7m so far on advertising and lobbying for this tax. Previously the utility was in favor of solar installations to save them the money of building more power plants.

Black Friday is coming. For years retailers have opened at 3am or so the morning after Thanksgiving with special one day sales. Last year that changed to opening Thanksgiving evening at 10pm or so. This year the sales start at 6pm thanksgiving day, except at KMart where they start 6am Thanksgiving day. By the way, if you care about this stuff, here's how you shop: don't bother lining up for the best deals, the illegals will be waiting in line for those starting about Tuesday. Get the ads from Best Buy, Target, Kmart, etc, clip the stuff you want, then take them to Walmart who matches prices even on Black Friday.

You are what you eat dept: Here's 10 foods that are banned pretty much everywhere except the US. Farm raised Salmon, Bread with Potassium Bromate, Beef with Ractopamine, Chicken with Arsenic, Artificial Food Coloring, etc.

This coming Saturday marks the 50th anniversary of JFK's death. And most of us still don't think we know who shot him or why. We're going to be hit all week with stories from celebrities about where they were when they first heard. I was walking the corridor in my elementary school and the principal came on the intercom and said, "I have some very sad news for all of us. Our president has been shot and killed in Dallas today." Today we remember him as Saint John, neglecting completely to ask, "Why would a sitting president be in a convertible riding in a parade through Dallas?" answer: his popularity ratings were historically low and he was beginning his campaign for reelection early. That bullet changed everything: it got us the Vietnam war, the Great Society, and president LBJ who otherwise would never have been nominated much less elected. And the backlash to LBJ and Vietnam got us another president, Nixon, who perhaps would never otherwise have been elected. And yet another president, Ford, who in fact never was elected.

'Tis the season: This is the part of the year when we all like to donate. Here's Santa's charity list:



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