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Mark's Market Blog

11-2-12: America Elects a President. Probably.

By Mark Lawrence

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Markets were closed Monday and Tuesday due to Sandy. When they finally opened on Wednesday, Apple had dropped below $600, GM shot up due to making almost $1 per share, and the market as a whole was up. Thursday the markets shot up about 1.5%, just 'cause; Friday they dropped by about 1.5%, just 'cause. Sandy will be good for business, as lots of money will be spent on repairs. The markets have substantially discounted an Obama win; in the unlikely event that Romney wins, the markets will almost certainly shoot upwards for the rest of next week. But that's not going to happen. Absent a Romney win, the market will look to the looming Fiscal Cliff, where on Jan.1 taxes go up and spending gets cut rather dramatically, enough to put us into a recession. The detailed results of the election will be used by many to guess how the negotiations on taxes and spending are likely to go. The fewer votes Obama gets, the more likely we're looking at lockup in Washington. Personally, I'll be in cash this week, watching from the sidelines.


S&P 500 May 15 2012 to November 2 2012

Greece has released their 2013 budget. The budget assumes Greek GDP will contract by 4.5% - a worse contraction than the US had in 2009. Since GDP is contracting so quickly, all the pertinent numbers like debt to GDP and budget deficit to GDP are out of control. Basically Greece is living through a slow-motion economic train wreck. Greeks will be happy to hear their government has scheduled an end to the recession in 2014. I imagine if the recession fails to cooperate, it will be fined and perhaps eventually charged and jailed. The Greek Supreme Court has just held that pension reform is unconstitutional, which means the only way out is for Greece to leave the Euro and deflate their currency dramatically. Meanwhile ethnic unrest is growing in Greece as immigrants try to tighten their holds on their ghettos and Greeks resist this with demonstrations and force. This is a source of great concern in Europe as it's reminiscent of the rise of the Nazis 75 years ago.

Europe's unemployment climbed to 11.6%. This is a misleading number, as there's a two-track Europe - Austria, Luxembourg, Germany and the Netherlands have unemployment in the 5% range, substantially better than the US; eastern and southern countries are well above 10%, with Spain and Greece above 25%. And how are those young NEETS doing?

Youth unemployment across Europe
Germany 8.0%
Netherlands 9.7%
Austria 9.9%
Denmark 14.4%
Malta 16.2%
Slovenia 17.2%
Belgium 18.0%
Luxembourg 18.6%
Finland 18.9%
Czech Republic 19.3%
Estonia 20.2%
United Kingdom 20.4%
Romania 23.0%
Sweden 23.4%
France 25.7%
Lithuania 26.0%
Poland 26.5%
Slovakia 28.4%
Hungary 29.0%
Latvia 29.0%
Cyprus 29.3%
Bulgaria 29.7%
Ireland 34.5%
Italy 35.1%
Portugal 35.1%
Spain 54.2%
Greece 55.6%

China is considering relaxing their one child policy. A state planning agency has released a preliminary document showing how this might be done. Consensus is that a state agency would not release such a document unless it was already decided that this should happen. Now the question is the timing and the details. The arguments are that the one child policy is wildly unpopular, leads to illegal abortions and sterilizations, and the resulting shrinking population means there will be few young people to support retirees. Personally, I think given the water and pollution constraints of China, they need to have far fewer people than they have now and the policy should substantially continue. I think the US is feeling rather crowded at 310 million people; China is a somewhat smaller country with far less water and farmland, and is currently projected to top out at 1.2 billion, four people for every one of ours.

Sacramento wants a rise in sales tax. So does LA. We have the highest sales tax rates in the nation outside of NY, but it's not enough. On the plus side, at least the illegals pay sales tax.

Disney acquired Lucasfilm for $4 billion. That means more Star Wars films will be made. Episode VII is now due in 2015, with VIII and IX at roughly two year intervals. This is more than a little controversial with Star Wars fans - Princess Leah is now a Disney Princess? But there does seem to be substantial agreement that we all want to see Tony Stark take out Jar Jar Binks and Jack Sparrow steal the Millennium Falcon. Lucas says he will give his $5+ billion fortune to his foundation to improve education. What is Disney? $41b in revenue last year, which was $19b from ESPN, $12b from Disneylands, and $6b from movies. The movies do well when Disney buys them outside - Toy Story (Pixar) and The Avengers (Marvel); and poorly when Disney tries to make them itself - John Carter ($200m write down).

Israeli Defense Minister Ehud Barak said that an immediate crisis was avoided when Iran chose to use more than a third of its medium- enriched uranium for civilian purposes earlier this year. He told the paper that the decision "allows contemplating delaying the moment of truth by eight to ten months." Asked if Iran had not pulled back, the crisis would have peaked "about now", Barak said: "Probably yes". He added however that he believed Iran was still resolved to build nuclear weapons. "We all agree that the Iranians are determined to turn into a military nuclear power and we all share the declaration that we are determined to prevent Iran from turning nuclear and all options are on the table." Meanwhile Iran appears to have nearly finished installing centrifuges at an underground nuclear plant, potentially boosting its capacity to make weapons-grade uranium if it chose to do so.

Mother nature takes dead algae in the ocean, drops it into crevasses, covers that with sand, and a few million years later crude oil appears. University of Michigan researchers have substantially duplicated this trick by heating sand to 1100 degrees then immersing wet algae into it for one minute. They are able to convert 65% of the algae mass into bio-crude, and the resulting crude contains 90% of the available energy. Is this it, the answer to our energy problems? Well, not quite - the bio-crude also contains a lot of oxygen and nitrogen that must be removed before it can be shipped off to a refinery. And they're making it about half a teaspoon at a time, it needs to be scaled up to millions of gallons per day. But the commercial conversion of pond scum to diesel fuel is now possibly only a decade off. Perhaps in ten years we'll all be driving turbo-diesel plug-in hybrid Volkswagen beetles and getting 150 mpg. I'm going to miss Harleys and Corvettes and 4wd trucks.

Professor Mitchell Moss recently said, "It takes a disaster to remind us how much we depend on our local and state governments. In the middle of a presidential campaign, Hurricane Sandy has put Barack Obama and Mitt Romney on the sidelines, reminding us how much we count on mayors and governors to protect us, to rescue us and to keep our streets, buses, subways, airports and commuter rails running. After a season of debates about the deficit, taxes and health care, Americans have discovered that they cannot survive without government: to provide clean water, reliable transportation systems, and emergency services when floods, fires and power outages force them to abandon their homes." Here we have one of the clear distinctions between liberals and conservatives: I haven't been on a bus in well over a decade, and I've never been in a subway or on a commuter rail. The airport nearest me hasn't flooded, and if it did I simply wouldn't fly for a few days. I have never abandoned a home or stayed in a shelter. I live in the suburbs now, previously in the country where my water came from my well and went into my septic system, and when the power went out I turned on my generator for my fridge and water pump and lit some oil lamps. My wood stove and propane tank continued to work in the absence of government help. Governments have done little for me: they've done a lot more to me than for me in my life. I expect most conservatives would agree with my perspective. But dwellers in large cities, traditionally bastions of liberalism, would obviously have a perspective much more like Dr.Moss'.

Bill Gross, one of the world's best bond traders, recently said, "Obama/Romney, Romney/Obama - the most important election of our lifetime? Fact is they're all the same - bought and paid for with the same money. Ours is a country of the SuperPAC, by the SuperPAC, and for the SuperPAC. The 'people' are merely election-day pawns, pulling a Democratic or Republican lever that will deliver the same results every four years. 'Change you can believe in?' I bought that one hook, line and sinker in 2008 during the last vestige of my disappearing middle age optimism. We got a more intelligent President, but we hardly got change. Healthcare dominated by corporate interests - what’s new? Financial regulation dominated by Wall Street - what’s new? Continuing pointless foreign wars - what’s new? I'll tell you what isn't new. Our two-party system continues to play ping pong with the American people, and the electorate is that white little ball going back and forth over the net. This side's better - no, that one looks best. Elephants/Donkeys, Donkeys/Elephants. Perhaps the most farcical aspect of it all is that the choice between the two seems to occupy most of our time. Instead of digging in and digging out of this mess on a community level, we sit in front of our flat screens and watch endless debates about red and blue state theologies."

It is a well established fact that liberals in this country won't listen to conservatives, and conservatives won't listen to liberals. We don't watch the same news, read the same magazines, get the same emails; we live surprisingly separate lives. In fact, when I converse calmly with liberals I find we have a lot in common, but there is some power structure in this country that finds it in their interests to make sure we don't realize this. That power structure is neither conservative nor liberal - this is a distinction they use to maintain their own power, but don't share. Here's a list of things I find we Americans mostly all agree one:

The answers to these problems will involve compromise - obviously there is disagreement on details - and that will involve people listening to views from the other side. Calling people from the other side stupid, uninformed, uneducated makes you part of the problem, not part of the solution. Meanwhile, while we fight, Haliburton, Metlife, Archer Daniels Midland, Pfizer and Goldman Sachs are getting rich on our savings and efforts. Will the electoral divide be breached? Here's a hint: modern voting machines have buttons for "all democrat" or "all republican," and those buttons are very popular. Here's another hint: Obama and Romney have spent collectively over five billion dollars on advertising this election cycle. What have they bought? The first debate made a big change in people's perceptions of the two candidates, but outside of that I claim few voters have been swayed - the polls have been remarkably consistent save for one big jump for Romney after the first debate. Jerry Brown was outspent about five to one by Meg Whitman, yet Jerry is the governor of California. Politics has been turned into a sport: we hate the other side just as much as Redskins fans and Cowboys fans hate each other. Do you imagine that if Jerry Jones spend a couple hundred million dollars advertising in D.C. he would convert a bunch of Redskins fans to Cowboys fans? Perhaps with a good enough advertising agency, Bears sweatshirts would become common in Green Bay? Yankees caps in Boston? Republican bumper stickers in San Francisco?

Election Watch: The last minute polls suggest the popular vote will be very close, too close to call. The electoral vote? Almost certainly going to Obama, but Ohio has seriously screwed up their balloting and we may not know the Ohio results for several days. They have 200,000 early votes which will not be validated or counted until after the polls are closed. This could be very exciting.

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