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Mark's Market Blog

12-22-13: The Fed turns 100!

By Mark Lawrence

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I was wrong. The Fed decided to start tapering right in the middle of the Christmas shopping season. They have been buying $85b worth of paper each month; next month that will be $75b. And apparently a bit less each month after that, until they stop buying paper. They also promised to keep interest rates low until unemployment is down below 6.5% and inflation is moving up a bit. I don't know what unemployment figures mean anymore; any corporation that kept their books like this would send several people to jail. As for inflation, I'm paying about 25% more for food than I was a year ago, but apparently that doesn't count. I dunno, maybe it's just me. Meanwhile, bond prices are already beginning to drop; you can expect that stock prices will inevitably follow in their own time.


S&P 500 July 1 2013 to December 20 2013

Monday the Fed turns 100. In 1913, Woodrow Wilson held Congress in session until they produced a bill setting up a private company that would never be audited, control our money supply, and guarantee the profits of our largest banks. Without the Fed, thousands of Wall Street millionaires might have gone homeless in the last few years and there's no way we would be seeing record stock market levels in this anaemic economy. And for their 100th birthday present to themselves, the Fed just hit $4 trillion in bonds in their vaults - this is so unprecedented that it's meaningless to call it a record. Prior to this administration, only astronomers knew with the word "trillion" meant.

This has been called the balance sheet recession - people got too far into debt, so the solution selected was for the Fed to take on the debt while the government and the banks encouraged everyone else to pay down their debt. Well, that's over. Except the Fed is still buying debt 'cause they're addicted. But everyone else has paid down debt and that's now rebounding - people are starting to build up credit card balances, etc. We're slightly overdue for a recession, and this is yet another sign.

And what is the real unemployment rate? What does "is" mean? Washington tells us it's just over 7% and dropping; other people say these figures are from a formula that gets revised every couple of years to suit Washington. The latest ignores people who have given up looking for work and people who have decided to live on disability instead of working. If you add those people back in, the unemployment rate pretty much hasn't changed in four years - just as you already intuitively know. Our population continues to grow, but the total number of employed people hasn't changed much.

Raul Castro said that recently the US and Cuba had been able "to hold conversations on topics of mutual interest. We think we can resolve other matters of interest. A civilized relationship between both countries" was something "our people and the immense majority of U.S. citizens and Cuban immigrants desire." I've already said that were I president, I would have reached out to normalize relations almost immediately. I don't know anyone who knows why we're fighting Cuba.

You've heard for years about China owning all our debt. Well, that's about to change. Up until 2007, Japan held the most US debt, debt they bought to keep the Yen cheap, export cars and TVs and import jobs. Starting in 2007 China pass Japan up as the biggest owner of US debt, for exactly the same reasons: export junk, import jobs. But Japan has been climbing fast and it's likely that early next year they will pass up China and once again become the largest owner of US debt. Soon CHina and Japan will each own about $1.4 trillion in US debt - between the two of them they will own about 2/3rds the debt that the Fed owns. What happens when Japan's money printing experiment fails, or even perhaps fails in the most destructive possible fashion? That US debt will turn out to be a big part of everything they own, and they may find themselves cashing it in to buy food. That will push down prices on US bonds and perhaps cause a world-wide crisis.

All through the 80s and early 90s all I heard about was the evils of apartheid. Last week Nelson Mandela died; I thought it interesting to see how South Africa had done under his rule. Since 1994, unemployment has gone from 17% to an official rate of 25%. Goldman Sachs estimates it's 35% when you include people who have given up looking for work - a bit over a third of South Africans can't find work. South Africa's Bureau of Statistics estimates that 1.6 million skilled and professional whites have emigrated since 1994, and that for each one of these people who leave 10 unskilled workers lose their jobs. Who is John Galt? South Africa is heavily unionized, and in 2010 the unions went on a month long strike, getting themselves a 7.5% raise, increasing the South African budget deficit by 1% and raising the unemployment rate. Since 1994 blacks and coloureds have had their incomes stagnate compared to white incomes; Asians however have increased their incomes by 50%. South Africa's GINI coefficient has increased in the same period from .66 to .7, indicating that wealth distribution is getting more unequal. From 1994 to 2008 mean income increased by 130%, more than doubling, but median income rose only 15%, again indicating that income growth has been very unequal. The richest 10% of South Africans, who receive just a bit over half of all income, used to be roughly 100% white, now it's 40% black - ending apartheid has changed the color of many bosses, but the overall economy has gotten substantially worse for the bulk of the population. In South Africa there are three people receiving government assistance for every person paying taxes. The government is so busy paying people to not work that they have had very little money for infrastructure, so South Africa now has routine power shortages and rolling blackouts. South Africa's primary exports are gold, platinum, chromium and diamonds. Their mines are very deep and very dangerous - several hundred miners lose their lives in mining accidents every year, and many more retired miners die of lung cancer. The mines are mostly owned by Jewish descendants of the infamous Rothshield banking family. Rothshields control 94% of the diamond mines, and there has been no substantive talk of improving miners pay, working conditions, or nationalizing the mines. Since 1994 life expectancy in South Africa has decreased from 62 years to 50.5 years. Since 1994, in addition to losing well over a million professional whites to emigration, another 150,000 have been murdered in "The night of the long knives," a well known unofficial black plan to kill all the remaining whites. Since apartheid the murder rate in South Africa has risen from an average of 5,500 per year to 46,000 per year according to Interpol. So, in 20 years Mandela's government has lost 1.6 million professionals and 15 million more jobs; they've increased poverty for more than half their population; they're responsible for (46,000-5,500)*20 = 810,000 excess violent deaths, of which apparently about 150,000 were whites and 660,000 were blacks; and the infrastructure of the country is crumpling. All told, my strong impression is that the new government has been an economic and social disaster for most of the population of South Africa, both white and black.

Obamacare: how's that working out for ya? The numbers for December obviously aren't in yet, but so far about half a million people have signed up for Obamacare, about three million have registered on a web page, and it's projected that 14 million will lose their existing coverage. Who's signing up? It's imperative for young, healthy people to sign up to spread the costs over a larger population. Unfortunately, so far almost 50% of enrollees are over 45. If I was young there's simply no way I would sign up, I'd pay the penalty. Heck, I'm not young and I might just pay the penalty. The Obamacare official goal is to get 10% of us enrolled by Jan 1. 45 states haven't hit 1% yet.

One-a-day vitamins don't work, says a new meta-study. Several years of several clinical trials were analyzed; it has been repeatedly found that multi- vitamins have no health benefits for well-nourished adults. About half of all adults take a vitamin, but there is no evidence for any beneficial effects on cancer or heart disease.

There are 17 states which have legitimized gay marriage, the latest being New Mexico. 30 states have made gay marriage unconstitutional. Utah had a referendum in 2004 on gay marriage resulting in an overwhelming majority voting to make it illegal. That's all over now: on Friday a federal judge struck down Utah's law as incompatible with the 14th amendment and ordered Utah to start performing gay marriages. We may confidently expect a stay and an appeal. If Utah loses on appeal, then apparently that will be the end for the 30 states which have attempted to make gay marriage unconstitutional. I don't get this thing where some Federal judge thinks he is sufficiently smart to overturn elections and constitutions in 30 states. People sometimes call me arrogant, but I never get anywhere near this level.

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