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Mark's Market Blog

12-23-12: Merry Christmas.

By Mark Lawrence

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Markets shot up on new hope for a fiscal cliff compromise. Meanwhile, Boehmer proposed a "plan B" bill in the house that raised taxes on incomes over $1m, which conservatives immediately said went to far and Obama said he would veto as not going nearly far enough. Later Boehmer withdrew his "Plan B" because he didn't have the votes to pass it. Obama and Boehmer are said to have settled in on tax increases for everyone making over $400k. But Boehmer has only one vote, and Obama doesn't have a vote at all. Boehmer can't get republicans to vote for his watered down republican version, and it's not clear that Obama can get democrats to vote for his watered down compromise democrat plan. Markets immediately dropped. Meanwhile, Fitch said a failure to pass a compromise would result in a US credit downgrade. High drama, and we're all talking about Washington nearly every day. They live for this. This coming week is Christmas and the lead up to the New Year. Trading will be light, price movements won't mean much. I can't imagine a compromise will be forged and passed this week. Expect some serious price action after January 2nd, when the markets decide to let Washington know what they think about their profligate spending and inability to compromise.


S&P 500 July 1 2012 to December 21 2012

What happens if there's a fiscal cliff compromise and a recession? It's been over four years since our last recession, we're about due. Traditionally during a recession the government issues more debt and spends more money to help us get out. Can the government pass a compromise spending / tax bill to reduce the deficit, then turn around a few months later and spend more money? The next recession might be quite close, and it could be fairly bad due to the government's hands being tied.

The middle east oil nations are stockpiling gold. I reported last week that China, Japan, Europe and the US are all printing money in some kind of sick race to the bottom. Why are the Arabs buying gold? It's not hard to guess that they expect the major foreign currencies they deal with to lose value in the coming months or years, and this is a hedge for them.

Japan, once the world's greatest exporter, has run trade deficits for five straight months, and they're getting worse. Japan's trade with China is shrinking as their conflict over a couple uninhabitable islands (and the presumptive oil under them) increases and Chinese punish Japan by not buying Japanese goods. Japan's trade with Europe is collapsing as the Europeans find they can't afford Japanese goods. Japan is now getting ready to try to lower the value of the Yen in an attempt to make Japanese goods less expensive. Is this the first round in an international currency war?

The overwhelming problem Japan has is of fiscal nature: debt and deficits can no longer be brought under control. Interest rates have to remain at near zero because the state can no longer afford to pay anything beyond that. Public and private pension funds are unable to earn a yield on much of their holdings but must pay out ballooning benefits to ever more retirees while the number of workers who are paying into these funds is shrinking In 1992, the Japanese government surveyed its citizens and 60% agreed with the statement: "Husbands should work outside, while wives stay at home." By 2009, only 41.3% agreed with it. The current survey results were released this week: those who thought wives should stay at home jumped 10.3 percentage points to 51.6%. It wasn't the older generation, but the young: 55.7% of the men in their 20s thought so, up from 34.3%; and a flabbergasting 43.7% of the women in their 20s agreed with it, up from 27.8%. These are enormous shifts in attitudes.

I like thorium reactors. So does Bill Gates. Norway, India, and China are all building test reactors. So, when will the US get some? Not in my children's lifetime. With fracking technology, the US suddenly has a new energy source - natural gas - and 100 years worth of cheap reserves. GE is tooling up to build and deliver lots of gas turbines for new natural gas power plants. No one is interested in nuclear, it's too expensive.

The CDC projects that auto accidents will kill 32,000 americans in 2015, and guns will kill 33,000 americans. A bit over half of those gun deaths are suicides. FBI statistics show that there are "mass killers" - four or more deaths in a single incident - about every two weeks, and they kill about 155 people per year, about 1% of all homicides. A third of those deaths are from something other than guns, like fire or knives. Sixteen years ago Australia more or less outlawed guns; since then the number of people committing suicide with a gun has cut in half. They still commit suicide, just not with guns.

I'm livid about the media coverage of Adam Lanza and the shootings. Here's some facts you're unlikely to have heard in the mass media:

We're being told Nancy was a wonderful person and Adam's 27th victim. I see Adam as Nancy's victim. Based on my own beliefs, I've no doubt that at this instant Adam is somewhere else being judged harshly for his choices; however I believe Nancy is being judged even more harshly for hers.

Now we're discussing an assault weapon ban, which I expect to happen. Why aren't we discussing banning XBox first person shooter games? Why aren't we discussing alcoholic parents? Why aren't we discussing limiting exposure of young children to psychoactive drugs, drugs that have proven to induce psychosis in many cases, drugs which are typically prescribed by GPs who aren't trained in their uses, drugs which have never been tested or certified for use on children? Why aren't we discussing children who are abused or molested? There was a long chain of events spanning years that led to this tragedy, and we're only discussing the last 15 minutes.

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