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Mark's Market Blog

12-29-13: Mark's Bold Predictions.

By Mark Lawrence

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Stocks made new highs this week on news that the money printing all over the world continues. Ok, that's not really news. The news will be when it actually stops. 10 year Treasuries hit the 3% barrier, which no doubt caused shivers all over Fed employees. What's next? The Fed will do something to get these rates down, moving into the 3s is simply not tolerable for the Fed. And margin debt, historically a precursor to big stock market corrections, is hitting record levels.

S&P 500 July 8 2013 to December 27 2013

Fukushima continues to be a huge problem. The radioactive waste is now showing up on the west coast from Mexico to Alaska, apparently resulting in a die off of seagulls, shellfish, baby sea lions, salmon. Polar bears in Barrow Alaska are losing their fur. Canadian fish are found bleeding from eyes and gills. Radio iodine levels are 200 times what they were two years ago. In Japan it's been estimated that 5,000 children will develop thyroid cancer from radio iodine. Radio iodine has a half life of 8 days - the fact that this continues to be a problem shows clearly that radioactivity is still being actively generated and released. Cesium-137 and Strontium-90 levels are also skyrocketing and have been detected at alarming levels in California mushrooms and berries. Cesium-137 and Strontium-90 have a half life of 30 years. Casual reports claim that sea life in California tide pools has all but died off - kelp, barnacles, sea urchins, crabs, snails have all but disappeared. Immediately after the disaster the USS Ronald Reagan parked 10 miles off Fukushima to render aid; today USSRR sailors are in a lawsuit over what they claim is Fukushima caused radiation sickness and cancers in 70 of the crew. Have we seen the worst of this? Not even close - radiation in waters off California won't show peak radioactivity until 2016 or 2017. There's a good chance eating Pacific seafood will be a bad choice for the rest of my life. Is the worst of the danger past? Again, not even close. There are 6,375 old rods being stored in the waste pool of reactor #4; if any two of these were to touch they would set off an uncontrollable reaction. The rods should be dispersed, but radiation levels around the pool continue to be too high to allow work to be done. Until this pool is depopulated, any future earthquake or storm could spell another disaster just as bad or worse than the original.

Noticed the price of shrimp going up? Or that "endless shrimp" has disappeared from restaurants and TV ads? In 2009 a bacterial disease got started in Chinese shrimp farms - EMS, Early Mortality Syndrome, a disease similar to cholera in humans. That disease has now spread to pretty much all of south east asia - Vietnam, Malaysia, Thailand - and is killing off entire shrimp ponds. Losses are estimated at $1 billion per year. Freezing the shrimp seems to make it safe, so apparently there's no reason to quit eating shrimp besides it getting rather expensive.

Censorship. The very word chills my blood. Yet I was raised in a country that heavily censors TV and movies. Now it's becoming an international issue for the internet. 89 countries signed a UN treaty promoting internet censorship - the US did not sign, as we believe the censorship the UN backs will be political and religious, two types of censorship I personally find intolerable. The UN law would clearly not allow me to write that Obama is a narcissistic micro-cephalic idiot and Mohammed was a pedophile; I believe firmly that the right to say such things is paramount in a free society. Google has further asked the US government to cut off development aid to countries who censor the internet. The US senate is considering a law that will block entire web pages - for example, they could effectively deregister my domain, - for violations of the copyright act by spreading music, video, books. Of course sites like Wikileaks will last about 14 milliseconds if this law passes. This law would set up the government as enforcers for the entertainment industry. Apple, Microsoft, Dell, Intel and Adobe are just a few companies behind the Stop Online Piracy Act (SOPA), which would give content-producing companies the right to order a take down for a website that they believe is infringing on a copyright. If you even host links to content that infringes on a copyright, you have to take it down or lose your web page. And the UK has just passed a law requiring every UK household to sign up for your preferred level of internet censoring - light, moderate, strict. All three filters cover pornography, 'obscene and tasteless' content, hate and self-harm, drugs, alcohol, tobacco and dating sites. Moderate and strict also block sites featuring nudity, weapons and violence, gambling and social networking; strict also blocks fashion and beauty sites, file-sharing, games and media streaming. The filters are new and there are inevitable startup problems - blocked sites currently include Scotland's sexual health site, a domestic abuse hotline, and several woman's rape and abuse centers. Anyway, one way or another it's coming soon to a computer near you.

Consumers seem to be waking up - a bit of information that would tend to point towards a good 2014, not an oncoming recession. However, it's to be noted that business inventories grew substantially in the 3rd quarter and consumer spending can change in a moment. What will 2014 be like? Sorry, no clue.

How long will consumer spending continue to rise? Not very long I think. Full time jobs are leveling off and part time jobs are on the increase - just as you would expect due to 1) obamacare and 2) a questionable economy. While we've made great gains in redefining the unemployment rate, we still haven't caught up to the number of full time jobs there were before the Great Recession.

RSA, the leading company for unbreakable encoding, was just revealed to have taken $10 million from the NSA to have put a back door into their encryption algorithms. Several years ago. It turns out that RSA stuff has been insecure for an extended time. I find this reprehensible; if I were the judge in the inevitable class action suit, I would strip RSA and their directors of everything and hand it out to the plaintiffs.

Japan quietly passed a 2014 budget this week while everyone is watching their chimney instead of the news. The budget process in Japan is interesting to say the least. The budget is for about $950 billion, of which they will "borrow" (print) about $430 billion. But Wait! Order Right Now and There's More! Japan loves to pass supplemental budgets, and they already have, this one for another $55 billion. This will be paid for by money they're printing this week, so the borrowing counts against 2013s budget, which no one is looking at, but the spending counts in 2014. The Bank of Japan is buying about $55 billion in bonds each month, just slightly less than our Fed is buying. They intend to print money until they end deflation. I'm confident they will get their way. What I'm not confident about is that they will survive getting their way. We should watch this closely: this is like a guy running in the dark on the same path we're on, but ahead of us. If Japan falls off a cliff, we're likely to follow not much behind. Of course, orchestrated by the European central bank, the individual nations like Italy, Spain, France are also printing money like mad - they're running blind on the same path. Meanwhile stock markets continue to go up - it's been 28 months and counting since the last 10% correction, a very unusual occurrence - and stock market traders have thousands of reasons why this is perfectly normal and expected, what with all our various economies doing so great right now.

Here's some cute little tidbits about demographics: on current trends, in the year 2020 in Japan, adult diapers will outsell baby diapers. By 2100 their population will have declined from 125 million today to 90 million. Burkina Faso, a tiny country in west Africa that you've probably never heard of, currently has 12 million people. In 2100 they will have 100 million, making the wild presumption that the rest of the world ships enough food there to support this. Kenya will have grown from 31 million to 160 million. In the same period the US population looks to grow from 310 million to 480 million. Meanwhile we continue to pollute and poison our fresh water and now the entire Pacific ocean. I tell my children with some regularity that I expect they will see a few billion deaths due to famine in their lifetimes. I see us westerners as responsible for this: 3rd world countries used to have high infant and maternal mortality rates that kept populations stable. We reduced the mortality rates dramatically but supplied no substitute forms of birth control. Bill and Melinda are spending billions to assure that fewer and fewer infants and children die. I see encouraging breeding among people who cannot feed themselves as a crime against humanity. In my mind, saving hundreds today so that thousands will die in the next generation is not charity, it's evil. Bill, the world's richest and smartest human, apparently disagrees with me.

India is undergoing severe food inflation. In an economy of 1.25 billion people, a bit over two-thirds of whom live on $2 per day or less and where 90% live on less than $4 per day, food prices have doubled in the last year. Onions, a staple of the Indian diet, now cost more in India than in the US. India claims to have an inflation rate of 5%; try to tell that to the billion people living on $4 per day or less who just saw their food costs double. In many areas workers are walking away from their jobs, as the jobs don't pay enough to feed their families. I've quoted Jim Rogers frequently as saying "there will come a time when there are places where food is not available at any price." What places? India. The Philippines. Much of sub-saharan Africa. To name a few. It will start with food inflation, run to demonstrations then violence then instability, then it will get really bad. "No society is more than three meals away from revolution."

China's total debt has risen in the last five years from $9 trillion to $24 trillion. It's to be remembered that here in the US mortgages are the single largest contributor to private debt, and nearly two-thirds of our population has a mortgage, so our debt is spread out a fair bit. In China 70% of everyone lives on $5 per day or less, so the debt is much more highly concentrated than here. And the US has total debt of $17 trillion, less than China. It's difficult to imagine a future that doesn't include a banking crisis in China.

Here in the US people have generally gotten debt under control, with debt delinquencies dropping steadily for the last four years. Except for student loans. Unemployment and underemployment are a serious problem among college grads, and so is debt defaults. What's to be done? Easy to predict: under Obama nearly all student loans are now guaranteed by the government, so we all know where that will wind up. This is a guy who spent a few billion dollars to save a few hundred thousand UAW jobs; imaging how much of your money he'll spend to save graduates with degrees in (feminist, minority, GLBT) studies. There's also talk of measuring how many defaults are generated by particular universities and charging the worst of them. I doubt that will go anywhere - a study will be done and the results will be found to be "racist."

The 99 week unemployment benefits expired on Saturday. Who's going to get hit worst? The top ten states are California, New York, Texas, Florida, Illinois, Pennsylvania, New Jersey, Georgia, Ohio, Michigan. Or, as repeated studies have shown that ending long-term unemployment benefits lowers the unemployment rate, perhaps those will turn out to be the 10 best.

Dish and DirecTv are raising prices by 4.5%. The post office is raising stamp prices by about 7%. Since we're assured there's no inflation in our economy, I find this provocative.

Mark's Bold Predictions for 2014.

First, how did I do on my 2013 predictions?

  1. Greece will fall apart and there will be a military take-over. Didn't happen. Thailand came closer than Greece.

  2. Europe will fall even further into depression. Their unemployment numbers will only get worse. Yup, just like that.

  3. The Arab Spring will continue to spread. Got this one too.

  4. The Syrian government will fall. Nope, somehow they're hanging on by their fingernails

  5. Israel will not be given US support for an attack on Iran. Iran will not announce a bomb this year.Yup.

  6. As Japan devalues the yen and Bernanke devalues the dollar, world trade tensions will only increase.Surprisingly, the tensions haven't really started yet. Bernanke has managed to keep the dollar where he wants it.

  7. China will return to growth, talk of a Chinese recession will die down. Yup.

  8. Severe food inflation will be a big story this summer. Food inflation happened, but you not would call it severe. Yet.

  9. The US will have reasonable growth - 1.5% to 2.5% - and the stock market will end the year a bit higher than it started. Unemployment will continue to creep downwards, ending the year around 6.5%. Bernanke will not raise interest rates this year.Yup, pretty much nailed this one. Except I underestimated the stock market run up.

Mark's Bold Predictions for 2014:

  1. The US economy will continue to grow for the first six to nine months of 2014, anemically. 2% or less growth year on year.

  2. Europe will muddle through, deteriorating slightly. No big crisis - Super Mario's promise to do whatever it takes is still holding the fort.

  3. China will somehow manage to not have a major banking crisis this year. Barely, I think.

  4. The US and Iran will stop being enemies. Healing will be a slow process, but it's going to start this year. We have done a lot of dirt to each other, there is much to forgive and forget. But we are now natural allies, so the process will happen.

  5. The correction that is majorly overdue in the stock market will happen - a 10% to 20% drop sometime in perhaps the spring or summer. But then the Fed will step in with their muddy size 18 boots and pull us out of it. The Fed is not prepared to deal with rational prices on bonds and stocks, and may perhaps never be again in my lifetime.

  6. Late in 2014 we will start our next recession, but it won't be recognized until 2015. Inventories are overbuilt, consumers are still scared, government spending remains muted. And when it does happen, the Fed will find they have no credible response and the government will be too locked up to do a major spending plan.

  7. In November republicans solidify their majority in the house and take the senate as the democrats get punished for the poorly planned and over priced Obamacare. Americans will see what they've been signed up for and Joe Plumber is going to be very unhappy. For the middle class Obamacare is going to mean higher prices and higher deductibles, while meanwhile we will get reminded daily that the poor are getting the platinum plans for $50 - $100 per month. This was a huge mistake: the bronze plan perhaps should be highly subsidized, but the upscale plans should not. Obamacare is not going to sell well with the independent voters - wiping out their existing policies, raising insurance rates, and raising their taxes so that others can have better insurance for far less money. The marginally employed 20-somethings are going to be stunned by their required contributions.

  8. Republicans will talk a big line about repealing Obamacare, but once in power they'll just make a bunch of changes. Obamacare is here to stay. They'll cut other programs, and Obama will fold and accommodate them; but the net effect on the deficit will be disappointing. No one in Washington has any stomach for any real cuts. They could lay off half the federal workforce and no one would notice, but in fact government will continue to grow.

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