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Mark's Market Blog

3-30-14: Russia attempts to digest Crimea

By Mark Lawrence

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The market continues to trade in a range as it appears there is a big rotation among institutional investors. Although the market as a whole is more or less maintaining its price, high tech stocks and internet retailers are taking a beating and less glamorous stocks with a lower PE ratio, e.g. big banks, are getting bought up. The DOW and S&P are flat, the NASDAQ and Russell are down a bit.


S&P 500 October 3 2013 to March 28 2014

Sanctions by Obama and Europe are driving Russia into recession. I see this as risky - I'm not overly impressed with our own economy, I'm not sure it's smart to be pushing over dominoes. Capital is felling Russia at four times the rate of 2013. Inflation is currently on pace to hit 7% this year. And there may well be more to come if Europe can find a new source for natural gas. Meanwhile, Crimea has just moved from the Ukraine time zone to the Moscow time zone. And the Russian military is moving towards Ukraine, indicating that the grab for territory may not be over.

The Saudis are making plans for a real succession. Their current king, a son of king Abdulaziz Al-Saud, is in poor health and requires an oxygen tube in his nose. The heir, prince Salman is 78, and behind him is a 69 year old. The seemingly endless sons of Abdulaziz and his 22 wives are running out of time. Now plans are being made to hand off the throne to the next generation. The current generation has been in power since 1964 - 50 years. For the first time since then, Saudis are unable to name the next three or four in line for the throne. This would be best settled now, during a time of high reserves and high oil prices. The next generation is likely to have to deal with a nuclear Iran, increasing costs of their welfare state, and perhaps declining oil revenue.

Goldman Sachs has been hired by Russia to rebuild their public image and attract new institutional investors. Maybe I should be happy about this - the last countries to hire GS were, I believe, Spain and Greece, who are nearly bankrupt. No one can drink your blood better than GS. But meanwhile our president is trying to reign in Russia and Goldman is trying to profit by thwarting his attempts. I really dislike these guys.

Goldman Sach is in talks to loan $1 billion to the Argentine government, purportedly at 6.5% interest for two years. Argentina has been unable to secure any foreign loans since their 2002 default. Goldman is not interested in 6.5% interest from a high risk country like Argentina, imho. I feel confident this loan will be secured and what Goldman really wants is a default, then to foreclose on $1.5 billion worth of land or oil or some such.

A new study by the Fed concludes that due to fed policies the largest banks - "Too Big To Fail" - have a funding advantage over other banks of about .31%. For a large bank this is an enormous advantage - .31% of hundreds of billions of dollars is real money.

You've been hearing for a couple years now about increasing wage and wealth inequality, with the top 10% or the top 5% being blamed. New research from economists Emmanuel Saez and Gabriel Zucman shows that really it's primarily the top 0.01% who've seen their share of the wealth surge - 15,000 people. They have managed to grab onto 8% of the nation's wealth in the last 40 years. Perhaps you find it contradictory that I'm a libertarian, yet I dislike Wall Street to much. Wall Street has gotten to the point where they are destroying the American Dream - they're sucking up all the profits and upwards mobility for themselves. Numerous experiments have shown that laissez capitalism has a built in instability, a few people wind up with all the money. We're on our way there, and we need to agree on a way to step back. I don't mind so much when entrepreneurs get filthy rich, but these Wall Street guys produce nothing, they just drink our economic blood.

Obamacare specifies that states will have a health care exchange, and that subsidies will be given to low income people. However, 34 states have not built such exchanges, relying instead on the (in)famous Obamacare federal website. The IRS issued a ruling some time ago that such subsidies would be dispersed whether the exchange were run by the state or the feds, but the ACA act is clear, the subsidies are only available in state run exchanges. The stipends are an integral part of the insurance mandate, without the stipends the whole thing falls apart. Now Obamacare is being challenged in the US Court of Appeals on the grounds that the IRS had no such authority and the mandate cannot be applied to the 34 states without exchanges. As of March 1st 4.2 million Americans have signed up for Obamacare and about 80% of those get subsidies.

Autism begins in pregnancy with subtle disruption of the brain's cortex, according to a study led by UC San Diego researchers. In a paper New England Journal of Medicine, Dr. Rich Stoner says his UCSD team has uncovered key abnormalities in some of the layers of the brains of children with autism, an indication that the foundation for the problem is laid early in fetal development. The team had previously discovered that children with autism tend to have heavier brains and 67 percent more neurons in the prefrontal cortex, which plays a role in social behavior, decision making and personal expression.

Democracy American Style: Prescott Bush helped write the Federal Reserve act, then ushered it through congress. His son George was the 41st president. His grandson George was the 43rd. And now republicans say his other grandson Jeb is a front runner. The democratic front runner is Hillary, wife of #42. But this is nothing compared to FDR, who was related to 11 other presidents, 5 by blood and 6 by marriage: John Adams, John Quincy Adams, Ulysses Grant, William Henry Harrison, Benjamin Harrison, James Madison, Theodore Roosevelt, William Taft, Zachary Taylor, Martin Van Buren, and George Washington.

Thinking of retiring someday? Yah, me neither. But if you are, here's how to save $1 million. It's a bit reminiscent of Will Rogers' guide to investing in stocks: "Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it." Anyway, the key to retiring with $1m is to start in your 20s. If you didn't, then go back and start over.

Yeast has 16 chromosome pairs, and the chromosomes are notably short compared to most other species. Scientists have now created an artificial replacement for chromosome 3. While many artificial chromosome have been made for bacteria, this is a first for a eukaryote, a cell with a nucleus. They deleted a fair bit of the chromosome which they suspected was junk DNA, and made many small changes to the remaining genes. They then inserted their synthetic chromosome into yeast cells and found they operated completely normally, except with a few new capabilities that they had added. They also re-organized some of the DNA - in actual DNA a gene that codes for a particular protean is often broken up into hundreds of little pieces and scattered around and must be gathered together and reassembled before the protean can be made. The artificial chromosome had many of these genes reassembled. This is a big step towards synthesizing an entire genome, and it's a big step towards nailing down exactly what parts of the DNA do something useful. It's been estimated that as much as 98% of the human genome is junk DNA - copies of old viruses from long ago - although that number is questioned widely. Now we're moving in a direction where we can start to determine what DNA actually is junk and can be deleted without consequences. This will take a long time - you can remove the DNA from a cell entirely and the cell will continue to function normally for several months. DNA is not the cell's brain, it's the cell's reference library. You can go into a library and remove many books that are read very infrequently, but you can't be certain for a long time that those books were worthless as opposed to simply unpopular. The question of what DNA is actually worthless junk will most likely not be settled in my lifetime.

TANSTAAFL - There Ain't No Such Thing As A Free Lunch - but starting Monday, March 31, for two weeks you can go to your local McDonalds in the morning and get a free coffee. Sorry, McCoffee. I just stop off at Lowes and get a free combination coffee and deck cleaner there, available every morning. Real men don't drink designer coffee, we drink the nasty stuff. It's like starting your day with the defrib paddles. If that doesn't get you going, call in to work dead.

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