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Mark's Market Blog

4-16-11: European Bailouts.

By Mark Lawrence

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On continued fears that the government would shut down and Europe would implode, the market dropped a bit more this week, then recovered a bit at the end when it became clear the government won't shut down this month. Oil dropped from $112 to $108.


S&P 500 October 20 2010 to April 15 2011

Europe is flaring up again. Portugal has officially asked for a "bailout," meaning cheap borrowed money to pay back French and German banks, then dump the bill on unsuspecting Portuguese taxpayers. Ireland just got a new government dedicated to repudiating their bailout. Iceland recently voted that Iceland taxpayers will not reimburse foreign depositors in failed Iceland banks. The UK is suing Iceland in a Belgium court to force them to pay up. Frankly, I find this confusing - a US judge has gun-wielding Marshals to carry out his orders, and can issue warrants to police to arrest people and drag them into his courtroom. Will Belgium arrest the Iceland population and put them in jail for contempt? Do they even have guns in Belgium? Would you personally like to go up to an Icelandic descendent of the Vikings and suggest he meekly follow you to a foreign country to go to jail, or pay up?

Finland just voted for a new government that has slewed to the right and is expected to refuse to participate in European bailouts. Since the EU works by consensus, this could stop everything dead. Finland has a new party - True Finns - who are against bailouts and immigration. "Here in the Nordic nations we draw a line between the decent, hard-working countries of the north, and the easy-going, relaxed southern states," explained Erkki Havansi, 69, a retired law professor just elected for the True Finns. "For us, it is a matter of honour to pay your debts on time." Apparently the line is now drawn between Protestants and Catholics; Muslims aren't even welcome on the playing field. The German high court is deciding whether it's constitutional for Germany to participate in bailouts. It's not, their constitution is clear on this. The markets are indicating, correctly I think, that nothing will stop a Greek default, and the chances of an Irish or Portuguese default are pretty high. All thing considered, it seems the only thing the Europeans agree on is that they're all seriously mad about this banking crisis. And they're done importing Muslims.


The flags of Finland, Iceland, Norway, Sweden and Denmark, all featuring the Lutheran Cross.

Inflation in India has hit 10%. China's inflation is over 5%. China has raised their discount rate and reserve requirements yet again in an attempt to cool down their overheated economy. It hasn't worked so far, and it won't work this time either. Europe's is 2.7% and heading for 3%. It's widely believed that the US would have had inflation last decade but for the effect of ever-cheaper imported Asian goods. Perhaps in 2020 economists will be saying that the US would have had deflation in this decade but for the ever-more-expensive imported Asian goods.

In the US inflation currently is limited to food and energy. The FED doesn't count these in their inflation measure, as they can't affect them (true) and call them transitory (wishful thinking). However, numbers indicate that one of the FED's arguments is true: as gas and food prices rise, people have less money to spend on other things, which holds potential inflation in other prices in check. The FED desperately wishes to engineer some inflation, as that would be good for nominal house prices, for the deficit, for the national debt. But it's not happening for them.

Japan has managed to get themselves mostly out of the news. Meanwhile, how are things? They've raised the level of their nuclear mishap from 5 to 7. 7 is Chernobyl. They have leaked plutonium into their soils, and dumped unthinkable levels of radioactives into the ocean. This dumping continues sporadically - on the 16th radiation levels in the ocean, which had been dropping, spiked up by a factor of 4 to 5, direct cause currently unknown. The evacuation zone around Fukushima has been increased from 20km to 30km. I predict that the evacuation zone will be decreased this fall to about 10km, but then it will stay at roughly 10km for a decade or more. 50 square miles of Japan will be effectively abandoned. TEPCO, who runs the reactors, announced this week a 9 month plan to cool and close the reactors. Perhaps the worst is behind us, but expect a couple more poorly publicized accidents before this is all over.

Chernobyl put radioactivity into the air where it caused measurable cancer increases in the Ukraine, Poland, Sweden. Fukushima is not polluting the air much, China and Korea have little to fear on that ground. But the ocean pollution has me quite worried. Perhaps this is the last year for Pacific salmon and Alaska king crab for a long time to come. Oh, incidentally there are still a million or more Japanese who are homeless, but Japan is incredible at responding to things like this. Those people will be taken care of quickly. In 12 to 18 months the rubble will all be cleaned up and the houses substantially rebuilt. Japan has been dealing with earthquakes for 1500 years, they know how to handle this stuff. But the radioactives... if the world is to continue to lift people out of crushing poverty, we need power, much more power than can be supplied with oil, more than can be supplied with current wind or solar technology. That leaves coal and nuclear. Coal is seriously dirty, this really is not where I'd like to see us headed. But if nuclear gets a bad name ("The Japanese couldn't manage it, who can?") we're going to turn in an extremely unfortunate direction.

Oil has backed off a bit from last week's $112, it's at $108 right now. Will $112 prove to be the high for the year? I sincerely doubt it. Libyan oil shipments are continuing to decrease, and no one else, including the Saudis, are taking up the slack. I think we're nearing oil prices that send world economies back into recession. I don't have an exact number in mind - some say it would take $150 oil, but I expect the threshold is much lower than that, perhaps $120, or perhaps even the already breached $112. Certainly in the US driving is already down due to higher gas prices. Last time this happened the auto industry got a bit of help as people traded in their guzzlers on compact cars. This time there's far less of that: guys like me who own a pickup need them for our work; other people have already mostly already dumped their Detroit Deluxmobiles in favor of a Corolla / Civic / Prius. In my case I ride motorcycles a lot, so swapping my truck for a Prius would save me less than $1000 / year, and I'd lose the ability to pick up plastic sheets and haul motorcycles, two big parts of my life. Trucks are an important part of American small business, they're not going away soon. Can you imagine your four Mexican gardeners showing up next week jammed into a little 78hp compact hybrid, pulling a 15 foot long trailer loaded with mowers, weed whackers and leaf blowers?

I have a new toy - a treadmill desk. Like most Americans I'm concerned about the direction of my weight, and I'm at an age where insulin insensitivity is catching up with me. Recent research indicates that sitting at desks is extremely unhealthy for humans; furthermore the damage done by a few hours each day of sitting is not stopped or reversed by a couple hours each day of exercise. So I bought a treadmill, and my son Steven made me a desk and computer mounts. He made me a wedge shaped mouse pad, as the angle on my wrist using the mouse was obviously going to cause problems. I can walk at about 2mph on a 2% incline while talking on the phone, typing on the computer, or reading on the Internet. My typing speed is perhaps 30% slower while walking, and pointing and clicking with the mouse is still a bit tricky for me. Reading is no problem, other than my age-related far sightedness. Thursday, my first day with my toy, I walked a bit over a mile total in a few sessions.

"People need to understand that the qualitative mechanisms of sitting are completely different from walking or exercising," says University of Missouri microbiologist Marc Hamilton. "Sitting too much is not the same as exercising too little. They do completely different things to the body." Hamilton discovered that when he prevented lab mice from standing up, an enzyme that burns fat gets turned off, which can lead to weight gain. "This enzyme is virtually shut off within hours of not standing, completely independent of diet, completely independent of weight changes," Hamilton said. "I think sitting is very dangerous." A study published by the American Journal of Epidemiology showed that sitting for long stretches, more than six hours a day, can make someone at least 18 percent more likely to die from diabetes, heart disease and obesity than those sitting less than three hours a day.

Hamilton, like many sitting researchers, doesn't own an office chair. "If you're standing around and puttering, you recruit specialized muscles designed for postural support that never tire," he says. "They're unique in that the nervous system recruits them for low-intensity activity and they're very rich in enzymes." One enzyme, lipoprotein lipase, grabs fat and cholesterol from the blood, burning the fat into energy while shifting the cholesterol from LDL (the bad kind) to HDL (the healthy kind). When you sit, the muscles are relaxed, and enzyme activity drops by 90% to 95%, leaving fat to camp out in the bloodstream. Within a couple hours of sitting, healthy cholesterol plummets by 20%. The data back him up. Older people who move around have half the mortality rate of their peers. Frequent TV and Web surfers (sitters) have higher rates of hypertension, obesity, high blood triglycerides, low HDL cholesterol, and high blood sugar, regardless of weight. Lean people, on average, stand for two hours longer than their counterparts.

In a 2005 article in Science magazine, James A. Levine, an obesity specialist at the Mayo Clinic, pinpointed why, despite similar diets, some people are fat and others aren't. "We found that people with obesity have a natural predisposition to be attracted to the chair, and that's true even after obese people lose weight," he says. "What fascinates me is that humans evolved over 1.5 million years entirely on the ability to walk and move. And literally 150 years ago, 90% of human endeavor was still agricultural. In a tiny speck of time we've become chair-sentenced," Levine says. Recently Levine talked to Best Buy (BBY), Wal-Mart (WMT), and SALO accounting about letting him design their offices and keep people walking and working as much as possible. Levine jerry-rigged an old 1- to 2-mph treadmill to stand under a desk and put a handful of them in conference rooms. Those who wanted could have walking desks in their offices, and he partnered with Steelcase to manufacture a $4,500 version of the machine. "Within two weeks, people basically get addicted to walking and working," says Levine. "You just need to give them the chance."

SALO employee John Folkestad works while standing. "I have ADD and standing and moving at work makes me focus and feel energetic," Folkestad said. The average SALO employee put on ten pounds their first year in the company. Dr. Levine launched a six- month study to see if a moving office could actually help workers lose weight. Levine brought in treadmill desks. Walking at around one mile per hour, employees answer phones, respond to emails and even hold walking meetings. "This is simple. It's easy as walking and chewing gum," Langer said of the treadmill desks. Langer, a mom of three, lost the baby weight she piled on after having three kids in four years. She's gone down three dress sizes. Fokestad dropped 24 pounds. In fact, every worker at the company has lost and kept their weight off.

If you choose to make yourself a treadmill desk, buy a more expensive commercial type treadmill. The cheaper treadmills are designed to be used three times, sit in a garage for three years, then be sold in a garage sale. You can buy a ready made desk, it will cost you about $500. My total cost was about $550 for a heavy duty Nordic Track Commercial 1500 treadmill (used three times and sold out of a garage three years later for half price), and perhaps $100 for other incidentals like the melamine board for the desktop, the swivel wall mount for my monitor, various clamps etc. We made a prototype desk out of cardboard and traced it onto the melamine. Big cuts were made with a table saw; fitment was finished with a saber saw. There were about five adjustment cuts before we were satisfied with the fit. Some small strips of plastic were glued to the underside of the melamine over the treadmill arms to level the desk. Then a couple U-bolts are used to hold it in place. I bought a monitor swivel wall mount at Amazon for $17, and the wedge shaped mouse pad (8" x 12" with a 5" rise at the back) was made out of cardboard. About 4 hours total fabrication / installation time. I also downloaded an EPub reader add-on for my Firefox browser, so I can read books at work while walking.

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