Markets dropped at the end of the week on news that Greece is still Greece. Default now looks inevitable; what's next after that is completely unclear, but almost certainly indecisive and chaotic. Markets hate indecisive and chaotic. Expect a rough few weeks in the market.
China's stock market, which impressively is even less regulated than our Las Vegas casino-style market, is parabolically shooting for the moon. Looks like a bubble? Like Japan just before 1990, the US just before 2000? Any good bubble, like any good ponzi scheme, needs a next sucker. In China the "next sucker," represented by new investor accounts, is just over 67% to have less than a 9th grade education. And they now account for over a third of the total money in the market. Meanwhile Chinese growth has completely stalled, electricity demand is going negative, their money supply is stagnant and their banks are sitting on a ton of bad loans just waiting to implode. This is going to be fun to watch. You know, from the other side of an ocean. I can't imagine that it will last much longer - perhaps the rest of this year, perhaps less. And then? Lots of Chinese 9th graders jumping out of windows. Fortunately I believe most of them live in 1 story structures, so the death rate should be relatively low.
China's exports fell last month by 15% year on year, even though the dollar keeps rising making them cheaper. Imports fell by 13% in spite of the best efforts of China's youth. Power generation is showing zero growth. All the tea leaves say China is entering their version of a recession. Fast and Furious 7 opened in China this weekend, resulting in a crash of several expensive cars including a red Ferrari and a green Lamborghini. The Beijing police reported the crash as involving green and red "small passenger-carrying vehicles." The drivers were almost certainly 20- something children of government officials. Crashing exports, crashing economy, crashing Italian cars.
For a couple years now I've been writing about the affects of China and India having a huge surplus of men. That affect is growing quickly now and will continue to grow for the next 40+ years. Both India and China are going to have 30% to 45% of their young men unable to find wives. This is new, uncharted social territory and is going to bring many changes.
Everyone now expects Greece to default - Greece does, Germany does and the UK does. Greek bonds are dropping quickly in price reflecting the new views of their risk. After the default, likely about May 12, there will be almost certainly be capital controls to keep money from fleeing Greece. Then there will be several months of nail biting while we see if Greece can actually both default and stay in the Euro. S&P downgraded Greek debt from B- (junk) to CCC (deeper into junk). Super Mario Draghi, head of the European Central Bank, said it was "urgent" to resolve the dispute between Greece and its creditors. A default, he said, would send the global economy into "uncharted waters" and the extent of the possible damage would be hard to estimate. He told reporters that he did not want to even contemplate the chance of a default. This is more than a little hyperbolic; there have been 303 sovereign defaults in the last 200 years, so there's nothing unthinkable or even all that unusual about a 304th.
European Jewish Congress President Moshe Kantor said, "Many streets in our European cities have become hunting grounds for Jews, and some Jews are now forced to avoid community institutions and synagogues as a result. Some are choosing to leave the continent, many are afraid to walk the streets and even more are retreating behind high walls and barbed wire. This has become the new reality of Jewish life in Europe. The fight must be taken to the attackers instead of allowing it to affect the everyday lives of the victims. We need to move from defense to offense." Armed attacks doubled to 68 in comparison to 2013 and a further 101 cases without weapons were recorded. Arson tripled, and there were 412 cases of vandalism. Of those, 114 were attacks on synagogues — and increase of 70%. A further 118 cemeteries and memorial sites, and 171 private properties were vandalized in anti-Jewish attacks."
Russia says they will sell S-300 air defense systems to Iran. These missiles are excellent against F-15, F-16 and F-18 fighters, which means after Iran takes delivery late this year Israel doesn't have planes that can reliably penetrate Iranian air space. Such defenses can be neutralized only by stealth fighters, and we haven't sold Israel any of those. So if Israel wants to strike Iran without US backing they're going to have to do it in about the next five months or so, or wait for a US president who is less willing to talk for years on end.
Hillary announced her candidacy for the president. She says she wants to be the champion of every day americans. She who took in millions in donations from foreign countries while secretary of state; who charges $300,000 to speak to college seniors who are, on average, $38,000 in debt; she who has made $300,000,000 in the last decade and had another $100,000,000 donated by foreign governments to her foundation. Yup. She understands every day americans. She would be 69 at her inauguration, the second oldest president ever elected after only Reagan. She will not be elected. Look at the last 100 years of presidencies. Presidencies go by generation. Kennedy, Nixon, Ford, Carter, Reagan, Bush Sr. were all of the same generation; then Bill was 20 years younger, matched by Bush Jr. Obama another 15 years younger. Our next president will be someone born after about 1958, and Hillary fails that rather badly. Her window closed when Obama was elected. Us old guys have trouble letting go, but the torch has been passed and it's never passed back. Besides, outside of the media and die-hard liberals, is there anyone left who trusts her? None of this should be construed as an endorsement of the republican candidate, whoever that turns out to be. A similar math exercise showed that McCain had no chance against Obama, but that didn't mean Obama was great.
The Navy has a new toy - an electromagnetic rail gun that fires 45 pound projectiles at mach 7.5. The gun can fire ten times per minute and hit targets up to 100 miles away. At mach 7.5 the 100 mile journey takes about 90 seconds. It costs about $25,000 to fire an individual round. The Navy plans on mounting a rail gun on the new stealth destroyer USS Zumwalt. I dunno what this is all good for, but it's just too sexy for words.
California has announced that cities must consume 25% less water. This is huge: 38 million people will be severely inconvenienced with the net effect of saving about 1% of our total use. Meanwhile 40% of our water use goes directly or indirectly to cows. Perhaps it's time to allow that Wisconsin and Oregon have certain advantages over California in producing milk and cheese: it actually rains in those two states. But this is what governments do: screw up our water and airports so that they look like they're doing something. Building new outdoor swimming pools is now more or less illegal, even though swimming pools and the associated patios and decks lose less water to evaporation than the grass they replace. Meanwhile, governor Brown says he will not regulate alfalfa or almonds because "That's a big brother move."
Then end of an era? Boeing and Airbus are finding it very difficult to sell more 747s and A380s. Not a single one was sold last year, even at discounts of up to 50%, leaving Boeing with firm orders for only about 40 747s. And there are 82 perfectly functional 747s sitting in the desert which are available cheap. Meanwhile the slightly smaller 777 sold 283 least year giving Boeing a backlog of 547. The A380 now only sells to a single customer, Emirates; no one else has any interest. The biggest jumbo jets carry as many as 525 people, but are less fuel efficient on most routes than the newest two engine jets. At a very simple level more moving parts equals more friction and more fuel burned, and that math is starting to dominate. Moreover to continue to be competitive the planes must be updated with improved wings, composite materials and engines, and it's impossible to entertain multi-billion dollar engineering projects for a product that isn't selling. Boeing has only a 2.5 year backlog of 747 orders and that's after slowing production by 20% recently.
As Americans get wider, Southwest airline is trying to keep up with new seats that are 0.7" wider. I suppose this means the flight attendants have to get narrower.
In Back to the Future, Doc gets parts for his Delorean Time machine and brings them back 30 years to 1985. Including his little fusion reactor that lets him power the car with banana peels. That's this year - 2015 is 30 years ahead of 1985. We're not driving flying cars powered by kitchen trash yet. In fact we're in a limbo where it's unclear what we should drive. The Tesla has an 85kwh battery; if we imagine a 10 minute recharge we're talking about 2500 amps at 220 volts, enough to power as many as 1000 homes. More than en ought to light a car on fire from time to time. If you try to imagine charging stations all over the interstates which are handing all the interstate traffic you're talking about a very expensive complete rebuild of our electric grid, and adding perhaps a thousand power stations at a time when we're trying to close several hundred coal fired plants. Toyota's chief engineer says their calculations are this is simply not cost feasible, which is why Toyota continues to work on hydrogen fuel cells.