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Mark's Market Blog

4-21-13: Slow: Speed Trap Ahead!

By Mark Lawrence

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The market is perhaps looking like something has changed: the lows are now each a little lower than the previous, the highs are also just a little lower than the previous. Everyone is now expecting a May swoon, and perhaps we'll get one. Earnings and consumer confidence and purchasing manager indices are all coming in lower than expected, all the signs and protents are for a slowing economy.


S&P 500 October 22 2012 to April 19 2013

Gold continued to drop, moving from about $1550 to about $1325 in two days, 15%. Conspiracy theorists claimed Bernanke was engineering the crash to make himself look good. Or maybe it's because most gold is now owned through ETFs, synthetic stocks that make gold far easier to buy, hold or sell than Maple Leafs, and thereby make the market less stable. Now we're being told the crash is because the EU is forcing Cyprus to sell off their gold. Economists are like a guy in your back seat saying, "Yup, that last off-ramp had another gas station."

All those savings accounts in Cyprus that are locked down and soon to be raided? The people in Cyprus say "Don't think this is over. They did it to us, they'll do it to Italy and Portugal too." One of the reasons Cyprus was dealt with so harshly is that Germany saw them as a tax evasion / money laundering center. Germany isn't done, they've started talking about how Liechtenstein and Austria must change their banking models. France and the UK agree. The EU is on a tear against off-shore banking. Have an off-shore account? Consider closing it, or at least moving it to somewhere completely obscure, like Vanuatu.

A year ago JCPenny hired Apple's marketing wiz, Ron Johnson, as their CEO to turn them around. Sales are down over 30% since that hire, and Johnson is now looking for a new job. Meanwhile JCP has taken out an $850m loan, which many think reflects a huge cash burn rate. Will JCP survive? Stay tuned.

Detachment 88 is Indonesia’s special anti-terrorism task force. They're funded by the US government, trained by the CIA, and assisted by US intelligence officers to monitor people's emails, text messages, and phone calls. . . all under the auspices of 'security.' This is a win-win: Indonesia, a largely muslim country with terrorist problems gets help; and we get to design, implement and field test techniques that may well be used in the US in the future.

Ten years on, what is the department of homeland security? We got a small taste this last week. Shortly after the Boston bombings, the US borders were all closed. No one in or out. Ok, I agree on a certain level this makes sense, especially for the borders nearest Boston, but it's a bit creepy too.

Ronald P. O'Hanley, president of asset management for Fidelity Investments gave a speech in Washington at the "Capital Markets Summit." O'Hanley said, the nation will not be able to avert a "looming catastrophe" in the retirements of millions of baby boomers who are now headed for destitute financial futures and old ages spent in poverty. "I'm not sure what would be worse," he added, "millions of elderly unable to house and feed themselves ... or the intergenerational strife that surely would erupt if young people are forced to lower their standard of living to pay for our failure to act in a timely manner to avert this crisis. Our own research at Fidelity shows that nearly 4 in 10 retiree households do not have sufficient income to cover their monthly expenses," O'Hanley said. "Well over half of all Americans have less than $25,000 in total savings, not counting the value of their primary residence or pension plans. And 28 percent have put aside less than $1,000." Lastly, he cautioned, the United States is a nation with low levels of financial literacy that makes it difficult for many people to understand how to live within a budget, save and invest for the future. "In our schools," O'Hanley said, "we teach children about sex and drugs but not about money."

Here's an animated obesity graph from the CDC. This is getting to be a serious problem, and we're going to need a solution soon. I believe the problem is multi-dimensional: fast food, ubiquitous snacks, big gulp drinks, and the new genetically modified frankenwheat. There's going to be two solutions: for people who have a decent education and make some money, we're going to have to find alternative foods and habits. For the poor, it's going to be an early death involving high blood pressure, diabetes, and all the stuff that goes along with that like heart disease, blindness, loss of hearing, amputation of feet, etc. Well, it seems we have more and more poor in this country and less and less use for them, perhaps this is the first step towards the Soylent Green solution.

Economics: There's a famous equation in macro economics, M*V = P*Q. M is the money supply, which Bernanke thinks he controls. P is prices, meaning the inflation or deflation rate. Q is the GDP, the sum of everything produced in America, all goods and services. V is the velocity of money. ok, this velocity stuff is a little tricky. Think of it like this: perhaps you come into my shop and buy something from me for a dollar. I stuff it in my pocket. Perhaps a couple weeks later I go down to 7-11 on Super Wednesday and get a Big Gulp for my dollar. The 7-11 proprietor perhaps goes to the Cash-and- carry and buys more syrup. Over the course of the year this dollar moves around a bit - we can imagine tagging it like they tag deer and following it around. The more times it moves in a year, the faster the velocity. Unfortunately, the fact is that velocity is not a measurable, it's a derived quantity to make the equation balance out. It can't actually be measured by tagging dollars, as most money is electronic. This is an example of science envy: in science and engineering we have real equations with real measurables and we use them to design things like the tablet you're reading this on and the optic fiber that got it into your house. Economists want equations too, so they make up stuff like this. Well, anyway, when you're taking baby economics like in your sophomore year, they tell you the velocity of money is a constant so you just plug in 7 or something and you get the right answer. So sad, it's not a constant. Bernanke keeps printing money, the velocity keeps going down, and all the new money just sits around like the unpopular girl waiting by the phone for her invitation to the prom. Fancy graphs below. "FRED," btw, is a really kewl program maintained by the St.Louis Fed that lets dweebs like me make graphs like these to prove or disprove points. As much as you can claim economics has proofs, anyways. Secondary point: if the velocity ever does start moving upwards, that's when we're going to get the runaway inflation that all the gold bugs have been warning us about.

Tech: Have an iPhone or Android phone? Get Google Voice, which will assign you a permanent new phone number. Yup, that's right, you already have a gmail account, now you'll have a google phone number too. Then get talkatone, a free app. The combination allows you to send and receive free phone calls anywhere in the US or Canada over wi-fi networks - you don't need a cell signal to use your cell phone. Many US cell phones charge a small fortune if you're in Canada. This is a way to stay in touch for free so long as you're at a wi-fi hot spot, like your motel room, Starbucks, Mcdonalds, etc. This setup will also work on many tablets; I can send and receive phone calls from mine. When you miss a call, Google will transcribe the message to text for you so you can listen or read. In fact, a quick search on EBay will show you that there are now wi-fi only Android phones being sold, nice looking ones for about $40. If you live in a city, these would probably cover nearly all your phone needs with zero monthly bill. Add Skype, also free, and you can do wi-fi video chats. Google is trying to seduce us, as I previously noted I've been seduced. ok, I guess I'm easy.

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