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Mark's Market Blog

5-19-13: The market spikes upwards.

By Mark Lawrence

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Markets are spiking upwards, it's really pretty impressive. Nearly $200 billion per month from Bernanke, the Bank of Japan, and the European central bank are certainly having an effect. How long will it last?


S&P 500 November 21 2012 to May 24 2013

The IRS apparently targeted conservative groups for audits. Everyone in Washington is suitably outraged. I am too, but for a different reason: of the over 100,000 employees of the IRS, there are exactly two that the President or Congress can actually fire: the IRS commissioner and the IRS general counsel. Neither of those positions is currently filled. So no one will lose their jobs. If neither the President nor the Congress can fire these guys, who exactly do they work for? To whom are they accountable?

This was a bad week for US data. Housing starts were down 16.5%. Jobless claims were up 10%. Inflation was down, which is not a good sign, as the Fed is doing everything they can to get inflation up a bit. Walmart reported profits that were as expected, but on sales that continue to be down. Walmart's lower class clients are suffering from increased payroll taxes and delayed tax return checks.

Japan is printing money like mad. Their stock market just hit 15,000, a level not seen since 2008. The yen is at 104 to the dollar, another level not seen in years. Printing money is working, right? Um. . . maybe. Their government bonds have gone up from .6% to .86%, a rather dramatic rise in just a couple weeks. Apparently people are getting nervous about Japanese bonds, and well they should: the Japanese government has announced they're going to end deflation and get inflation started in Japan. This means bond owners won't do so well, so the bonds have to drop in value and the interest rates have to rise. What's next? I dunno. Maybe nothing. Maybe a slow, measured drop in bond prices. Maybe Mr.Toad's wild ride. Soon we'll know. . .

Polls across the EU are showing a clear split in voter confidence. Germans and Scandinavians think things are going pretty well, as well as can be expected given the profligate ways of their southern cousins. Those southern cousins? They're not as happy. . .

A 2300 year old Mayan pyramid was torn down in Belize by bulldozers and backhoes. The Mayans built the pyramid from limestone quarried from many miles away, carried to the pyramid site on their heads, and carefully stacked in layers. The construction company needed limestone for fill material on a nearby road, and it was cheaper to tear down the pyramid than to go to the original Mayan quarry. This is not the first time Mayan sites have been torn down in Belize for construction purposes, but this is by far the worst to date. Frankly, it makes me embarrassed to be a human.

Profits: Exxon reported $44.9 billion in net income last year. Apple recorded a $41.7 billion profit. Chevron reported $26.2 billion in earnings. JPMorgan Chase, Bank of America, Citigroup and Wells Fargo reported a combined $51.9 billion in profit last year. The government is poised to pocket a record $51 billion profit from federal student loan borrowers this year, according to a report by the Congressional Budget Office. Apparently Obama was jealous of the bubble profits being racked up by our university system and found a way to get a piece of the action.

Bernanke gave the commencement speech at Simon's Rock, a college in Massachusetts. He said, "As trade and globalization increase the size of the potential market for new products, the possible economic rewards for being first with an innovative product or process are growing rapidly. In short, both humanity's capacity to innovate and the incentives to innovate are greater today than at any other time in history." I agree with this. I also think we're breeding ourselves out of viability as a species, the era of cheap energy is over, and we're at the limits of arable land and fresh water. I think we're in a race: can we innovate ourselves out of over population and rampant pollution before we choke to death on our own wastes? Mr. Bernanke is, apparently, optimistic. Me, less so.

The city of San Jose is staggering roughly in the direction of bankruptcy. As is typical for California, it's retirement programs that are the leading problem. The San Jose city council thought to exit CalPERS, the California Public Employee Retirement System. CalPERS says they have a future liability of about $370 billion with $265 billion in assets earning, they assume, 7.5%. When San Jose asked for a buy-out price, suddenly CalPERS told them for buy-out purposes the assumed future return is 2.4%, meaning San Jose's buy out cost was 6 times the cost to stay in the plan. Can CalPERS actually earn 7.5% for the next 30 years? No chance; in fact I think they're likely to lose money in the next few years. This several hundred billion dollar train wreck will take a few more years to actually happen, but when it does it's going to shake up the entire US. Try to imaging telling red state people that they have to pay more taxes and assume more US debt to honor ridiculous pensions guaranteed by the California democrats to their unionized liberal government workers.

Boeing has a new weapon, the CHAMP - a cruise missile that flies around and puts out concentrated bursts of microwaves. This causes EMPs - ElectroMagnetic Pulses - that destroy electronic chips. You can fly this around Iran or N.Korea and take out most of their electronics without harming a single human. There's been talk for a while now that a good attack on the US would be to detonate a couple nuclear bombs something like 20 miles up, which would take out electronics for a many hundred mile radius. Worried about EMPs? Get a 500GB usb hard drive (roughly the size of a pack of cigarettes, about $75) and backup your computer onto it. Then get a small cardboard box, put the hard drive in it. Now wrap the box with aluminum foil and put it up on a wood shelve. That drive won't be destroyed by an EMP. Your computer will likely melt down, the internet will be fried, but you'll have your data.

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