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Mark's Market Blog

5-20-12: Eclipse!

By Mark Lawrence

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Markets continued dropping this week as fears of a Greece exit from the Euro bring much of Europe into question. S&P downgraded Spanish banks as a couple billion dollars of deposits were withdrawn. Gold also dropped - people are liquidating everything, and judging from prices, buying German and US bonds. It's looking pretty bad. Soon the ECB will have to step in. And they will - politicians always want to buy time at any price. Meanwhile. the outlook for stock prices stabilizing or going up seems dismal before Greek elections on June 17th.

S&P 500 November 25 2011 to May 18 2012

In a bit of good news, the number of US mortgages that are delinquent is at a four year low.

Spanish banks are basically not banks anymore - they don't have deposits, their loans are non-performing. They have a new job: borrow money from the European Central Bank, and loan the money to the Spanish government. Italian banks are not far behind.

Currently polls indicate that after the next election on June 17th, Greece will have new government with a mandate to make it impossible for Europe to keep them in the Euro, while also keeping Greece in the Euro. Greeks are completely unwilling to give up their government benefits, but at this point there doesn't seem to be anyone willing to pay for these benefits. A Greek exit from the Euro would bring Greece's economy to their knees, and might well be the canary in the coal mine for the rest of Europe, signaling that Spain, Portugal, Italy are too big to fix. On the other hand, keeping Greece in the Euro means Germany must agree to start funding social programs in Greece, Spain and Italy that give far richer benefits than are available in Germany. It looks to me like a train wreck, but I expect the ECB will pull a last-minute rabbit out of their hat and find a way to kick the can down the road for another year or so.

China's real estate market also continues to look like a slow-motion train wreck, and simultaneously with this they have this huge scandal of one of their top politicians getting arrested for various crimes. They're due to have a five-year party congress where power is handed over to the next generation of thugs and crooks, but now some are speculating that the party congress might get postponed. China almost certainly has money to buy time, and almost certainly will.

Europe is flirting with a full-on banking crash, China with a recession that could lead to civil unrest - the idea that the US will be the last man standing is looking more and more realistic. Not just yet, though, I think.

Gold continues to stagger in a generally downwards direction. This is interesting: you might expect gold to go up as people pull their money from shakey banks and put it somewhere safe. But it seems others need to raise cash and are dumping gold. Gold has had a long run, but it seems perhaps that's over for a while.

Five years of gold prices

Facebook went public, selling about a quarter of their stock at a price that values them just over $100 billion, putting them in closely with HP, Intel, Disney and Pepsi. Except Facebook doesn't make anything, they don't do anything, advertisers are figuring out that Facebook ads don't work (GM just pulled their $10 million Facebook ad program). Mark Zuckerberg is now richer than the founders of Google, and retains 56% of the voting rights to Facebook stock. Wall Street is simply giddy about this: they think a lot of facebook stock is being bought by retail investors (that's you and me), "muppets" in Wall Street slang. They just love our money. Who says markets aren't working well?

Kansas used to have a law that in order to drive a car, you had to have a man walking in front of your car waving a lantern to warn people. Obama has signed an executive order that by 2017 makers of electric cars must find a way to make noise so that people can hear the car coming. Expect downloadable drive-tones from the iTunes store.

For the first time in the US, minority births were over 50% of births. 20 years from now whites will be a minority in the electorate, and around that time a minority in government. What will happen? California is already over 50% minorities, I believe this is a model for the US as a whole: increasing deficits, dysfunctional government, decaying educational institutions, rising taxes and dimished services, corporate flight to more stable areas.

Jerry "Moonbeam" Brown has a new proposed budget for California and itís breath-taking in its exuberant assumptions, forecasting a 35% rise in revenues in the next four years. Jerry assumes the US economy will grow between 3% and 4% by late 2013; by 2015, all of the US jobs lost during the Great Recession will have been recreated; and the California economy will create nearly half a million jobs by 2013. Construction, to decline in 2012, will suddenly jump by 6% in 2013.

Where is the money going? $107 billion goes to Medicaid, nearly $10,000 per California taxpayer. Estimates of California's illegal population run to 2.6 million. Providing housing, food stamps, education and medical care for them is literally bankrupting the state. Talk now is about raising taxes further on the most highly taxes people outside of New York City, laying off tens of thousands of state workers and making the rest work 4 day weeks and take a 5% pay cut. The lines are sharpening up, it's going to be illegals v. union government workers. Soon the liberals are going to have to make a choice - big bucks for the retirements of the union loyals, or free medical care and services for their next generation of voters. There will be a lot of kicking and screaming about raising taxes and cutting schools and police and fire services first, but it's becoming clear that this crisis will continue until a choice is made.

What happened at JPMorgan? They lost $2 billion on derivatives - or now people are saying it's more like $3 billion. That's a lot of money, even for a bank the size of JPMorgan, but how did it happen? JPMorgan's total derivative exposure, the total amount they could lose if everything went exactly wrong, is $70 trillion. The entire US economy is $15 trillion, these guys are placing bets totaling five years of economic output for the entire country. How is this legal? How are people not going to jail? They should attend court-ordered meetings of Gambler's Anonymous in my opinion.

Science: There will be an annular eclipse of the sun today around 6:30pm PST. That means the sun will not be completely blocked, there will be a thin ring of sun left visible around the moon. The eclipse starts in China, sweeps north through Japan, and enters the US near the California-Oregon border. It then sweeps down just north of Redding, where I will be; grazes the south tip of Pyramid Lake just north of Reno; down to St.George, UT, then Gallup NM and ends near Lubbock TX. St.George is an interesting place to watch it, the eclipse will end precisely at sunset in St.George. The next eclipse in N.America is in 2017, then 2021*, 2023*, 2024, 2044, 2045, 2046*, 2048*, 2052 and 2057*. 11 total between 2012 and 2060. The starred eclipses are annular. The really good one is in 2045 but I don't expect to last that long. I saw a total eclipse about 50 years ago as a kid near the Indiana / Michigan border; My best bet for another total eclipse is 2017 and 2024, both in the St.Louis - Memphis area.

Solar Eclipse 5-21-2012

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