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Mark's Market Blog

5-22-10: Man Creates Life!!!

By Mark Lawrence

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This week Angela Merkle's party lost a mid-term election and no longer holds a clear majority in the German government. She immediately started posturing, resulting in France's president Sarkozy at one point telling her if she didn't back down France would leave the EU. Merkle outlawed naked shorts on banks in Germany for a couple months. Coupled with the growing realization that Club Med has no realistic chance of paying off their debts, the markets went into a tailspin. A German official called the markets "irrational," apparently referring to the reluctance of investors to keep loaning money to technically bankrupt countries. We have now retraced the entire "flash crash," so the markets are now free to rebound for a few days. Most likely, in my opinion, before resuming their downward trend.

S&P 500 November 22 2009 to May 21 2010

It is becoming clear that European officials have a choice to make: cut budgets to the point of sending their countries into a five to ten year long depression with unemployment well above 20%, or keep borrowing money until they hit the wall. There's a famous story of a peasant dragged before his king, and sentenced to death. The peasant promises that if the king stays his execution for a year, he will teach the king's horse to sing hymns in church. Later a guard says, "Are you nuts? You can't teach a horse to sing." The peasant says, "A lot can happen in a year. The king could die. The horse could die. I could die. And who knows, maybe the horse will learn to sing!" It's widely believed that this is where the governments of the PIIGS are now: hoping the horse learns to sing, or at least someone dies.

China's stock market is down 25% on the year, as the Chinese government meets their real estate bubble head on with more and more lending restrictions. They're engineering a "soft landing." Every time things get weird, economists and politicians try to engineer a "soft landing." No one has ever actually seen an economy do a soft landing, but the imagery is just too pretty to let the words lapse into disuse. As the Euro sinks and European buyers realize their recession is now here, China's exports are dropping at the same time as they are extending the landing gear, setting the flaps, and throttling back, preparing, in my opinion, to land in a swamp.

Shanghai Index February 15 2010 to May 18 2010

The worst US markets in which to own a home:
13. Providence, RI. Home prices down 27% and unemployment is 13.2%
12. Las Vegas, NV. Housing prices are down 51% and unemployment is 13.8%
11. Rockford, IL. Housing prices are down 16% and unemployment is 17.9%
10. Boise City, ID. Housing prices are down 34% and unemployment is 9.9%
9. Toledo, OH. Housing prices are down 30% and unemployment is 13%
8. Reno, NV. Housing prices are down 44% and unemployment is 13.3%
7. Grand Rapids, MI. Housing prices are down 30% and unemployment is 14.3%
6. Fort Meyers, FL. Housing prices are down 65% and unemployment is 14.2%
5. Orlando, FL. Housing prices down 49% and unemployment is 15%
4. Sacramento, CA. Housing prices down 47% and unemployment is 17.5%
3. Palm Coast, FL. Housing prices down 63% and unemployment is 16%
2. Lansing, MI. Housing prices are off 38% and unemployment is 11.8%
1. Riverside, CA. Housing prices are down 52% and unemployment is at 18%

How bad is the jobless recovery for the unskilled classes? Wall Street Cheat Sheetís Damien Hoffman says the growing underclass now accounts for about 10% of the U.S. population. He points to several signs America is turning into a two-class society:

British consumer price inflation accelerated to an annual rate of 3.7% in April, rising from 3.4% in March and requiring Bank of England Governor Mervyn King to write a letter to the government explaining why inflation missed the 2% annual target by more than a percentage point. This is a canary-in-the-coal-mine for Europe. Oil is priced in dollars; as the EU deflates the Euro to help the PIIGS, every time the Euro goes down by 10% oil goes up by 10%. OPEC is unhappy with the realization that they will simply have to let oil prices drop.

Oil, Dollars per Barrel, 5-20-2009 to 5-21-2010

In my Mark's Fearless Predictions blog, I said The first cracks in government retirement programs will appear: many such programs will start to prove under funded and require a bailout, and this will pop them onto the public radar. Well, that's happening, big time. The California Public Employees Retirement is telling taxpayers they will be on the hook for increasing their contribution to the state employees' pension fund by $600 million a year. "This is further evidence of an unsustainable pension system that must be reformed," governor Schwarzenegger said. "Every additional dollar we spend on state employee pensions is a dollar we take from education, health and public safety." The California State Teachers' Retirement System is expected to ask the Legislature and governor next year to increase its employers' contributions significantly. But CalPERS' board, unlike the teachers' fund, doesn't need to ask lawmakers or the governor for permission to raise contributions. CalPERS is seeking the hike to compensate for steep investment losses. The $206-billion pension fund suffered a 24% loss in the 12- month period that ended June 30. The jump in the state contribution for the fiscal year starting July 1 also was based on updated actuarial studies. Currently, the fund has only about 61% of what it needs. The proposed hike would take it to 75% by 2042.

According to pension data collected by The New York Times from the city and state, about 3,700 retired public workers in New York are now getting pensions of more than $100,000 a year, exempt from state and local taxes. Roughly one of every 250 retired public workers in New York is collecting a six-figure pension, and that group is expected to grow rapidly in coming years, based on the number of highly paid people in the pipeline. Some will receive the big pensions for decades. Thirteen New York City police officers recently retired at age 40 with pensions above $100,000 a year; nine did so in their 30s. The planís public information officer said that the very young retirees had qualified for special disability pensions, which are 50 percent larger than ordinary police pensions. He said several dozen of the highest-paid New York City police retirees had disabilities related to 9/11 and the rest of the disabilities resulted from injuries in the line of duty.

And man made life. . .

A hot topic this week is an incredible feat by Craig Venter and Hamilton Smith. These are the guys who first sequenced the human genome. These guys sequenced the genome of a bacteria, then they constructed a copy of the DNA strand from scratch - a bit over 1 million base pairs. Then they took a bacteria, sucked the DNA out of it, and substituted their artificial copy. The bacteria continued to survive and reproduce. Everyone is all excited about this: man makes life shouts the cover of the current Economist. Obama immediately announced that he had formed a committee to report back to him in 6 months on the issue of artificial life. Quick question: who was the King of England or the Prime Minister when Isaac Newton published the Principia? Did they form a committee? Did they successfully legislate and control the march of science?

The New York Times says Dr.Venter's DNA "took over the cell." Venter himself says "This is the first self-replicating species whose parent is a computer. This is a philosophical advance as much as a technical advance - a synthetic cell raises new questions about the nature of life." The Economist says, "Mere mortals have now made artificial life." This is a hot topic of mine, so I choose to reply to the various aggrandizements.

DNA is widely considered the brains of the cell. It's not. Put a bullet through someone's brain and they fall over dead. In a classic experiment scientists removed the DNA of a bacteria; the bacteria lived for 8 more months. Then they cut the sensors off of the bacteria's cell wall - it fell over dead. If the cell has brains, the brains are the cell wall, not the DNA. Cells use proteins the same way mechanics use wrenches: to make things and get things done. Like wrenches, proteins eventually wear out. The DNA is a reference library that tells the cell how to make replacement wrenches. Take away the reference library and the cell is fine for a while, but eventually enough stuff wears out and doesn't get replaced that the cell dies.

The DNA did not "take over" the cell, the cell was in control of its processes even during the time it had no DNA at all. The cell was already alive, no artificial life was created, no computer was a parent. Venter's bacteria is not a new species, it's a perfect copy of another bacteria. Dr.Venter copied an existing manual of protean construction, exactly as the monks in the dark ages copied scrolls, and the copy was good enough to keep things working. After a series of experiments a couple hundred years ago, Louis Pasteur said "Life comes only from life." This has been true for billions of years, likely for trillions of years, and it's still true today (I'm not a huge fan of the Big Bang theory either.) God, if You're reading this, sorry, You can't retire quite yet. We still need You around.

Soon Dr.Venter will start editing the scrolls, changing the cell's wrenches from inches to metric, adding a ratchet that he grabs from some other cell and such. Perhaps changing the word "celibate" to "celebrate." Dr. Venter said he would try to build "an entire algae genome so we can vary the 50 to 60 different parameters for algae growth to make superproductive organisms." Interesting that Dr.Venter apparently believes he can out-perform a billion years of Darwinian evolution. This will still not be creating life, it will be more like opening up a training school for cell mechanics. Important and interesting things will happen. Problems will be solved. Mistakes will be made, possibly a really terrible mistake. But we're nowhere near creating life and I personally find it offensive that it's claimed we can. Scientism - the blind worship of science - is not a jewel of humanity, it's an embarrassment. Those scientists who promote it have drunk a little too deeply of this heady stuff and become the high priests of a low order.

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