Markets were up week, as Obama and various European politicians managed to shut up for the week. Most everyone on Wall Street that I respect is confused by the markets these days; I am too. My projection continues: cloudy with a chance of showers.
What's next for the markets? Here's what I'm looking at:
|Markets are going up because:||Markets are going down because:|
Yale Professor Robert Shiller pointed out in a recent Sunday NYT article, "When inflation-adjusted GDP has come out of a decline and posted three or four quarters of gains, it has never immediately begun to fall again - at least not since quarterly numbers began to be issued in 1947."
European governments, under strong pressure from Germany, are cutting budgets drastically. Many, me included, think this will result in the European recession turning into a European depression. You don't worry about morphine addiction the day after surgury.
This week the Times (UK) revealed that Saudi Arabia has agreed to allow Israel to use a narrow corridor of its airspace in the north of the country to shorten the distance for a bombing run on Iran. To ensure the Israeli bombers pass unmolested, Riyadh has carried out tests to make certain its own jets are not scrambled and missile defense systems not activated. Once the Israelis are through, the kingdom’s air defenses will return to full alert. Questioned on the option of a Saudi flight path for Israeli bombers, Aharaon Zeevi Farkash, head of Israeli military intelligence until 2006, said: "Saudi Arabia is even more afraid than Israel of an Iranian nuclear capacity." Iran vowed to continue enriching uranium after the UN Security Council imposed its toughest sanctions yet. President Ahmadinejad has described the UN resolution as "a used handkerchief, which should be thrown in the dustbin."
Last week we discussed dispersants. Chemical company Nalco finally caved under pressure and released the ingredients to its oil dispersant, 1,143,000 gallons of which has been dumped into the Gulf. Would you dump this on your lawn?
Housing crisis Part II, coming soon to a rural state near you.
|State||Increase since March|
A big part of the panic last Friday (6-4) was due to a Hungary government spokesman saying to the press that a default of their bonds was possible. Hungary has a new government, they just got voted in a few months ago. Hungary has been getting an IMF bailout since 2008, which includes severe austerity measures. It's now thought that the new government doesn't like the terms of the bailout and wants to renegotiate something less austere. So to get permission to spend more money and sell more bonds to pay for it, they announce their bonds might be worthless. Many of us outside of Hungary find this bargaining position deeply confusing. . .
Over the weekend a story appeared in the German press that their supreme court may temporarily stop the German portion of the Euro bailout fund while they consider its constitutionality. The Euro promptly dropped some more, and France CDS insurance against default promptly got more expensive. These last couple of weeks it seems every time a European opens their mouth, the markets take a new dive. Many on Wall Street are now praying for a period of silence.
Ireland has largely escaped the world press as everyone focuses on Spain, Portugal, Hungary, Romania. How is Ireland doing? Their GDP shrunk by 4.5% in Q4 last year, which doesn't sound horrible. However, 15 years ago, in an effort to bring in outside investment, Ireland made many types of income to foreign residents tax free. The GDP counts all the money in Ireland; the GNP counts only what the Irish make. The GNP shrunk by over 10% in the same period. Ireland is in serious trouble.
Unemployment, nearly 20% in the US, is a strong function of education. The unskilled are bearing the brunt of the unemployment in this country, and the average length of time they are unemployed is over 6 months and increasing. Uneducated and unskilled workers are no longer valued in the US. What will the government do about this? One possibility is to simply legislate that everyone gets a college degree, much as they have effectively legislated in the last 20 years that everyone gets a high school diploma. This has been tried in Spain, with the result that employers now require a master's degree for management positions. 100 years ago the Sorbonne in France was one of the top 5 schools in the world. Today France doesn't have a school in the top 50. What happened to them? Their egalitarian governments lowered admission standards and raised the pressure to graduate more people, and then drew district lines around their universities. The Sorbonne, which used to admit the brightest French students, now takes in anyone within their district, just like a high school, an almost no one from outside their district, just like a high school. The school's international reputation has sunk like BP's stock price. When you hear about various US government agencies talking about the need to get more US citizens more degrees from our colleges, that will be the beginning of the end of the US educational system.
|Unemployment by Education, rates v. average||Length of time Unemployed|
Imports are on the rise again in the US. Last week we saw that government budget deficit + personal debt = trade deficit. Government debt is rising like an ICBM, so the trade deficit is going up too. As the government borrows more and more money to spend our way out of this recession, we import more and more cheap Asian goods and export more and more low and unskilled jobs. Luckily for the government, those uneducated unemployed are unable to understand graphs and simple equations, so they think the government is trying to help them.
One of the huge problems we face in the developed economies, in my opinion, is the huge number of people working for the government. Admittedly many disagree with this view, including apparently our president. Greece, currently held up as an example of a government gone absurd, has 14.1% of their population working for their government. How does the US stack up? Worse, much worse. The top ten states all have more than 16% of their population working for their state government, not counting the feds. What do these people do?
Obama is very proud of his census. It now seems clear that his sly smile and "Wait until you see the new unemployment figures" comment was indicating he thought he was personally holding up the economy with his census hiring. How much does the census cost? Brief answer: in 1960, Eisenhower spent 71¢ per citizen to perform the census; Obama is spending $47 per person. One is reminded of ex-California Speaker of the House Willie Brown's comment: "Who would have thought it? A poor black boy from Texas, and here I am in charge of spending billions of dollars of white people's money."
|Year||Population||Cost Of Census||Cost Per Person||Yearly Pop. Growth||Yearly Cost Growth|
It's spring, and an old man's fancy lightly turns to thoughts of ants. Last year I published a recipe for ant poison. While that stuff works well, I got bored with cooking it up. I am now using a commercial version of my recipe to fight off four separate invasions. It took 6 days, but I've all but killed off the worst of the four. Terro, available at Walmart, Lowes, Home Depot.