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Mark's Market Blog

6-8-11: Third world chaos

By Mark Lawrence

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On light volume and no particular news, markets have gone down for pretty much 6 straight weeks. New job creation has stalled in the US. No one wants to buy stocks. Given that we're just three weeks away from the end of Bernanke's QE II, I think it difficult at this time to predict stocks going up anytime soon.

S&P 500 December 28 2010 to June 8 2011

Costa Mesa, a city in Orange County, CA, has announced due to pension costs they're laying off half of their workforce. They allow their firefighters to retire at age 50. This issue has an obvious solution: it's probably reasonable for firefighters and cops to stop fighting fires and crooks when they're 50; it's not reasonable that then they get to just lay about at the tax payers expense. Their benefits should kick in at age 65, like the rest of us. Meanwhile they can get a J-O-B.

Unemployment in Greece has hit the unimaginable level of 16% (which is roughly where US unemployment has been for the last two years). More dramatically youth unemployment (15-24) is over 40%, which is becoming common in Europe. There have been continuing large demonstrations in Greece against austerity programs. Perhaps in the next year or so the Greeks will throw out their government. This will not, however, create jobs. At current Euro prices, Greek workers are substantially overpaid compared to their productivity. In my opinion, jobs will not return to Greece until they leave the Euro, devalue their currency, and repudiate much of their debt. Meanwhile I predict demonstrations will only increase, and Greece will prove more and more ungovernable. What is the basic problem in Greece? Pretty much no one pays taxes - surgeons claim they make $12,000 per year. Greeks think they have a right to retire in their 50s, and a lot of them are employed by the government to do highly unproductive jobs. To get back on track they are going to have to reduce their debt, get out of the Euro, simplify and enforce their tax code, have massive layoffs of government workers, and convince their people that working to age 65 or even 70 is more normal.

Greek Unemployment 2006-2011

It appears that the French will get to appoint the new head of the IMF. They are already strongly indicating that Ireland will not get any further assistence until they raise their corporate tax rate. Personally, I don't think this is a good time o be playing chicken in Europe. Furthermore, Ireland reminds me of the gambling sloan: Beware the man with little money, for he has nothing to lose. If I were Irish, the idea of my country taking on more debt to pay more money to French and German bankers would not be my first choice.

Youth unemployment is going to spread and increase in many countries, with the result that some countries are going to become ungovernable. Since it's the young people 25-40 who are supposed to pay the taxes to keep their elders retired in comfort, as this unemployment spreads up the ladder you're going to see retirees start to get worried. Not in the US, of course: no matter how bad things get, I'm confident we'll continue to pay our 50-something lifeguards, firefighters, police and prison guards $100,000+ per year to sit around and complain about illegals and welfare recipients leeching off the government.

How are jobs doing? The jobs number came out for May and it looked pretty dismal: 53,000 new jobs nationwide. Remember, we need about 175,000 just to keep up with population increase, so this is actually a drop in employment rate. However, as our favorite jobs graph shows below, this is just a little blip on the overall trend. We continue to be on track to have a healthy economy with reasonable employment levels in the year 2013 or so. Presuming we don't have another recession before that. Retired government workers should be watching this number closely and cheering it up.

Job Losses compared over the post-WWII recessions

The real story about unemployment is the average duration of unemployment. It seems like every month the average increases by a month. Basically we have about 12 million workers that no one seems to want. Many of these guys used to do construction: unemployment will not be fixed in this country until the housing crisis is resolved and we start building things again. You could, of course, reasonably wonder when we will reach the point where we have enough people and we've built enough stuff. The job of European and American 20-somethings will be to invent an economy that doesn't depend on populations and housing growing like a malignant cancer tumor.

S&P 500 December 28 2010 to June 8 2011

Oil prices have dropped a bit to under $100, as Saudi Arabia has slightly increased their output and indicated that other members of OPEC should have their quotas raised. Saudi Arabia's economists are clearly worried about high oil prices driving the world into another recession,

Crude Oil Prices

Demonstrations continue in Syria, and people continue to get shot, roughly a hundred or two per week. Saleh, the president of Yemen, is in a Saudi hospital reportedly with burns on 40% of his body after a rocket attack on his palace. I predict he won't return to Yemen. Gaddafi is dug in, fighting continues in Libya, and Gaddafi vows he will die in Libya. I believe this. I expect stories like this will only spread throughout N.Africa and the middle east: in the face of a rapidly growing population and declining jobs and economies, more and more of these countries are going to prove ungovernable and sink into chaos. We should all pray that we are able to get the nukes out of Pakistan before they fall.

Thinking of starting a business? If you're over 40, perhaps it's a little late in the game. Most entrepreneurs start their first business in their 20s. I started California Scientific when I was 28. When I was 47 I rebuilt my company from scratch, making motorcycle windshields instead of software, and I admit freely that I had serious doubts if I had the energy to do it again. If I were to start another company now, I think I would get a 20-something guy or two as a partner, and leverage my experience off their energy.

Age at starting first company

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