US markets didn't make it to 1390 as I indicated - only a bit over 1380 - but they did then turn down. Then dropped to my lower red line, where they promptly turned back up on news that Super Mario will flaunt the various EU constitutions and print money like, well, like Bernanke. There are several conflicting realities here: Europe is clearly deep in recession. China is struggling at best. The US is looking more and more like we're heading into recession - shipping, trucking and garbage transport are all down, consumer spending is down. But there's an election coming up, and we simply don't allow big stock market drops in the months leading up to presidential elections. Unless we can't stop them. It's going to be fun to watch this. If Bernanke doesn't print money, he's a republican and screwed; if he prints money, he's a democrat and screwed. The Fed isn't about politics, it's about guaranteeing banking profits.
Italy and Spain banned short selling of financial stocks again. It didn't really help last time, it won't this time. Spanish interest rates hit a new all-time high pretty much each day for a week, the trend ending Wednesday at 7.6%. Then Thursday Mario Draghi promised "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough." Spain's interest rates promptly dropped into the 6's, ending the week nearly a full point down at 6.75%. It's against the EU and German constitutions for Mario to print serious money and buy sovereign bonds. Will he? Can he? Will Europe really monetize all this debt? Tough sounding words. This is one of the few EU policies that would actually kick this can down the road for several years. But is it true? Is Draghi Europe's Clint Eastwood? Well, today it's true enough that the markets have calmed for a while, perhaps long enough that everyone can have their August vacation. But in the end I expect it's just more words, the crisis will continue and deepen. The math is compelling: there were 16 EU countries to bail out Ireland; 15 to bail out Greece; if you add Spain, Italy, Cyprus, Portugal it's 11 countries to bail out 6. Add France, and suddenly, it's pretty much Germany bailing out everyone.
No one thinks that Greece is going to get their scheduled bailout money in September. Everyone in Europe thinks Greece will default and exit the Euro, and this will be no big deal. Will it be no big deal? We'll see. Just weeks before the election we'll see. Obama has got to be livid about this. German economists calculate that if Greece defaults and leaves the Euro, German bank will lose 82B euros; they calculate that if Greece gets bailed out it will cost Germany 89B euros. Greece is toast. I expect another default before Halloween. And perhaps the Drachma just a few months after that. The real test is if whatever happens in Greece starts a run on Spanish and Italian banks - no one believes the EU is prepared for that.
European banks have withdrawn a third of their deposits in US banks, from a total of just over $1.5T to about $973B. This isn't because they're scared of US banks, it's because they need their money back home. To prepare for a crisis. That no one believes in. Assets are being sold off cheap, and US banks are snatching them up. Meanwhile, most of Europe prepares for their traditional August month-long vacation.
Syria said if there was foreign intervention in their civil war, they would use their chemical and biological weapons. The Arab League asked Assad to step down and end the war; he rather pointedly declined. What's next? I think the US would just love to send a message to Iran, so I would be completely unsurprised if we used a few of our new bunker-buster bombs to take out Syria's chemical weapons stores. These bombs are designed to crash through 60 feet of reinforced concrete and detonate up to 200 feet below ground.
The Dubai chief of police said there is an international conspiracy, led by Syria and Iran, to overthrow the gulf Arab states. A few days ago the UAE interior minister said "I had no idea that there is this large number of Muslim Brotherhood in the Gulf states. We are aware that there are groups plotting to overthrow Gulf governments in the long term." The Brotherhood is an Iran and Syrian backed movement that has been very active in Egypt. Is it true, is there a plot? I dunno, but I believe the correct read on this is that the Saudis have successfully paved the road for Israel and the US to "bomb, bomb, bomb, bomb, bomb Iran," as McCain famously sung.
Meanwhile in Iran, the police cracked down on the local equivalent of Starbucks, raiding 87 coffee shops as hotbeds of anti-revolutionary fervor, and banned the eating of chicken in movies and on TV as an act that tends to ignite class warfare. Chicken prices have tripled in Iran under the embargo, and coffee shops are where college kids gather for wi-fi and to discuss crazy college-kid theories of politics. Bottom line: tensions are building up dangerously in the region. Where do we stand? We support Israel, which puts us on the opposite side from Iran; we don't like crazy people getting nukes, which puts us on the opposite side from Iran; and Obama is pretty clearly very close to the Saudi royal family, which puts us on the opposite side from Iran.
The drought in the US continues to get worse, now affecting every state but Maine. West of the Rockies we're used to this, but the drought is near devastating to the plains states - Nebraska, Kansas, Iowa, Missouri, Illinois, Indiana.
CA Governor Jerry "Moonbeam" Brown has revived his unsuccessful 1982 attempt to move more water through the Sacramento delta; this time with a $23b tunnel instead of an aqueduct. The proposed tunnel would allow massive water transfers to Southern CA while not harming salmon and other fish, and would be completed in 2026. Perhaps to be christened as the "Jerry Brown Memorial Hole in the Ground." I expect it will pass this time because LA and the central valley farmers need the water, and CA needs the jobs.
California City Watch - El Monte, another little burg inside of LA, is considering copying NY and putting in place a tax on sugary beverages. They hope to raise $7M / year and shore up their gaping budget holes. Except NY didn't do it to raise money, they wanted to fight childhood obesity. Well, I suppose we all have our own priorities.
Mark's Political Rant: Chick-fil-A restaurants announced that they supported laws defining a marriage as being between a man and a woman only. There was a predictable uprising, with several cities now announcing that they will ban construction of new Chick-fil-A franchises. Now many on the right are trying to turn this into a free speech issue. Personally, I don't really care very much about gay marriage - if gays really think divorce lawyers can improve their lives, go for it. Heck, on present trends pretty soon only gays will be getting married. My rant is about free speech, which has disappeared in this country: we all know the list of words we're not allowed to say.
imho, this is a primary reason for the seemingly unbridgeable divide between democrats and republicans. We're not allowed to speak freely of our differences. Republicans especially have to speak in code words - "crime," "welfare," "food stamps," "healthcare," "teenage birth rate," "education." Everyone on the right knows these words actually mean "race," "race," "race," "race," "race," "race." On the right we all believe multi-generational welfare breaks up the family, and leads to teenage mothers raising children who don't get educated, don't get jobs, and wind in prison or on welfare birthing a next generation that's no different, perhaps worse.
On the left they laugh at us and say all children have the same potential at birth, so if that potential isn't reached it's society's fault. I accept this so long as I get to add one word: it's the "Great Society's fault." Before President Johnson, poor children had fathers. Now the fathers are gone, and predictably the boys have no one to teach them how to be a man. Those on the left tell us that we have a moral obligation to help those less well off. Perhaps this is true, but what's the obligation of those who need never ending multi-generational help? At what point do they have an obligation to only have children they can reasonably expect to raise into productive adults? In most inner cities boys are more likely to be convicted of a felony than graduate from high school. At what point is this fact going to be considered evidence that they too have some culpability?
When Jesse Jackson reports to the NAACP that he was walking down a sidewalk at night in Washington DC, heard footsteps following him, and was terrified until he looked back and saw it was a white guy, when Jesse Jackson reports to the NAACP that "we black people have a problem," at what point does society have a right to discuss and attempt to solve that problem? I'll tell you my answer for today: it's forbidden for whites to discuss this problem, we need to just keep paying for programs that we believe only increase the problem.
The only government program that does successfully address this problem is wide-spread nearly free access to abortion. The Rand Co did a study some 20 years ago, which study has been substantially suppressed, and found that the drop in crime rates was almost completely due to the fact that 13% of our population is black, but 40% of all abortions go to blacks. Hispanic abortions are quickly rising to similar rates. The Rand study concluded that many criminals were being aborted rather than born. Abortion is anathema to most on the right; the only program that's making any real progress is one which we believe violates God's most sacred laws. We, as a society, would rather murder 1,400,000 children every year than simply discuss the idea that welfare programs pay young girls to have babies out of wedlock that they can't afford and don't have the maturity to raise.
When I'm asked to justify my part in this to my Creator, I don't imagine I'm going to have any answers that even I take seriously.
Free speech is the most fundamental right in a democracy, more fundamental even than freedom of religion or freedom to own guns, and we as a nation have thrown this right out. We have thrown out the right to free speech, the fetus, and the bath water, all in one.