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Mark's Market Blog

7-7-13: Central Bankers to the Rescue!

By Mark Lawrence

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It was all about credit this week. Mark Carney, the UK's brand new imported Canadian Central Banker basically said his regime will be in favor of easy money. Super Mario Draghi echoed this, he said European rates will stay low for an extended period. Japan continues to try to set a new world record for printing money. China continues to say their economy needs rebalancing which will require reining in bank loans and raising some rates. And in the US people are getting set for the Fed to roll back easing starting in perhaps September. One way or another, we're all watching bankers.


S&P 500 January 11 2012 to July 5 2013

The velocity of money continues to drop, meaning the money Bernanke is injecting into the system is mostly sitting in bank vaults, mostly of the big 7 banks, instead of circulating and stimulating our economy. The more money Bernanke injects, the more gets locked into vaults and the lower the money velocity drops. Remember, velocity isn't a measurable, it's just a reflection of how much money is sitting around gathering dust. What does "most" mean? 81% of the $2.3 trillion Bernanke has injected since 2008 is now excess reserves. Historically since 1959 banks have never held excess reserves before, they always found something profitable to do with their money - that's their job, after all. This is why velocity is a meaningless concept these days: it has nothing to do with the spending habits of you or me, the investment of GM or GE, the rate of government give-aways. Velocity now pretty much just measures the height of the pile of bonds in the top seven bank vaults.

As the dollar strengthens and other currencies weaken, the US trade deficit predictably continues to grow, last month to $45 billion. If this effect continues (it will), the resulting job losses are going to eventually lead to trade barriers. Now the British pound has been added to the list of currencies declining against the dollar. It seems more and more of the world wants the US consumer to rescue their economies; the US consumer hasn't even rescued ours, imho.

Portugal's finance minister resigned this week, citing disputes over austerity programs. Portugal's stock market promptly dropped 6% and their bonds gained 1.5% in interest rate to over 8%. The rest of Europe didn't do so great either, generally the various EUropean stock markets dropped 2%+. Someone forgot to tell the Portuguese that the European Crisis is Officially Over. (I'm never going to get tired of that. Stupid French.) Meanwhile Eurozone unemployment continues to climb with no end in sight.

You're read here that I think Genetically Engineered (GE) dwarf wheat is poisoning the world, causing epidemic levels of obesity and diabetes. You've read here that GE corn is poisoning America's bee hives, killing 50% of them in the first 5 months of this year. Today more than 90 percent of the corn, wheat, soybeans, cotton, sugar beets and canola planted in the U.S. is derived from seeds genetically engineered by Monsanto and other companies. What's Washington doing to protect us? The so-called Monsanto Protection Act is a provision (officially known as Section 735) within a recently passed Congressional spending bill, H.R. 933, which exempts biotech companies from litigation in regard to the making, selling and distribution of genetically engineered seeds and plants. President Obama signed the bill and its controversial rider into law in March 2013 much to the dismay of environmentalists. It means that Monsanto and other companies that supply the majority of the nation's crop seeds can continue to produce GE products regardless of any potential court orders stating otherwise.

The Treasury department announced this week that Obamacare would be delayed for a year - businesses have until 2015 to insure everyone. This is likely to improve hours worked and employment numbers for the mid-term elections, reserving the mass layoffs and reduction of hundreds of thousands to part time under 30 hours per week until after the elections are over instead of 10 months before the elections. This makes it clear that health care is more important to Obama than jobs. I believe this shows a basic lack of understanding of an economy: when a side effect of divvying up the pie results in less pie for everyone, you have to reconsider your slicing carefully.

Over a million took to the streets in Egypt, protesting their new government's incompetence with the economy and focus on islamic issues. The military issued a warning to president Morsi, find a compromise with the people within 48 hours or they would step in, suspend the new constitution, dissolve congress and install new leadership. Morsi ignored them, more or less saying "over my dead body." An interesting choice of words in that region. The leader of the Army effectively responded, "I'll see you in hell." Anyway, everyone vowed to die before they would budge from their positions. Oil rose on expectation of chaos in Egypt - I dunno why, Egypt has no oil. On Wednesday the 48 hours was up with no apparent changes, so the army deployed men and tanks, took over the state TV station, and announced travel bans on Morsi and his people. The Muslim Brotherhood and Morsi's people immediately called for an insurrection; at least 51 people are now dead and Russian president Putin says Egypt is on the verge of civil war. However, it appears to me that the move to oust Morsi was extremely popular, showing that the Egyptians want a more secular government.

Videos are circulating around the internet of the Syrian rebels, the ones Obama is supporting with arms. In one video a rebel "general" kills a high ranking Syrian army officer, cuts open his chest, pulls out his heart and liver and eats part of them. In another video rebels grab some Syrian Christians and rather bloodily behead them. I don't particularly advise you to watch the videos; in any case there is no decent side here. In my humble opinion we ought stay out and let the animals cull each other. Muslims the world over are making themselves a rather chilling and overwhelming amount of karma; I'm pleased to have nothing to do with this, I'm pleased that I'm not their victim, not their cousin, not their friend, not their judge. I don't envy God his job. Curious that Obama should think these people need automatic weapons, but Americans need to be disarmed. Those who think Obama is a muslim who wishes to further the muslim goal of world conquest should consider how his administration has presided over the destabilization of the muslim world - Libya, Egypt, Lebanon, Palestine, Syria, Iraq, Afghanistan and Pakistan are now effectively ungovernable, and I don't imagine Iran is all that far behind. The Saudis are very aware that they too could be next. Indonesia, already a police state, has been transformed by Obama into a high-tech police state that monitors every email, every phone call of their citizens. It's widely claimed that Obama is a creation of the Saudis, that they paid for his Columbia and Harvard education and shepherded him into politics. If so, the Saudis can't be all that happy right now with their return on investment. I'm no fan of Islam or Sharia, and I don't imagine I could have done much more damage to the muslim world than Obama already has.

Democrats are rallying around the idea that the Keystone pipeline - a pipeline to bring Alberta oil down through the US to the Louisiana oil refineries and ports - is bad because it will lead to cheaper oil and more global warming. Obama has said the pipeline should not be approved unless fears about global warming are addressed. Personally, I'm also afraid for the damage it will do to the indigenous population of pixies and fairies, and I think there should also be a study of the impact on Big Foot. This oil is most certainly going to be extracted, transported and sold. If it continues to be transported to Vancouver there will be continued huge environmental costs involved in shipping the oil to Asia or Los Angeles where it can be refined.

Obama wants states to expand medicaid; this is pretty obviously to help catch some of the 30m+ people that Obamacare will miss. Many states are leery of this as they fear it will result in more state spending and budget deficits. Here's who stand where on this issue:

Just as we already know, republicans and democrats are from different worlds. Republican congressmen, on average, represent districts that are three-quarters white, read that as taxpayers. Democrats represent districts, on average, that are 49% minority.

House prices have now dropped in the US to their long term trend line, another indicator that the housing market should be poised for recovery. Of course just as we got there interest rates are about to go up; it would not be surprising to see prices drop below the trend line for a bit.

Volkswagen showed a prototype hybrid car that has a new .8 liter two cylinder diesel motor and gets 268 miles per gallon. The car goes 0 to 60 in a bit over 12 seconds and has a top speed of 99mph, which means the performance is a lot like a '57 Chevy. As you see it looks a lot like Honda's 1999 all-electric Insight; when you're trying for best fuel mileage, the wind tunnel trumps the designer and everything looks alike. Soon sexy car design will be reduced to paint and colors. No side mirrors - they're a problem for air management - instead there are rear view side cameras and inside video displays. Expect to be driving something like this in ten years or so.

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