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Mark's Market Blog

8-12-12: Drought.

By Mark Lawrence

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Europe is on their August vacation, America is preoccupied with re-electing Obama, and China is carefully sweeping all their problems under a gorgeous Asian rug. Not much news this week, and the markets traded sideways on very light volume. What's next? I don't think anything major will happen for the rest of the month. However, the market is nibbling at the upper line of its current trading channel (blue lines below), acting a bit like it would like to break out to the upside. We'll see.


S&P 500 February 18 2012 to August 10 2012

Wade Page, a 40 year old cretinous carbuncle of mankind, walked into a Milwaukee area Sikh temple and killed six, then was himself killed by police. This is reprehensible and insanely idiotic. Sikhs are the guys who don't cut their hair or shave their beards and wear turbans. The Sikh religion numbers about 27 million adherents making it about double the size of Judaism. Sikhism was formed about 500 years ago by Guru Nanak in an area called the Punjab, a wheat and grain belt not unlike the US plains which straddles the Pakistan and Indian borders, with Hindus to the east and Muslims to the west. Sikhism is sometimes viewed as a compromise religion - they believe in one God, creator of all, just as Islam does; they also believe in reincarnation and personal progression over many lifetimes just as the Hindus do. Sikhs are a non-violent people, generally vegetarians, born of hard working farmer stock. When the British ruled India they turned to Sikhs for many of their bureaucrats because Sikhs got the job done; indeed today the prime minister of India is a Sikh. My immediate business neighbors are Sikhs, and the veterinarians who care for my dogs are Sikhs. I could easily be a Sikh - I agree with most of their doctrine - but for one practice: Sikhs awake, bath and pray before sunrise. What I have to say before dawn God doesn't want to hear. In all honesty I don't really care for hats either. For all of their history Sikhs have been persecuted by Muslims, and their view of the Islam religion is reasonably compatible with mine: quite critical. Mr. Page, a heavily armed micro-cephalic idiot who obviously mistook these very decent people for muslims, will, according to the beliefs of Sikhs and myself, reap the consequences of his heinous choice for many lifetimes to come. Take away: learn something before you go off killing people indiscriminately. Try to get actual bad guys who are, for example, wiring up bombs as you shoot them. Some of my liberal friends tell me that no one should ever get shot in any temple. Perhaps that's true, but I have a lot less concern for muslims who have spent the last 25 years spreading terror and death around the world, and continue to threaten each other, every Jew, and America, "The Great Satan."

Israeli Prime Minister Benjamin Netanyahu said on Sunday "Iran must not be permitted to obtain nuclear weapons." The Israeli government is testing a new system this week to send text messages to all Israeli citizens warning of incoming missiles. In a country the size of Israel I have no idea where you would go or what you would do in your presumptive 8 last minutes or so. Netanyahu would like to do a preemptive strike on Iran; Obama wants Israel to wait indefinitely, and definitely doesn't want anything major stirred up before the election.

World Food Watch: Josť Graziano da Silva, the director-general of the UN's Food and Agricultural Organization, wrote in the Financial Times newspaper that competition for a US corn crop that has been decimated by drought was only going to intensify. "Much of the reduced crop will be claimed by biofuel production in line with US federal mandates, leaving even less for food and feed markets," he wrote. "An immediate, temporary suspension of that mandate would give some respite to the market and allow more of the crop to be channeled towards food and feed uses." Under the five year old Renewable Fuels Standard, US fuel companies are required to ensure that 9 percent of their gasoline pools are made up of ethanol this year, which means converting some 40 percent of the corn crop into the biofuel. The crop isn't in yet, but many are estimating that the drought will cost us 20% of our total production. As late as June of this year the USDA was projecting a record harvest - no one was prepared for this weather.

Italian PM Mario Monti was basically appointed to his job by the EU when they got sick of the elected Italian PM Silvio Berlusconi. Now Monti is taking on Germany. He says, correctly, that the bailouts to date have been at the cost to everyone in Europe, but primarily to the benefit of French and German banks; therefore the cost to Italy has been much higher than the cost to Germany, who derived a substantial benefit. He also correctly says it is because of perceived risk of collapse of the Euro that Germany's interest rates are so low and Italy's so high. So he says that he wants European authorities to intervene to keep interest rates much closer; else he predicts that in the next election, this coming April, Italy will likely elect a government far less friendly to the EU. Germany's plan, that all other countries must cut their budget deficits and become more like Germany, is wearing very thin in Europe.

The CA city of Fullerton is considering disbanding their police department and contracting with the local Sheriffs to patrol the city. "When a police union puts heavy demands on your city's finances, you have to be willing to look elsewhere," Councilman Travis Kiger said. "If you're not willing to look outside, you're not really negotiating with your union." Any change, however, would take time. The existing police union contract runs through 2014, with a one-year option for the union to renew.

The city of Bell is back in the news. Their previous city manager, Robert Rizzo, is in jail now for fraud. Shortly after that scandal broke, their police chief Randy Adams resigned his job; he was making $770,046 per year in total compensation. He now says he never agreed to be fired and deserves severance pay on top of his $264,000 per year Calpers retirement. Randy was hired in 2008 and resigned in 2010, his 25 year+ pension reflects two years of service to Bell.

Election Watch 1: The Senate is currently looking like a 50-50 split between republicans and democrats, meaning Joe Biden will have an actual job to do: sit in the Senate and break ties as the president of the Senate. We Americans do seem to like our government split. Perhaps this reflects a desire for compromise; unfortunately the electorate seems to be about 85% made up of voters who refuse discussion or compromise, and our government reflects that split. Voltaire famously said "Perfect is the enemy of the good." That's where the voters' have their heads, focused clearly and unwaveringly on the "perfect."

Election Watch 2: As I'm sure you know, I consider Obama all but a shoe-in to win re-election. So what is this election about? Saturday Mitt Romney picked Paul Ryan as his vice president. Now we know what the election is about, and it's very important in my mind. Paul Ryan, a young congressman from Wisconsin, has proposed a balanced budget - not an amendment that promises to balance the budget but doesn't say how it will happen, but an actual long-term balanced budget. Everyone who has looked into this knows how this must work: taxes must go up, and they have to go up on the middle class in addition to the rich. Benefits must be cut back, especially medicare and medicaid and to a slightly lesser extent social security. Medical costs must be reined in. Military spending must decrease. Government must shrink. The argument cannot be over whether these things happen, but rather over the details of the mix. And opinions like "taxes can't go up" or "medicare can't be touched" equal failure. Paul Ryan has made a concrete proposal about how to do it and get there. You may not like his proposal - I have serious problems with it - but he's willing to talk about the real issues and propose a real solution. If this election brings this issue before the electorate and people start talking about how this must happen, then this election will have accomplished something very important.


Paul Ryan's favorite graph illustrating the difference between our current budget and his "path to prosperity."


It's medicare costs that will bankrupt the government, that's where our focus needs to be.

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