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Mark's Market Blog

8-30-15: China yet again

By Mark Lawrence

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China is having a huge celebration this week, so they dumped major money into the markets. Ours went up a bit too. That will be all over soon and we'll resume our descent for a while.

S&P 500 February 28 2014 to August 21 2015

US durable goods orders came out and they were good - up 2%, up 2.2% ex military and aircraft. We're nowhere near a recession. Here in the US on Tuesday the markets dropped at the open; the interesting part was something else: there were huge bid/ask spreads on many items, some 15% or more. Clearly there was a massive liquidity crunch for about 30 minutes, which then mysteriously cleared up. If you're thinking of massively shorting the market, beware of counter-party risk: perhaps they owe you the money, but that doesn't guarantee you'll collect. Unless you're Goldman Sachs and the president of the New York Fed is one of your vice presidents, then you'll collect no matter what. (yah, that really happened. Look up AIG.)

The Shanghai index dropped below 3000, well below the previously defended level of 3500. The Chinese government announced that the state pension fund was now allowed to invest up to 30% of their assets in the stock market. So far, the pension fund has declined the opportunity to reach out and catch the falling knife. China lowered reserve requirements for their banks and lowered interest rates - exactly what got them into this crisis. On Thursday and Friday the government simply bought massive amounts of stock in the last hour of trading, running up the market by 6% and erasing a third of the week's losses. Technical analysts, the stock market analog of palm readers, say the Shanghai composite had to reach a level of 3200 this week to avoid further serious trouble. Were the index to regain 3200 it would signal a return to bull status and likely a climb beyond the previous high of 5178. Failing to regain 3200 indicates a further substantial drop to as low as 2600. We did regain 3200 but it was a fake so I think the sky will continue falling for a time. Since it took us all of two days to drop from 3500 to 3000, I don't imagine a further drop to 2600 should take too awful long. Will that be it? That would wipe out nearly all of the ridiculous gains of the last year, but probably there will be an overshoot in selling, perhaps down to 2000 or so. China is celebrating the end of WW II this week with a huge parade, so they apparently bumped up stock prices a bit. In the lower chart below you can see how the Chinese markets are closed for two hours for lunch, and the last two days they ran up firmly at the end of the day - almost always a sure sign of intervention.

China published a water pollution prevention action plan in April, promising to improve water supplies in the world's most populous country and second largest economy after years of heavy pollution caused by industrial development. One-third of major Chinese river basins and 60 percent of its underground water is contaminated. Speaking at a meeting to discuss the country's efforts so far, vice premier Wang Yang said preventing water pollution remained a "formidable task". "Not only do we need a fundamental change in thinking about development and ways of development, but we also need technological breakthroughs as well as commitment and legal support," he told the meeting on Saturday.

Well, we all saw this coming. The stars of the reality television show "Sister Wives" are using the U.S. Supreme Court's recent same-sex marriage ruling to support their case against Utah's polygamy ban. A lower court found in their favor, and now their case is in appeal. "This case is about criminalization of consensual relations and there are 21st century cases rather than 19th century cases," attorney Jonathan Turley said in the 79-page filing. "It is clear that states can no longer use criminal codes to coerce or punish those who choose to live in consensual but unpopular unions." The Brown family and their 17 children, who formerly lived in Lehi, Utah but now are in Las Vegas, are members of the Apostolic United Brethren, a Utah-based church that follows plural marriage doctrine. The negative to this case: this will legitimize the hundreds of thousands of muslims Obama has taken in and their propensity for polygamy.

Science stuff: Physicists are very confused by the "fine-tuning" problem: it appears our entire universe is balanced on a knife-edge so that it can support life. For example, when we measure the universe although Einstein said it was curved, we find that it's exactly balanced between positive curvature (a sphere) and negative curvature (a horse-saddle). John Wheeler calculated that if the curvature differed from perfectly flat by even one part in a million then for positive curvature the universe would have ended in a Big Crunch only a million years or so after the Big Bang, and for negative curvature within a million years of the Big Bang the matter would be so dispersed that there would be no stars. Others look at different things. Here's a couple graphs I find fascinating. One is of the ratio of the electron mass to the proton mass verses the strength of the electromagnetic force. There's a very narrow band where we could live, and we're near the edge of it. If the electron were any heavier there would be no stable atoms or no stable protons or no stars at all, depending on the electromagnetic force. The second chart compares the strength of the strong force, which holds together the nucleus of the atom, with the electromagnetic force. There's a tiny white band visible near the lower left where chemistry is possible, we're near the edge again. If the strong force were any stronger the would be relativistic atoms (very bad) or unstable protons; if the electromagnetic force were much stronger there would be no stable carbon or no stable atoms. Scientists hate this stuff. All we can think of is either there's a God who turned the knobs and dials just so (no one likes that), or there's some organizing force which makes it come out like this ("Inflation" seems to solve the curvature problem but no one can prove it happened; no one has a clue about the other problems), or there are an infinite number of universes and we're in one of the few that can support life (Carl Sagan: seems like a waste of space).

Joke of the week: Last week I noted that the cheater's web site, Ashley Madison, was hacked and all their accounts posted to the net. Annalee Newlitz analyzed the data and found a lot of suspicious stuff. Nearly all the female accounts were fake, maintained by the company's employees. The hackers published info contained about 31 million accounts apparently belonging to men, and about 5 million apparently belonging to women. But when Newlitz dug deeper, she found three really damning pieces of data: 1) Only 1,492 of the women in the database had ever checked their messages on the site, compared to 20 million men. 2) Only 2,409 of the women had ever used the site's chat function, versus more than 11 million men. 3) Only 9,700 women had ever responded to a message from another person on the site, versus almost 6 million men. It's possible that most of the women signed up but never did anything. Newlitz wrote, "Ashley Madison is a site where tens of millions of men write mail, chat, and spend money for women who aren't there."

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