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Mark's Market Blog

8-9-15: Oil, that is. Black gold. Texas tea.

By Mark Lawrence

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More jobs, unemployment falling, the markets remain flat. We've been treading water all year. Meanwhile much of the rest of the world is slipping into recession, most notably China, Germany, Brazil, Canada. And the Fed is almost certainly going to raise rates next month.

S&P 500 February 10 2014 to August 7 2015

The S&P 500 index is weighted by capitalization - larger companies get more weight. The Guggenheim Equal Weight index (RSP) adds up the prices of the same stocks but without weighting my company size. SPY is up on the year, RSP is down nearly 2% on the year. This bull market has less and less breadth as the big money moves to the largest companies in a flight to safety. This narrowing of breadth has happened several times in the last 50 years, and in every case the markets are lower both one and two years later. Fasten your seat belts, 2016 is shaping up to be a rough ride.

The jobs report came out and was pretty good - 215,000 new jobs, unemployment 5.3%. It's considered all but certain the Fed will raise rates in their next meeting in September. The party is ending, the punch bowl is all but empty and all the guacamole is gone. The markets never nose dive on the first rate rise - there may be a dip but it will be short lived. It's the second or third rate rise that really sends everyone home.

Oil is on the way back down. Saudi Arabia continues to pump oil to maintain market share and keep pressure on US producers; meanwhile US producers are learning quickly how to get more oil out of fewer fracking wells. Arabian bull-headedness v. US ingenuity: an interesting contest.

Greek PMI is falling off a cliff. At this point it's hard to see how Greece will avoid a complete crash - in fact, they're in a deeper crash right now than the US was in the Great Depression. Greece is negotiating another bailout right now, but I guarantee you it won't be enough, not nearly enough.

China's exports fell 9% in July compared to last year. Imports fell 8.6%. China is cutting interest rates to stimulate demand, to make large construction projects more affordable, to support the stock market; but it's not working: the yuan is maintaining a high value which is making their exports unprofitable and uncompetitive. Foreign companies are finding it much more difficult to sell to China both due to reduced demand and increased hostile laws, and are also finding it more profitable to do a lot of their work in Vietnam, Indonesia, Bangladesh, Philippines.

Capital, that is money, is fleeing China at record rates. The Chinese know very well that if things get a lot worse anyone with money might well be at mortal risk. Many of them have significant assets and homes prepared in Canada, the US and other countries.

Meanwhile, Foxconn, with 1.3 million employees the world's largest contract electronics manufacturer, has committed to investing $5 billion to make production facilities in India. Chinese workers are getting too expensive, even for Chinese.

Brazil, the world's seventh largest economy, seems to be slipping into recession. They have companies that run rather fast and furious and there are innumerable reports of bribery, cutting corners, slipshod behavior. They need to clean up their act a bit. HSBC has announced that they're pulling out of Brazil entirely.

And now Germany, the powerhouse of Europe, is experiencing falling industrial production - 1.4% down in June. That leaves Spain as the only growing nation in Europe. When Spain is your engine of growth you're in real trouble - imagine if Alabama and Mississippi were the only two US states that had growing economies.

A lot of my friends are very excited about Elon Musk's giga factory. They like the idea of batteries in houses; you generate solar power from 9am to 3pm, charge up your battery, then live off the battery until tomorrow morning. Yah, but will it work? Here's a sobering number: the entire projected output from Musk's giga factory for a year will store enough electricity to power the US for five minutes. Batteries aren't happening on any large scale. Real engineers talk about pumping water up hills, or heating up special fluids in caves, or compressing a lot of air into caves. There's also been a lot of excitement about converting the US to electric cars. This is also not happening. It takes a lot of voltage and current to give a decent charge to a Tesla in 30 minutes. If you imagine interstate 80 with several hundred charging stations, each charging a couple dozen Tesla-type cars, we're talking about moving energy around at a scale that will certainly lead to Fox-news level tragedies. Remember, the energy you get into your Tesla in about 30 minutes is roughly equivalent to the energy in about 8 gallons of gasoline.

A study done this year by Ohio State U found that the more selfies you take and post, the more narcissistic you are and the more likely to have psychopathic tendencies. Dr. Peggy Drexler said, "It's like looking in the mirror all day long and letting others see you do it."

Can't wait for the next election, an end of Obama, and a return to a republican president? Trump is doing the country a huge favor, in my estimation: he's showing everyone that immigration is the issue for this election. A topic that was previously unspeakable is now the central topic. However, if his ego is as big as I fear he'll run as a third party candidate and, just as Perot threw the election to a Clinton, Trump will throw the election to a Clinton. Meanwhile just as Cadillac, Lincoln and Buick found they were car companies for white haired retired people, so is the republican party as it's currently formulated. Perhaps the next president will be a republican, but republican voters are old and dying. Things will be changing dramatically in the next ten years. And immigration will be a huge part of that change. Of course the guys on Wall Street and in boardrooms are licking their chops over this: the lower classes are poorly informed and easily manipulated by populists, leaving big money unfettered in their goal of buying up every election and law that matters to them.

Bonus table:

Packers Game Schedule
All times EST
Nationally televised        Seen by much of the nation
* Start time and broadcast may shift due to NFL flexible scheduling
WeekDate Day Time OpponentChannel
1 August 13 Thursday 7:30pm at New England Patriots NFL Network
2 August 23 Sunday 1pm At Pittsburgh Steelers NFL 8/23 3am
NFL 8/28 4pm
3 August 29 Saturday 8pm Philadelphia Eagles NFL 8/30 10am
NFL 8/31 8pm
NFL 9/3 3:30pm
4 September 3 Thursday 7pm New Orleans Saints NFL 9/5 8pm
Regular Season
WeekDate Day TimeOppoNentChannel
1 September 13Sunday 1pm At Chicago Bears Fox
2 September 20Sunday 8:30pm Seattle Seahawks NBC
3 September 28Monday 8:30pm Kansas City Chiefs ESPN
4 October 4 Sunday 4:25pm At San Francisco 49Ers Fox
5 October 11 Sunday *1pm St. Louis Rams CBS
6 October 18 Sunday *4:25pm San Diego Chargers CBS
7 October 25 BYE
8 November 1 Sunday *8:30pm At Denver Broncos NBC
9 November 8 Sunday *1pm At Carolina Panthers Fox
10 November 15 Sunday *1pm Detroit Lions Fox
11 November 22 Sunday *1pm At Minnesota Vikings Fox
12 November 26 Thursday 8:30pm Chicago Bears NBC
13 December 3 Thursday 8:25pm At Detroit Lions CBS
14 December 13 Sunday *4:25pm Dallas Cowboys Fox
15 December 20 Sunday *4:05pm At Oakland Raiders Fox
16 December 27 Sunday *4:25pm At Arizona Cardinals Fox
17 January 3 Sunday *1pmMinnesota Vikings Fox

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