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Mark's Market Blog

4-14-13: Gold enters Bear Market Territory

By Mark Lawrence

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The Wall Street Trampoline Ride - up one day, down the very next - ended this week. We're back to the markets moving up. All the signs of a slowdown in the US are growing, this uptrend is completely due, imho, to the various central banks of the world spraying trillions of dollars around. We're already seeing 2% to 3% inflation in the US, depending on who you believe. However, a recession would likely put us right back into deflation.

S&P 500 October 15 2012 to April 12 2013

John Kerry traveled to China to discuss N.Korea. The result? A press release that we agree the situation is to be handled peacefully. Wow. Nothing. I would have done something completely different. I would have told the Chinese, "Ok, this is your client state in your backyard, and you don't like us meddling. I get it. So, you fix this in your own way. If N.Korea still has nukes on January 1 2014, we're going to give nukes to Japan and S.Korea. We believe in a level playing field." My press release would have said, "We agreed that N.Korea is a difficult situation and we all prefer a peaceful solution. There's still some details to work out on how to achieve this. Of course the priority must be that N.Korea gives up their nukes."

Gold dropped below $1500 for the first time in about 18 months. This is being hailed in Washington as proof that they know what they're doing: gold is typically bought as a hedge against bad outcomes, like inflation or even outright collapse. When the price drops it's claimed that this means people aren't as frightened, they accept that things are going ok. Is it true, are things going ok? In the US, kinda sorta. In China that's a big maybe. In Europe, not even close. It's to be remembered that the percentage of the US population that's employed is at a 30 year low and dropping, wages continue to drop, companies are getting set to put many employees on 28 hour weeks to avoid Obamacare. The theory apparently is that you can pay half your population to just hang around, cause trouble and breed, and the market will keep going because the other half are still doing well. Many of us on both sides of the aisle have deep concerns about this idea. But in any case, gold is dropping and looks to drop more. In fact a couple weeks ago we had a "death cross" on gold, where the 50 day average dropped under the 200 day average, and gold is down 20% from the recent high; both are strong indicators of a bear market.

There's this really kewl digital money, BitCoins. I'm not sure what it's for - there's very few places you can spend these things. But they're very secure much more so than any existing currency. If you ever could spend them wildly, the governments would quickly outlaw them. Any way, Bitcoins have had the most well documented bubble and crash in the history of the world - we have records of all the trades, everything. This is going to be the topic of economics master's theses for years. Several years ago you could buy these things for 20¢. At their peak they were worth $266, an increase of 130,000%. You could have turned $1000 into $1.3 million. There was some real money to be made here if you entered early and exited at just the right instant.

Billionaires are popping up all over the world. 20 years ago a book was published, The Bell Curve, that shocked the world. One of the central claims of the book was that SATs and GREs are just thinly disguised IQ tests. The cognitive elite were being siphoned off from the rest of the world and funneled into our top universities - the Ivy League and a few on the West Coast - where they met and married other members of the cognitive elite, dramatically raising the IQ of their children at the expense of America's heartland. A new study from Jonathan Wai, research scientist at Duke University, finds a strong correlation between brainpower and success - especially wealth. As the study states: "the top one percent in wealth highly overlaps with the top one percent in brains." About 45 percent of billionaires are in the top one percent of cognitive ability. Billionaires were generally smarter than Fortune 500 CEOs, where 38.6 percent were in the top 1 percent of brains. Senators ranked just above that, with 41 percent, along with federal judges 41 percent. Members of the House were less smart, with 21 percent. (The smartest sub group of the American rich and powerful are male Senate Democrats). Even among billionaires, however, there are wide variations in brainpower. Billionaires who made their fortunes from investments and technology were far more likely to be in the top one percent of brains; 69 percent and 63 percent of them were brain-one-percenters. Billionaires who made their money in fashion and retail, as well as food and beverage, were less brainy: with 25 percent and 23 percent of them in the brain elite, respectively. Here's the top ten universities for producing billionaires, you should go back in time and attend one of them: (Annoyingly, my alma mater didn't make the list.)

SchoolNumber of billionaire alumniTotal wealth
University of Cambridge 11 $48 billion
Yale University 13 $77 billion
University of Southern California 14 $32 billion
Cornell University 14 $35 billion
Massachusetts Institute of Technology 15 $114 billion
Columbia University 15 $96 billion
New York University 17 $68 billion
Stanford University 27 $76 billion
University of Pennsylvania 28 $112 billion
Harvard University 52 $205 billion

On the topic of schools, student debt continues to skyrocket, delinquencies run ever higher, the government says they're discontinuing some of the student loan programs with the worst records. We're nearly up to $1 trillion in outstanding student debt. Our youth are expected to pay off a trillion dollars, pay for our social security and medicare, and pay for their own families. I'd move. And I'm certainly not basing my retirement on federal programs. Here's the states with the highest levels of debt. Almost all strong Obama states - when this crashes, you can certainly expect a bailout.

Fortune 500 companies are reporting record profits. How? By outsourcing work to 3rd world countries, by automating, by laying off more and more people. Walmart is growing every year and has 120,000 fewer employees this year than last year. Can we really have a healthy economy where the bottom half of our population has essentially no money and little economic influence? Well, whatever you might think, we're going to find out. The percent of unemployed Americans is back to where it was in the 70's, when women hadn't really entered the work force. Wages as a percentage of GDP has been dropping for 40 years. And corporate profits are setting records. It just seems to make more economic sense to build a few high margin Corvettes and Escalades than a whole mess of low profit Fiestas or Aveos. Henry Ford famously paid his workers enough that they could afford a Model A; those days are long gone.

Maryland is a heavily democratic state now, with a democrat governor and the democrats having majorities in both houses. The result? Some of the nation's most strict gun laws just went into effect, so just as PTR and Colt say they're leaving Connecticut, Berretta says they expect to leave Maryland, each taking several hundred jobs with them. And now a new "rain tax" tax on roofs and driveways. Democrats think everyone should live in apartments in cities and work in skyscrapers, this is a clear attack on whites living in the suburbs. They say they'll measure square feet from satellite photos and send you a bill. The average householder is expected to pay about $100 per year. Much higher taxes for owners of suburban malls or industrial parks. The democrats say they hope this will lead to more grassy areas that absorb rain and less concrete and asphalt that produces runoff. Personally, I see this as just the next step in the ongoing forced urbanization of America.

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