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Monday, December 15, 2014

A FEW THINGS ABOUT THE ECONOMY THAT WILL SURPRISE YOU

I want the USA and World economy to crash, down, say, to a Dow Jones Industrial Average of 12,000  (it touched 18,000 earlier this month).  This has nothing to do with my less than vast economic expertise, nor occasional doomsday predilections.  Why, then?
  • I got out of the stock market a year ago, feeling that a severe drop was coming.
    • The Dow reached a record high of 16,577 on the last day of last year.
    • The jump was 27% for the year, the largest annual increase since 1996.
    • NASDAQ closed at the end of the year at its highest level in 13 years, jumping 38% for the year.
  • Well, I was wrong, as the Dow kept increasing...until this past week.  It is at 17,213, down 67 for the day, at the time of this writing.
  • But, I still think a devastating fall is coming, perhaps next year.
  • Only then will I return.
  • Oh, I might add that I also wanted this drop because the apartment I donated to the University of Hawaii will provide an endowment that depends on the performance of the stock market, not unlike any personal investment.  It is still for sale, and I hope won't sell until the market tanks.
I normally try to post a positive Monday message, but the following from Tanzina Vega of the New York Times is also ominous:
  • The wealth gap between minorities and whites has increased.  This means there could be more street protests and violence.  For example:
    • Average median net worth of white households in 2013 was $141,900
    • For black households--$11,000
    • The factor is 14.
    • By the way, this factor in 1989 was 17, so it has been worse in the past.
  • In 2007, it was white $192,500 and black $19,200, or a factor of 10.  What the article did not even comment on was that both have significantly DROPPED....DROPPED over the past six years.  Hispanic?  2007 = $23,000 and 2013 = $13,700, also a crushing drop.
  • The median net worth of households was $135,700 in 2007, sunk to $82,300 in 2010 and even further to $81,400 last year.
Call it the recession, or whatever you want, but our lifestyle is continuing to fall.  Here are a few graphs worthy of your note from Business Insider:

And if you think your personal income tax rate is too high...WE ARE AT THE LOWEST LEVEL IN 30 YEARS:


Anyway, why are  our stocks doing relatively well?  The World at large, for one, is doing much worse.  The Russian ruble has plunged to a record low against the U.S. dollar, 66 rubles to the U.S. dollar.  Their stock market is collapsing and inflation has hit 10%.



Today, France's CAC lost 2.5%, Germany's DAX dropped 2.7% and UK's FTSE down 1.9%.  Last week the Euro Stoxx 50 sunk 6%, the biggest drop since August 2011.  Certainly, Europe continues to be a basket case, and Greece, Italy and a few other counties are on the verge of bankruptcy.

However, China's stock market is 30% higher for the year.  Is this good for them?  Foreign investment this past year has actually declined.  There is a fear that the Chinese market is dangerously manic.  If I had any Chinese stock, I would most definitely take out my money as soon as possible.

Japan?  Prime Minister Shinzo Abe won in a landslide yesterday.  As I reported two weeks ago when I was in Japan, though, this means nothing, as all the opposition parties, and there are far too many of them, are in disarray.  Voter turnout was at an all-time low in Japan.  His Liberal Democratic Party (which is the equivalent of the Republican Party in the U.S.) now has an additional four years to further sink the country, as he will continue to piss off China and South Korea, spend more on their military and activate as many nuclear power plants as possible, while downplaying the danger of Fukushima.  Just before he gets kicked out in a year and a half he will, though, increase the sales tax from 8% to 10%, for that is the nature of Japanese prime ministers.  They commit political hare-kiri for the good of the country.  Since 2007, when Abe served his first term as PM, there have been seven, seven, prime ministers.  That's one a year.  By any current measure, Prime Minister Abe, actually, is a political miracle for staying in office for as long as he has.

Japan's Nikkei is at less than half of what it was in 1989, and, in fact, when you consider the real cost of money, the market was 73,000 in 1989 and is at 17,000 today, a factor of four less now.  Mind you, the Nikkei dropped down close to 8,000 after the debacle of Fukushima, so one can say that Abenomics doubled the value of the stock market, which remains at 25% of what it was at peak.  Like the ruble, the Japanese yen has weakened, from less than 80 yen to the dollar two years ago to close to 120 today.

Finally, you would think that the sinking price of oil would boost many markets, but just the opposite is occurring.  Today, U.S. crude fell below $56/barrel.  The nose-dive has been close to a halving since June.


In closing, the U.S. average price of gasoline is approaching $2.50/gallon.  Why aren't airline ticket prices declining?  Senator Chuck Schumer has called for a probe.  Airlines are saying this is not collusion, but just good business sense.  Hey, this is is the USA!  We have a free market, which is doing fabulously well today.

I had a sunset dinner tonight on my lanai, and the view was breathtaking:


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