The Patrician Blog

Patrician Economic Report: November 2009

Sun, 15 Nov 2009 10:56:00 -0500

Well, November has come, and with it, the Patrician Economic Report for the penultimate month of the decade.

Not much has changed since one month ago, when the Dow was over 10 000 and the S&P 500 was at 1100. Between then and now, there has been a 6.5 percent downturn, which was promptly met with a spike back to 1100, which has since stalled back down to 1090.

The Dow has hit a new high of over 10 300, but the S&P 500, which is a broader measure of the market, has only briefly cracked the old high of 1101, to hit 1105, before sinking back down.

On the 1-year chart, you can notice that since the July rally, each successive phase of the market trend has become more volatile, with bigger swings up and down over time.

However, I believe that the trend belies a market and economic condition which is much worse than it appears. First of all, here is a 2-and-a-half month chart of the S&P 500, with volume (the amount of shares traded) being shown at the bottom of the chart:

Notice that volume is heavier on the downturns, and lighter on the upturns. This implies that when trading activity is vigorous, there is selling pressure on the index. This is not a good sign. Anemic volume on the upside and heavy volume on the downside indicates that the uptrend is, for lack of a better term, a farce, and thus not sustainable once heavier volume kicks in (and it inevitably will at some point).

This is also how all previous bear market rallies have ended -- heavy volume at the beginning, waning volume at the peak, and heavy volume taking it back down. And yes, we are still in a bear market, at least until the current rally has proven itself to be a real bull market, which it cannot do in a mere 9 months.

Secondly, there is the matter of unemployment. The official rate as reported by BLS (the U3 rate) is 10.2 percent. Yes, it has finally cracked that "10 percent" threshold every American has talked about.

However, as I have outlined previously, the U3 rate is a very inaccurate picture of the jobs situation. It excludes discouraged workers, and others "marginally attached to the labor force", who are in fact unemployed (i.e. out of a job).

If we include these people, the rate has been over 10 percent for months. In fact, the October statistics show that this rate (which is recorded as the U5 rate) is now at 11.3 percent, and has been rising for 15 months, adding a full half percentage point from September to October.

But the situation is even worse than this, if the underemployed are included in the unemployment rate (which they were from 1949-1994) to compare apples to apples. If the people working part-time for economic reasons, those who are considered not in the labor force but want a job now and cannot find one are included along with the truly unemployed, the October figure shoots up to 20.9 percent, unchanged from last month.

The underemployment rate may be unchanged, but the real unemployment rate is worsening quickly, signaling an economy which is far weaker than it appears, despite the fact that government GDP data showed a rise of 3.5 percent in Q3 2009, confirming the "third quarter recovery" stock traders were looking for. However, if the number is adjusted for real inflation (an underestimation of 2.7 percent), and government spending (cash for clunkers and other stimuli) is taken out, then Q3 GDP was, in fact, essentially flat.

Lastly, a check on September's inflationary factors:

- Stock market continuing a rabid runup with no supporting facts. Maybe (stocks have stalled)
- Doubling of the money supply. Check.
- Gold continuing to rise. Check (new record high of 1120)
- Commodities in general shooting up. Check (though at less of a pace)
- Weaker dollar. Check (still on verge of new low)
- Higher inflation. Check (inflation is accelerating)

So basically, all is mostly as it was in October. The next report, the last of the decade, will come in December.

80 Years Later: Commentary on the Crash of 1929

Fri, 30 Oct 2009 09:33:00 -0500

This blog entry has been copied from Franklin County, Update 239: Solemn Anniversary

As you should know, we are now entering the ninth decade after the Stock Market Crash of 1929. 80 years has passed since those fateful two days -- October 28 and 29, 1929. The crash is often seen as representing the initial cause of the Great Depression, but it was more of a symptom of underlying problems rather than the cause of them.

Regardless of the cause of the crash, it heralded the greatest economic downturn the American economy would ever face, being comparable only to the Depression of 1837, which occured 92 years earlier. The political and economic leaders, with the notable exception of the Austrian school, thought the crisis was over after the crash, which had taken the stock market down by more than 40 percent by December, had stabilized. In the Spring of 1930 Hoover and his compatriots saw bettering data on the economy signaling a recovery, and a stock market which had undergone a monster rally of 50 percent from the lows.

Alas, it would only last 6 months. The rally peaked by June, and from there it was a nearly non-stop downward slide from 279 on the Dow, to 41 by the Spring of 1932. This was the deepest bear market in stock market history, taking stocks down by 89 percent.

The economy was not much better. Throughout the early 1930's, the economy continued a self-sustaining vicious circle leading to bankruptcy, unemployment, shuddering of production, and plummeting GDP. By 1933, the unemployment rate stood at a staggering 25 percent, with the rate of underemployment being above 40 percent.

The economy had contracted by over a quarter, marking the most severe depression on record. By 1932 the downturn has been dubbed "the Great Depression". All hope seemed lost, but the bottom was near. 1932 saw a lessening of the decline while the people loathed the current president, Herbert Hoover.

In November 1932 Franklin Roosevent was elected President, and promised a "New Deal" for the American people. The Hundred Days after his inauguration in March witnessed the enaction of a multitude of government programs, dubbed the "alphabet soup". The programs spanned the spectrum from fascist to socialist to capitalist, but they got the economy running a modest uptick in 1933.

By 1934, the unemployment began to ease as government payrolls, created by the new programs, swelled with new workers. Infrastructure construction was at an all-time high -- Americans were building the greatest infrastructure to have ever existed, laying the groundwork for the future, sustaining the recovery until 1937.

In 1937, with public works booming, and with deficit spending easing, the economy contracted, and unemployment shot up again, heralding what would be dubbed "the Recession of 1937", due to the fact that the governemnt did not want to frighten the populace with another depression call. The term has stuck to this day to describe downturns. By 1939, ten years after the Crash, recovery had begun to take hold once and for all.

This recovery was drastically accelerated as the Second World War reached the United States. Wartime production in factories propelled GDP to new heights. By 1945 production was so vigorous that one new naval vessel was being built every 10 hours. In September, the war ended, but it would take until 1947 for the effects on the world brought by the war to return to normalcy. When they did, it caused a stagnation in the economy, exacerbated by the Recession of 1949.

In 1952, a full 23 years after the Crash, the United States had reached full employment, and economic growth was over 15 percent. In 1954, 25 years after it happened, the Dow Jones Industrial Average had finally eclipsed the 1929 peak. This was the boom of the 1950's, but it took place in a nation and a planet which had been changed forever by the Depression.

Such a world-changing event was forecasted only by a few who were not heeded, and became apparent only on those two fateful days -- October 28 and 29, 1929.

Can such an event happen again? Evidence suggests that it has happened again, in our very own depression, the Depression of 2008, which we are now living through. 2008 involved the collapse of a credit boom greater than that of the 1920's, which became apparent only in a large crash, the Crash of 2008, which exacerbated the problem. In March of 2009, we started our own monster rally, which has so far taken the stock market 60 percent higher from the lows. Economic data is improving, feeding the beast of stocks. This crash also took place in a deflationary environment, with commodity prices collapsing.

There is only one crucial difference -- government intervention. The government since the crash has devoted 23.5 trillion dollars to prop up the markets, buying its own debt, buying mortgage-backed securities, lowering interest rates to zero, and giving bailout after bailout to failing companies.

This has averted our Depression from becoming a Great Depression. However, the 23.5 trillion was paid for by debt, most of it purchased by the Federal Reserve. The Federal Reserve has doubled the money supply to finance this 23 trillion, and excess reserves in banks are humongous. This money, once it has begun to be lent out when the recovery begins, will flood the economy with dollars, devaluing the currency, and causing rampant inflation.

The US could as a result of this endure a hyperinflationary collapse of the currency, economy, and markets which would be multiple times worse than in the 1930's. In this case, the cure may be worse than the disease. Such collapses have happened in the past, incredibly rapid from the original impetus, not more than 4 years. This gives a date of early 2013 at the latest for this collapse to occur.

In this case, the US will have to endure another, even worse Great Depression. Whether this will happen or not, what the effects will be, and what will come out of the crisis, only time will tell.

Taking Advantage of the Windows 7 Upgrade Offer

Fri, 30 Oct 2009 09:33:00 -0500

Well, Windows 7 has been released, and it is a hit, and has garnered good reviews. Upon looking at the list of features included, I think I'd like it as well.

Perhaps the last side effect of my own technological debacle, in which I had to purchase a new laptop, is connected to this event. With the purchase of my Toshiba Satellite L505D-S5965, I got an offer for a free Windows 7 upgrade to my system.

I decided to wait on taking advantage of this until Windows 7 came out and any issues lurking with it could be reported. Now that it's been 3 days, I believe the window has passed for reporting major issues with the system, and it is also compatible with Simcity 4 (as Microsoft CEO Balmer broadly promised), thus I have sent out the required information to get my copy of Windows 7.

I probably will not upgrade my computers as soon as I get it, but I would like to have a copy around in case I do decide to go through with an upgrade.

That's my tale of Windows 7, and feel free to share yours in the comments column.

Dow 10 000: Why It Means Nothing, but Signals Something

Thu, 15 Oct 2009 11:51:00 -0500

"Dow 10,000!"
- Various commenters and traders

Well, well, the Dow has crossed 10 000 for the first time in 377 days. The bulls are partying just like they did on March 29, 1999, 2 hours past noon, when the closing bell rang on wall street and the big number had five digits for the first time in history.

From then to now, a span of 3 852 days, the Dow is precisely at the same level, 10 000. How is this a cause for celebration and jubilance? This environment in the market is perhaps the most irrational in all of history, exemplified by this -- celebrating that over 10 and a half years, they made absolutely zero dollars if they invested in the Dow (or the S&P for that matter, and they would have lost money if they had the Nasdaq).

Sure, it is an important psychological tick mark on the chart, but what is the difference between 9900 and 10 000? A mere 1 percent.This is no more significant as if it went from 9300 to 9400, or from 9800 to 9700. Simply put, Dow 10 000 does not matter to an objective observer.

Dow 10 000 does matter, of course, to an observer that is not objective, like pretty much every single trader of stocks. Dow 10 000 is providing a morale boost to the weary bulls, and may trigger, as it did with S&P 1000 and Nasdaq 2000, a temporary spike in stock prices.

The rally looks like it is losing momentum and is topping out, but this circumstance may be temporarily defrayed by the tick above 10 000. Do not be fooled by this psychological booster. Expectations will (and already are) being raised to improbable heights, for earnings, economic growth, and stock market performance, and I do not believe they will be met.

If these are not met, then expect a downturn, be it in the form of an agonizing trickle or a terrorizing crash. The pattern for the rally is suspect, and it still does not feel right to me, whether the Dow is 4 digits or 5 digits.

Also, the celebration of zero returns is misleading. If you look at prices over the past 10 and a half years, even with BLS numbers, you now have 26 percent less purchasing power with 10 000 than you had back then. If you correct for distortions in the method of calculation (which push inflation measures lower), then your return from March 29, 1999 to today would be a whopping negative 50 percent.

Hardly a cause for celebration. Meanwhile, if you had invested in gold, your return would be, even after adjusting for inflation, over 450 percent. If you had invested in oil, your return would be 350 percent (or if you had cashed out at the 2008 high, 830 percent). If you had invested in the Euro against the Dollar, your return would be around 20 percent. Compare this to negative 50 percent for stocks, and you get a picture of the bleak situation the traders face even in this euphoric atmosphere.

In conclusion, expect a spike due to a temporary euphoria about Dow 10 000, but after ice-cold seawater is thrown on the euphoria when data disappoints, expect stocks to go much lower.

Sign up for Proculian Cabinet Candidacy Here

Wed, 14 Oct 2009 22:13:00 -0500

If you wish to sign up as a candidate for the November 2009 Proculian Cabinet election, please do so here by leaving a comment. You can find more information here in the FC city journal. Before signing, you may also like to take a look at the Proculian Consitution here.

Patrician Economic Report: October 2009

Sun, 11 Oct 2009 21:18:00 -0500

Well, well. October, the month when every single major stock market crash has occured, is here. While I'm not suggesting there will be one this October, this October marks a solemn anniversary -- that of the Crash of 2008.

One year ago today, on October 11, the reality was just sinking in of the crash and associated economic depression, and the fact that the Dow was then at 8400, after plummeting earlier in the morning to 7882.51, only to rise above 8900 in the afternoon, the first such 1000+ point trading range in Dow history.

But in reality points do not matter very much. They may make good headlines, but what is behind the numbers is what is real. What was behind them then was an ongoing financial crisis along with a depression.

Why use the term depression? For one thing, the American economy is depressed, but most importantly, the losses in GDP, after accounting for BLS's underestimates of inflation (see earlier articles for more info), the total decline from Q4 2007 to Q2 2009 is 12 percent, well above the 10 percent threshold many economists use to denote a depression. But it is by no means a great depression, at least not yet. A reasonable definition of that would be a decline of >20 percent, which has only occured twice -- the Depressions of 1837 and 1929, with the 1929 one being the more severe of the two.

However, as far as the stock traders are concerned, they may as well be saying "Damn reality -- full speed ahead". They have said this with the 60 percent rally which has occured since March. Here is a chart of the S&P 500 over the past year:

It just so happens that a 6 percent drop occured just after my rather pessimistic economic report, only to rebound later near the highs. Some traders are concerned that this will be a double-top, but most just dismiss it as a downward blip, having blind and full faith that the nebulous, mystical, ambiguous "money on the sidelines" will come in and feed the irrational exuberance that is this little bull market.

Sure, there is money that is not being put to use sitting around that was pulled out in the crash time (2008-09-15 to 2009-03-09). But what matters is not its existence, what matters is the owners of the money. Still cautious, they are still putting this money to use. But it is not predominately in the stock market -- they are putting it into 2 classes of investments -- bonds and gold.

In case you had not noticed, gold has recently hit a record-high dollar price, breaking 1040 per ounce. This breaks a major resistance level, and paves the way for further gains, at least in the short-term. Keep in mind that gold may correct as part of the normal process of continuing a long-term uptrend. Below is a 5-year chart:

The unemployment report was also released by the BLS earlier in the month, and U3 unemployment rate increased to 9.8%, and payroll losses were much worse than expected. However, the U3 rate is a flawed statistic, in that it excludes those unemployed who are discouraged and those employed part-time for economic reasons, which was included in the statistics prior to the 1990's.

Therefore it gives a distorted reading of today compared to the past, and today compared to today. The U6 rate, buried in the BLS tables, shows a slight decrease to 16.1 percent, a far cry from the golden years of the bull market.

Also, if you add in those who are "not in the labor force but want a job now", at least some of whom may be actual unemployed, the rate spikes up to 19.8 percent, unchanged from last month, and showing only a 0.3 percent improvement from July. While this statistic may be a bit distorted, due to some of those people not being actual unemployed, it is nevertheless an important part of this economic puzzle.

Finally, if the seasonally-adjusted measurements from BLS are used (and I'm not vouching for the validity of the adjustments), then the employment situation actually worsened by about 0.2% since last month, putting the U6 rate at 17.0 percent, and the U6 + not in labor force but want job now rate to 20.9 percent.

If you use the U6 measurements, which were used in the 1980's recessions (the ones this labor market is constantly being compared to), then this labor situation is far worse (a good 5-10 percent), and constituted the worst employment situation since the Great Depression. Back then unemployment stood at 25 percent, which is worse than it is now regardless of what statistic you use. Now it stands at around 16 percent.

This assessment is also backed up by another statistic, the amount of job openings avaliable, which have sunk by 2.7 million, or put another way, cut in half, since their 2007 peak, making it the worst decline since the Great Depression.

The scenario that I have outlined in the last report seems to be still playing out. Remember the six points I outlined in my scenario. Let's do a checklist:

- Stock market continuing a rabid runup with no supporting facts. Check.
- Doubling of the money supply. Check.
- Gold continuing to rise. Check (record high)
- Commodities in general shooting up. Check
- Weaker dollar. Check (on verge of new low)
- Higher inflation. Check (inflation is accelerating)

The points outlined above are the points indicative of an inflationary spiral, which will eventually (<5 years) produce a downturn on its own. With the runup in the money supply, inflation accelerating (in what would ordinarily be a deflationary environment), and the gold indicator showing a red flag, as well as a stock market rally, the "cure" in this depression will be worse than what it was trying to treat in the first place (the depression).

GDP was also revised upwards for Q2 2009 to -0.7 percent. Adjusting for actual inflation that figure is more like -3.4 percent. A modest "less-bad" case, but still there is no growth, and as Robert Reich has pointed out, there is nowhere the growth will come from. Due to the Americans putting themselves in a corner with 70 percent of the economy being consumer spending, unemployment will continue to push GDP down for a long time to come. Think -- if you have no job, you don't spend much, do you?

Also consider that Q3 2009 GDP will be coming out in a few weeks. If the so-called "second-half recovery" does not materialize, I expect that the market will be in for a major downturn. Expectations are now so high for growth that it would be easy to disappoint them.

Lastly, I would like to point out that the terms and attitudes being bandied about now are eerily reminiscent of 1930. Just do a google news search for "economic depression" for 1930, and see for yourself. This concerns me significantly, especially after reading the very cautious and tentative rhetoric being used in 1932, the bottom of the downturn.

The next report, barring a traditional October crash, will be in November.

Executive's Statement on the Formation of Conservative Party

Tue, 06 Oct 2009 09:19:00 -0500

For more information, see the associated Franklin County update

Executive Patricius Maximus, in a regular press conference today, was asked by a reporter about the new establishment of a Conservative Party in Franklin. Below is the excerpt from the conference, including the question after the new party:

REPORTER: Mr. Executive, we have recieved a statement from the meeting of Assemblymen and other citizens in the LIH condominiums, saying that a Conservative Party had formed, and also that 3 Assemblymen are now members. What do you think of this development?

EXECUTIVE: I have read their statement... and what do I think of it? I think it is a development that should have been accepted. Franklin has now had 3 years of extensive settlement, and we definently have principles that most of us adhere to, expressed most famously in our Constitution. Since we do have them, it naturally follows that people who would be, likely scared of potential necessitated change in our state structure or our culture, would band together and form a party to advance those aims. I am obviously not a conservative, and take on the label of liberal, so I really don't agree with them. However, I believe the more debate we have, the better. I wouldn't mind debating with communists or fascists, if they had seats in the Assembly, although I am certainly not either. In any event, next June the people of their districts will decide who they want to be as their Assemblyman. Next question.

REPORTER: Uh, yes. I would like to call attention to the Lou Damato case. There have been two headlines -- one, that the recall petition has been certified by the Judiciary, and two, that the grand jury has referred his case to trial. What is your opinion?

EXECUTIVE: Well, the people of his district have decided they don't want him, and I respect his case. I also agree with the grand jury's decision, and await the verdict.

Economic Report for September 2009: Infamous Anniversary, Inflation, and Irrational Exuberance

Wed, 16 Sep 2009 14:51:00 -0500

Patricius Maximus here. After a longer-than-expected 40+ day absence, I finally have the time and information for a new edition of my economic report (which has so far failed to garner a single comment (oh well...)). Over the past month I've had my own technological debacle (see Franklin County for more information), and I have been trying to figure out recent events in the economy and markets.

I now have answers and predictions for both after much contemplation and research.

Firstly, a rundown of the events in the market and economy these past 50 days:

- Gold enters into a bull run, passing 1000 USD per ounce for the first time since March 2008, and rapidly closing in on a record high. It is now at around 1020.
- The US Dollar, as measured against other major fiat currencies, takes a bearish turn, going from 78 to 76 in one month (a drop of close to 3 percent)
- The stock market continues a rabid run-up, with the Dow at 9800, closing in on 10 000, and the S&P 500 over 1050.
- Oil remains stable, holding at around 70 USD per barrel.
- Treasury bonds remain relatively stable, but continuing a sustained drop in rates after peaking in early Summer.
- Unemployment improves somewhat, despite a chilling U3 number of 9.7 percent (I measure U5, U6, and U6+not in labor force but want job now - the last two numbers are improving (see prior reports for more info))
- Retail sales show an unexpected improvement (or so it would seem)
- Inflation picks up as measured by the CPI.

And a few other points, which is not exactly economic news:

- HR 3200 gets a good roasting (as John Boehner accurately predicted¹) at town hall meetings in August. Town Hallers are called racist and astroturfed, but actual facts prove otherwise. Most are genuinely liberal-minded people² who want their rights to be respected by their government, and for that I commend them.
- Relating to the above point, a "Tea Party" protest organized by various right-wing groups is held in Washington on September 12, to protest totalitarian government policies. The tea party crowd is more right-wing than the town hallers, but still, most are genuine liberal-minded people, despite the manifestations of extremists carrying around signs saying Obama is a Musilim (which has led to wild accusations from some Democrats). Crowd estimates range from 50 000 to 1 700 000. My personal rough guess would be 1/4 to 1/5 of the inauguration crowd, which would yield a figure of 200-500 000, which I think plausable.
- Ben Bernanke says that the recession is over. I am skeptical about this statement because Bernanke has a conflict of interest -- he may say that to make himself and his policies look good in order to be reappointed. In addition, he may be trying to talk up the markets and consumers to spend and invest more in order to mask his failures. Regardless, the recession may be over, but something exponentially worse may be just beginning.

And other miscellaneous market news:

- Rumors of a big bank failure chill some traders, but do not faze many, either because they don't believe it, or they believe the government will bail them out using TARP (which speaking of that, Washington has no political will to bail out anyone)
- Other rumors circulate about the FHA, the agency which currently owns Freddie and Fannie. The rumors state that FHA will go bankrupt in the next month because of crushing toxic debt inherited from the two GSEs.
- The annoying TD Ameritrade commercial showing their pitchman in front of a then-year-to-date chart of the Dow will turn one year old this month, still running on TV networks.

And I'll start off the commentary with this chart of the Dow over the past year, for the first time showing the post-Lehman era at the beginning of it:

I'll keep it simple and concise this time. I see a disturbing trend which has emerged in the markets this year. It has these factors:

- Stock market continuing a rabid runup with no supporting facts
- Doubling of the money supply
- Gold continuing to rise
- Commodities in general shooting up
- Weaker dollar
- Higher inflation

It is my belief that these are not disparite facts being cobbled together -- taken together, they tell a story and reveal what is happening. What does a doubling of the money supply, rising commodities and stocks, a weaker dollar, and high inflation tell me? They tell me of an inflationary scenario which is playing out at this moment.

An increase in the money supply is inflation. Commodities certainly rise with inflation. Stocks rise with inflation. The dollar falls on inflation. Prices rise with inflation.

All of these factors in an inflationary scenario are here, and can be marked with a big check mark.

The only thing that doesn't really fit in my opinion is the rise in consumer spending. Ordinarily, when prices rise, consumers cut back. But I can discount this fact for now in my scenario considering that consumers have to replace products every so often (nothing lasts forever) and spending has been weak since October 2008. It can continue to be discounted if this is a 1-3 month dead cat bounce, but cannot if it is a sustained trend.

Also, let us assume for a moment that Bernanke's call that the recession is over is correct. Let us also assume that he said it a few months after it actually ended (big assumptions). Then we would be in the early stages of a recovery, and the inflated money stuffed in the bank's vaults would start trickling out in the form of loans.

If all of this is true, then the little amount of introduction of the new money into the system caused all of these market moves and inflation pickup. Imagine what would happen when all of it is out of the vaults and into circulation. I am not saying it is happening now, but it will inevitably happen at some point in the future. Let us assume that the current lending represents about a hundredth of the total of the new money (which is a reasonable approximation IMO).

If all of these points play out, which they may or may not, then the current market moves are only a small fraction of what is to come. What is to come would be double or triple digit inflation, gold at least at 5000 per ounce, oil at triple digits again, and a much higher stock market³. In other words, a hyperinflationary scenario, which I believe is likely to happen given current Fed attitudes and policies. We saw what Greenspan's inflationary policies did to the economy. Imagine what that would do to the economy multiplied by a hundred times or more, which is Bernanke.

Lastly, if the rumors of the FHA bankruptcy come true, which they very well might, then the market will go into a Lehman-type crash pattern of the same sort it did in 2008. Also consider if the large bank failure rumors come true, a crash would happen there also. And I don't believe it would be bailed out, because of a simple lack of political will. I have elaborated before on why no bailouts would be the best choice in the long-term.

Below are charts of the US Dollar Index over the past year:

And gold recently:

¹ I do not lend any prophetic powers to John Boehner. He said it "would be a very hot August for Democrats in Congress". He was right, but only because he helped orchestrate the hot August.
² I use liberal in the generic sense, to refer to poltiical philosophies which consider personal liberty to be paramount, and have it at the center of the philosophy. This encompasses libertarians, most self-identified liberals, a few socialists, and some conservatives.
3 I say stock returns will go up because of this example from the Zimbabwe Stock Exchange, showing that shares go up with high inflation:

Miscellaneous Reilgious and Political Quiz Results

Tue, 04 Aug 2009 21:54:00 -0500

Well, I decided to take some religion and politics quizzes today (just for amusement), and here are my results:

From the What Religion Suits You? test:

[q]Your Result

Atheism: You are most suited to be an athiest. Athiests believe that there is no god. Most likely you believe in science and the cold, hard facts that science brings. You probably don't like to think about what comes after death, focusing more on life. That can be a good thing, but people need something to believe in. Remember that and try not to criticize people if they are religious.[/q]

No surprises there. Now moving on to my second publicized Belief-O-Matic test:

[q]

How did the Belief-O-Matic do? Discuss your results on our message boards.

1.	Secular Humanism (100%)
2.	Unitarian Universalism (90%)
3.	Nontheist (76%)
4.	Liberal Quakers (74%)
5.	Theravada Buddhism (70%)
6.	Neo-Pagan (62%)
7.	Mainline to Liberal Christian Protestants (62%)
8.	Taoism (49%)
9.	Reform Judaism (49%)
10.	New Age (47%)
11.	Mahayana Buddhism (39%)
12.	Scientology (36%)
13.	Sikhism (35%)
14.	New Thought (34%)
15.	Orthodox Quaker (31%)
16.	Christian Science (Church of Christ, Scientist) (27%)
17.	Baha'i Faith (24%)
18.	Hinduism (24%)
19.	Jainism (23%)
20.	Church of Jesus Christ of Latter-Day Saints (Mormons) (22%)
21.	Seventh Day Adventist (20%)
22.	Mainline to Conservative Christian/Protestant (18%)
23.	Eastern Orthodox (13%)
24.	Islam (13%)
25.	Orthodox Judaism (13%)
26.	Roman Catholic (13%)
27.	Jehovah's Witness (11%)

[/q]

No surprises there, either, although my score for Unitarianism has dropped to 90 percent from 97 percent.

Next, I took another Beliefnet quiz, this one being the What's Your Path to Peace? test. I scored:

[q](on a scale of 1-40)
18 - 27
You take the non-violent path. Like famed Indian pacifist, Mahatma Gandhi, you believe that peaceful civil disobedience is the best route to social change. There are rare moments when violent resistance may be considered as a better option. Nonviolence, you emphatically believe, is not to be confused with cowardice, but rather the highest expression of bravery. Find prayers for peace here.[/q]

An interesting result, and I think a reasonably accurate one.

I retook the Politics Test on OkCupid, and my result was a little more economically permissive than last time, but otherwise the same:

And lastly, the Political Personality Test.

My results were:

[q]HMPI

Horizontalist - Militant - Progressive - Individualist

You are opposed to big government and state welfare, and believe that the market would function much more efficently without any government intervention. You are prepared to take radical action against a state which tramples over individual rights.

Examples of historical HMPIs are:

Max Stirner - http://en.wikipedia.org/wiki/Max_Stirner

How your result is calculated

This test measures your preferences in four areas;

The first variable measures your attutude towards authority. If you believe in a strong, vertical power structure, then you will recieve the designation of Authoritarian. However if you are distrutful of such systems, and prefer small governments, then you will recieve a designation of Horizontalist.

The second variable shows how inclined you are to radical action. If you are likely to take up arms against the system, you will recieve the designation of Militant. However, if you prefer to work within the system and show a more pacifistic nature you will recieve the designation of Reformist.

The third variable demonstrates your attitude towards change. If you are sceptical of change then you will recieve the designation of Conservative. If you believe in the necessity of change you will recieve the designation of Progressive.

The last variable determines your attitude towards economics. If you support an economic system in which the needy are cared for then you will recieve the designation of Collectivist. If you are in favour of an economic system which allows individuals to amass large amounts of resources for their own private use then you willrecieve the designation of Individualist.[/q]

While I don't believe the overview was entirely correct, since it made extrapolations based on the designations it gave me, it is to be expected in a short test such as that.

To clarify the designations, I prefer:

- as large a government as necessary. It shouldn't be larger or smaller than is required to perform state functions.
- I would only take up arms against a government if all peaceful methods have failed, and only then if the government is totalitarian in nature.
- The third and fourth variables are entirely accurate

I found the tests to be quite interesting, and I would recommend them to anyone who is interested in such things.

S&P Breaks 1000, Bulls Remain Rabid, US Q2 GDP

Mon, 03 Aug 2009 10:46:00 -0500

Well, in case you haven't gotten the news yet, the S&P 500 index has broken 1000 for the first time since November 5. Below is the first tick above 1000 since then, which occured earlier today:

It has since remained around 1000, occasionally going up to 1001 or down to 999. 1000 is an important milestone, and one that everyone that follows the stock market has been waiting to see. For months, the bulls had been vocalizing that the S&P was going to 1000, and the Dow was going to 10 000. While the Dow is not at 10 000 yet (it's now at c. 9300), the S&P 500 has broken 1000. Will this run above 1000 be enough to satisfy bullish sentiment? Or will the bulls take it on up to 1100 or 1200?

If this is enough to satisfy bullish sentiment, we may see a spike above 1000, which would probably represent the last possible buyers coming into the stock market. After this spike, there could be a correction to 900, or perhaps 750-800, which would represent a 10-25 percent downturn from current levels.

So far, these are the statistics on the current bear market:
--------
2007 Peak (1565) to 2009 Low (666):
Down by 57.4 percent

2009 Low (666) to Current Levels (1000):
+49.97 percent

2007 Peak (1565) to Current Levels (1000):
-36.1 percent
--------

Based on these statistics, the length of the rally (5 months), and the strong bullish sentiment, I believe it would be fair to call this a little bull market. Even if this is the beginning of a new cyclical bull market, it is too early to tell.

This is not unprecedented. In fact, something like this rally happened after the most infamous stock market downturn to have ever occured: the 1929 crash. Below is a chart of the 1929 peak through 1930:

That large, 6-month rally was called the Little Bull Market, which had all the bullish sentiment and rabidness with the real indicators of the economy declining regardless. During the top of the rally, things seemed to be back to normal, and it was thought that Hoover's proclamation that the crisis would be over in 60 days was correct. After the rally was over, it was straight down by 88 percent for the Dow, and 30 percent for the economy. The market would not bottom out for another 2 years, and it would take 24 more to recover fully.

The 1929 crash bottomed out at 198, and the Little Bull Market took it up to almost 300, a gain of about 50 percent. Sound familiar? It should.

Of course, there have been rallies in the past like this which have ended up as the starts of bull markets, but what convinces me that this is similar is the complete absence now, as in 1929, of a real bottoming process. Bear markets, when they turn for good, always have a double- or triple-bottom process over a period of months before moving back up.

Just to show a few... (again: the source is Yahoo! Finance)

And this market does not exhibit that pattern:

It is for this reason that we should be suspicious that this is a new bull market.

Meanwhile, the US government has reported that GDP contracted by 1.0 percent in the second quarter, better than traders (and myself) expected. Economists have raised their forecast for the "second-half recovery" to 2 to 3 percent growth. If this recovery fails to materialize (and it won't, at least not by that much), then this does not bode well for the stock market. My prediction is for the first real positive number for GDP to occur in Q4 2009 or Q1 2010, which is more in line with Nouriel Roubini than the consensus.

Also take into account my belief, based on reasons I have elaborated upon previously, that the Bureau of Labor Statistics understates inflation by 2.7 percent or so.

If true, then that would mean that real GDP would be worse than it seems. Below is a sample:

Quarter	Growth (Gov.)	Growth (adjusted)
Q3 2008	-2.7	-5.4
Q4 2008	-5.4	-8.1
Q1 2009	-6.4	-9.1
Q2 2009	-1.0	-3.7

Now, this may be true, or false, but I ask Americans to take a look in their local grocery and drug stores, and write down the prices. Then go back 3-6 months later and write them down again. This simple observation will show that contrary to what BLS puts out, there is still significant inflation in the US.

This concludes the Patrician Economic Report for August 2009. The next regular report will come in September 2009.

Special Market Report: Bulls Gone Rabid

Fri, 24 Jul 2009 09:43:00 -0500

There is something strange and disturbing happening on Wall Street. It is Midsummer 2009. The disturbance is not a meteor, zombies, a North Korean missile attack, a rebellion, or anything that can be seen to the naked eye. It isin the stock market.

The bulls have gone rabid.

[More]

Pictures from Patian County and My First Million-plus City

Fri, 10 Jul 2009 10:18:00 -0500

You could call this an extended update of my own Patrician Showcase, and I wouldn't argue with you, but functionally it is merely some pictures I would like to show you, that don't quite fit into updates.

Up first, is this one:

It has been shown before, but not after the upgrade of RHW 3.0.

Secondly, I am proud to announce this:

No, not the city: the population figure. Western District has once again set a population record, breaking 1 million sims for my first time ever in one city. I am quite proud of this, as I have witnessed what few others have accomplished, and it took me 6 years to do this.

Please post comments.

AFDES Site Down

Fri, 10 Jul 2009 10:12:00 -0500

The server for the AFDES site (a CJ alliance which Franklin is a member of) appears to be down at the moment. Our server operator, Simmaster, states that the server downtime, which is intermittent, is a mystery at the moment, but he is working diligently to figure out the cause, and once that is done, to rectify it.

In the meantime, links to the AFDES site and wiki will not work. Sorry for any inconvenience rendered on the fans of Franklin County.

The Patrician Economic Report: July 2009

Thu, 02 Jul 2009 10:04:00 -0500

Another month has passed by, and we have reached another point in spacetime. The Earth has moved 73 million kilometers in its orbit around the Sun, and it has been an intriguing month for the markets and economy.

The S&P 500 index was down by 0.4 percent for the month, to close on June 30 at 919.32. The high of the month was 956 and the low was 889. The current 40% rally in the stock market has topped out mid-month. Not only has there been a 6 percent drop in stocks since that time, the top of the rally was on very low volume, signaling that all the prospective buyers for stocks have been maxed out, and therefore a top. On the other hand, I have predicted two other tops, and turned out to be wrong, but as they say, third time's the charm.

Below is a 1-year chart of the S&P for reference:

Treasury bonds continue their march up, and oil has remained largely unchanged for the month, bouncing between 65-75 dollars per barrel. Little dips (corrections) and consolidation along the way up signals a healthy trend, and we shouldn't be worried about oil topping out, at least not for now.

For Americans, this Saturday, July 4 is the 233rd anniversary of the signing of the Declaration of Independence. This date is often celebrated as the birthday of the present system of government, but it should be taken into account that the evolution from a colonial to the present system took a quarter century, from the Stamp Act to the Bill of Rights, and was more of a progression, that cannot really be attributed to a single date.

That said, I wish all the Americans a good holiday, and it is the best time to celebrate the Declaration. It may also be a good opportunity to try to improve your knowledge of the government, the Declaration, and the Constitution. It's the other part of the holiday. Now back to the economy.

The employment report was released earlier this morning by the American Bureau of Labor Statistics, with the headline number, as well as a menagerie of figures behind it. The headline number only tells a small part of the whole story.

It may grab headlines to say "Unemployment is 9.5 percent!", but it happens to not be true, depending on how you define unemployed. BLS actually releases 6 measures of unemployment, conveniently designated U-1 to U-6. Each number tells a different part of the story, but we'll only go into the higher ones.

U-3 is the "official", headline unemployment rate. This currently stands at 9.5 percent. However, this figure excludes discouraged workers (those who are unemployed but aren't currently searching) and marginally-attached workers.

Marginally attached workers are, according to BLS, "persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past". Name one person that would not consider these people unemployed.

Including them, which they do in U-5, the rate is 10.9 percent, worse then the headlines would lead you to believe. But there is also another measure. U-6 includes all who are included in U-5, plus those who are working part-time for economic reasons, who used to be considered unemployed, including in the 1929 Depression's 25 percent figure.

Adding these people, the rate goes up to a shocking 16.8 percent. However, there is in addition to all these groups another group, buried in BLS tables, who are "Persons not in the labor force who currently want a job". I will admit that it is arguable whether these people are truly unemployed, but they used to be included in the official numbers as well, so we will add these in too.

There are over 6 million of these people, which is 4.11 percent of the labor force. Adding this number, we get a figure of 20.9 percent unemployment. This is the calculations that are most similar to the Great Depression's 25 percent figure, and 1982's 12 percent figure. With the likelihood that inflation is grossly underestimated by 2.7 percent, and thus real GDP being affected, the entire recessionary contraction in the economy amounts to over 10 percent.

With a real contraction of over 10 percent in GDP, and an unemployment rate over 20 percent, it is no stretch of the imagination to say that the American economy is in a depression. Using a widely accepted definition of a depression (contraction of 10 percent or more), the economy is surely in one now. Using this definition, and the occurances of depressions in the last 200 years, on average one occurs every 50-60 years, so America is overdue.

This alone is no reason to panic, as every depression has been followed by a recovery, and only two (1837 and 1929) exceeded 20 percent. However, there is reason to fear for worse troubles ahead, with the Federal Reserve printing money like maniacs, and devaluing the dollar, which has an unmistakable historical correlation with hyperinflation. However, this will likely not come until 2011-2012, and at the very earliest 2010. Hopefully the Fed can roll back the money they have created, and raise their funds rate, but with Bernanke's track record, this is highly unlikely.

Back to the stock market, a lot of people are using the metaphor of "green shoots" to describe the flurry of news that shows that we are heading for oblivion a little less quickly. Instead of using Nouriel Roubini's yellow weeds analogy, I prefer to remind everyone of this:

Green shoots will not take hold in toxic dirt (which is government policy, inflation, excessive leverage, lack of spending).

Currently the S&P 500 is down 2 percent to 905. We shall see where July takes the financial markets. With the trader euphoria dissipating, the die has now been cast to see whether the rally can survive.

Barring a crash or other event in the economy, the next report will come in August.

Links

Table A-13. Persons not in the labor force and multiple jobholders by sex, not seasonally adjusted

Table A-12. Alternative measures of labor underutilization

Table A-1. Employment status of the civilian population by sex and age

Franklinite Executive Gives Conference on Alien First Contact

Wed, 24 Jun 2009 19:30:00 -0500

On June 23, the Executive of Franklin held a rather short and to-the-point press conference on the first contact with an unknown alien species, which is apparently hostile. Below is the transcript of the conference:

EXECUTIVE: Good evening. I'm sure that all of you, and for that matter everyone on Earth, knows of and is shocked by these pictures that have come out. I'm sure you have many questions, and I will do my best to answer them.

REPORTER: What will you do with the Agonite mining system now that whole probes are being destroyed?

EXECUTIVE: Well, ideally I would like to put up an automated defense system around Agonus to pevent the ships from intruding there, but that would be foolish at the moment... because with any countermeasure, you need to know first what you are countering.

REPORTER: How are you going to find out about it?

EXECUTIVE: I have asked the New Follomer Syndicate to dispatch the FSS Uniden to the planet to probe the area, and hopefully that will shed some light on the aliens.

REPORTER: Some in Follomer have speculated that it is an experimental Dlorwani ship. Do you believe this is a possibility?

EXECUTIVE: It does not match Dlorwani ships, nor would I think the Dlorwani would have any reason to blow up the Agonus probes. As far as we can tell, it is totally alien, and we are working from that assumption.

REPORTER: Do you believe it is possible that the aliens will extend their attack, and it will develop into a war?

EXECUTIVE: Well, I cannot discount the possibility, but indications now suggest a, uh, pseudo-optimistic outcome of them just wanting Agonus, which is bad enough. However, we will do everything possible to avoid war, short of compromising Franklinite interests at Agonus. Last question.

REPORTER: What about security precautions in Franklin in case of invasion?

EXECUTIVE: As you do, or should I say should, know is that the Franklinite Constitution does not allow for anything like martial law to be declared, but we can and are deploying military aircraft and putting troops on standby alert in case anything turns up. As furthur information becomes avaliable, I will put out statements. Any additional questions? [pause] Alright, this conference is adjourned.