Manufactured Durable Goods

Manufactured durable goods orders were down an unexpected 3.4% in December, 2014, marking the fourth out of the last five months that were in decline. Orders were previously down 2.1% in November from October. Manufactured durable goods are things like cars, airplanes, large appliances, etc., that are built in factories and expected to last at least three years.

Grexit: What it is and why it matters

A few years back (2010), it appeared that Greece might be forced from the European Union (the “EU”), and that the common currency, the euro, might even be in peril (a “Grexit”). Instead, the EU, the International Monetary Fund (the “IMF”) and Greece reached a three-way agreement which basically flogged the Greek economic system to within an inch of its life for the sin of its people having profligately been pursuing happiness with funds borrowed from others. The stern Germans, shivering and cold Norsemen that they are, did not appreciate the Greeks having enjoyed so much fun in the Aegean and Ionian sun at what they figured was their expense, so forced the EU, which they effectively control, and the IMF, which they don’t, to lash Greece mercilessly for them. The prescription was deep, deep austerity—reigning in government budget deficits through layoffs and reductions in benefits, while keeping tight to an overbearing repayment schedule for outstanding obligations. It was almost like Greece had lost World War One or something, such was the oppressiveness of the conditions in the agreement it must have felt like they’d been Germany signing the Treaty of Versailles.

It was only a matter of time until a Greek populist would arise from the shambles of the Grecian economy to throw off the shackles of Norse oppression. It happened last week with the election of Alexis Tsipris, who ran on the single issue of ending the austerity program agreed to in 2010. In effect, the sole plank of his platform was for Greece to ultimately default on its sovereign obligations, much in the same spirit that, ironically (we’ll get to the irony in a moment), Adolf Hitler was elected to the German parliament and appointed chancellor by promising to, among other things, renege on Germany’s treaty obligations as a central point of his campaign for German resurgence.

But that’s where the similarities end. Greece was a basket case economically, and more importantly, demographically, long before the ebbing tides of financial fortune during the crisis revealed who was swimming naked. Greece makes very little that anyone wants to buy. It has only about 11 million people, and they are rapidly aging. Its median age tops 40, and its total fertility rate is below 1.4 babies per female, a recipe for demographic, and accordingly, economic, implosion. At this point it seems that the only hope Greece might have for sustained growth is if it flings open its borders to Muslim hordes in the Levant, welcoming their fecund females with open arms. Doing so might sound the death knell for the people who founded democracy, but time waits for no man, not even one whose ancestors were founding democracy and establishing the West’s philosophical foundations while Germany’s ancestors were still gathering nuts and berries and hunting deer and bison in the northern European forests and fields.

If defaulting on its debt requires Greece to exit the euro, that’s what will happen. Here’s where the irony comes in. The only country for which it really matters is Germany. Germany benefits tremendously for the weakness that Greece brings to the euro. Until Japan launched its currency devaluation war, Germany was thriving as an export powerhouse. Now, because Japan has effectively destroyed the value of its currency internationally, particularly relative to the euro and dollar, Germany is playing keep up, and it needs Greek help to do so. So it may well be that Germany will allow Greece to default and stay in the euro. It needs Greece in its weakened state to make its manufacturing base competitive because Greece in its weakened state as a member of the Eurozone helps keep the currency weak.

To clear up any confusion, here’s a quick international currency primer: A currency that decreases in value internationally makes all the exports of the country using that currency less expensive to foreign buyers. If the euro is held down by its association with Greek’s economic fortunes, the exports of all the Eurozone countries will be more competitively priced on international markets, which is of particular benefit to Germany, as Germany is Europe’s export behemoth. The problem for Greece, aside from the awful agreement it made with the EU and IMF, is that the euro won’t decline as much as its economic fortunes would indicate it should, and that’s because of the strength of Germany holding it up. When a country’s economic system tanks, its currency, if it has one, generally tanks internationally along with it, which helps the process of recovery by keeping that economic bugbear, deflation, which I described last week, at bay.

In short, the Greek election signaled that Germany will have to swallow its pride and allow Greece to default and stay in the EU, or it will have to kick Greece out, which would be something like cutting off its nose to spite its face. Which Germany has a history of doing, such as when it ran many of its best and brightest out of the country with its anti-Jew programs of the 1930’s. “Grexit”, by the way, is just Wall Street-banker shorthand for Greek Exit, meaning a Greek exit from the euro, the common currency, and possibly from the EU altogether. But not from Europe. Greece, if it ultimately still exists at all, would still exist where it does in southern Europe, fast in the center of Europe’s Mediterranean coastline.

The Federal Reserve pledges to be “patient” about raising rates after its latest meeting

It’s now pushing seven years that the short-term interest rate controlled by the Federal Reserve (the Fed Funds rate) has been pegged at zero. Seven years will soon enough be fourteen, which will then become twenty-one, etc., because the Federal Reserve ain’t never gonna raise the interest rate it controls again. Never. The next time interest rates go up, the Fed won’t be around any longer as the Fed. Its Board of Governors will have lost its independence and become nothing more than a cabal of political hacks, even more so than it already is. Because there is no way out of the deflationary trap into which the world’s developed economies are being ensnared. Japan has been in this trap since the early nineties. Europe slipped into it with the financial crisis of 2008/09 and never really escaped. The US seemed to escape, but is getting dragged back into the economic black hole even as I write. The US can’t expect to be the sole bright spot among the world’s major economic players without incurring some costs. One of those costs is an appreciating currency, which will return deflation—real deflation, not price declines due to demand declines, but real deflation—to the economic system’s driver’s seat.

So, don’t believe it when the Fed hints that it will increase interest rates. It won’t. Not now, not ever. Whether it realizes it or not, it has effectively abandoned that means of influencing economic activity.  Patience, indeed.

Russia appears to have no plans to decrease its meddling in Ukraine

It’s not much of a war, but it’s the only one on the European continent that we’ve for the moment got. Vladimir Putin’s Russia seems nonplussed by the West’s economic sanctions, which is little surprise. Try to think of one instance in history where economic sanctions were successfully deployed in quelling hostilities between nations. Exactly, you can’t. And the reason why is that while war is diplomacy by other means, economic sanctions are neither war nor diplomacy, but are empty gestures for the purpose of looking as if something is being done when it really isn’t. Vladimir Putin gets this. And he knows that the West wouldn’t dream of actually engaging Russia militarily. So Russia continues to actively support Ukrainian separatists in its eastern regions around Donetsk. It fuels their insurgency with impunity, and will continue to do so for so long as it considers the benefits, the main one of which seems to be creating a buffer between Russia and creeping Western hegemony, not unlike its Cold War strategy, outweigh the costs.

Yemen’s government collapses and virtually no one notices

Yemen’s capital city, Sanaa, was overtaken several days ago by Houthi rebels, prompting the resignation of the Yemeni government, along with its president, Abbed Rabbo Mansour Hadi , on January 22. 2015.

Yemen has been a staunch ally in America’s relentless drone war against AQAP (Al Qaeda in the Arabian Peninsula). The Houthi rebels don’t like AQAP anymore than the US does, but it seems they hate the US even more, as they don’t seem interested in forming an alliance against AQAP.

With the fall of Yemen to hostile hands, Saudi Arabia now stands as practically the only Arab nation in the region with close ties to the American government and the West. And it is hell-bent on putting America’s nascent fracking industry out of business. And it also recently lost its leader, in the Saudi’s case to death, not like Yemen, to mostly bloodless coup. Saudi’s ex-king, who died at age ninety, was quickly replaced by one of his half-brothers, a spring chicken at age seventy-eight. But the House of Saud is running out of life expectancy among its ruling stepbrothers. The throne will soon enough accede to the next level of inheritance—one of the sons of the stepbrothers. And then it might get messy.

There are still Lebanon and Israel in the Middle East that are more or less allies, but the US–Israel relationship has faltered precipitously over the last few years. And Iranian-backed Shiites now control that part of Iraq not in the hands of ISIS, against which the US has lately ramped up the combat effort. The American Empire is receding in this age of Obama, at least partly by his design. The impacts of such recession are yet to be completely manifest.

Europeans believe their Muslim problem is bigger than it actually is

What do you suppose is the percentage of the population that is Muslim in France? Ten percent? Twenty? If you said 31%, you’d be in line with the average estimates in a poll* taken of the French population. (*a Pew Research Poll quoted in The Economist). The reality is that France, though harboring the highest percentage of Muslims in Western Europe and its biggest total population, is only about 8% Muslim. Germans think their country is overrun with Muslims, pegging the estimate of their percentage of the population at 19%, in reality they are only 6%. In Britain, people think they are 21% Muslim when the reality is 5%. In Belgium, it is 29% perception, 6% reality. In Italy, 20 and 4%; in Spain 16 and 2%. Perceptions far exceed realities, but undoubtedly contribute to the bunker mentality that is arising in some European states regarding the Muslim onslaught, while at the same time emboldening Muslims in their non-assimilative activities, especially if they too are afflicted with the same myopia as their host country natives concerning their relative power and strength.

And while these perceptions don’t reflect realities today, they reflect the realities as they are likely to become a few decades hence if trends continue. Germans, British, French, Italians, Spaniards, etc., are slowly dying ethnicities, yet each has its own language and its own nation-state constituted to represent its collective ethnic interests. Western Europe is multicultural, but not like we think of it in the US. The question for the centuries is what happens to the governments of nation-states when the nations for which the states were originally created no longer exist? Without Germans, will Germany still be? Will France still be France when a majority of its population hails from North Africa? For that matter, what changes to the US culture, previously a close imitation of Great Britain’s even as all the rest of Europe’s nations melted into the pot, will arise when Spanish-speaking Latinos take over the majority- group reins?

The history of the twentieth century is one of relative European decline. European hegemony and colonialization was gradually replaced by American and Asian hegemony and colonialization. The process continues unto the 21st century as China and India travel quickly and slowly, respectively, along the path of development, only this century has also seen the decline of the US relative to Asia and South America.

While the rest of world wallows in below –average results, Apple kills

Apple made the most profit, $18 billion, ever reported in one quarter by any company in the history of mankind. It printed profits at the rate of $8.3 million per hour. Its shares immediately increased by about 6%, making the company far and away also the most valuable company in the history of mankind. Bow to Apple, knave, before it’s too late. The company sold iPhone 6’s at the rate of 34,000 per hour. If three-fourths of its profits were attributable to iPhone 6’s, it made about $183 per phone. Economists would say that Apple has differentiated the iPhone value so significantly that Apple effectively has created a singular, monopoly-esque market for its products, which explains the enormous profit per phone.

There is really no telling how long Apple can keep this up. Owning an Apple phone has certainly become something of an indicia of membership in the urbanized American elite, which seemingly every teenager the world over dreams of joining. But it is a fad. There really isn’t much difference between an Apple phone and, for example, a Samsung phone. They both do the same things. But Samsung doesn’t turn almost $200 in profit every time they sell a phone. Some suggest Samsung gives away its phones as loss leaders, but only Samsung really knows.

Apple’s next sure-to-be blockbuster product is a watch. The watch won’t do a lot, except collect data on you that it can send to your matching iPhone, which can then keep tabs on all your wants and needs so that marketers can be better positioned to serve you. Actually, nobody except Apple really knows what the watch’s capabilities will be and the famously secretive company isn’t telling. The only negative I’ve heard is that the watch is rumored to have only a three-hour batter life. It won’t matter. Tim Cook has done something miraculous, transferring the cult of personality arisen around Steve Jobs to him and to Apple Computer. Right now, Apple Computer and its myriad devices have become something like apple pie and baseball, iconic Americana, while at the same time being the ultimate in hip and cool. Apple Watch will be a blockbuster because it is wearable, enabling it to function as indicia of status, in this case as something like a gang emblem, an overt sign that its owner belongs to the Apple group.

Apple Computer is only interesting to me for what it says about the age in which it arose. The first thing that comes to mind is that this is an age which can afford to value style over substance. Apple makes hardly any products that are necessary for completing the tasks of life, and all the products that they do make for helping accomplish life’s necessary tasks come at a significant premium to the products of other suppliers. People pay real premiums to purchase Apple’s products that mainly don’t do things that are important to the tasks of life. Don’t get me wrong. Apple makes good stuff that usually does what Apple says it will do. But so do a lot of other companies. So why can Apple charge so much more than the rest?

Apple has capitalized on the unique circumstances of the age, and positioned itself as the answer to questions people didn’t even know they had. It has done so by making people feel a part of something bigger than themselves when they buy and use Apple’s products. People desperately want that there be a point to life beyond mere existence, and for a great many in this generation in this age, Apple Computer provides it. God is dead. But Apple Computer is doing quite well, thank-you very much.

Stocks, Bonds, Interest Rates

Even Apple’s results weren’t enough to keep the S & P 500 from tumbling about 3% this week, as 4th quarter economic growth in the US was reported to be an uninspiring 2.6%, which marks a decline from the third quarter of 4.6%, which was itself a decline from 5% growth in the 2nd quarter. Growth is slowing all over the world, and has in fact, outright stalled in the Eurozone. Which makes Apple’s results all the more anomalous. Apple appears to have behaved something like the US economy, powering ahead while all the rest of the world falters. Time will tell whether the US, and Apple Computer, can continue to do so.

The ten-year US Treasury bond continued its fluctuations around 1.8% for most of the week, which is roughly 1.5% higher than a comparable German bond, and is even about thirty basis points higher than Spain, Italy and the UK must pay to borrow money. By the end of the week, however, the US ten-year yield plunged to about 1.65%, a 5% or so change in one day, on news of slower economic growth. If the bond market were popularly understood like the stock market is, it would have generated a stream of hyperventilating headlines nearly every day the last several weeks. The volatility has been unreal. When the ten-year US Treasury bond yield changes by 5%, trillions of paper dollars are made or lost. And lately it has occasionally changed by that amount in less than a day.

But there is something very mysterious going on in the bond market world about now. When it costs more for the US to borrow money than it costs Spain or Italy, something’s up. Anomalous effects usually arise from anomalous causes, but nobody seems to know what they are.

Residential mortgage rates haven’t been as volatile, but remain low. Thirty-year mortgage rates continue to bounce around historic lows, averaging twenty or so basis points below four percent.

News from the Cultural Cesspool

Two former Vanderbilt University football players were convicted this week of raping and sexually assaulting a former classmate. The victim was unconscious at the time of the attack. Video evidence from security cameras and private cell phones provided the evidence needed for conviction.

This says a few unflattering things about the present state of the culture. First, at some point along the way young women have decided that getting sloppy drunk, so drunk that they might pass out while in the company of young men, was okay. It’s not. It never has been okay. It is stupid, stupid, stupid. But. The fact the victim was passed out drunk did not excuse what those young men did to her.

Which brings us to the second point. What sort of animal rapes an unconscious woman? Having sex with an unconscious woman is tantamount to having sex with a corpse, except that the corpse won’t wake up and feel violated and thereby seek vengeance. These young men—Vanderbilt University football players no less—behaved like animals and deserve to be treated like animals. Lock them up. For a long time. Preferably with a big Southern bubba doing twenty to life who is looking for a couple of pigs to make squeal.

But what’s really disturbing is that others were around—it’s clear from the security tapes according to reports—and did nothing to help this woman. Where is the sense of obligation? Did chivalry die with bra-burning and the Pill and abortion on demand? Good men don’t stand by and let bad things happen to defenseless women. Even a round-heeled slut (and there is no indication that such was the victim’s reputation) who would probably have welcomed all the sexual attention she could muster when sober, should not be allowed to suffer a horrific sexual assault just for the misfortune of not being able to hold her liquor. Vanderbilt University, known colloquially as the Harvard of the South, apparently hasn’t any good men, or at least hasn’t any in abundance, which is not altogether surprising. The sense of privilege that comes with attending a Vanderbilt or a Harvard no longer serves to temper goodness in men, if ever it did. It seems now to temper only a sense of entitlement.