Friday, April 19, 2013 - A Bizarre New Normal

A Bizarre New Normal

by Sinclair Noe

DOW + 10 = 14,547
SPX + 13 = 1555
NAS + 39 = 3206
10 YR YLD +.02 = 1.70%
OIL =.27 = 88.00
GOLD + 14.40 = 1407.50
SILV + .01 = 23.39

You've probably heard the stories out of Boston today. Late yesterday police released a photo of two young men; it turns out to be two brothers, Tamerlan and Dzohkhar Tasarnaev; originally from Chechnya and living in Boston for the past 10 years. Last night the two brothers tried to flee; they robbed a convenience store. The two men then fatally shot an MIT campus police officer and carjacked a sport-utility vehicle at gunpoint, keeping the vehicle’s owner hostage for about a half-hour. The owner was released at a gas station in Cambridge. He wasn’t injured.

As police pursued the vehicle, explosive devices were thrown from the car. There was an exchange of gunfire between police and the suspects. A Massachusetts Bay Transportation Authority officer was wounded during the exchange. Hundreds of police officers descended on the Cambridge and Watertown areas as the violence unfolded Thursday night.

The older of the suspects was shot by police; the younger brother, still in a car, managed to drive away. At some point he abandoned the vehicle, and he is still at large, believed to be in the Boston neighborhood of Watertown. Police had locked down Boston. It is a voluntary lockdown. Millions of Bostonians are asked to stay in their homes. Streets are empty, trains are not running, and a no-fly zone is in effect over the Watertown area. Police have been going house to house in Watertown, searching for the second suspect.

As of now, they have not found the second suspect.

You've probably heard all that, because it has been all over the TV and the radio and the internet. It's “breaking news”. Wall to wall coverage; the information is a mile wide and one inch deep and heavy on emotion. Sometimes it was completely wrong. The New York Post published front page photos of two men in the crowd at the marathon; but it was the wrong guys. By the way, yesterday Reuters ran an obituary on George Soros, the billionaire hedge fund manager behind the Quantum Fund, also known as the man who broke the Bank of England back in 1992. Soros is still alive. But I digress, let's get back to breaking news.

It is all very bizarre. And at the same time it is part of day to day life. The CDC estimates there are about 120,000 unintentional injury deaths in the US each year; that includes things like car accidents, people falling, people being poisoned, drownings. And then there are about 200,000 people who will die this year due to medical errors; don't forget more than 3,000 people have died since the start of the year in firearm homicides; nearly triple that number have committed suicide.

Officials are still searching for 60 people who remain unaccounted for following an explosion at the West Fertilizer plant in Texas; 200 people were injured in that blast. It has not resulted in calls for changes to immigration policy; the president isn't going to visit West, Texas. Nobody is asking questions about the religious beliefs of the plant operator.

And nobody knows how many people have died from coding errors associated with Microsoft Excel spreadsheets; it's estimated that pain has been inflicted on millions, but an actual number is impossible. Somebody should figure out a way to calculate these things.

The world is a dangerous place, and it is usually dangerous in mundane and boring ways that don't attract wall to wall media coverage. So, we go on with the day to day.

For the week, the S&P 500 ended down 2.1 percent. The index, however, managed a finish above its 50-day moving average after ending below the level on Thursday for the first time this year. Still, the S&P 500 remains up about 9 percent for the year, and within 3% of all time highs. For the week, the Dow slid 2.1 percent, while the Nasdaq lost 2.7 percent. McDonald's and General Electric reported weak earnings. Google posted better than expected results. IBM posted disappointing numbers.

The 10-year Treasury yield is near 1.70%, down steeply from 2.05% five weeks ago. An auction Thursday of Treasury Inflation-Protected Securities, or TIPS, which compensate investors for future inflation, drew the weakest bidding interest in five years, suggesting the markets have little fear that inflation will be a major concern in coming years. It feels a bit deflationary.

The way all this filters into a market outlook is to reinforce the Fed’s message that it is in no hurry to cut back on its easing efforts to try to spark a quicker credit-creation cycle and hungrier consumer and business demand. Deflationary tendencies should put a damper on talk of near-term Fed tapering of its asset-buying program. That should place some support beneath financial markets as they digest the mixed growth signals. It also means that this present choppy earnings season is likely to usher in a prolonged period in which companies struggle to persuade investors they can grow. 

A slowdown from the economy's already slow rate of growth would not be surprising given the impact of the "sequester" and tax increases that went into effect earlier this year. These moves trimmed government spending across the board and increased taxes on most Americans. A new AP poll finds only one in four Americans expects their financial situation to improve over the next year. So, we face a few challenges.

With the world’s finance ministers, central bankers and development experts gathered in Washington for the spring meetings of the World Bank and International Monetary Fund, the mood is certainly aspirational. World Bank President Jim Yong Kim calls for universal education.  Jim Yong Kim is the new president of the World Bank, he used to be president of Dartmouth.  Treasury Secretary Jack Lew calls for universal women’s empowerment. IMF managing director Christine Lagarde says we need: “a full-speed global economy — growth that is solid, sustainable, balanced, but also inclusive and very much rooted in green developments.”

Piece of cake. 

Thursday afternoon the World Bank alone held major events on the importance of protecting women’s economic rights, meeting universal education goals, and incorporating the value of ecosystems into economic analysis. The IMF had its own agenda underway as well. And then the think tanks had their own agendas; with the Brookings Institution, the Peterson Institute for International Economics, the Bertelsmann Foundation and others battling for attention, and so many central bank governors and finance ministers lined up to speak they all sort of cancel each other out.

Communiques will be issued by the World Bank and the IMF, and other organizations like the Group of 20 major economic powers and the G24 committee of developing nations. They may even be of substance. Kim, for example, is expecting an endorsement of his broad strategic goals for the bank; the G24 endorsed a plan by Brazil, Russia, India, China and South Africa – the so-called BRICS nations – to set up their own development bank as a complement/competitor to the World Bank.

Kim also addressed the urgency of climate change and how World Bank is working to combat its effects. He says they must increase financial resources for sustainable energy, use innovative agriculture and partner with major cities to reduce their carbon footprint. The World Bank also issued a report that says it wants to end world poverty by 2030. I think we should aim for 2025. The new goal to eradicate poverty is accompanied by the concept of shared prosperity. The World Bank wants to examine how income of the country's poorest 40 percent has developed over the years to see whether this group has been profiting from economic growth at all, and they want to see the bottom 40 percent get a better deal. Sounds crazy, right?

Maybe not. Economic growth plays a major role in fighting poverty. China and its economic boom have contributed tremendously to eradicating poverty. In just the past few years, Uganda has seen  the number of people living below poverty drop tremendously from 38 percent to under 24 percent.

Climate change, universal education, eradicating poverty. It sounds impossible. But then the world is impossible, in a rather, boring, mundane and predictable way; we face huge dangers every day, and sometimes we get knocked down. If you are looking to find happiness in life, try dedicating you work to the most difficult problems. Turning around inner city schools, finding solutions to homelessness, finding ways to make drinking water safe, offering hope to people with terminal illness. Face the seemingly worst of the world with a conviction that you can do something, even if it's just a tiny little bit that serves others.

Sometimes the challenges can seem daunting and the goals impossible; sometimes the world just seems so bizarre that it's easy to get sidetracked. It's one thing to say people should find their purpose and passion; it's another matter to maintain progress. It's like we all have two jobs: our immediate tasks and the chance to make a difference.