THE INVESTMENT STRATEGY LETTER #718

Tags

The Trump Rally or the Chump Rally?

Why I haven’t written since November 22?

I haven’t written on this blog since the Trump victory. I was shocked, as were many and needed some time to put this unexpected change into perspective. Not only was I shocked by the victory, but I am also surprised with the stock market rally (up 13%) that has become known as the Trump Rally. It is obvious that Wall Street expects huge tax cuts for individuals and corporations, a diminishing of regulations and infrastructure projects that will stimulate the economy. I don’t believe Trump and the Republicans are capable of governing and these promises (and others like health care for everybody, a wall, getting coal jobs back etc.) will be difficult to fulfill. In my last written market letter November 22, I listed eight points that I believe are negative for both the economy and the country. Now, that we are into sixty-seven days into the Trump presidency, I can see that these items continue to be monumental roadblocks to the success of the Trump presidency.

The main reason I had written the Lone Bear Letter with the Dow at 17,672, was that I believe that income inequality and a resulting oligarchy, would eventually lead to an economic shakeup that would be worse than that which occurred in 2008. In my post In a time of universal deceit, telling the truth is a revolutionary act”   George Orwell. I said, “I believe political stagecraft, through skilled manipulation of facts, has given the public the perception and the illusion of power, rather than participation in real power. Public opinion has been manipulated and nullified.  We have only ourselves to blame. Like Pogo said “We have seen the enemy and it is us”. My fear is that, this process has Big Corporations and the top 1%, dominating the financial industry” (and now the government) “has left small businesses and the investing public very vulnerable. The general public, in my opinion, has become so weakened, that it is powerless to stop a crisis from progressing.”

Although President Trump won the election with only 26% of those able to vote and has a unbelievably low 36% approval rating and a 57% disapproval rating, this narrow segment of citizen support claims the exclusive right to speak on behalf of ‘We the people’. I believe that there is a danger to the norms and institutions necessary for our Republic to function. Like all authoritarian populous leaders, President Trump is defiant to all that challenge this rule, such as judges, journalists, democrats and Congressional oversight. He declares them as enemies of the people. The president’s dark rhetoric and outright lies sound quite familiar to anybody who has an understanding of history and knows how quickly democracies die.

Can Republicans govern?

The recent defeat to abolish ObamCare and replace it with TrumpCare was a disaster for the Republicans and the big supposed closer, President Trump. With his limited knowledge of politics, he assumed that the Republican Party was unified. However, he forgot about the 40 members of the Freedom Caucus, (the former tea party members), who basically don’t believe in government. They will vote against anything (except defense) that has government involvement, which is what government does. The healthcare bill had only a 17% public approval rating, because it took away many of the advantages of healthcare privileges, with savings for the government of an estimated $1 trillion. This one trillion dollars was going to be used to offset some of the reduction of government income, that are expected to be lost by tax cutting measures, when a new tax bill is proposed. Here is why I believe a tax bill will not pass this year. 1) The administrations ineptitude in proposing a new health care plan, will probably also surface in any new tax bill. There will continue to be a leadership vacuum as many Republicans will concentrate on the deficit and debt. The tea party and many republicans has deeply held convictions that any tax overhaul should not add to the national debt. While the president is known as the King of Debt, his party is deeply concerned about debt. It is expected that he proposed tax cut and infrastructure plan, could add $7.2 trillion to the $20 trillion national debt over a decade. 2) In addition, Republicans want to include a large import tax known as a ‘border adjustment tax’ in the package. This would include a 20% tax on imports that the Republicans believe will raise as much as $1 trillion to offset cuts in individual and business tax rates.  However, retail giants like Walmart, are bitterly opposed and willing to wage a costly advertising war against this plan they believe will increase the price of products and end up raising prices for American consumers. In effect, it is a $1 trillion tax on working poor consumers, while giving a huge tax cut to the wealthy. 3) It is also possible that popular tax breaks for individuals, such as deductions for mortgage interest, charitable giving and state and local taxes will no longer be allowed. Individuals, the real estate industry, charitable groups and state and local governments are just a few of the constituencies that will revolt against such changes. 4) Now, there is also an indication that President Trump is backing away from the 15% corporate tax rate and is more likely to propose a 25% tax rate. This will be very disappointing to Wall Street, although most of the 500 S&P largest corporations do not pay any tax. 5) Lastly, the Republicans must decide whether to use a process known as ‘budget reconciliation’ to speed changes through Congress by a simple majority vote. However, because of the structures of the ‘budget reconciliation’ process, any tax plan would not be allowed to add to the deficit for the next ten years. There is a lot that can go wrong and probably will. Therefore, be warned Wall Street, we see no tax plan this year and maybe never, because as follows:

The Russian factor?

Because I had knee surgery on March 17, and therefore not being ambulatory, I was able to constantly watch CNN, Fox News and MSNBC during the most unbelievable March 20th week, since Watergate. The week began, with testimony to the House Intelligence Committee by James B Colby, the director of the FBI, which disclosed for the first time, that the agency is running an investigation into Russian interference in the US election and possible ties between Trump associates and Russia. This immediately brought up the question of why the FBI director made a disclosure about Hillary Clinton’s emails a week before the election, but no discussion about the Trump Russian inquiries which had been going on since July? Tuesday had testimony by Supreme Court nominee Neil Gorsuch and was followed with the circus atmosphere that ended up with speaker of the house, withdrawing the TrumpCare vote. It was truly, the week that was! I could go on with details, but more importantly, there is the feeling that there is not only smoke, but fire under the accusations that Trump associates met with Russians and may have discussed deals to eliminate sanctions. In addition there is a possible Watergate type cover-up that may lead to the top. If you want to get a better feel of Putin, I suggest you take a look at the CNN documentary called, ‘The most powerful man in the world / Putin  In his book New Seeds of Contemplation which  was published in 1962, Trappist priest Thomas Merton wrote: ‘The world is full of great criminals with enormous power, and they are in a death struggle with each other. It is a huge gang battle, using corporations, lawyers and policemen and clergymen as their front, controlling papers, means of communication, and enrolling everybody in their armies.” 

The house intelligent committee chairman Devin Nunes, who served on the Trump transition team, has not acted in an independent manner. Adam Schiff  (along with Senator McCain), the committees Democratic leader has suggested that Nunus step down as chairman as Nunes, last week showed President Trump information (without showing it to other committee members),that Trumps closest associates may have been ‘incidentally’ swept up in foreign surveillance by American spy agencies.  New meetings for the committee have been canceled.Sally Yates was previously scheduled to speak today.

Today, Trump tweets “Trump Russia story is a hoax.’ Methinks he protests too much. A cover-up? If there is nothing to hide, let’s do a wide-open independent investigation. The hoax was the claim that President Obama wiretapped his phones. Let’s take a look at Trumps tax records and see if any of his income has come from Russia? I think he is involved with the Russians in business. Does Trumps business associations with foreign powers create a conflict of inters that violate the emolument clause of the constitution? The latest event is that Trumps son-in-law has had conversations with the Putin’s Russian bank, which is under sanctions in the US not to deal with the Bank. The Russians say it was  about business! At the minimum, a conflict of interest? Will all those Trump Associates be allowed to testify? The truth about the Trump administrations associates being involved with the Russians will eventually come out. In the meantime, this issue will continue to be a cloud over the authenticity of the Trump administration would be eventually be devastating to Wall Street and the stock market.

Government shutdown April 28th?

Carl M Birkelbach

3/28/17

 

THE INVESTMENT STRATEGY LETTER #717

DOW ABOVE 19,000!   BULL MARKET CONTINUES?

I wrote my Lone Bear Letter on the January 25, 2015 when the Dow was at 17,672. Up until now, this was the right advice, as the DOW was  17,140 in June of this year. Then something happened! I got Trumped. Now, with the Dow above 19,000, it appears that we could be headed higher, based on a highly stimulated economy, with lower taxes, big spending and huge- huge debt. President-elect Trump should have a news conference; however, he either tweets or goes on You-Tube. We are not sure what’s going to happen first, the wall, dropping Obama care, tax cuts, spending on infrastructure, cutting regulations or extracting immigrants.

1) Although I can’t imagine a conservative Congress and Senate going along with tax cuts and at the same time authorizing a huge spending program, it could happen.  That would increase the deficit by at least $5 trillion. We know that Trump believes in debt and has had no qualms about taking it on to build his projects. Some have worked out, and some have ended in bankruptcy. The scale of consequences increases if failure occurs on a federal level. If he succeeds in this stimulus of tax cuts and spending increases, expect the Federal Reserve (GOAL OF 2% INFLATION),to skyrocket interest rates back above 10%.Net effect? Trouble!

2) President-elect Trump has lots of conflicts of interest with being president and running a brand name business. For instance, it would be natural for diplomats to stay at his Trump Washington hotel, which is negotiating a rental agreement with the federal government that owns the land. Or he could influence the building of wind powered turbines close to his British golf courses. His loans are at the Deutsche Bank. which is in trouble with the Justice department. The stock is up 20% since his election. The Trump foundation has admitted ‘self-dealing’ with the IRS. The Constitution is very clear about using political influence for personal financial gain, its called impeachment.

3) I see another problem with President-elect Trumps comments about holding money back from cities that don’t cooperate with extracting immigrants.  70% of the jobs are in major cities, how is he going to create a better economy, if the government spending doesn’t help cities?

4) If Trump increases tariffs on places like Mexico, China and Japan in international trade war may develop that will stifle world trade, as it did in 1929. This will cost jobs and increase the cost of foreign goods.

 5) He has got to produce a better economy and fast. Fast is the problem. The government doesn’t move fast and in spite of his power, resistance could delay any changes. In a way, his promises are impossible to be met. We cannot make America as great as it was in the mythical 1950s, because we had a unique situation at that time. The world’s factories had been destroyed by World War II. We were the only functioning manufacturers in the world. Therefore, we had Happy Days that are impossible to duplicate. If Apple brings back its factories to the United States, from China as Trump has requested, they will be completely automated.

 6) Over half the country is concerned about the alt-right movement of the Trump administration. Many have taken Trumps promise to Make America Great Again to mean Make America White Again. So far, his choices key administrative positions have been all white older males and some with either alt-right or hawkish tendencies. There is a Constitution that protects us against segregation and violation of civil rights. However, this clash between whites and the multi-cultural society, rural and cities, peace and doves, rich and poor, blue-collar and white-collar could intensify into very active public demonstrations. As we saw with the Hamilton protest, Trump called this inappropriate. Talk about calling the kettle black, Trump is the King of inappropriateness. A President Trump’s personality will have difficulty with living in the White House, dealing with Congress and with public outrage. Unfortunately I believe President Trump will be challenged and tested immediately after January 20, by terrorists’ attacks and aggressive moves by Russia and/or China.

7) My bear market scenario was based upon deflation not inflation. Both are destructive to an economic system. However, an inflationary scenario, together with a unstable government is not something I had considered. The results may be the same, but it may take a longer for the weaknesses to show up.

8) My greatest fear is that America will be turned into an oligarchy, similar to Russia. In a recent (Oct 22, 2016) Economist Magazine they describe Putin’s domestic policy to reduce competition to favor his oligarchs. They describe a system he developed which Kirll Rogov, a Russian political economist describes as “soft legal constraints.” To quote from the Economist Magazine, “It involves writing the rules in such a way that to observe them is either prohibitively expensive or downright impossible to follow, then handing out licenses to break those rules to the oligarchy.” Doesn’t this sound exactly like what has happened in our financial industry? The SEC and FINRA have made the rules (compliance) to run an independent brokerage firm as either prohibitively expensive or downright impossible to follow. In this way, the government has eliminated independent competition and has turned over the entire financial industry to the banks and large financial institutions. They allow Wall Street  to break the rules for the cost of a small fine, as compared to the large profit that they made in breaking the rules. In this way the large financial institutions feed the SEC, that guards their monopoly.  In my opinion, with Trump functioning without restraints, he will favor his buddies, causing the United States  to look more and more like Putin’s Russia and its economy, dominated by the privileged few 400 families (top tenth of 1%).

 Current 11/22/16

CLOSE

Dow NASDAQ S&P 500
19,023 5,386 2,202
Short Term UP UP UP
Int. Term UP UP UP
Long Term ? ? ?
Foretasted Trends DJIA NASDAQ S&P 500
Short Term ? ? ?
Int. Term ? ? ?
Long Term ? / ?
Breakout Points DJIA NASDAQ S&P 500
Short Term Up (Resistance) 19,023 5,386 2,202
Short Term Down (Support) 17,140/ 4,594 2,001
Int. Term Up (Resistance) ? ? ?
Int. Term Down (Support)  16,865 15,484  /15,370 /14,688/ 13,377  4,267/4,209/3,986/3,294  1,850/1,560
Long Term Up (Resistance) ? /
Long Term Down Fibonacci Support 50%12,000

62%10,750

2008 LOW 6,627

50% 3,000

62% 2,555

2008 LOW 1,204

50%1,400

62% 1,177

2008 LOW 666

 10 Treasury  L0W 1.37^ NOW 2.32% Gold 1,211 Oil 26.59 low Now 48.00

ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST
Carl does not offer investment advice, but merely his own personal opinion. This report has been prepared from original sources and data we believe reliable but make no representations as to the accuracy or completeness. Carl, his affiliates and subsidiaries and/or their officers and employees may from time to time acquire, hold or sell a position in securities. Past performance is no guarantee of future success. Upon request, we will supply additional information. CarlBis@aol.com

 

THE LONE LETTER #10 UPDATED

THE FIRST 100 DAYS: POLICY and COMMENT

COMMENT: While the below may first appear as critical of a Trump administration, I really want to be helpful. Unlike Republicans who in 2008 wanted Obama to be unsuccessful, I want President Trump to be successful. That means pointing out flaws of his policy that can be deemed destructive. It is the same with my comments about the SEC and FINRA. I never met a person that works for these two agencies that I didn’t like. To me, this is just a matter of good people making bad decisions. To turn around BIG bank’s control of the brokerage industry is still possible. Small businesses under a President Trump administration may thrive. I hope so. However, the appointment of Steve Bannon as President Trump’s Chief White House strategist and senior counselor deserves to be criticized. He has worked as the executive chairman of a Breitbart News Network, an alt-right ideology that promotes white supremacy, opposes immigration, feminine and multiculturalism, is anti-Semitic and considers Muslims as a danger to our democracy. Following are an example of two of their headlines “Birth control makes women unattractive and crazy” “Hoist it high and proud the Confederate flag proclaims a glorious heritage.” In two months, this toxic ideology will be sitting down the hall from the Oval Office.

With the election of Donald Trump and the control of the Republican Party of both houses of Congress and eventually the Supreme Court, a radical reshaping of America is underway. Although President-elect Trump has yet to provide any specifics, outlined below are the repercussions of what he called for his campaign. In my opinion, if he follows through on his promises, there will be a further shift of wealth to the upper-class, higher prices on imported goods, higher interest rates  a substantial increase in inflation, international uncertainty, the freedom of the banks and Wall Street to create another banking crisis and increased economic weather related disasters . These policies will leave the middle and working class Americans further behind. The irony of a Trump victory is that they will wind up less well off. These policies will hurt the exact constituency of blue-collar workers that elected him

In my opinion, it appears that this vote was a backlash of white voters (a white backlash) and a last gasp effort to bring the nation back to a time before globalization and diversity. It was a vote against women seeking power and against those different from themselves. It was a vote by rural white people against multicultural city people. It was a rejection of a multicultural society and blaming it for taking jobs away from them. In particular previously privileged white voters want to bring back a time when they were guaranteed a union job at $35 an hour. These times are gone forever and now these previously privileged white voters must struggle up the ladder along with women, blacks, gays, immigrants and Mexicans. Solutions are complicated. However, the public is looking for simple and quick answers. There are no simple and quick solutions. As indicated below, a Trump presidency based on his current policy and temperament will lead to an economic collapse worse than the Bush 2008 economic collapse as follows:

Trade Policy: President elect Trump has promised an immediate attack on all trade deals and the cancellation of all presidential orders accomplished by President Obama. The president has significant authority to act unilaterally in this area. He said would put a 35% tariff on imports from Mexico at a 45% tariff on those from China. These were the kind of trade restrictions that caused the 1930’s depression. International trade is already slowing and tariffs will slow growth further, in an effort to protect blue-collar manufacturing workers. The tariffs would raise the prices of imported goods sharply and cut sharply purchasing power of every American including lower income Americans, Trump’s core supporters. In reaction to this Mexican peso plunged more than 13%. The Chinese currency has dropped to its lowest level in eighty years. The tariffs could toss China into a recession where growth is already slowing and China’s banks have given loans to questionable companies. In China, $1.3 trillion of corporate loans are owned by companies were profits will not cover their interest payments. The problem in China could trigger banks losses that could start a worldwide recession. Money is flowing out of China. Tariffs will increase the problem. While some manufacturing jobs may come back to the US as a result of the tariffs, more jobs domestically may be lost, because the average American would have less spending power. The Peterson Institute for International Economics estimated that rather than bringing back jobs, Mister Trumps, tariffs could ‘result in a trade war and cost our economy more than 5 million jobs and possibly lead to a recession’.

Tax Cuts: The centerpiece of Mister Trump’s plan to revitalize the economy is a huge $5.8 trillion tax cut. As of yet, the tax cut is unaccompanied by specifically cutting other expenses that would pay for it. Actually, President-elect has proposed more spending on defense and infrastructure. Once again the only expenses that can be cut or social and educational programs that would have helped the constituency that voted for him. It has been estimated that this would cause a $10 trillion budget deficit ballooning out of control, creating runaway inflation and possibly raising interest rates to levels not seen since the 1970s. This alone would cause an economic disaster. According to the Tax Policy Center, 61% of the tax cut benefits would go to the top 1%, who least need it and would be least likely to spend it.

Regulations: Mister Trump also has a free hand to act unilaterally to declare a moratorium on new rules and reverse many executive orders. He will have a free hand to let industrial companies reduce or eliminate the Environmental Protection Agency and for financial institutions to repeal the Dodd Frank bill. The elimination of Dodd Frank will give the banks enough rope to hang themselves once again, as they did in 2008. At a recent speech at the Economics Club of New York, Neel Kashkari, (Minneapolis Fed chief) suggests a break up the big banks needs to be done through  stricter Dodd-Frank regulations to avoid, “another financial calamity outweighing the costs of increased regulation.” The Republican party platform calls for restoring the Glass Stegall act.   Maybe there is hope? Nah! Don’t’ forget the classic THIS TIME ITS DIFFERENT by Carmen Reinhart: It tells the story of eight centuries of Financial Folly. Each time after a catastrophe, such as the Great Depression or 2008, economists agree that it could never happen again. Who could be so stupid to allow the banks to own $500 trillion in derivatives, let six banks control 70% of the US assets (too big to fail) and allow all the economic growth to go to the 1%, while eighty people own 50% of the world’s wealth?   As reported by Reuters News, a judge recently refused to throw out a private lawsuit accusing the 14 banks of rigging an interest rate benchmark (ISDAfix) used in the $553 trillion derivatives markets. That’s right; I said the $553 trillion derivative markets. That dwarfs the problem of derivatives 2008, which almost brought the banks and our economic system to their demise.

Immigration:  Mister Trump started his campaign with the promise to build a wall on the Mexican border and deport some 11 million undocumented Mexican aliens. The conservative, American Action Forum calculated the building of the wall and the cost to deporting the illegal immigrants would be from $400-$600 billion and would reduce the gross domestic product by $1.6 trillion. Mister Trump has since backed off on the 11 million and said he would start with 3 million who have broken the law. Many of these illegal immigrants have legalized children that were born in the United States. In addition most of the undocumented workers are doing jobs that many native born Americans won’t do and are paying taxes. See the movie ‘A Day Without Mexicans.’ Because, this will break up families and bring chaos to the workforce, expect demonstrations in sanctuary cities and maybe even riots.

The Environment:  Since President Nixon, voters have taken for granted clean air and clean water. What happened in Flint Michigan can happen anywhere. In addition, Republicans refuse to recognize the science of global warming. They continue to call it climate change. This unrealistic view of science will apparently be the mode of operation in the new administration. Although I’m enjoying a 70° temperature in Chicago this November, a majority of scientists, acknowledge that without environmental controls, global warming will increase weather-related disasters, putting our coastal cities in harm’s way. The new appointees in this area are backed by the oil industry. The oil industry will be in control for at least another four years. Expect the Keystone pipeline to be approved and for our cars and trucks to get bigger. Alert America! Germany just announced that it will stop producing the combustion engine for all of his automobiles in 13 years. We are going to be left behind in a world of an oil based economy, unless this administration acknowledges global warming and energy alternatives.

Health Care:  Mister Trump has said that he will eliminate The Affordable Care Act, ending free or subsidized coverage that cover 20 million Americans that are now receiving it. He has since backed off a little, and said he would continue to recommend that children will continue on their parent’s health care until they are 26 and that pre-existing conditions will continue not to be a factor in pricing of health insurance. However, there has not been a comprehensive plan proposed to assist with 20 million Americans that will not have health insurance and facing higher costs and loss of coverage. (OR the other 40 million Americans and their children without heath care insurance).BIG Pharmaceuticals and BIG Insurances companies are the winners here, once again, not the Trump’s constituency. As Bernie Sanders says,’ there’s no reason that we are the only industrialized nation that does not offer free healthcare to our citizens.’ There’s a reason now, it’s called President Trump.

Foreign Policy:  This is an area that I will hold judgment on for a while. Mister Trump has had no experience in foreign policy. You could tell by his briefing with President Obama that the responsibility of the job may be more than he thought. If anything, Trump exemplifies a strong leader. My problem is with his personality is, that he reportedly has a short attention span and has no experience in dealing diplomatically on a worldwide basis. Maybe his tough stance will eliminate problems in the Middle East. However, problems in the Middle East have been going on for 2000 years. Nobody’s been able to solve those problems yet and I doubt if an inexperienced president will be able to do so. He will have his hand on the nuclear button. I hope he handles it better than with his hand on twitter. We are all in danger in a world awash in nuclear weapons.

Income Equality: My fear is that, now with a Trump presidency, Big Corporations and the top 1%, will increasingly dominate the our economy that will leave individuals, small businesses and the investing public very vulnerable. The general public has become so weakened and disillusioned, that it is powerless to stop this crisis from progressing.  This is similar to what happened to democracy in Russia.  In my opinion, both Trump and Putin have tendencies that are vindictive and are not tolerable of criticism and have no answers for solving economic problems. The way things are going, Billionaires will become Trillionaries and an oligarchy of 400 families will control 90% of the wealth in the world.

In a recent (Oct 22, 2016) Economist Magazine they describe Putin’s domestic policy to reduce competition to favor his oligarchs. They describe a system he developed which Kirll Rogov, a Russian political economist describes as “soft legal constraints.” To quote from the Economist Magazine, “It involves writing the rules in such a way that to observe them is either prohibitively expensive or downright impossible to follow, then handing out licenses to break those rules to the oligarchy.” Doesn’t this sound exactly like what has happened in our financial industry? The SEC and FINRA have made the rules (compliance) to run an independent brokerage firm as either prohibitively expensive or downright impossible to follow. In this way, the government has eliminated independent competition and has turned over the entire financial industry to the banks and large financial institutions. They allow these companies to break the rules for the cost of a small fine, as compared to the large profit that they made in breaking the rules. In this way the large financial institutions feed the SEC, that guards their monopoly.  In my opinion, with the Republicans, functioning without restraints, the United States will continue to look more and more like Putin’s Russia and its economy, dominated by the privileged few 400 families (top tenth of 1%).

We the People   hold these truths to be self-evident, that all men are created equal, that they are endowed, by their Creator, with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness. Is a progressive compassionate America still possible? The answer I think is yes.  In the darkest hours of the civil rights movement they sang ‘We shall overcome’ and Martin Luther King said we shall persevere if we express 1) courage, 2) compassion and 3) community. Listen to the words of Nobel Prize winner Bob Dylan that were written in those dark days.

“For the loser now will be later to win
Cause the times they are a-changing

Come senators, congressmen
Please heed the call
Don’t stand in the doorway
Don’t block up the hall
For he that gets hurt
Will be he who has stalled
There’s the battle outside raging
It’ll soon shake your windows and rattle your walls
For the times they are a-changing

Come mothers and fathers
Throughout the land
And don’t criticize
What you can’t understand
Your sons and your daughters
Are beyond your command
Your old road is rapidly aging
Please get out of the new one if you can’t lend your hand
Cause the times they are a-changing

The line it is drawn
The curse it is cast
The slowest now
Will later be fast
As the present now
Will later be past
The order is rapidly fading
And the first one now will later be last
Cause the times they are a-changing”

Hallelujah!

ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST
Carl does not offer investment advice, but merely his own personal opinion. This report has been prepared from original sources and data we believe reliable but make no representations as to the accuracy or completeness. Carl, his affiliates and subsidiaries and/or their officers and employees may from time to time acquire, hold or sell a position in securities. Past performance is no guarantee of future success. Upon request, we will supply additional information. CarlBis@aol.com

THE LONE BEAR LETTER#10

THE LONE BEAR LETTER #10

THE FIRST 100 DAYS: POLICY and COMMENT

COMMENT: While the below may first appear as critical of a Trump administration, I really want to be helpful. Unlike Republicans who in 2008 wanted Obama to be unsuccessful, I want President Trump to be successful. That means pointing out flaws of his policy that can be deemed destructive. It is the same with my comments about the SEC and FINRA. I never met a person that works for these two agencies that I didn’t like. To me, this is just a matter of good people making bad decisions. To turn around BIG bank’s control of the brokerage industry is still possible. Small businesses under a President Trump administration may thrive. I hope so. However, the appointment of Steve Bannon as President Trump’s Chief White House strategist and senior counselor deserves to be criticized. He has worked as the executive chairman of a Breitbart News Network, an alt-right ideology that promotes white supremacy, opposes immigration, feminine and multiculturalism, is anti-Semitic and considers Muslims as a danger to our democracy. Following are an example of two of their headlines “Birth control makes women unattractive and crazy” “Hoist it high and proud the Confederate flag proclaims a glorious heritage.” In two months, this toxic ideology will be sitting down the hall from the Oval Office.

With the election of Donald Trump and the control of the Republican Party of both houses of Congress and eventually the Supreme Court, a radical reshaping of America is underway. Although President-elect Trump has yet to provide any specifics, outlined below are the repercussions of what he called for his campaign. In my opinion, if he follows through on his promises, there will be a further shift of wealth to the upper-class, higher prices on imported goods, higher interest rates  a substantial increase in inflation, international uncertainty, the freedom of the banks and Wall Street to create another banking crisis and increased economic weather related disasters . These policies will leave the middle and working class Americans further behind. The irony of a Trump victory is that they will wind up less well off. These policies will hurt the exact constituency of blue-collar workers that elected him

In my opinion, it appears that this vote was a backlash of white voters (a white backlash) and a last gasp effort to bring the nation back to a time before globalization and diversity. It was a vote against women seeking power and against those different from themselves. It was a vote by rural white people against multicultural city people. It was a rejection of a multicultural society and blaming it for taking jobs away from them. In particular previously privileged white voters want to bring back a time when they were guaranteed a union job at $35 an hour. These times are gone forever and now these previously privileged white voters must struggle up the ladder along with women, blacks, gays, immigrants and Mexicans. Solutions are complicated. However, the public is looking for simple and quick answers. There are no simple and quick solutions. As indicated below, a Trump presidency based on his current policy and temperament will lead to an economic collapse worse than the Bush 2008 economic collapse as follows:

Trade Policy: President elect Trump has promised an immediate attack on all trade deals and the cancellation of all presidential orders accomplished by President Obama. The president has significant authority to act unilaterally in this area. He said would put a 35% tariff on imports from Mexico at a 45% tariff on those from China. These were the kind of trade restrictions that caused the 1930’s depression. International trade is already slowing and tariffs will slow growth further, in an effort to protect blue-collar manufacturing workers. The tariffs would raise the prices of imported goods sharply and cut sharply purchasing power of every American including lower income Americans, Trump’s core supporters. In reaction to this Mexican peso plunged more than 13%. The Chinese currency has dropped to its lowest level in eighty years. The tariffs could toss China into a recession where growth is already slowing and China’s banks have given loans to questionable companies. In China, $1.3 trillion of corporate loans are owned by companies were profits will not cover their interest payments. The problem in China could trigger banks losses that could start a worldwide recession. Money is flowing out of China. Tariffs will increase the problem. While some manufacturing jobs may come back to the US as a result of the tariffs, more jobs domestically may be lost, because the average American would have less spending power. The Peterson Institute for International Economics estimated that rather than bringing back jobs, Mister Trumps, tariffs could ‘result in a trade war and cost our economy more than 5 million jobs and possibly lead to a recession’.

Tax Cuts: The centerpiece of Mister Trump’s plan to revitalize the economy is a huge $5.8 trillion tax cut. As of yet, the tax cut is unaccompanied by specifically cutting other expenses that would pay for it. Actually, President-elect has proposed more spending on defense and infrastructure. Once again the only expenses that can be cut or social and educational programs that would have helped the constituency that voted for him. It has been estimated that this would cause a $10 trillion budget deficit ballooning out of control, creating runaway inflation and possibly raising interest rates to levels not seen since the 1970s. This alone would cause an economic disaster. According to the Tax Policy Center, 61% of the tax cut benefits would go to the top 1%, who least need it and would be least likely to spend it.

Regulations: Mister Trump also has a free hand to act unilaterally to declare a moratorium on new rules and reverse many executive orders. He will have a free hand to let industrial companies reduce or eliminate the Environmental Protection Agency and for financial institutions to repeal the Dodd Frank bill. The elimination of Dodd Frank will give the banks enough rope to hang themselves once again, as they did in 2008. At a recent speech at the Economics Club of New York, Neel Kashkari, (Minneapolis Fed chief) suggests a break up the big banks needs to be done through  stricter Dodd-Frank regulations to avoid, “another financial calamity outweighing the costs of increased regulation.” The Republican party platform calls for restoring the Glass Stegall act.   Maybe there is hope? Nah! Don’t’ forget the classic THIS TIME ITS DIFFERENT by Carmen Reinhart: It tells the story of eight centuries of Financial Folly. Each time after a catastrophe, such as the Great Depression or 2008, economists agree that it could never happen again. Who could be so stupid to allow the banks to own $500 trillion in derivatives, let six banks control 70% of the US assets (too big to fail) and allow all the economic growth to go to the 1%, while eighty people own 50% of the world’s wealth?   As reported by Reuters News, a judge recently refused to throw out a private lawsuit accusing the 14 banks of rigging an interest rate benchmark (ISDAfix) used in the $553 trillion derivatives markets. That’s right; I said the $553 trillion derivative markets. That dwarfs the problem of derivatives 2008, which almost brought the banks and our economic system to their demise.

Immigration:  Mister Trump started his campaign with the promise to build a wall on the Mexican border and deport some 11 million undocumented Mexican aliens. The conservative, American Action Forum calculated the building of the wall and the cost to deporting the illegal immigrants would be from $400-$600 billion and would reduce the gross domestic product by $1.6 trillion. Mister Trump has since backed off on the 11 million and said he would start with 3 million who have broken the law. Many of these illegal immigrants have legalized children that were born in the United States. In addition most of the undocumented workers are doing jobs that many native born Americans won’t do and are paying taxes. See the movie ‘A Day Without Mexicans.’ Because, this will break up families and bring chaos to the workforce, expect demonstrations in sanctuary cities and maybe even riots.

The Environment:  Since President Nixon, voters have taken for granted clean air and clean water. What happened in Flint Michigan can happen anywhere. In addition, Republicans refuse to recognize the science of global warming. They continue to call it climate change. This unrealistic view of science will apparently be the mode of operation in the new administration. Although I’m enjoying a 70° temperature in Chicago this November, a majority of scientists, acknowledge that without environmental controls, global warming will increase weather-related disasters, putting our coastal cities in harm’s way. The new appointees in this area are backed by the oil industry. The oil industry will be in control for at least another four years. Expect the Keystone pipeline to be approved and for our cars and trucks to get bigger. Alert America! Germany just announced that it will stop producing the combustion engine for all of his automobiles in 13 years. We are going to be left behind in a world of an oil based economy, unless this administration acknowledges global warming and energy alternatives.

Health Care:  Mister Trump has said that he will eliminate The Affordable Care Act, ending free or subsidized coverage that cover 20 million Americans that are now receiving it. He has since backed off a little, and said he would continue to recommend that children will continue on their parent’s health care until they are 26 and that pre-existing conditions will continue not to be a factor in pricing of health insurance. However, there has not been a comprehensive plan proposed to assist with 20 million Americans that will not have health insurance and facing higher costs and loss of coverage. (OR the other 40 million Americans and their children without heath care insurance).BIG Pharmaceuticals and BIG Insurances companies are the winners here, once again, not the Trump’s constituency. As Bernie Sanders says,’ there’s no reason that we are the only industrialized nation that does not offer free healthcare to our citizens.’ There’s a reason now, it’s called President Trump.

Foreign Policy:  This is an area that I will hold judgment on for a while. Mister Trump has had no experience in foreign policy. You could tell by his briefing with President Obama that the responsibility of the job may be more than he thought. If anything, Trump exemplifies a strong leader. My problem is with his personality is, that he reportedly has a short attention span and has no experience in dealing diplomatically on a worldwide basis. Maybe his tough stance will eliminate problems in the Middle East. However, problems in the Middle East have been going on for 2000 years. Nobody’s been able to solve those problems yet and I doubt if an inexperienced president will be able to do so. He will have his hand on the nuclear button. I hope he handles it better than with his hand on twitter. We are all in danger in a world awash in nuclear weapons.

Income Equality: My fear is that, now with a Trump presidency, Big Corporations and the top 1%, will increasingly dominate the our economy that will leave individuals, small businesses and the investing public very vulnerable. The general public has become so weakened and disillusioned, that it is powerless to stop this crisis from progressing.  This is similar to what happened to democracy in Russia.  In my opinion, both Trump and Putin have tendencies that are vindictive and are not tolerable of criticism and have no answers for solving economic problems. The way things are going, Billionaires will become Trillionaries and an oligarchy of 400 families will control 90% of the wealth in the world.

In a recent (Oct 22, 2016) Economist Magazine they describe Putin’s domestic policy to reduce competition to favor his oligarchs. They describe a system he developed which Kirll Rogov, a Russian political economist describes as “soft legal constraints.” To quote from the Economist Magazine, “It involves writing the rules in such a way that to observe them is either prohibitively expensive or downright impossible to follow, then handing out licenses to break those rules to the oligarchy.” Doesn’t this sound exactly like what has happened in our financial industry? The SEC and FINRA have made the rules (compliance) to run an independent brokerage firm as either prohibitively expensive or downright impossible to follow. In this way, the government has eliminated independent competition and has turned over the entire financial industry to the banks and large financial institutions. They allow these companies to break the rules for the cost of a small fine, as compared to the large profit that they made in breaking the rules. In this way the large financial institutions feed the SEC, that guards their monopoly.  In my opinion, with the Republicans, functioning without restraints, the United States will continue to look more and more like Putin’s Russia and its economy, dominated by the privileged few 400 families (top tenth of 1%).

We the People   hold these truths to be self-evident, that all men are created equal, that they are endowed, by their Creator, with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness. Is a progressive compassionate America still possible? The answer I think is yes.  In the darkest hours of the civil rights movement they sang ‘We shall overcome’ and Martin Luther King said we shall persevere if we express 1) courage, 2) compassion and 3) community. Listen to the words of Nobel Prize winner Bob Dylan that were written in those dark days.

“For the loser now will be later to win
Cause the times they are a-changing

Come senators, congressmen
Please heed the call
Don’t stand in the doorway
Don’t block up the hall
For he that gets hurt
Will be he who has stalled
There’s the battle outside raging
It’ll soon shake your windows and rattle your walls
For the times they are a-changing

Come mothers and fathers
Throughout the land
And don’t criticize
What you can’t understand
Your sons and your daughters
Are beyond your command
Your old road is rapidly aging
Please get out of the new one if you can’t lend your hand
Cause the times they are a-changing

The line it is drawn
The curse it is cast
The slowest now
Will later be fast
As the present now
Will later be past
The order is rapidly fading
And the first one now will later be last
Cause the times they are a-changing”

Hallelujah!

ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST
Carl does not offer investment advice, but merely his own personal opinion. This report has been prepared from original sources and data we believe reliable but make no representations as to the accuracy or completeness. Carl, his affiliates and subsidiaries and/or their officers and employees may from time to time acquire, hold or sell a position in securities. Past performance is no guarantee of future success. Upon request, we will supply additional information. CarlBis@aol.com

 

 

THE INVESTMENT STRATEGY LETTER #716

 

“Father, forgive them, for they know not what they do.” And they cast lots to divide his garments.” Luke 34

Trump won! Seventy five percent of those that voted, voted for someone they felt is unqualified to be president. Uncertainty will not be good for the markets. The last time the senate, congress, presidency and Supreme Court were dominated by the Republicans. was 1928. Watch out below!

Trump’s only plan so far, is to, build a wall, brutally extract 11 million immigrants from their children, not allow Moslems into the country, eliminate Obama Care, eliminate Dodd-Frank, eliminate the Environmental Protection Agency, rewrite all executive orders, pull back from NATO and to give the rich and corporations big tax breaks. The reduction of taxes to the rich and corporations in my opinion will increase inequality and cause HUGE budget deficits, which will kill economic growth.  The elimination of Dodd-frank will give the banks enough rope to hang themselves. Deporting 11 million workers and consumers from the economy, will kill growth. Pulling back from NATO will encourage Russia aggressive behavior. Eliminating environmental controls will cause increase economic weather related disasters.

In my opinion, it appears that this was a backlash of white voters (a white lash) to bring back the nation to a time before diversity. It was a vote against women seeking power and against those different from them. It was a vote by rural white people against multicultural city people. It was a rejection of a multicultural culture and blaming it for talking jobs away from them. In particular, previously privileged white voters want to bring back a time when they were guaranteed a union job at $35 an hour. These times are gone forever and now they must struggle up the ladder along with women, blacks, gays, immigrants and Mexicans. Solutions are complicated. However, the public is looking for simple and quick answers. There are no simple and quick solutions. A Trump presidency makes the ‘bear market scenario’ I have seen coming and documented in this blog, more frightening.  I believe a Trump Presidency will lead to an economic collapse worse than the Bush 2008 economic collapse.

Expect an Oligarchy similar to Putin’s Russia

My fear is that, now with a Trump presidency, Big Corporations and the top 1%, will increasingly dominate the our economy that will leave individuals, small businesses and the investing public very vulnerable. The general public has become so weakened and disillusioned, that it is powerless to stop this crisis from progressing.  This is similar to what happened to democracy in Russia.  In my opinion, both Trump and Putin  have tendencies that are vindictive and are not tolerable of criticism and have no answers for solving economic problems.

In a recent (Oct 22, 2016) Economist Magazine they describe Putin’s domestic policy to reduce competition to favor his oligarchs. They describe a system he developed which Kirll Rogov, a Russian political economist describes as “soft legal constraints.” To quote from the Economist Magazine, “It involves writing the rules in such a way that to observe them is either prohibitively expensive or downright impossible to follow, then handing out licenses to break those rules to the oligarchy.” Doesn’t this sound exactly like what has happened in our financial industry? The SEC and FINRA have made the rules (compliance) to run an independent brokerage firm as either prohibitively expensive or downright impossible to follow. In this way, the government has eliminated independent competition and has turned over the entire financial industry to the banks and large financial institutions. They allow these companies to break the rules for the cost of a small fine, as compared to the large profit that they made in breaking the rules. In this way the large financial institutions feed the SEC, that guards their monopoly.  In my opinion, with the Republicans, functioning without restraints, the United States will continue to look more and more like Putin’s Russia and it’s economy, dominated by the privledged few 400 families (top tenth of 1%).

BELOW ARE 12 CONTINUING REASON FOR A BEAR MARKET.

A TRUMP PRESIDENCY IS #13

For the following reasons below, I believe this is a bubble that is being held up by corporate buy- backs, excessive Central Bank buying (don’t fight the Fed) and political considerations to keep the bubble fully blown during the election period.

1) The US MARKETS ARE making new highs. Now, everything is OK again? Sure!  A Citigroup analyst has reported buying is coming from Central Banks. They are creating a fantasy that all is OK, before the US election.   The BEAR MARKET decline may take longer to develop than I first thought and I am extending my 2016 FORCAST TO 7/4/2017. See below

2). Retail stocks such as Macy’s, Disney and Sears are having trouble with their earnings. Store closings are commonplace today as people are buying online. This is not good for profit margins or employment. The economy could be stimulated with a backlog of infrastructure spending. Not a chance with this Congress.

3). Gold is making new highs; while the 10 year treasury WENT TO 1.37% is a new low.  Now 1.68%.That is where the money is going. This means that INDIVIDUAL investors are very cautious. 

4). Donald Trump, continues to blurt out dangerous statements.  He recently said, “Why worry about Debt, we can print money.” That’s true, except that excessive printing of money turns into hyperinflation. If you don’t know the history of the Weimar Republic in Germany you are likely to repeat history’s mistakes. Besides, it’s the Federal Reserve’s job to monitor monetary policy. Of course a dictator, can easily appoint flunkies at the Federal Reserve, which he could control. The market dislikes uncertainty and instability. His quote of “fight fire with fire” will mean more meaningless and expensive wars~! His comments on NATO are based on financing, not commitment or global strategy. This will encourage Putin.

5).I believe most of buying has occurred because of Central Bank stimulus, continued low interest rates (-0% some places) and corporate stock buybacks in the last 12 months are a record $600 billion. If it were not this stimulus, I believe the market would be down some 20% at this point. Companies are not investing in production or innovation. this is bad for employment and the economy.

6). The middle class continues to take it on the chin. According to recent data between 2000 and 2014, the middle class shrunk from 55% to under 51%. It’s probably now below 50%. An economy  based on consumer spending of the middle class, like the United States, cannot grow without a healthy middle-class. International corporations do well for a while, as they are now. But eventually, I feel the present economic environment will lead to a deflationary economy, which will hurt all economic levels.

7). If commodity prices and companies engaged in retail sales continue to suffer, their bonds will eventually suffer and therefore the banks that are holding securities will suffer. 2008 all over again, only this time no government bailout! The ‘canary in the mine’ Deutsche Bank at 14.35 is down from its recent high of 19.46 and above its recent low  at 12.60, Also see weak charts of BCS, CS, HBC.BE, BNP.PA   WHY IS THE US MARKETS MAKING NEW HIGHS AND THE BANKS MAKING NEW LOWS? BECAUSE OF, I BELIEVE CENTRAL BANK INTERFERENCE, WHICH WILL STOP AFTER THE ELECTION.

8). China continues to show lackluster economic growth. China’s rate of loans is far above the rate of money supply growth. Right now, China is using its currency to buy as many companies in the West as it can, while it can. Just as has happened to Japan in the 1990s, we expect the same deflationary scenario to begin to occur in China. . In China, for example, has $1.3 trillion of corporate loans, one seventh of the total are owned by companies whose profits don’t cover their interest payments, a problem that could trigger banks losses equal to 7% of gross domestic product. Money is flowing out of china!

9). The central banks have done everything they can to stop inflation in Europe and in the United States with  the results  that many corporations in Europe are issuing bonds and financing them at close to zero interest rates. What this means, is that central banks cannot stop deflation. Rick Santelli of CNBC says “nobody says anything good about negative interest rates.” Central banks are helpless to stop deflation.

10). I continue to believe that economic growth in the United States is being slowed by all the income growth going to the top 1%. A recent Economist Magazine showed the upper 1% standing on top of their money with the guarded by barbed wire fence around, with the title WINNERS TAKE ALL. This is a lose, lose policy for everyone, where all boats will sink.

11) Brazil and Petrobas its oil company($500 Bil debt) are going bankrupt because of corruption. What will happen to its Bonds that the banks hold?

12) Cyber theft at the banks can’t be stopped. $80 billion, another attack right after that. Soon there will be no confidence in on line banking.

My forecasts for next 12 months TO JULY 4TH 2017 call for the Dow Jones Industrial average to be as low as 14,688 to 12,000, the NASDAQ to be as low as 4,000 to 3,000 and the S&P 500 to be as low as 1,560 to 1,400 because  (See previous market letters)

 Current 9/8/16

CLOSE

Dow NASDAQ S&P 500
18,355 5,183 2,137
Short Term UP UP UP
Int. Term UP UP UP
Long Term ? ? ?
Foretasted Trends DJIA NASDAQ S&P 500
Short Term Down Down Down
Int. Term Down Down Down
Long Term Bear Market Bear Market Bear Market
Breakout Points DJIA NASDAQ S&P 500
Short Term Up (Resistance) 18,722 5,287 2,193
Short Term Down (Support) 17,140/ 4,594 2,001
Int. Term Up (Resistance) 18,722 5,287 2,193
Int. Term Down (Support)  16,865 15,484  /15,370 /14,688/ 13,377  4,267/4,209/3,986/3,294  1,850/1,560
Long Term Up (Resistance) 18,722 5,287 2,193
Long Term Down Fibonacci Support 50%12,000

62%10,750

2008 LOW 6,627

50% 3,000

62% 2,555

2008 LOW 1,204

50%1,400

62% 1,177

2008 LOW 666

 10 Treasury  L0W 1.37^ NOW1.97% Gold 1,287 Oil 26.59 low Now 44.68

ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST
Carl does not offer investment advice, but merely his own personal opinion. This report has been prepared from original sources and data we believe reliable but make no representations as to the accuracy or completeness. Carl, his affiliates and subsidiaries and/or their officers and employees may from time to time acquire, hold or sell a position in securities. Past performance is no guarantee of future success. Upon request, we will supply additional information. CarlBis@aol.com

THE INVESTMENT STRATEGY LETTER #715

All comments are on hold until after the election November 8th.   Until then, all below is applicable.

Deutsche Bank (DB) bonds dipped to the lowest level since a market wide decline in February, as a potential 14 billion-dollar bill to settle the US Justice probe into mortgage back securities, worried investors. The bank has a $2billion, 6 percent tier 1 bond that have fallen to $.72 on the dollar. The Justice Department probe may lead to a capital shortfall even if the bank is able to negotiate a smaller settlement. A capital gap could force the bank to sell new stock or default on bond payments. The bank is among the worst capitalized lenders in Europe and we have called it the canary in the mine. The stock and $12.73, is only $.25 above its all-time low of $12.48.

The US stock markets continue to edge up and making new highs! However, Bank stocks, particularly European bank stocks, are close to new lows. I expect Deutsche Bank to make a new low of 12.48, and after the election to default on its bonds. A clue to the market’s weakness is retails store closings and the reluctance of the Dow Transports to confirm new high

Sorry I haven’t written much lately. Nothing much matters until after the election. Everything seems to be on hold until then A Goldilocks market. Neither too hot nor too cold. US stocks are at all-time highs, with most Banks close to all time lows. The likelihood of a Trump presidency seem  likely, but the possibility still looms as a possibility, which I believe would be instantly devastating to the US and world stock markets. The economy continues to be lack luster, hardly growing in the first half of 2016

7/23/16 Investors are very bullish even though the headlines are showing geopolitical risk at a record high, strife in the European Union, a coup attempt in Turkey, tensions in this South China Sea, numerous terrorist attacks and rhetoric from a presidential candidate giving authoritarianism  a full embrace. Investors seem convinced that economic prosperity and good corporate profits are just ahead of us. However, for the past four quarters earnings-per-share the S&P 500 have been falling by about 12% per the year prior. The falling dollar and cheap energy prices are hurting earnings. For instance, Coca-Cola’s global sales have risen in local currency terms, but have declined in dollars for the last two years. Dollar and oil prices have probably stabilized. The economy seems to be growing just fast enough to keep demand for products moving without much inflation. (Harley any growth for the first two quarters of 2016). A Goldilocks economy. Wages and labor costs have been rising at only  an annual rate of only 2.3%. However, there is now pressure for wages to grow faster. A 5% rise in wages could lower profits by about 15%.

The biggest risk in the market seems to be coming from a political climate that is frighteningly uncertain. Hillary Clinton has promised to put pressure on drug pricing which encompasses 14% of all profits the US. Donald Trump seems to be pursuing an agenda of global trade protection, large tax cuts, an expensive wall, restructuring projects, the deportation of 11 million consumers and workers, major punishment of corporations that are US-based and want to leave the US Or have already left the US. In addition, HE is basically willing to scrap the NATO agreement. Markets don’t like uncertainty.

So where is the buying coming from??  US corporations are using my earnings and low interest rates to buy back  $165 billion a quarter of their own stock. In addition, Citicorp analysts have said that the Central Bank’s worldwide are buying stock, to prop up a sagging worldwide economy.

For the following reasons below, I believe this is a bubble that is being held up by corporate buy- backs, excessive Central Bank buying (don’t fight the Fed) and political considerations to keep the bubble fully blown during this US election period. I don’t think the markets will hold up that long, which will be good for Trump and bad for the world!

1) The US MARKETS ARE making new highs. Now, everything is OK again? Sure!  A Citigroup analyst has reported buying is coming from Central Banks. They are creating a fantasy that all is OK, before the US election.   The BEAR MARKET decline may take longer to develop than I first thought and I am extending my 2016 FORCAST TO 7/4/2017. See below

2). Retail stocks such as Macy’s, Disney and Sears are having trouble with their earnings. Store closings are commonplace today as people are buying online. This is not good for profit margins or employment. The economy could be stimulated with a backlog of infrastructure spending. Not a chance with this Congress.

3). Gold is making new highs; while the 10 year treasury WENT TO 1.37% is a new low.  Now 1.68%.That is where the money is going. This means that INDIVIDUAL investors are very cautious. 

4). Donald Trump, the nominee of the Republican Party, continues to blurt out dangerous statements.  He recently said, “Why worry about Debt, we can print money.” That’s true, except that excessive printing of money turns into hyperinflation. If you don’t know the history of the Weimar Republic in Germany you are likely to repeat history’s mistakes. Besides, it’s the Federal Reserve’s job to monitor monetary policy. Of course a dictator, can easily appoint flunkies at the Federal Reserve, which he could control. The market dislikes uncertainty and instability. The possibility of the Trump presidency, however unlikely, is still un- stabilizing to the markets. His quote of “fight fire with fire” will mean more meaningless and expensive wars~! His comments on NATO are based on financing, not commitment or global strategy. This will encourage Putin.

5).I believe most of buying has occurred because of Central Bank stimulus, continued low interest rates (-0% some places) and corporate stock buybacks in the last 12 months are a record $600 billion. If it were not this stimulus, I believe the market would be down some 20% at this point. Companies are not investing in production or innovation. this is bad for employment and the economy.

6). The middle class continues to take it on the chin. According to recent data between 2000 and 2014, the middle class shrunk from 55% to under 51%. It’s probably now below 50%. An economy  based on consumer spending of the middle class, like the United States, cannot grow without a healthy middle-class. International corporations do well for a while, as they are now. But eventually, I feel the present economic environment will lead to a deflationary economy, which will hurt all economic levels.

7). If commodity prices and companies engaged in retail sales continue to suffer, their bonds will eventually suffer and therefore the banks that are holding securities will suffer. 2008 all over again, only this time no government bailout! The ‘canary in the mine’ Deutsche Bank at 14.35 is down from its recent high of 19.46 and above its recent low  at 12.60, Also see weak charts of BCS, CS, HBC.BE, BNP.PA   WHY IS THE US MARKETS MAKING NEW HIGHS AND THE BANKS MAKING NEW LOWS? BECAUSE OF, I BELIEVE CENTRAL BANK INTERFERENCE, WHICH WILL STOP AFTER THE ELECTION. CAN NEW HIGHS LAST UNTIL THEN?

8). China continues to show lackluster economic growth. China’s rate of loans is far above the rate of money supply growth. Right now, China is using its currency to buy as many companies in the West as it can, while it can. Just as has happened to Japan in the 1990s, we expect the same deflationary scenario to begin to occur in China. . In China, for example, has $1.3 trillion of corporate loans, one seventh of the total are owned by companies whose profits don’t cover their interest payments, a problem that could trigger banks losses equal to 7% of gross domestic product.”

9). The central banks have done everything they can to stop inflation in Europe and in the United States with  the results  that many corporations in Europe are issuing bonds and financing them at close to zero interest rates. What this means, is that central banks cannot stop deflation. Rick Santelli of CNBC says “nobody says anything good about negative interest rates.” Central banks are helpless to stop deflation.

10). I continue to believe that economic growth in the United States is being slowed by all the income growth going to the top 1%. A recent Economist Magazine showed the upper 1% standing on top of their money with the guarded by barbed wire fence around, with the title WINNERS TAKE ALL. This is a lose, lose policy for everyone, where all boats will sink.

11) Brazil and Petrobas its oil company($500 Bil debt) are going bankrupt because of corruption. What will happen to its Bonds that the banks hold?

12) Cyber theft at the banks can’t be stopped. $80 billion, another attack right after that. Soon there will be no confidence in on line banking.

My forecasts for next 12 months TO JULY 4TH 2017 call for the Dow Jones Industrial average to be as low as 14,688 to 12,000, the NASDAQ to be as low as 4,000 to 3,000 and the S&P 500 to be as low as 1,560 to 1,400 because  (See previous market letters)

 Current 9/20/16

CLOSE

Dow NASDAQ S&P 500
18,212 5,260 2,148
Short Term UP UP UP
Int. Term UP UP UP
Long Term ? ? ?
Foretasted Trends DJIA NASDAQ S&P 500
Short Term Down Down Down
Int. Term Down Down Down
Long Term Bear Market Bear Market Bear Market
Breakout Points DJIA NASDAQ S&P 500
Short Term Up (Resistance) 18,722 5,287 2,193
Short Term Down (Support) 17,140/ 4,594 2,001
   
Int. Term Up (Resistance) 18,722 5,287 2,193
Int. Term Down (Support)  16,865 15,484  /15,370 /14,688/ 13,377  4,267/4,209/3,986/3,294  1,850/1,560
Long Term Up (Resistance) 18,722 5,287 2,193
Long Term Down Fibonacci Support 50%12,000

62%10,750

2008 LOW 6,627

50% 3,000

62% 2,555

2008 LOW 1,204

50%1,400

62% 1,177

2008 LOW 666

 10 Treasury  L0W 1.37^ NOW1.68% Gold 1,316 Oil 26.59 low Now 43.38  

ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST
Carl does not offer investment advice, but merely his own personal opinion. This report has been prepared from original sources and data we believe reliable but make no representations as to the accuracy or completeness. Carl, his affiliates and subsidiaries and/or their officers and employees may from time to time acquire, hold or sell a position in securities. Past performance is no guarantee of future success. Upon request, we will supply additional information. CarlBis@aol.com

 

GOOD MORNING SUNSHINE-THE EARTH SAYS HELLO

Good morning sunshine, the earth says hello!

I have recently been asked, why do I continue to write this blog? It may have something to do with my age. At seventy-six and with my father only living until eighty-six, I realize my time is limited. Six of my friends and immediate family members, have died within the last year. As a warning, I suggest that you do not read the latest best-selling book ‘Being Mortal‘.  Maybe my writing has something to do with a need I have to pass on my knowledge of the markets to the next generation?  However, as I look back at my life, I feel a great deal of satisfaction with my family. Mission accomplished! I  have helped raised four children, all with advanced degrees and all independent financially. Six of eight of my grandchildren are also on-stream for a successful life. Although, two of our eight grandchildren are in need of our guardianship, I believe they will also emerge, with our help, as successful adults. My oldest granddaughter just got married in July, so the cycle of life satisfyingly continues before my eyes.

I am no longer, on any organizations volunteer boards. I feel I have done my share. I was one of the founders of the International Mountain Biking Association, the Friends of the Forest Preserve of Cook County and of RIDE, Recreation for Individual Dedicated to the Environment. I think these three organizations have made a difference in the world, for the better. I was also the chairman of fundraising for our local public television station and was on the board Bradley University for twelve years and served as development chair for the Grant Park Music Festival or six years. Did that, done!

I don’t think my desire to write has anything to do with any of the above. I think it is simply that, I have to write. It’s part of who I am and is probably built into my DNA. Like Gene Kelly in the movie, Singing in the Rain , who sang “GOTTA DANCE”!   I HAVE TO WRITE! So, as my wife and I enter our ‘Golden Years’, which my father called his ‘Rust Years”, I suggest to those of you who don’t like me or my blog, to get on with your life with joy, love and compassion. Here are a couple of tips:

GOTTA DANCE and WRITE

The Fourth Noble Truth in Buddhism is that the path for cessation of suffering is found in the Eight Fold Path. I think it is important for the reader to know these feelings and to see that there is nothing revolutionary about these thoughts. Instead, I am speaking about the common sense of peace, love, understanding, tolerance and compassion as follows:

1) The Right View.  Wealth is only one component of success. If you base your success only on what you have, what you do for your wealth or what people think of you, you’re on the wrong path.  Ego based power will only last as long as the wealth or title.  Your attachment to possessions can actually become a burden. Also, there is a tendency to keep score by comparing yourself to other people’s possessions, which is non-productive.   You can certainly reward yourself and your family with things that celebrate your success. Wealth is a motivator, but if misused, it can also become a negative.  There is a difference about what you need and what you want. You only need a modest amount of wealth to provide for adequate shelter, food and the basic necessities. However, what you want can create desires that can become unfulfilling and cause suffering. There is always something better, bigger and different for you to desire. We are all vulnerable to seduction. How many times have we heard a person say, ‘I’ll be happy if only I have that house, the new perfect lover, or this much greater wealth?  However, when they get that house, that new supposedly perfect lover or that wealth, they are still unhappy and are already forwarding for their next possession. Want and desire cannot be confined to one thing, as improper wants and desires form a continuous chain.  And those chains can be wrapped around your neck, cutting off your energy and creativity. Look at the birds or the lilies in the field. They want not and yet they are provided for.

I suggest that we use our desires to cultivate the right desires by changing our desires from things, into desire for contentment, joy, happiness, gratefulness, fulfillment, respect, awareness, empathy, peace, good health and a loving and compassionate relationship with your family, friends and community.  That’s really what people want, isn’t it?  Wealth can provide for a nice life, but after that, wealth can create stress and anxiety. Even if you are obtaining wealth for a loved one or your family, the stress and anxiety created by the pressure to perform, can flow over into the relationship, causing a negative outcome.  Also, you may be creating expectations that you may not to be able to fulfill.  One never knows when fate will strike.  Better to base your relationship on love and compassion.  In addition, the constant striving for things can have negative effects of stress on your body can cause health problems and then nobody is happy. Look what happened to Job in the Bible. He did everything right and still he was tested by this unsympatric God. In the end of his trial, all he had was the strength of his inner self to gain fulfillment. Gods message from the Old Testament, ‘Shit happens! Deal with it.”

The Pharaoh’s of Egypt thought they could take their wealth with them.  They were very wrong. If we measure ourselves only in the physical material world, even our entire planet is a just a speck of dust compared to the vastness of the cosmos. The question of “who am I? and why am I here?’ can only be answered with our immersion into the ultimate spiritual values of life.  We are part of the creative force of nature and it is part of us.  Follow the universal moral laws like – Love your neighbor as you yourself –Love everyone you meet and for those, whom you cannot love, at least have compassion and empathy for them—Do on to others as you would have them do on to you, called the Golden Rule – So you sow, so shall you reap— Everybody you see is your mirror— for every Action there is a Reaction, for everything we do has consequences. Order does not have to change into chaos. We, as mortal humans, have the power to rise above this destructive force and with our actions, bring order out of chaos. We are organizers.  We have the power to bring solutions where things seem to be coming apart.  We can apply our organizational skills and direct the flow of our mission to do good things, which can counter chaos. Also, through your giving of love, compassion and empathy, we can connect with the creative forces that will give you internal fulfillment, and you will be rewarded with a resolute soul that can withstand adversity.

2) Right Intension. I believe that this path meant that should Be Motivated by Goodness. Being a miser or being motivated by greed will sap your energy and creativity, because you are out of harmony with the universe.  You might ask what about all those wealthy aristocrats who are greedy and have gathered their fortunes through power, lies, cheating and deceit.  This kind of a question has been bothering virtuous people throughout the ages.  Responding to the lament that virtue suffers, while vise flourishes, Jesus insisted that virtue nourish the soul, while vice turns men into animals, who can never achieve fulfillment.   Fortune has a two edged sword and that everyone at some time faces both sides of the blade.   Good Fortune cannot be trusted and can suddenly abandon you through bad health, misfortune or betrayal.  No matter what fate hands you, always have the intention to do good things. Go ahead; be in harmony with the universe. When you have good intentions, it somehow helps you reach fulfillment.  If you can’t listen to your mind, listen to your body.  If you are feeling anxiety in your chest and head, think about what positive things you can do.  Go see a sunset. Smell a flower.  Watch children play. Do something creative. Write a poem.  Compose a story.  Draw a picture. Get those divine creative juices flowing. Exercise!  Find out what gets your creative juices flowing.  Always, no matter what, be joyfully and grateful inside yourself. Volunteer to help someone. Pick up thrash instead of walking around it. Hug your loved ones.  Don’t get bogged down in greed.  Let your good intentions be your guide to internal happiness. The future is created in the now moment.

3)  Right Speech. Be Verbally Aware. Some people just can’t stop talking. All their internal energy is wasted in their hearing themselves talk. For many, conversations are really one way. The one who speaks, wishes to be listen to. However, when others are speaking rather than listening, most are thinking of what to say next. Therefore, be aware of listening. Engage in face-to-face contact and if possible, eyes to eyes contact. No one’s opinion is superior to anyone else’s.  So, listen to others opinion’s with respect. Be immune to criticism of your views.  Most are probably not ready to be open to other views other than their own.  Stay on the righteous path.  Do not speak harshly of others, “if you can’t say anything good about a person, don’t say anything at all.”  So, just be careful what you say and try to engage your brain before engaging your mouth.  We are likely to find some fierce opposition to our views. It is not our purpose to convince everyone, but to merely set in place the beginning of a New Awakening. Many are called, but few will choose to follow. Speak to everyone, with kindness, tenderness, empathy, compassion and love.

4) Right Action Be Non-Judgmental. Try to stop classifying, labeling and analyzing right and wrong, bad and good.   Everything is relative. You have to raise yourself above the turbulence of your view, as seen by your personal internal dialogue, which is usually ‘a wall of worry’.  We often see things not as they are, but as who we are. Once the tumblers of decision making fall into place, have the conviction to act on your decision.  You can always change your mind if you later think you made the wrong decision.  Be flexible.  We all make mistakes.  Be non-judgmental about your mistakes and others. Analyze your decision making process and try again. Discover what you did wrong and make plans to correct that flaw.  Without risk, there would be no reward. The future is uncertain.  And that is the exciting thing about it.  The future is in your hands. Embrace the mystery.  Be grateful for the challenges.  Be flexible like a tree in a storm. When you are judgmental, you are stagnant in a fixed ideological place.  Be open to change. When you combine the dynamic energy of non-judgment with the stillness of your internal mind, then you are ready for decision making.

 5) Right Livelihood. Follow The Creative Path: How can you earn a living in this completive world and still be true to your values?  In order to solve an immediate financial problem, the pressures of the outer world can cause you to alter your good intensions.  There are many demands on each of us.  It is easy to say that we will trade in our ambitions in exchange for a meaningful life.  However, taking the high road becomes more difficult when your family is hungry and wanting. Cheating on your principals becomes easy to justify when you feel you have been treated unfairly.   Then in your mind, you can just even the score a little. You’re not cheating, you’re just restoring fairness. This justification can start with a small infraction of your moral code.  This can be dangerous, because once you start breaking rules, your brain tends to find more circumstance that justify even more exceptions.  Your cheating at work can be looked at as just another hedge against failure.  However, cheating and being deceptive is a seductive force that once started, can become addictive.  Leading an un-genuine life will suck more and more energy from your life until you collapse either mentally or physically.  So if you have started, stop now. It is never too late to stop and redeem yourself by doing good things.

Everyone has a unique gift and a special talent for a service that others desire. There is a reason for your existence. Focus on what you have to give, rather on “What is in it for me.”  Ask “What can I give” and abundance should follow.  If one thing doesn’t turn out, look at it as though that just wasn’t for you and it was the universal force directing you to open a new door.  Don’t blame anybody and don’t feel like a victim.  These are negative forces that take away energy.  Just keep on concentrating on your creative forces.  When you find the right livelihood, you will know it, because you will feel the joy. Joy does not have to be experienced only on holidays or after work. Find a place where your livelihood brings you and others joy.  Don’t settle for less. If you don’t have this now, look at alternatives.  Follow your bliss.

6) Right Effort.  Look For Solutions.   You are not responsible for the world you are in. However, you may find that you want to become a more active participant in things in which you can make a difference and make the world a better place. The process to change things in the world is difficult, but not impossible. Search within yourself and draw from a divine universal consciousness which will tell you that, change starts with one person having a firm conviction that something needs to be changed.  If enough people, along with you, feel this conviction, it can overflow into the outer collective world, where a consensus is reached, resulting in the synergy and passion necessary to facilitate the change.  The world of today, as in the past, seems to be in a quagmire of dangerous polarization, without consensus.  However don’t let that stop you, go ahead and save the world. Please join my wife and I as we try!

When you are right don’t feel pride, excitement or euphoria.  When you are wrong, don’t feel anger, guilty or anxiety.  The outcome is nothing more than the outcome. Relinquish responsibility and guilt for the outcome. It should not affect your next decision. Keep your ego in check and solutions will come more easily.  There are times to celebrate, but specifically set aside a special time for that kind of occasion. There is nothing wrong with setting a goal and celebrating after you have achieved it. However, make sure the goal has ethical value and is high enough, so the celebrations are infrequent and special

7) Right Mindfulness   Be Aware Of Your Inner Connection to Everything! Mindfulness can be achieved with an understanding of our true spiritual nature. A baby is unable to distinguish from itself and the outer world.  So, in our early life, if we could re-remember that feeling, and part of our brain does, there was a time  for each us, when there was no difference between us and the rest of the world. We were one.  If we can search deep enough, our brain can find that time when we were connected to the whole.   This form of collective consciousness is available to all of us.  After all, how do we all know what beauty and quality are, when we see it?  That consensus is communicated to us without words and yet we recognize it when we see it.   It has to be experienced to be believed.  Look at this not as a problem to be solved, but a mystery to be experienced.  Some call this connection, divine intelligence, or some call this God.  The metaphor doesn’t matter.  What is important is that you get there.

Fear and anger will kill this connection.  When you feel vulnerable, fear and anger can neutralize the positive energy juices.  That’s when you can become immobilized.  You are here, but you’re not. Your ears don’t hear what they are hearing and your eyes don’t see what they are seeing. Never make decisions when you are in that stage. Find ways out of this depression, like we gave examples of in dealing with greed under #2 Right Intention, such as watching a sunset, exercise etc.. If you are feeling deserted and depressed, do one positive thing at a time. Every incremental positive change is important.  At least you can stop the downtrend. Find a place where you feel comfortable, either in your mind or a physical place. Be quiet. Find a place where you can hear the wind, feel the sun, see the stars and breathe fresh air.  Little by little, get the internal trends moving from fear and anger to hope. Expand your success outward to others through voluntary service, or help someone in need or just spread some wealth around in worthwhile places.  There are plenty of choices. When you are bathing in abundance, the water will keep flowing if you connect with your genuine communal self.

8) Right Connection. Awaken the Awareness of Your Higher Self. I see life moving through five phases.  Stage#1) Behaving:  As a child we must obey the rules of our household and are indoctrinated into our tribe’s beliefs.  Stage#2) Becoming: As we grow older we educate ourselves to other views and have ambitions and goals for ourselves and try to achieve them.  Stage#3) Belonging: There comes a time when we form a family and become a functioning part of society. Stage#4) Being:  Next, Some have the time to be more introspective and discover our inner self.  Stage#5) Beholding: This is the stage where some can rise above the everyday pleasures of life and discover our Higher Self, where the present moment is divine. Many are called, but few are chosen! This stage is our goal as it connects with the collective consciousness.  Here, truth is eternal and unfolding.  Here, matter is only a perception and we become aware of our potential for peace, love, and happiness. Here, we have a heightened appreciation of empathy, beauty and goodness. Here, altruism and tolerance flourish.  Here, you can at last love your neighbor as yourself.  Here, you just don’t obey the Golden Rule, but you are the rule. This is the logical and culminating but yet unfinished outcome of the process of evolution. It is our destiny.

Beholding is a level of consciousness and happiness that is there for the asking, ‘Ask and you shall receive’ or ‘Seek and you will find the truth’. There will be those special moments when you will be part of the underlying harmony of creation. It doesn’t last long, but these glimpses are indications that eternal bliss is reachable for you.  Keep trying! This desired state of mind is beyond verbal conceptualization and linguistic explanation. One has to taste the Orange, to know what it tastes like. This spiritual connection is eternal, infinite and shapeless.   Maybe this will help. What if the Divine Source can be thought of as a Dynamic Flowing Process of constantly moving energy, which your mind can experience more accurately as a verb, than a noun? Beholding is a level of consciousness and happiness that is there for the asking, ‘Ask and you shall receive’ or ‘Seek and you will find the truth’.

Let us Pray: Awaken now! In this time of no time, this is the time. Speak not of judgment and intolerance, but speak of the spirit of love and compassion.  Journey with me, from fear to hope and to a new awareness of your potential.  A new world of peace, love and joy awaits you. Think not of the battle fields of daily life. Lift up your hearts to that higher self within self, to dignity and compassion. Hallelujah!  We are all Divine spiritual beings. We have no concern for anger, greed, revenge, dogma or creed, for the spirit is with us. Together we can transcend everyday perceptions and lift the veil of suffering, to reveal ourselves as one with the divine universal collective source. Our separateness is an illusion.

Enjoy Life to its fullest. Stat now!

Carl M. Birkelbach

 

THE INVESTMENT SRTATEGY LETTER #714

AUGUST DOLDRUMS: MONEY MANAGERS ON VACATION WORLDWIDE

DOW TRANSPORTS DOES NOT CONFIRM NEW HIGHS: SELL SIGNAL?

I believe this is an election year created bubble!

Geopolitical risk and the US stock market at record high!

The US stock markets continue to edge up and making new highs! However, Bank stocks, particularly European bank stocks,are  close to new lows. I  expect Deutsche Bank now at 13.54 with a low of 12.48,to break into new ow ground and after the US election to go bankrupt. a clue to the markets weakness is retails store closings and  the reluctance of the Dow Transports to confirm new high

Sorry I haven’t written much lately. The markets seem in the summer doldrums. A Goldilocks market. Neither too hot nor too cold. US stocks are near all-time highs, with most Banks close to all time lows. The likelihood of a Trump presidency seem less likely, but the possibility still looms as a possibility, should terrorists acts become active. The economy continues to be lack luster, hardly growing in the first half of 2016. So, until something changes, I will remain silent for a while. All below is applicable.

7/23/16 Investors are very bullish even though the headlines are showing geopolitical risk at a record high, strife in the European Union, a coup attempt in Turkey, tensions in this South China Sea, numerous terrorist attacks and rhetoric from a presidential candidate giving authoritarianism  a full embrace. Investors seem convinced that economic prosperity and good corporate profits are just ahead of us. However, for the past four quarters earnings-per-share the S&P 500 have been falling by about 12% per the year prior. The falling dollar and cheap energy prices are hurting earnings. For instance, Coca-Cola’s global sales have risen in local currency terms, but have declined in dollars for the last two years. Dollar and oil prices have probably stabilized. The economy seems to be growing just fast enough to keep demand for products moving without much inflation. (Harley any growth for the first two quarters of 2016). A Goldilocks economy. Wages and labor costs have been rising at only  an annual rate of only 2.3%. However, there is now pressure for wages to grow faster. A 5% rise in wages could lower profits by about 15%.

The biggest risk in the market seems to be coming from a political climate that is frighteningly uncertain. Hillary Clinton has promised to put pressure on drug pricing which encompasses 14% of all profits the US. Donald Trump seems to be pursuing an agenda of global trade protection, large tax cuts, an expensive wall, restructuring projects, the deportation of 11 million consumers and workers, major punishment of corporations that are US-based  and want to leave the US Or have already left the US. In addition, HE is basically willing to scrap the NATO agreement. Markets don’t like uncertainty.

So where is the buying coming from??  US corporations are using my earnings and low interest rates to buy back  $165 billion a quarter of their own stock. In addition, Citicorp analysts have said that the Central Bank’s worldwide are buying stock, to prop up a sagging worldwide economy.

For the following reasons below, I believe this is a bubble that is being held up by corporate buy- backs, excessive Central Bank buying (don’t fight the Fed) and political considerations to keep the bubble fully blown during this US election period. I don’t think the markets will hold up that long, which will be good for Trump and bad for the world!

1) The US MARKETS ARE making new highs. Now, everything is OK again? Sure!  A Citigroup analyst has reported buying is coming from Central Banks. They are creating a fantasy that all is OK, before the US election.   the BEAR MARKET decline may take longer to develop than I first thought and I am extending my 2016 FORCAST TO 7/4/2017. See below

2). Retail stocks such as Macy’s, Disney and Sears are having trouble with their earnings. Store closings are commonplace today as people are buying online. This is not good for profit margins or employment. The economy could be stimulated with a backlog of infrastructure spending. Not a chance with this Congress.

3). Gold is making new highs, while the 10 year treasury WENT TO 1.37% is a new low.  now 1.50%.That is where the money is going. This means that INDIVIDUAL investors are very cautious. 

4). Donald Trump, the  nominee of the Republican Party, continues to blurt out dangerous statements.  He recently said, “why worry about Debt, we can print money.” That’s true, except that excessive printing of money turns into hyperinflation. If you don’t know the history of the Weimar Republic in Germany you are likely to repeat history’s mistakes. Besides, it’s the Federal Reserve’s job to monitor monetary policy. Of course a dictator, can easily appoint flunkies at the Federal Reserve, which he could control. The market dislikes uncertainty and instability. The possibility of the Trump presidency, however unlikely, is still un- stabilizing to the markets. His quote of “fight fire with fire” will mean more meaningless and expensive wars~! His comments on NATO are based on financing not commitment or global strategy. This will encourage Putin.

5).I believe most of buying has occurred because of Central Bank stimulus, continued low interest rates (-0% some places) and corporate stock buybacks in the last 12 months  are a record $600 billion. If it were not this stimulus, I believe the market would be down some 20% at this point. Companies are not investing in production or innovation. this is bad for employment and the economy.

6). The middle class continues to take it on the chin. According to recent data between 2000 and 2014, the middle class shrunk from 55% to under 51%. It’s probably now below 50%. An economy  based on consumer spending of the middle class, like the United States, cannot grow without a healthy middle-class. International corporations  do well for a while, as they are now. But eventually, I feel the present economic environment will lead to a deflationary economy, which will hurt all economic levels.

7). If commodity prices and companies engaged in retail sales continue to suffer, their bonds will eventually suffer and therefore the banks that are holding securities will suffer. 2008 all over again, only this time no government bailout! The ‘canary in the mine’ Deutsche Bank at 14.35 is down from its recent high of 19.46 and above its recent low  at 12.60, Also see weak charts of BCS, CS, HBC.BE, BNP.PA   WHY IS THE US MARKETS MAKING NEW HIGHS AND THE BANKS MAKING NEW LOWS? BECAUSE OF, I BELIEVE CENTRAL BANK INTERFERENCE, WHICH WILL STOP AFTER THE ELECTION. CAN NEW HIGHS LAST UNTIL THEN?

8). China continues to show lackluster economic growth. China’s rate of loans is far above the rate of money supply growth. Right now, China is using its currency to buy as many companies in the West as it can, while it can. Just as has happened to Japan in the 1990s, we expect the same deflationary scenario to begin to occur in China. . In China, for example, has $1.3 trillion of corporate loans, one seventh of the total are owned by companies whose profits don’t cover their interest payments, a problem that could trigger banks losses equal to 7% of gross domestic product.”

9). The central banks have done everything they can to stop inflation in Europe and in the United States with  the results  that many corporations in Europe are issuing bonds and financing them at close to zero interest rates. What this means, is that central banks cannot stop deflation. Rick Santelli of CNBC says “nobody says anything good about negative interest rates.” Central banks are helpless to stop deflation.

10). I continue to believe that economic growth in the United States is being slowed by all the income growth going to the top 1%. A recent Economist Magazine showed the upper 1% standing on top of their money with the guarded by barbed wire fence around, with the title WINNERS TAKE ALL. This is a lose, lose policy for everyone, where all boats will sink.

11) Brazil and Petrobas its oil company($500 Bil debt) are going bankrupt because of corruption. the Olympics will show what a disaster this is! What will happen to its Bonds that the banks hold?

12) Cyber theft at the banks can’t be stopped. $80 billion, another attack right after that. Soon there will be no confidence in on line banking.

My forecasts for next 12 months TO JULY 4TH 2017 call for the Dow Jones Industrial average to be as low as 14,688 to 12,000, the NASDAQ to be as low as 4,000 to 3,000 and the S&P 500 to be as low as 1,560 to 1,400 because  (See previous market letters)

 Current 8/19/16

CLOSE

Dow NASDAQ S&P 500
18,562 5,238 2,184
Short Term UP UP UP
Int. Term UP UP UP
Long Term ? ? ?
Foretasted Trends DJIA NASDAQ S&P 500
Short Term Down Down Down
Int. Term Down Down Down
Long Term Bear Market Bear Market Bear Market
Breakout Points DJIA NASDAQ S&P 500
Short Term Up (Resistance) 18,722 5,271 2,184
Short Term Down (Support) 17,140/ 4,594 1,978
Int. Term Up (Resistance) 18,722 5,271 2,184
Int. Term Down (Support)  16,865 15,484  /15,370 /14,688/ 13,377  4,267/4,209/3,986/3,294  1,850/1,560
Long Term Up (Resistance) 18,352 5,231 2,134
Long Term Down Fibonacci Support 50%12,000

62%10,750

2008 LOW 6,627

50% 3,000

62% 2,555

2008 LOW 1,204

50%1,400

62% 1,177

2008 LOW 666

 10 Treasury  L0W 1.37^ NOW1.5% Gold 1,348 Oil 26.59 low Now 48.38

ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST
Carl does not offer investment advice, but merely his own personal opinion. This report has been prepared from original sources and data we believe reliable but make no representations as to the accuracy or completeness. Carl , his affiliates and subsidiaries and/or their officers and employees may from time to time acquire, hold or sell a position in securities. Past performance is no guarantee of future success. Upon request, we will supply additional information. CarlBis@aol.com

THE INVESTMENT STRATEGY LETTER #713

Tags

,

A bit boring!

I believe this is an election year created bubble!

Geopolitical risk and the US stock market at record high!

Sorry I haven’t written much lately. The markets seem in the summer doldrums. A Goldilocks market. Neither too hot nor too cold. US stocks are near all-time highs, with most Banks close to all time lows. The likelihood of a Trump presidency seem less likely, but the possibility still looms as a possibility, should terrorists acts become active. The economy continues to be lack luster, hardly growing in the first half of 2016. So, until something changes, I will remain silent for a while. All below is applicable.

7/23/16 Investors are very bullish even though the headlines are showing geopolitical risk at a record high, strife in the European Union, a coup attempt in Turkey, tensions in this South China Sea, numerous terrorist attacks and rhetoric from a presidential candidate giving authoritarianism  a full embrace. Investors seem convinced that economic prosperity and good corporate profits are just ahead of us. However, for the past four quarters earnings-per-share the S&P 500 have been falling by about 12% per the year prior. The falling dollar and cheap energy prices are hurting earnings. For instance, Coca-Cola’s global sales have risen in local currency terms, but have declined in dollars for the last two years. Dollar and oil prices have probably stabilized. The economy seems to be growing just fast enough to keep demand for products moving without much inflation. (Harley any growth for the first two quarters of 2016). A Goldilocks economy. Wages and labor costs have been rising at only  an annual rate of only 2.3%. However, there is now pressure for wages to grow faster. A 5% rise in wages could lower profits by about 15%.

The biggest risk in the market seems to be coming from a political climate that is frighteningly uncertain. Hillary Clinton has promised to put pressure on drug pricing which encompasses 14% of all profits the US. Donald Trump seems to be pursuing an agenda of global trade protection, large tax cuts, an expensive wall, restructuring projects, the deportation of 11 million consumers and workers, major punishment of corporations that are US-based  and want to leave the US Or have already left the US. In addition, HE is basically willing to scrap the NATO agreement. Markets don’t like uncertainty.

So where is the buying coming from??  US corporations are using my earnings and low interest rates to buy back  $165 billion a quarter of their own stock. In addition, Citicorp analysts have said that the Central Bank’s worldwide are buying stock, to prop up a sagging worldwide economy.

For the following reasons below, I believe this is a bubble that is being held up by corporate buy- backs, excessive Central Bank buying (don’t fight the Fed) and political considerations to keep the bubble fully blown during this US election period. I don’t think the markets will hold up that long, which will be good for Trump and bad for the world!

1) The US MARKETS ARE making new highs. Now, everything is OK again? Sure!  A Citigroup analyst has reported buying is coming from Central Banks. They are creating a fantasy that all is OK, before the US election.   the BEAR MARKET decline may take longer to develop than I first thought and I am extending my 2016 FORCAST TO 7/4/2017. See below

2). Retail stocks such as Macy’s, Disney and Sears are having trouble with their earnings. Store closings are commonplace today as people are buying online. This is not good for profit margins or employment. The economy could be stimulated with a backlog of infrastructure spending. Not a chance with this Congress.

3). Gold is making new highs, while the 10 year treasury WENT TO 1.37% is a new low.  now 1.50%.That is where the money is going. This means that INDIVIDUAL investors are very cautious. 

4). Donald Trump, the  nominee of the Republican Party, continues to blurt out dangerous statements.  He recently said, “why worry about Debt, we can print money.” That’s true, except that excessive printing of money turns into hyperinflation. If you don’t know the history of the Weimar Republic in Germany you are likely to repeat history’s mistakes. Besides, it’s the Federal Reserve’s job to monitor monetary policy. Of course a dictator, can easily appoint flunkies at the Federal Reserve, which he could control. The market dislikes uncertainty and instability. The possibility of the Trump presidency, however unlikely, is still un- stabilizing to the markets. His quote of “fight fire with fire” will mean more meaningless and expensive wars~! His comments on NATO are based on financing not commitment or global strategy. This will encourage Putin.

5).I believe most of buying has occurred because of Central Bank stimulus, continued low interest rates (-0% some places) and corporate stock buybacks in the last 12 months  are a record $600 billion. If it were not this stimulus, I believe the market would be down some 20% at this point. Companies are not investing in production or innovation. this is bad for employment and the economy.

6). The middle class continues to take it on the chin. According to recent data between 2000 and 2014, the middle class shrunk from 55% to under 51%. It’s probably now below 50%. An economy  based on consumer spending of the middle class, like the United States, cannot grow without a healthy middle-class. International corporations  do well for a while, as they are now. But eventually, I feel the present economic environment will lead to a deflationary economy, which will hurt all economic levels.

7). If commodity prices and companies engaged in retail sales continue to suffer, their bonds will eventually suffer and therefore the banks that are holding securities will suffer. 2008 all over again, only this time no government bailout! The ‘canary in the mine’ Deutsche Bank at 14.35 is down from its recent high of 19.46 and above its recent low  at 12.60, Also see weak charts of BCS, CS, HBC.BE, BNP.PA   WHY IS THE US MARKETS MAKING NEW HIGHS AND THE BANKS MAKING NEW LOWS? BECAUSE OF, I BELIEVE CENTRAL BANK INTERFERANCE, WHICH WILL STOP AFTER THE ELECTION. CAN NEW HIGHS LAST UNTILL THEN?

8). China continues to show lackluster economic growth. China’s rate of loans is far above the rate of money supply growth. Right now, China is using its currency to buy as many companies in the West as it can, while it can. Just as has happened to Japan in the 1990s, we expect the same deflationary scenario to begin to occur in China. . In China, for example, has $1.3 trillion of corporate loans, one seventh of the total are owned by companies whose profits don’t cover their interest payments, a problem that could trigger banks losses equal to 7% of gross domestic product.”

9). The central banks have done everything they can to stop inflation in Europe and in the United States with  the results  that many corporations in Europe are issuing bonds and financing them at close to zero interest rates. What this means, is that central banks cannot stop deflation. Rick Santelli of CNBC says “nobody says anything good about negative interest rates.” Central banks are helpless to stop deflation.

10). I continue to believe that economic growth in the United States is being slowed by all the income growth going to the top 1%. A recent Economist Magazine showed the upper 1% standing on top of their money with the guarded by barbed wire fence around, with the title WINNERS TAKE ALL. This is a lose, lose policy for everyone, where all boats will sink.

11) Brazil and Petrobas its oil company($500 Bil debt) are going bankrupt because of corruption. the Olympics will show what a disaster this is! What will happen to its Bonds that the banks hold?

12) Cyber theft at the banks can’t be stopped. $80 billion, another attack right after that. Soon there will be no confidence in on line banking.

My forecasts for next 12 months TO JULY 4TH 2017 call for the Dow Jones Industrial average to be as low as 14,688 to 12,000, the NASDAQ to be as low as 4,000 to 3,000 and the S&P 500 to be as low as 1,560 to 1,400 because  (See previous market letters)

 Current 7/23//16

CLOSE

Dow NASDAQ S&P 500
18,352 5,166 2,164
Short Term UP UP UP
Int. Term UP UP UP
Long Term ? ? ?
Foretasted Trends DJIA NASDAQ S&P 500
Short Term Down Down Down
Int. Term Down Down Down
Long Term Bear Market Bear Market Bear Market
Breakout Points DJIA NASDAQ S&P 500
Short Term Up (Resistance) 18,622 5,415 2,175
Short Term Down (Support) 17,140/ 4,594 1,978
Int. Term Up (Resistance) 18,352 5,231 2,131
Int. Term Down (Support)  16,865 15,484  /15,370 /14,688/ 13,377  4,267/4,209/3,986/3,294  1,850/1,560
Long Term Up (Resistance) 18,352 5,231 2,134
Long Term Down Fibonacci Support 50%12,000

62%10,750

2008 LOW 6,627

50% 3,000

62% 2,555

2008 LOW 1,204

50%1,400

62% 1,177

2008 LOW 666

 10 Treasury  L0W 1.37^ NOW1.50% Gold 1,366 Oil 26.59 low Now 41.74

ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST
Carl does not offer investment advice, but merely his own personal opinion. This report has been prepared from original sources and data we believe reliable but make no representations as to the accuracy or completeness. Carl , his affiliates and subsidiaries and/or their officers and employees may from time to time acquire, hold or sell a position in securities. Past performance is no guarantee of future success. Upon request, we will supply additional information. CarlBis@aol.com

 

THE INVESTMENT STRATEGY LETTER #712

Tags

Geopolitical risk and the US stock market at record high!

I believe this is an election year created bubble!

Investors are very bullish even though the headlines are showing geopolitical risk at a record high, strife in the European Union, a coup attempt in Turkey, tensions in this South China Sea, numerous terrorist attacks and rhetoric from a presidential candidate giving authoritarianism  a full embrace. Investors seem convinced that economic prosperity and good corporate profits are just ahead of us. However, for the past four quarters earnings-per-share the S&P 500 have been falling by about 12% per the year prior. The falling dollar and cheap energy prices are hurting earnings. For instance, Coca-Cola’s global sales have risen in local currency terms, but have declined in dollars for the last two years. Dollar and oil prices have probably stabilized. The economy seems to be growing just fast enough to keep demand for products moving without much inflation. (Harley any growth for the first two quarters of 2016). A Goldilocks economy. Wages and labor costs have been rising at only  an annual rate of only 2.3%. However, there is now pressure for wages to grow faster. A 5% rise in wages could lower profits by about 15%.

The biggest risk in the market seems to be coming from a political climate that is frighteningly uncertain. Hillary Clinton has promised to put pressure on drug pricing which encompasses 14% of all profits the US. Donald Trump seems to be pursuing an agenda of global trade protection, large tax cuts, an expensive wall, restructuring projects, the deportation of 11 million consumers and workers, major punishment of corporations that are US-based  and want to leave the US Or have already left the US. In addition, HE is basically willing to scrap the NATO agreement. Markets don’t like uncertainty.

So where is the buying coming from??  US corporations are using my earnings and low interest rates to buy back  $165 billion a quarter of their own stock. In addition, Citicorp analysts have said that the Central Bank’s worldwide are buying stock, to prop up a sagging worldwide economy.

For the following reasons below, I believe this is a bubble that is being held up by corporate buy- backs, excessive Central Bank buying (don’t fight the Fed) and political considerations to keep the bubble fully blown during this US election period. I don’t think the markets will hold up that long, which will be good for Trump and bad for the world!

1) The US MARKETS ARE making new highs. Now, everything is OK again? Sure!  A Citigroup analyst has reported buying is coming from Central Banks. They are creating a fantasy that all is OK, before the US election.   the BEAR MARKET decline may take longer to develop than I first thought and I am extending my 2016 FORCAST TO 7/4/2017. See below

2). Retail stocks such as Macy’s, Disney and Sears are having trouble with their earnings. Store closings are commonplace today as people are buying online. This is not good for profit margins or employment. The economy could be stimulated with a backlog of infrastructure spending. Not a chance with this Congress.

3). Gold is making new highs, while the 10 year treasury WENT TO 1.37% is a new low. That is where the money is going. This means that INDIVIDUAL investors are very cautious. 

4). Donald Trump, the  nominee of the Republican Party, continues to blurt out dangerous statements.  He recently said, “why worry about Debt, we can print money.” That’s true, except that excessive printing of money turns into hyperinflation. If you don’t know the history of the Weimar Republic in Germany you are likely to repeat history’s mistakes. Besides, it’s the Federal Reserve’s job to monitor monetary policy. Of course a dictator, can easily appoint flunkies at the Federal Reserve, which he could control. The market dislikes uncertainty and instability. The possibility of the Trump presidency, however unlikely, is still un- stabilizing to the markets. His quote of “fight fire with fire” will mean more meaningless and expensive wars~! His comments on NATO are based on financing not commitment or global strategy. This will encourage Putin.

5).I believe most of buying has occurred because of Central Bank stimulus, continued low interest rates (-0% some places) and corporate stock buybacks in the last 12 months  are a record $600 billion. If it were not this stimulus, I believe the market would be down some 20% at this point. Companies are not investing in production or innovation. this is bad for employment and the economy.

6). The middle class continues to take it on the chin. According to recent data between 2000 and 2014, the middle class shrunk from 55% to under 51%. It’s probably now below 50%. An economy  based on consumer spending of the middle class, like the United States, cannot grow without a healthy middle-class. International corporations  do well for a while, as they are now. But eventually, I feel the present economic environment will lead to a deflationary economy, which will hurt all economic levels.

7). If commodity prices and companies engaged in retail sales continue to suffer, their bonds will eventually suffer and therefore the banks that are holding securities will suffer. 2008 all over again, only this time no government bailout! The ‘canary in the mine’ Deutsche Bank at 14.35 is down from its recent high of 19.46 and above its recent low  at 12.60, Also see weak charts of BCS, CS, HBC.BE, BNP.PA   WHY IS THE US MARKETS MAKING NEW HIGHS AND THE BANKS MAKING NEW LOWS? BECAUSE OF, I BELIEVE CENTRAL BANK INTERFERANCE, WHICH WILL STOP AFTER THE ELECTION. CAN NEW HIGHS LAST UNTILL THEN?

8). China continues to show lackluster economic growth. China’s rate of loans is far above the rate of money supply growth. Right now, China is using its currency to buy as many companies in the West as it can, while it can. Just as has happened to Japan in the 1990s, we expect the same deflationary scenario to begin to occur in China. . In China, for example, has $1.3 trillion of corporate loans, one seventh of the total are owned by companies whose profits don’t cover their interest payments, a problem that could trigger banks losses equal to 7% of gross domestic product.”

9). The central banks have done everything they can to stop inflation in Europe and in the United States with  the results  that many corporations in Europe are issuing bonds and financing them at close to zero interest rates. What this means, is that central banks cannot stop deflation. Rick Santelli of CNBC says “nobody says anything good about negative interest rates.” Central banks are helpless to stop deflation.

10). I continue to believe that economic growth in the United States is being slowed by all the income growth going to the top 1%. A recent Economist Magazine showed the upper 1% standing on top of their money with the guarded by barbed wire fence around, with the title WINNERS TAKE ALL. This is a lose, lose policy for everyone, where all boats will sink.

11) Brazil and Petrobas its oil company($500 Bil debt) are going bankrupt because of corruption. the Olympics will show what a disaster this is! What will happen to its Bonds that the banks hold?

12) Cyber theft at the banks can’t be stopped. $80 billion, another attack right after that. Soon there will be no confidence in on line banking.

My forecasts for next 12 months TO JULY 4TH 2017 call for the Dow Jones Industrial average to be as low as 14,688 to 12,000, the NASDAQ to be as low as 4,000 to 3,000 and the S&P 500 to be as low as 1,560 to 1,400 because  (See previous market letters)

 Current 7/23//16

CLOSE

Dow NASDAQ S&P 500
18,570 5,415 2,175
Short Term UP UP UP
Int. Term UP UP UP
Long Term ? ? ?
Foretasted Trends DJIA NASDAQ S&P 500
Short Term Down Down Down
Int. Term Down Down Down
Long Term Bear Market Bear Market Bear Market
Breakout Points DJIA NASDAQ S&P 500
Short Term Up (Resistance) 18,622? 5,415? 2,175?
Short Term Down (Support) 17,140/16,865 4,594/4,267/  4,209 1,978/1850/
Int. Term Up (Resistance) 18,352 5,231 2,131
Int. Term Down (Support)   15,484  /15,370 /14,688/ 13,377  3,986/3294  1,560
Long Term Up (Resistance) 18,352 5,231 2,134
Long Term Down Fibonacci Support 50%12,000

62%10,750

2008 LOW 6,627

50% 3,000

62% 2,555

2008 LOW 1,204

50%1,400

62% 1,177

2008 LOW 666

 10 Treasury  L0W 1.37^ NOW1.57% Gold 1,322 Oil 26.59 low Now 44.26

ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST
Carl does not offer investment advice, but merely his own personal opinion. This report has been prepared from original sources and data we believe reliable but make no representations as to the accuracy or completeness. Carl , his affiliates and subsidiaries and/or their officers and employees may from time to time acquire, hold or sell a position in securities. Past performance is no guarantee of future success. Upon request, we will supply additional information. CarlBis@aol.com