THE INVESTMENT STRATEGY LETTER

ANOTHER DAY OF DULL NEW HIGHS

Just another normal day of all time new highs and a 2% gain in the China market. The DAX and Nikkei markets are quiet. The RUSSEL 2000 was up 1 1/4% although since March, it has avoided making new highs. The STANDARD AND POORS index hasn’t dropped more than 0.3%  in the last 23 days. That is among the longest such upward streaks since 1960. The current up is being driven both by seasonal factors, (the last two months of the year tends to be among the strongest for stocks) and the need for under-invested participants to play catch-up, such as hedge funds. What continues to bother me is the lack of economic resilience in Europe and Japan and a slowing economic growth in China. Stimulus packages are online for all three. However, I see these economies as listless THAT eventually will affect the United States  economies.
It would not take much to set off a vicious cycle of a reallocation of 1% of the total holdings of the world’s 500 biggest asset managers, away from emerging markets. With a $1.3 trillion dollars in the flow of this year a I continue to be concerned about investors seeking high yielding asset in an unliquid market.

Last week was not a good week for the Feds.
A Senate report indicated that banks such as Goldman Sachs can influence commodity prices.Carl Levin, Democrat of Michigan said the current rules were not adequate to stop the problem . There have been allocations by Congress suggesting that FED supervisors when soft on such firms as Goldman. That regulators called some transactions legal but shady.
Barron’s Magazine released its list of 1200 state-by-state rankings of the top Investment Advisers. In case you haven’t noticed, investments advisers have taken over the job of the old traditional stockbrokers. Of the 1200 investment advisers most are serviced by large firms such as Merrill Lynch owned by J.P. Morgan, Morgan Stanley, Wells Fargo and UBS.( all banks). When I grew up small brokerage firms where is as common as Starbucks franchises are today Registered broker dealers have gone from 10,000 to some 4606. Within this group are a very small group of small broker-dealers. Small broker-dealer are considered ones that have less than 150 brokers. The industry has been taken over by investment advisers and the banks control the investment advisers. These small regional brokerage firms were helping small businesses that wanted to go public. This option is no longer available for small businesses. Your only option is to go to the banks for loans that are servicing mostly a large clove conglomerates. Rather than investing in a portfolio of stocks, investment advisers suggest that you diversify your money in a series of no load mutual funds, also owned by the banks.
I bring all this up, because it appears to me that the stock market at current levels is living off hype, rather than real growth prospects. This can work for a while, such as it did in 2000 with the dot.com companies and inflated real estate prices of 2008. Eventually, the situation collapses along with stock prices. As I said earlier, this is a period of time, for the next two months where the stock market usually has its best performance. Don’t let the hype and hubris overcome her common

 Current Value 11/24/2014 Dow NASDAQ S&P 500
17,817 4,754 2,069
Short Term UP UP UP
Int. Term Up Up Up
Long Term UP UP UP
Forecasted Trends DJIA NASDAQ S&P 500
Short Term UP UP UP
Int. Term ? ? ?
Long Term Sideway Sideways Sideways
Breakout Points DJIA NASDAQ S&P 500
Short Term Up (Resistance) 17,830 4,754 2,069
Short Term Down (Support) 15,855 4,116  1,820/1814
Int. Term Up (Resistance) 18,062 5,002 2,486
Int. Term Down (Support) 15,356/14,688 3,986/3294 1,560
Long Term Up (Resistance) 18,974 5,132 3,044
Long Term Down (Support) 50%12,025 62% 10,750 50%2,958 62% 2,555 50%1,390 62% 1,177
       

Carl M. Birkelbach 11/24/14

Advertisements