The market is having trouble at the 18,000 level of the Dow

Recent average hourly wage reports show a nine cent increase in November to $24.66, the biggest gain in 17 months. The Federal Reserve has pointed to wages as a key reason to keep rates low. Higher wages could lead to higher prices and the Fed might feel committed to raise rates to limit inflation. Many analysts expect the economy to grow 3% in 2015. This would mark the first time in a decade that annual growth would reach that threshold. However there are still 7 million people with part-time jobs who would prefer full-time work and there are millions of people who have stopped looking for a job and they are no longer counted as unemployed. The real rate of unemployment is probably closer to 9%. However, the US is doing better than the 18 European nation alliance where the reported unemployment rate is 11.5%. Japan appears to be in a recession and China’s growth has slowed along with Russia and Brazil. The good news continues to be that crude oil prices have continued to drop to $63.03 a barrel. This is down from $140 a barrel in 2008 and a two-year hiatus, where the price of crude oil stayed above $100 a barrel.

GOLD

It is interesting to note that the price of gold is getting some notice, 43 years after Pres. Nixon scrap the gold standard. Gold appears to be reemerging as the centerpiece of a handful of initiatives in Europe, Asia and the Middle East. Voters in Switzerland considered and eventually rejected a populist plan to force its central banks to buy gold to stabilize its currency. Russia and China have both made the headlines by snapping up enormous stores of gold. In France, politicians are calling for the government to start amassing gold and the Netherlands followed suit by asking for its $5 billion of gold in the vaults of New York to be delivered to them. Even the Islamist state is declaring they wanted to avoid the ‘tyrannical financial system’ of the West by buying gold. What’s going on here? Holding gold for people and government reflects our anxieties about the future. Even though it might seem somewhat retrograde to many investors, having it on hand makes people feel safe

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I have been reading a recent book called The Death of Money and the Coming Finincial Collapse of the International Monetary System by James G Richards Mr. Richards asserts that he expects the economy to be in a economic bubble. He believes that the old normal is gone, but the new normal has not yet arrived and that the economy is in a phase of transition from one state to another. He believes that a new international monetary system will rise from the ashes of our present system based on the dollar, just as the British Commonwealth at Bretton Woods in 1944 happened. He believes the mortgage problem in 2008 was manageable however unmanageable were the trillions of dollars in derivatives created from underlying mortgages and trillions more and of repurchase agreements. From 2009 two 2012 the U.S. Treasury increased a $5 trillion cumulative deficit and the Federal Reserve printed $3 trillion in new money. The bankers jobs and bonuses were preserved but nothing was achieved for the average citizen. The Fed sees inflation as a way to dilute the real value of US debt and avoid the specter of deflation. He expects skyrocketing gold prices and the crashing dollar to be two sides of the same coin and that will occur quickly. Deflation is the Federal Reserve’s worst nightmare for many reasons as real gains from deflation cannot be easily text. Deflation would increase the real value of government debt making it harder to repay. If deflation is not reversed there will be an outright default on the national depth rather than the less dramatic outcome of default by inflation. He suggests the breaking up of the banks that would eliminate the problem of too big to fail. He believes where larger financing is required small the banks can acquire syndicate. He believes that ff large banks continue to dominate the financial situation, and that financial failure on a global basis will follow and that the task every qualifying the finances of the world will fall to the IMF, because the IMF will have the only clean balance sheet left among institutions. He believes the IMF will then rise to the occasion with a towering issuance of SDR’s, and this monetary operation will effectively end the dollar’s role as a leading reserve currency. If this does occur United States be allowed to print money. So in these uncertain times, gold should be looked at as an alternative investment to stop

Carl M. Birkelbach 12/9/14

BELOW ARE MY ELLIOTT WAVE FIBONACCI UPSIDE PROJECTIONS FOR THE DOW S&P AND NASDAQ FROM MY 4/5/12 book; INVESTMENT STRATEGY HANDBOOK FOR VOLATILE MARKETS 

DOW JONES INDUSTRIAL AVERAGE INDEX

UPSIDE RESISTANCE ZONES

Should the Dow break above its old 2007 high of 14,198 the upside potential can be at Fibonacci Resistance Zones of 17,150, 18,062, 18,974, 21,926 and 26,701. This would indicate that a new Bull Market and the Hybrid age has arrived. Even though I don’t tell the market what to do. It would be nicer for all of us than the Downside scenario. If we do enter a new Bull Market, Bull markets in the past occur is a series of doubles. 14,198 would then become an Elliott wave and the most powerful upwave #3 should follow! We  can hope.

S&P 500 INDEX

UPSIDE RESISTANCE ZONES

Should the S&P break above its old 2000 and 2007 double top of 1,576 the upside potential would be a Fibonacci Resistance points of 1,702, 2,031, 2,132, 2,486 and 3,044. As with the Dow, this would indicate a new series of Bull Market could be beginning. It would also mean that we have somehow solved our economic and environmental problems. Now that I think about it, this seems a more unlikely scenario than the Bearish Downside scenario. However, what will be, it is not for the future for be to see, but obey.

NASDAQ COMPOSITE INDEX

UPSIDE RESISTANCE ZONES

The 2009 low of 1,268 was higher than the 2007 low of 1,108. However, a new high in 2011 failed to have any follow through. This is a positive and negative offset. Another break above the old 2011 will continue to run into supply from the 2000-2002 meltdown. Upside Resistance is at 3,469, 3,658, and 3,845 and around the 2000 recovery high of 4,300 and of course at the all time high at the 5000 level. That’s a long way off. But who knows!

FROM THE 4/5/12 INVESTMENT STRATEGY HANDBOOK FOR VOLATILE MARKETS

Carl M Birkelbach 12/6/14

NOT A DAY FOR NEW HIGHS

The stock market in the United States was pretty flat today. European stocks were down severely (1.2%) as the European Central Bank held off on implementing any stimulus plan. However the Chinese market is up some 4.3% the easing of crisis in Hong Kong. Unemployment, diped below 300,000 last week. Although, most of the newly employed are employed at minimum wage. Sears holding company posted a disappointing third-quarter. We continue to be concerned about consumer spending.

This is typically time of year when the stock market goes up for mechanical reasons. Buying is done by hedge funds and pension funds that receive additional funds at this time year and try to get their performance to catch up to the market. We continue to believe that there are underlying negative factors that will affect the economy that have not shown up yet. Number one in that list of priorities is that all the income growth is going to the top 1% and leaving the middle class sucking air. Recent reports has shown that in the United States 40 people own approximately 50% of the wealth. Although job growth is up, most of that job growth is in the area of minimum wage jobs. The working poor sooner or later will have to capitulate and consumer spending, which drives our economy, will decline sharply. The other big problem I see, is that the 10 largest banks that owned 23% of the assets in the economy, during the last fiscal crisis, now have over 40% of the deposits. Too big to fail is getting dangerously close to causing another financial crisis. How long this bull market will last, no one can tell. The hype and  hubris can continue into 2015. However, I believe is the time to lighten up and maybe even buy a little gold.

Carl M. Birkelbach 12/4/14

Another New High? After pausing for one day, (a record 23 days in a row up) the market is once again making all time new highs. Newly built homes and schools have boosted constructions in October to its highest level since May. The Commerce Department indicates construction spending is up 1.1% in October after declining in September. In Asia the Nikkei is close to making a seven year high. Apparently the bank of Japan might start buying exchange traded securities. European markets are mixed the Chinese market plunged 2.6% yesterday as police used pepper spray and clubs against protesters demanding democratic reform. This is typically time of year when the stock market goes up for mechanical reasons. Buying is done by hedge funds and pension funds that receive additional funds at this time year and try to get their performance to catch up to the market. We continue to believe that there are underlying negative factors that will affect the economy that have not shown up yet. Number one in that list of priorities is that all the income growth is going to the top 1% and leaving the middle class sucking air. Recent reports has shown that in the United States 40 people own approximately 50% of the wealth. Although job growth is up, most of that job growth is in the area of minimum wage jobs. The working poor sooner or later will have to capitulate and consumer spending, which drives our economy, will decline sharply. The other big problem I see, is that the 10 largest banks that owned 23% of the assets in the economy, during the last fiscal crisis, now have over 40% of the deposits. Too big to fail is getting dangerously close to causing another financial crisis. How long this bull market will last, no one can tell. The hype and  hubris can continue into 2015. However, I believe is the time to lighten up and maybe even buy a little gold.

Carl M. Birkelbach 12/2/14