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Monthly Archives: March 2015

INVESTMENT STRATEGY LETTER

28 Saturday Mar 2015

Posted by Carl M. Birkelbach in Uncategorized

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Tags

Government bonds, INVESTMENT STRATEGY

I WILL BE ON VACATION DURING THE HOLIDAYS AND RETURN                 AFTER APRIL 15.

KEEP AN EYE ON THE CHART BELOW FOR BREAK OUT POINTS BELOW RESISTANCE OR ABOVE SUPPORT AREAS. Particularly  watch for a breakout below Dow 17,147/17,000, NASDAQ 4605/4545, S&P 500   1991/1973. That would change the Intermediate trend to DOWN

How can I still be bearish? Well, there is a long list. I still feel that deflation (Feb CPI flat)and not inflation is the problem. This can be seen in recent reports that have been issued lately that Wall Street seems to be ignoring. Retail sales for instance fell by 0.6% in February. That’s a drop for three months in a row. Housing starts for February were 897,000 on an annualized basis to levels not seen this low since September 2013. Industrial production edged up a negligible 0.1% in February carried almost entirely by gains in utilities because of colder weather. The producer price index, for final demand, in February fell 0.5% , after plummeting 0.8% in January. The bulk of those declines “70%” occurred in the service industry as opposed to goods, which had been weighed down by falling oil prices in recent months. Barclays cut its US gross domestic product forecast from 2% to up 1.2%. With the strength of the dollar and the effect of the decrease price of oil on energy companies, I wouldn’t be surprised to see a flat first-quarter 2015. The 10 year US Treasury bond yield is back down to 1.92% from over 2.1%. For those who can’t figure what’s going on with the economy, just look to the bond market. Investors are buying bonds for safety purposes. Retail sales are down and it is very difficult to raise prices in a deflationary economy.

KEEP AN EYE ON THE CHART BELOW FOR BREAK OUT POINTS BELOW RESISTANCE OR ABOVE SUPPORT AREAS. Particularly  watch for a breakout below Dow 17,147/17,000, NASDAQ 4605/4545, S&P 500   1991/1973. That would change the Intermediate trend to DOWN

 Current  Dow NASDAQ S&P 500
17,712 4,891 2,061
Short Term UP UP UP
Int. Term UP UP UP
Long Term UP UP UP
ForecastedTrendd  DJIA NASDAQ S&P 500
Short Term Down Down Down
Int. Term ? ? ?
Long Term Sideways? Sideways? Sideways?
Breakout Points DJIA NASDAQ S&P 500
Short Term Up (Resistance) 18,288 5,042 2,120
Short Term Down (Support) 17,147/17,0000 4605/4,5455     1,991/1,9733
Int. Term Up (Resistance) 18,974 See Fibonacci Projections above 5,002 See Fibonacci Projections above 2,486 See Fibonacci Projections above
Int. Term Down (Support)  15,855         /15,356 /14,688 4,166 3,986/3294 1,820 /1,560
Long Term Up (Resistance) 18,974 5,132 3,044
Long Term Down Fibonacci Support 50%12,000  62% 10,750       50%2,958  62% 2,555 50%1,390 62% 1,177
 10 yr Treasury 1.97  Gold 1,204 Oil 51.05  

 

DEFLATION OR INFLATION DANGEROUS FOR THE BOND MARKET I continue to worry about the bond market. Both deflation, which is what I suspect will happen or inflation, which is what the Fed is trying to accomplish, could be very dangerous for bondholders. Dollar borrowing has grown everywhere, but the biggest growth has been in emerging markets. Between 2009 and $2004 denominated debts of developing countries (in the form of both the bank loans and bonds) more than doubled from around $2 trillion to some $4.5 trillion according to the Bank of the International Settlements. Countries like Brazil, South Africa and Turkey, whose exports fall far short of imports, finance their current account gap’s by building up debts to foreigners. State own energy giants like Russia’s Gazprom from Brazil’s Petrobras, and been issuing dollar bonds via subsidiaries based in Luxembourg and the Cayman Islands. Taking on debt just before a shift in exchange rates, as has now happened with the US dollar rising, can be very painful. For instance in 2010 a Turkish firm borrowed $10 million via a 10 year bond with a 5% coupon. Because of the rise of the dollar, the payments over the 10 year period can now amount to some $25 million. Asian firms foreign-currency debt tripled from $700,000,000 to $2.1 trillion between 2008 and 2014. That’s going from 7.9% of regional GDP to 12.3% according to Morgan Stanley Bank. China holds $1.2 trillion in US treasury bills, most of which are sitting in its sovereign wealth fund. When the dollar rises, the fund gets richer, but even in a dollar rich country there can be pockets of pain. Almost 25% of corporate debt is dollar denominated, but only 8.5% of corporate earnings are. Worse, according to Morgan Stanley is that debt is concentrated with 5% of the firms holding 50% of it. As mentioned market letter number 624, Chinese property developers are vulnerable.

NEGATIVE BOND YIELDS Negative bond yields are very modern phenomena. Strategies that are used to protect one’s investment with negative interest rates have been described as “picking up nickels in front of a steamroller”. Whereas, investors may make a series of small gains, they can be wiped out by a sudden large loss. Most of the time the market will not fall and the seller of put options pockets the premium. However, in times like October 1987 the full bill will come due. Government bonds have typically been used as “shock absorbers” with portfolios when activities of commodities are plummeting, government bonds tend to do very well. Even when bonds do badly, the pain is not that great. Since 1925 the biggest annual loss in real terms was 15.5% in 2009. In contrast, the biggest real loss in equities was 38.9% in 1930. When yields are zero or negative, government bonds clearly do not give investors  income. The problem is they may also not function as shock absorbers. Since prices move in opposite direction of yields, it is thus difficult to imagine investors buying bonds at current yields, making much of a capital gain. It is easy however, to imagine them making a big loss. If inflation returns nominal yields would rise sharply and  prices could plummet. If government bonds in the rest of the developing world start to behave like Japanese bonds with a negative skew, some investors may doubt whether they are worth holding at all. Many investors, pension funds, insurance companies are forced to hold government bonds for accounting or regulatory reasons. Such requirements are all very well, but in a declining bond market, could have severe negative implications.

SO FAR SO GOOD A deflationary scenario could lead to bond defaults, whereas, an inflationary scenario could lead to gigantic losses in bond portfolios. Wall Street is obviously hoping for a ‘Goldilocks Scenario’ of, not too hot and not to cold. So far, so good. However, like the man who jumped out of 100 story building said at the 50th floor “so far so good”, his long-term outlook appears to be in doubt.

INCOME INEQUALITY.  COMMENTS: on The New Yorker Magazine March 16, 2015 entitled RICHER AND POORER

Economic inequality has been measured on a scale, from 0 to 1 with an index known as the Gini index. If all the income in the world are earned by one person and everyone else earn nothing, the world will have a Gini index of one. If everyone in the world earned exactly the same income, the world would have a Gini index of zero. In 1928 the Gini index was at a high of .476, just before the stock market collapsed, with the top 1% earning 24% of all income. In 1944 the top 1% earned 11% and now in 2013, the top 1% once again earned 24% of all income and the Gini index is back to .476. Is there a correlation between the Gini index in 1928 before the stock market collapsed and the current situation? Income inequality in the United States is greater than any other democracy in the developed world.

Last year Thomas Pickety’s book, Capital In the 21st Century, became a bestseller. Basically the book explained that income inequality and economic growth could not go hand in hand after reaching a critical point. This book was followed by a book entitled The Unstable American State and a world version of this argument, entitled Inequality Matters in a report by the United Nations and a book by economists Joseph Stiglitz called The Price of Inequality, all of which indicated that income inequality is not good for economic growth on a worldwide basis. Last year, Pew research Center conducted a survey about which of the five dangers people in 45 countries considered to be the greatest threat in the world. Most countries polled had religious extremism and ethnic hatred at the top of their list. But most Americans and Europeans chose inequality as the number one problem. Capitalism may be the best system in the world, but it creates winners and losers by its very nature. And capitalism as Karl Marx pointed out;  can choke on its own success, as capital dominates the workers, causing wages to shrink beyond the ability to keep all boats afloat.

As stated in the Lone Bear Letter:  In the US all income growth in the last 15 years has gone to the top 1% of the economic ladder, whereas wages, adjusted for inflation, are down 4.3%. It is estimated by Oxfam America that the top 1% in the world own 99% of total world wealth and most of that belongs to the 0.01%, as worldwide only 80 billionaires control 50% of the global wealth (they own more than 3.5 billion people in the bottom half). There is nothing wrong with accumulating wealth; however, the excessiveness of wealth accumulation could have a stifling effect on the US and world consumer based economies and could make future economic growth unsustainable. The cause of this great wage slowdown and shifting of assets to the very rich has several main causes: 1) Globalization has forced many American and Developed Country’s workers to compete with worldwide poorer workers, who are willing to accept lower wages. 2) Computers and modern machines are replacing human labor in numerous ways. 3) The rest of the world has become more educated and more highly skilled than the US, which ranks 39th in basic education, according to the latest Social Progress Index. 4) Economic and political power (through political contributions) has been switched away from workers and toward billionaire entrepreneurs, corporations and high paid executives. 5) The very nature of the Internet makes pricing extremely competitive and thereby squeezes profit margins, causing companies to trim work force expenses in order to maintain competiveness. The proposals that the President made at his State of the Union Address on 1/20/15, for ‘Middle Class Economics’ have in my opinion, no chance of passage in the Republican Congress. Because of these factors, instead of all boats rising, this scenario isn’t good for anybody and it is possible that as in the 1930s depression, all boats will sink. After all, how many bars of soap and how many cars can each of the wealthy people buy? These excessive conditions, in my opinion, are taking the breath out of the economy, are shaking its base and have yet to be seen in the metrics.

In another book written by Robert Putnam entitled Our Kids The American Dream in Crisis an attempt to set statistics aside and instead tell a story. Our Kids, is a heartfelt portrait of four generations of Putnam’s fellow 1959 graduates and their children in the town of Port Clinton on Lake Erie. The world obviously changed and Port Clinton changed with it. Putnam states that most of the downtown shops of his youth now stand empty and derelict. In the 1970s the town’s manufacturing base collapsed. Between 1999 and 2013 the percentage of children in Port Clinton living in poverty rose from 10% to 40%. Wealthy newcomers began arriving in Port Clinton in the 1990s and built their mansions and golf courses and gated communities next to the trailer parks. A comment of one of the higher income residents to Putnam was, “If my kids are going to be successful, I don’t think they should have to pay other people who are sitting around and doing nothing for their success.” As income inequality expands, kids from the more privileged backgrounds start and probably finish further and further ahead of their less privileged peers. Putnam sees the American dream in crisis. He states, “Americans used to care about other people’s kids and now they only care about their own kids.” The situation is even getting worse. In states where Republican governors have cut taxes, they find they also have to cut educational expenditures.

The latest Social Progress Index has just been announced. The US ranks 16th overall, ranks 70th in health, 69th and in echo systems sustainability, 39th in basic education, 34th in access to water and sanitation and 31st and personal safety. Even access to cell phones and the Internet ranks us at a disappointing 23rd, partially because one of Americans in five lacks Internet access. The winners are New Zealand number one, followed by Switzerland, Iceland, the Netherlands and Canada. All are somewhat poorer than America per capita, yet they appear to do a better job of meeting the needs of their people, including free healthcare and reasonably priced colleges. Some politicians who propose cuts in Medicare and ending Obama Care and reducing food stamps and public services believe that such trends could boost America’s competitiveness. However, looking at this report, it seems that the opposite is true. In America, capitalism spiritual home, a survey conducted in 2013 found that just 54% had a positive view of the term. This seems to be the case because the benefits of capitalism have recently only gone to the top 1%. There seems to be a crisis in confidence as the Supreme Court has a ranking of only 30% public schools 26%, the criminal justice system 23% and Congress 7%. The recent election showed just how unsatisfied people are. They voted for change, but change is unlikely to come. Since Citizens United, that declared corporations are people, most changes in government is dictated by donors and election contributions. A recent Princeton study has shown that public opinion has no effect on the outcome of an issue in Congress, whether there is 0% approval or 100% approval, the line of accomplishment is flatlined. Donor power has taken over the rights of ‘we the people’. The current illusion that voters are being heard and are connected will soon diminish in my opinion. The risk now is that voters of both parties may pursue policies which damage the common good.

What’s new about the chasm between the rich and the poor in the United States is that American politicians are now all climbing on the bandwagon and talking about it. In a recent January forum sponsored by Freedom Partners (the Koch brothers), GOP presidential candidates Ted Cruz, RAM Paul, and Mark Rubio battled over which one of them disliked inequality more. At the end of Pres. Obama’s State of the Union address he said “let’s close the loopholes that lead to inequality by allowing the top 1% to avoid paying taxes on their accumulated wealth.” Speaker of the House John Bayner countered that with “the president’s policies have made income inequality worse.” The causes of income equality are much disputed. What is no longer in disputed, is that income inequality is bad for the economy and could eventually lead to its stagnation and the sinking of all boats.

CARL BIRKELBACH

INVESTMENT STRATEGY LETTER #627

25 Wednesday Mar 2015

Posted by Carl M. Birkelbach in Uncategorized

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Tags

Government bonds

No surprise! Dow falls 300 points NASDAQ down 2.4%

The Dow NASDAQ and S&P index all found resistance at their all-time highs and now the markets are backing off severely. Suddenly, investors are surprised that expenses are up and earnings are down. Barclays cut its US gross domestic product forecast from 2% to up 1.2%. With the strength of the dollar and the effect of the decrease price of oil on energy companies, I wouldn’t be surprised to see a flat first-quarter 2015. The 10 year US Treasury bond yield is back down to 1.92% from over 2.1%. For those who can’t figure what’s going on with the economy, just look to the bond market. Investors are buying bonds for safety purposes. Retail sales are down and it is very difficult to raise prices in a deflationary economy.

Incidentally, I had lunch with Barney Frank today. He is promoting his new book and predicted that if the Republicans win the presidency in 2016, he expected the end of social programs of not only Obama care but the end of federal Medicare, Medicaid and that the poverty rate in the United States would increase from 13% to 26%. Also, if Dodd Frank rules are not pursued, that the banking industry would once again cause a financial crisis.

How can I still be bearish? Well, there is a long list. I still feel that deflation (Feb CPI flat)and not inflation is the problem. This can be seen in recent reports that have been issued lately that Wall Street seems to be ignoring. Retail sales for instance fell by 0.6% in February. That’s a drop for three months in a row. Housing starts for February were 897,000 on an annualized basis to levels not seen this low since September 2013. Industrial production edged up a negligible 0.1% in February carried almost entirely by gains in utilities because of colder weather. The producer price index, for final demand, in February fell 0.5% , after plummeting 0.8% in January. The bulk of those declines “70%” occurred in the service industry as opposed to goods, which had been weighed down by falling oil prices in recent months.

DEFLATION OR INFLATION DANGEROUS FOR THE BOND MARKET I continue to worry about the bond market. Both deflation, which is what I suspect will happen or inflation, which is what the Fed is trying to accomplish, could be very dangerous for bondholders. Dollar borrowing has grown everywhere, but the biggest growth has been in emerging markets. Between 2009 and $2004 denominated debts of developing countries (in the form of both the bank loans and bonds) more than doubled from around $2 trillion to some $4.5 trillion according to the Bank of the International Settlements. Countries like Brazil, South Africa and Turkey, whose exports fall far short of imports, finance their current account gap’s by building up debts to foreigners. State own energy giants like Russia’s Gazprom from Brazil’s Petrobras, and been issuing dollar bonds via subsidiaries based in Luxembourg and the Cayman Islands. Taking on debt just before a shift in exchange rates, as has now happened with the US dollar rising, can be very painful. For instance in 2010 a Turkish firm borrowed $10 million via a 10 year bond with a 5% coupon. Because of the rise of the dollar, the payments over the 10 year period can now amount to some $25 million. Asian firms foreign-currency debt tripled from $700,000,000 to $2.1 trillion between 2008 and 2014. That’s going from 7.9% of regional GDP to 12.3% according to Morgan Stanley Bank. China holds $1.2 trillion in US treasury bills, most of which are sitting in its sovereign wealth fund. When the dollar rises, the fund gets richer, but even in a dollar rich country there can be pockets of pain. Almost 25% of corporate debt is dollar denominated, but only 8.5% of corporate earnings are. Worse, according to Morgan Stanley is that debt is concentrated with 5% of the firms holding 50% of it. As mentioned market letter number 624, Chinese property developers are vulnerable.

NEGATIVE BOND YIELDS Negative bond yields are very modern phenomena. Strategies that are used to protect one’s investment with negative interest rates have been described as “picking up nickels in front of a steamroller”. Whereas, investors may make a series of small gains, they can be wiped out by a sudden large loss. Most of the time the market will not fall and the seller of put options pockets the premium. However, in times like October 1987 the full bill will come due. Government bonds have typically been used as “shock absorbers” with portfolios when activities of commodities are plummeting, government bonds tend to do very well. Even when bonds do badly, the pain is not that great. Since 1925 the biggest annual loss in real terms was 15.5% in 2009. In contrast, the biggest real loss in equities was 38.9% in 1930. When yields are zero or negative, government bonds clearly do not give investors  income. The problem is they may also not function as shock absorbers. Since prices move in opposite direction of yields, it is thus difficult to imagine investors buying bonds at current yields, making much of a capital gain. It is easy however, to imagine them making a big loss. If inflation returns nominal yields would rise sharply and  prices could plummet. If government bonds in the rest of the developing world start to behave like Japanese bonds with a negative skew, some investors may doubt whether they are worth holding at all. Many investors, pension funds, insurance companies are forced to hold government bonds for accounting or regulatory reasons. Such requirements are all very well, but in a declining bond market, could have severe negative implications.

SO FAR SO GOOD A deflationary scenario could lead to bond defaults, whereas, an inflationary scenario could lead to gigantic losses in bond portfolios. Wall Street is obviously hoping for a ‘Goldilocks Scenario’ of, not too hot and not to cold. So far, so good. However, like the man who jumped out of 100 story building said at the 50th floor “so far so good”, his long-term outlook appears to be in doubt.

INCOME INEQUALITY.  COMMENTS: on The New Yorker Magazine March 16, 2015 entitled RICHER AND POORER

Economic inequality has been measured on a scale, from 0 to 1 with an index known as the Gini index. If all the income in the world are earned by one person and everyone else earn nothing, the world will have a Gini index of one. If everyone in the world earned exactly the same income, the world would have a Gini index of zero. In 1928 the Gini index was at a high of .476, just before the stock market collapsed, with the top 1% earning 24% of all income. In 1944 the top 1% earned 11% and now in 2013, the top 1% once again earned 24% of all income and the Gini index is back to .476. Is there a correlation between the Gini index in 1928 before the stock market collapsed and the current situation? Income inequality in the United States is greater than any other democracy in the developed world.

Last year Thomas Pickety’s book, Capital In the 21st Century, became a bestseller. Basically the book explained that income inequality and economic growth could not go hand in hand after reaching a critical point. This book was followed by a book entitled The Unstable American State and a world version of this argument, entitled Inequality Matters in a report by the United Nations and a book by economists Joseph Stiglitz called The Price of Inequality, all of which indicated that income inequality is not good for economic growth on a worldwide basis. Last year, Pew research Center conducted a survey about which of the five dangers people in 45 countries considered to be the greatest threat in the world. Most countries polled had religious extremism and ethnic hatred at the top of their list. But most Americans and Europeans chose inequality as the number one problem. Capitalism may be the best system in the world, but it creates winners and losers by its very nature. And capitalism as Karl Marx pointed out;  can choke on its own success, as capital dominates the workers, causing wages to shrink beyond the ability to keep all boats afloat.

As stated in the Lone Bear Letter:  In the US all income growth in the last 15 years has gone to the top 1% of the economic ladder, whereas wages, adjusted for inflation, are down 4.3%. It is estimated by Oxfam America that the top 1% in the world own 99% of total world wealth and most of that belongs to the 0.01%, as worldwide only 80 billionaires control 50% of the global wealth (they own more than 3.5 billion people in the bottom half). There is nothing wrong with accumulating wealth; however, the excessiveness of wealth accumulation could have a stifling effect on the US and world consumer based economies and could make future economic growth unsustainable. The cause of this great wage slowdown and shifting of assets to the very rich has several main causes: 1) Globalization has forced many American and Developed Country’s workers to compete with worldwide poorer workers, who are willing to accept lower wages. 2) Computers and modern machines are replacing human labor in numerous ways. 3) The rest of the world has become more educated and more highly skilled than the US, which ranks 39th in basic education, according to the latest Social Progress Index. 4) Economic and political power (through political contributions) has been switched away from workers and toward billionaire entrepreneurs, corporations and high paid executives. 5) The very nature of the Internet makes pricing extremely competitive and thereby squeezes profit margins, causing companies to trim work force expenses in order to maintain competiveness. The proposals that the President made at his State of the Union Address on 1/20/15, for ‘Middle Class Economics’ have in my opinion, no chance of passage in the Republican Congress. Because of these factors, instead of all boats rising, this scenario isn’t good for anybody and it is possible that as in the 1930s depression, all boats will sink. After all, how many bars of soap and how many cars can each of the wealthy people buy? These excessive conditions, in my opinion, are taking the breath out of the economy, are shaking its base and have yet to be seen in the metrics.

In another book written by Robert Putnam entitled Our Kids The American Dream in Crisis an attempt to set statistics aside and instead tell a story. Our Kids, is a heartfelt portrait of four generations of Putnam’s fellow 1959 graduates and their children in the town of Port Clinton on Lake Erie. The world obviously changed and Port Clinton changed with it. Putnam states that most of the downtown shops of his youth now stand empty and derelict. In the 1970s the town’s manufacturing base collapsed. Between 1999 and 2013 the percentage of children in Port Clinton living in poverty rose from 10% to 40%. Wealthy newcomers began arriving in Port Clinton in the 1990s and built their mansions and golf courses and gated communities next to the trailer parks. A comment of one of the higher income residents to Putnam was, “If my kids are going to be successful, I don’t think they should have to pay other people who are sitting around and doing nothing for their success.” As income inequality expands, kids from the more privileged backgrounds start and probably finish further and further ahead of their less privileged peers. Putnam sees the American dream in crisis. He states, “Americans used to care about other people’s kids and now they only care about their own kids.” The situation is even getting worse. In states where Republican governors have cut taxes, they find they also have to cut educational expenditures.

The latest Social Progress Index has just been announced. The US ranks 16th overall, ranks 70th in health, 69th and in echo systems sustainability, 39th in basic education, 34th in access to water and sanitation and 31st and personal safety. Even access to cell phones and the Internet ranks us at a disappointing 23rd, partially because one of Americans in five lacks Internet access. The winners are New Zealand number one, followed by Switzerland, Iceland, the Netherlands and Canada. All are somewhat poorer than America per capita, yet they appear to do a better job of meeting the needs of their people, including free healthcare and reasonably priced colleges. Some politicians who propose cuts in Medicare and ending Obama Care and reducing food stamps and public services believe that such trends could boost America’s competitiveness. However, looking at this report, it seems that the opposite is true. In America, capitalism spiritual home, a survey conducted in 2013 found that just 54% had a positive view of the term. This seems to be the case because the benefits of capitalism have recently only gone to the top 1%. There seems to be a crisis in confidence as the Supreme Court has a ranking of only 30% public schools 26%, the criminal justice system 23% and Congress 7%. The recent election showed just how unsatisfied people are. They voted for change, but change is unlikely to come. Since Citizens United, that declared corporations are people, most changes in government is dictated by donors and election contributions. A recent Princeton study has shown that public opinion has no effect on the outcome of an issue in Congress, whether there is 0% approval or 100% approval, the line of accomplishment is flatlined. Donor power has taken over the rights of ‘we the people’. The current illusion that voters are being heard and are connected will soon diminish in my opinion. The risk now is that voters of both parties may pursue policies which damage the common good.

What’s new about the chasm between the rich and the poor in the United States is that American politicians are now all climbing on the bandwagon and talking about it. In a recent January forum sponsored by Freedom Partners (the Koch brothers), GOP presidential candidates Ted Cruz, RAM Paul, and Mark Rubio battled over which one of them disliked inequality more. At the end of Pres. Obama’s State of the Union address he said “let’s close the loopholes that lead to inequality by allowing the top 1% to avoid paying taxes on their accumulated wealth.” Speaker of the House John Bayner countered that with “the president’s policies have made income inequality worse.” The causes of income equality are much disputed. What is no longer in disputed, is that income inequality is bad for the economy and could eventually lead to its stagnation and the sinking of all boats.

CARL BIRKELBACH

INVESTMENT STRATEGY LETTER #626

24 Tuesday Mar 2015

Posted by Carl M. Birkelbach in Uncategorized

≈ Leave a comment

Tags

Government bonds, IN

WORLD MARKETS CONTINUE TO RALLY!

This is a good week for the stock markets throughout the world. The Dow and NASDAQ and S&P index are all close or above new all-time highs. The DAX index is about 12,000 and the Nikkei is close to breaking into new high ground. The Federal Reserve is clearly on board on its policy to diminish the fears of deflation. Its recent comment to eliminate “patients” from its policy is not clear or transparent. Sure, we’re all patient, like mental patients. Wall Street seems to like the ambiguity and it appears that interest rates may not start up in June as earlier expected. It has been seven years since the Fed raised rates and they seem in no hurry now. There is an old saying on Wall Street “Don’t fight the tape.” So, for the time being, enjoy the rally.

How can I still be bearish? Well, there is a long list. I still feel that deflation (Feb CPI flat)and not inflation is the problem. This can be seen in recent reports that have been issued lately that Wall Street seems to be ignoring. Retail sales for instance fell by 0.6% in February. That’s a drop for three months in a row. Housing starts for February were 897,000 on an annualized basis to levels not seen this low since September 2013. Industrial production edged up a negligible 0.1% in February carried almost entirely by gains in utilities because of colder weather. The producer price index, for final demand, in February fell 0.5% , after plummeting 0.8% in January. The bulk of those declines “70%” occurred in the service industry as opposed to goods, which had been weighed down by falling oil prices in recent months.

DEFLATION OR INFLATION DANGEROUS FOR THE BOND MARKET I continue to worry about the bond market. Both deflation, which is what I suspect will happen or inflation, which is what the Fed is trying to accomplish, could be very dangerous for bondholders. Dollar borrowing has grown everywhere, but the biggest growth has been in emerging markets. Between 2009 and $2004 denominated debts of developing countries (in the form of both the bank loans and bonds) more than doubled from around $2 trillion to some $4.5 trillion according to the Bank of the International Settlements. Countries like Brazil, South Africa and Turkey, whose exports fall far short of imports, finance their current account gap’s by building up debts to foreigners. State own energy giants like Russia’s Gazprom from Brazil’s Petrobras, and been issuing dollar bonds via subsidiaries based in Luxembourg and the Cayman Islands. Taking on debt just before a shift in exchange rates, as has now happened with the US dollar rising, can be very painful. For instance in 2010 a Turkish firm borrowed $10 million via a 10 year bond with a 5% coupon. Because of the rise of the dollar, the payments over the 10 year period can now amount to some $25 million. Asian firms foreign-currency debt tripled from $700,000,000 to $2.1 trillion between 2008 and 2014. That’s going from 7.9% of regional GDP to 12.3% according to Morgan Stanley Bank. China holds $1.2 trillion in US treasury bills, most of which are sitting in its sovereign wealth fund. When the dollar rises, the fund gets richer, but even in a dollar rich country there can be pockets of pain. Almost 25% of corporate debt is dollar denominated, but only 8.5% of corporate earnings are. Worse, according to Morgan Stanley is that debt is concentrated with 5% of the firms holding 50% of it. As mentioned market letter number 624, Chinese property developers are vulnerable.

NEGATIVE BOND YIELDS Negative bond yields are very modern phenomena. Strategies that are used to protect one’s investment with negative interest rates have been described as “picking up nickels in front of a steamroller”. Whereas, investors may make a series of small gains, they can be wiped out by a sudden large loss. Most of the time the market will not fall and the seller of put options pockets the premium. However, in times like October 1987 the full bill will come due. Government bonds have typically been used as “shock absorbers” with portfolios when activities of commodities are plummeting, government bonds tend to do very well. Even when bonds do badly, the pain is not that great. Since 1925 the biggest annual loss in real terms was 15.5% in 2009. In contrast, the biggest real loss in equities was 38.9% in 1930. When yields are zero or negative, government bonds clearly do not give investors  income. The problem is they may also not function as shock absorbers. Since prices move in opposite direction of yields, it is thus difficult to imagine investors buying bonds at current yields, making much of a capital gain. It is easy however, to imagine them making a big loss. If inflation returns nominal yields would rise sharply and  prices could plummet. If government bonds in the rest of the developing world start to behave like Japanese bonds with a negative skew, some investors may doubt whether they are worth holding at all. Many investors, pension funds, insurance companies are forced to hold government bonds for accounting or regulatory reasons. Such requirements are all very well, but in a declining bond market, could have severe negative implications.

SO FAR SO GOOD A deflationary scenario could lead to bond defaults, whereas, an inflationary scenario could lead to gigantic losses in bond portfolios. Wall Street is obviously hoping for a ‘Goldilocks Scenario’ of, not too hot and not to cold. So far, so good. However, like the man who jumped out of 100 story building said at the 50th floor “so far so good”, his long-term outlook appears to be in doubt.

INCOME INEQUALITY.  COMMENTS: on The New Yorker Magazine March 16, 2015 entitled RICHER AND POORER

Economic inequality has been measured on a scale, from 0 to 1 with an index known as the Gini index. If all the income in the world are earned by one person and everyone else earn nothing, the world will have a Gini index of one. If everyone in the world earned exactly the same income, the world would have a Gini index of zero. In 1928 the Gini index was at a high of .476, just before the stock market collapsed, with the top 1% earning 24% of all income. In 1944 the top 1% earned 11% and now in 2013, the top 1% once again earned 24% of all income and the Gini index is back to .476. Is there a correlation between the Gini index in 1928 before the stock market collapsed and the current situation? Income inequality in the United States is greater than any other democracy in the developed world.

Last year Thomas Pickety’s book, Capital In the 21st Century, became a bestseller. Basically the book explained that income inequality and economic growth could not go hand in hand after reaching a critical point. This book was followed by a book entitled The Unstable American State and a world version of this argument, entitled Inequality Matters in a report by the United Nations and a book by economists Joseph Stiglitz called The Price of Inequality, all of which indicated that income inequality is not good for economic growth on a worldwide basis. Last year, Pew research Center conducted a survey about which of the five dangers people in 45 countries considered to be the greatest threat in the world. Most countries polled had religious extremism and ethnic hatred at the top of their list. But most Americans and Europeans chose inequality as the number one problem. Capitalism may be the best system in the world, but it creates winners and losers by its very nature. And capitalism as Karl Marx pointed out;  can choke on its own success, as capital dominates the workers, causing wages to shrink beyond the ability to keep all boats afloat.

As stated in the Lone Bear Letter:  In the US all income growth in the last 15 years has gone to the top 1% of the economic ladder, whereas wages, adjusted for inflation, are down 4.3%. It is estimated by Oxfam America that the top 1% in the world own 99% of total world wealth and most of that belongs to the 0.01%, as worldwide only 80 billionaires control 50% of the global wealth (they own more than 3.5 billion people in the bottom half). There is nothing wrong with accumulating wealth; however, the excessiveness of wealth accumulation could have a stifling effect on the US and world consumer based economies and could make future economic growth unsustainable. The cause of this great wage slowdown and shifting of assets to the very rich has several main causes: 1) Globalization has forced many American and Developed Country’s workers to compete with worldwide poorer workers, who are willing to accept lower wages. 2) Computers and modern machines are replacing human labor in numerous ways. 3) The rest of the world has become more educated and more highly skilled than the US, which ranks 39th in basic education, according to the latest Social Progress Index. 4) Economic and political power (through political contributions) has been switched away from workers and toward billionaire entrepreneurs, corporations and high paid executives. 5) The very nature of the Internet makes pricing extremely competitive and thereby squeezes profit margins, causing companies to trim work force expenses in order to maintain competiveness. The proposals that the President made at his State of the Union Address on 1/20/15, for ‘Middle Class Economics’ have in my opinion, no chance of passage in the Republican Congress. Because of these factors, instead of all boats rising, this scenario isn’t good for anybody and it is possible that as in the 1930s depression, all boats will sink. After all, how many bars of soap and how many cars can each of the wealthy people buy? These excessive conditions, in my opinion, are taking the breath out of the economy, are shaking its base and have yet to be seen in the metrics.

In another book written by Robert Putnam entitled Our Kids The American Dream in Crisis an attempt to set statistics aside and instead tell a story. Our Kids, is a heartfelt portrait of four generations of Putnam’s fellow 1959 graduates and their children in the town of Port Clinton on Lake Erie. The world obviously changed and Port Clinton changed with it. Putnam states that most of the downtown shops of his youth now stand empty and derelict. In the 1970s the town’s manufacturing base collapsed. Between 1999 and 2013 the percentage of children in Port Clinton living in poverty rose from 10% to 40%. Wealthy newcomers began arriving in Port Clinton in the 1990s and built their mansions and golf courses and gated communities next to the trailer parks. A comment of one of the higher income residents to Putnam was, “If my kids are going to be successful, I don’t think they should have to pay other people who are sitting around and doing nothing for their success.” As income inequality expands, kids from the more privileged backgrounds start and probably finish further and further ahead of their less privileged peers. Putnam sees the American dream in crisis. He states, “Americans used to care about other people’s kids and now they only care about their own kids.” The situation is even getting worse. In states where Republican governors have cut taxes, they find they also have to cut educational expenditures.

The latest Social Progress Index has just been announced. The US ranks 16th overall, ranks 70th in health, 69th and in echo systems sustainability, 39th in basic education, 34th in access to water and sanitation and 31st and personal safety. Even access to cell phones and the Internet ranks us at a disappointing 23rd, partially because one of Americans in five lacks Internet access. The winners are New Zealand number one, followed by Switzerland, Iceland, the Netherlands and Canada. All are somewhat poorer than America per capita, yet they appear to do a better job of meeting the needs of their people, including free healthcare and reasonably priced colleges. Some politicians who propose cuts in Medicare and ending Obama Care and reducing food stamps and public services believe that such trends could boost America’s competitiveness. However, looking at this report, it seems that the opposite is true. In America, capitalism spiritual home, a survey conducted in 2013 found that just 54% had a positive view of the term. This seems to be the case because the benefits of capitalism have recently only gone to the top 1%. There seems to be a crisis in confidence as the Supreme Court has a ranking of only 30% public schools 26%, the criminal justice system 23% and Congress 7%. The recent election showed just how unsatisfied people are. They voted for change, but change is unlikely to come. Since Citizens United, that declared corporations are people, most changes in government is dictated by donors and election contributions. A recent Princeton study has shown that public opinion has no effect on the outcome of an issue in Congress, whether there is 0% approval or 100% approval, the line of accomplishment is flatlined. Donor power has taken over the rights of ‘we the people’. The current illusion that voters are being heard and are connected will soon diminish in my opinion. The risk now is that voters of both parties may pursue policies which damage the common good.

What’s new about the chasm between the rich and the poor in the United States is that American politicians are now all climbing on the bandwagon and talking about it. In a recent January forum sponsored by Freedom Partners (the Koch brothers), GOP presidential candidates Ted Cruz, RAM Paul, and Mark Rubio battled over which one of them disliked inequality more. At the end of Pres. Obama’s State of the Union address he said “let’s close the loopholes that lead to inequality by allowing the top 1% to avoid paying taxes on their accumulated wealth.” Speaker of the House John Bayner countered that with “the president’s policies have made income inequality worse.” The causes of income equality are much disputed. What is no longer in disputed, is that income inequality is bad for the economy and could eventually lead to its stagnation and the sinking of all boats.

CARL BIRKELBACH

INVESTMENT STRATEGY LETTER #625

20 Friday Mar 2015

Posted by Carl M. Birkelbach in Uncategorized

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Government bonds, INVESTMENT STRATEGY

WORLD MARKETS CONTINUE TO RALLY!

This was a good week for the stock markets throughout the world. The Dow and NASDAQ and S&P index are all close or above new all-time highs. The DAX index is about 12,000 and the Nikkei is close to breaking into new high ground. The Federal Reserve is clearly on board on its policy to diminish the fears of deflation. Its recent comment to eliminate “patients” from its policy is not clear or transparent. Sure, we’re all patient, like mental patients. Wall Street seems to like the ambiguity and it appears that interest rates may not start up in June as earlier expected. It has been seven years since the Fed raised rates and they seem in no hurry now. There is an old saying on Wall Street “Don’t fight the tape.” So, for the time being, enjoy the rally.

How can I still be bearish? Well, there is a long list. I still feel that deflation and not inflation is the problem. This can be seen in recent reports that have been issued lately that Wall Street seems to be ignoring. Retail sales for instance fell by 0.6% in February. That’s a drop for three months in a row. Housing starts for February were 897,000 on an annualized basis to levels not seen this low since September 2013. Industrial production edged up a negligible 0.1% in February carried almost entirely by gains in utilities because of colder weather. The producer price index, for final demand, in February fell 0.5% , after plummeting 0.8% in January. The bulk of those declines “70%” occurred in the service industry as opposed to goods, which had been weighed down by falling oil prices in recent months.

DEFLATION OR INFLATION DANGEROUS FOR THE BOND MARKET I continue to worry about the bond market. Both deflation, which is what I suspect will happen or inflation, which is what the Fed is trying to accomplish, could be very dangerous for bondholders. Dollar borrowing has grown everywhere, but the biggest growth has been in emerging markets. Between 2009 and $2004 denominated debts of developing countries (in the form of both the bank loans and bonds) more than doubled from around $2 trillion to some $4.5 trillion according to the Bank of the International Settlements. Countries like Brazil, South Africa and Turkey, whose exports fall far short of imports, finance their current account gap’s by building up debts to foreigners. State own energy giants like Russia’s Gazprom from Brazil’s Petrobras, and been issuing dollar bonds via subsidiaries based in Luxembourg and the Cayman Islands. Taking on debt just before a shift in exchange rates, as has now happened with the US dollar rising, can be very painful. For instance in 2010 a Turkish firm borrowed $10 million via a 10 year bond with a 5% coupon. Because of the rise of the dollar, the payments over the 10 year period can now amount to some $25 million. Asian firms foreign-currency debt tripled from $700,000,000 to $2.1 trillion between 2008 and 2014. That’s going from 7.9% of regional GDP to 12.3% according to Morgan Stanley Bank. China holds $1.2 trillion in US treasury bills, most of which are sitting in its sovereign wealth fund. When the dollar rises, the fund gets richer, but even in a dollar rich country there can be pockets of pain. Almost 25% of corporate debt is dollar denominated, but only 8.5% of corporate earnings are. Worse, according to Morgan Stanley is that debt is concentrated with 5% of the firms holding 50% of it. As mentioned market letter number 624, Chinese property developers are vulnerable.

NEGATIVE BOND YIELDS Negative bond yields are very modern phenomena. Strategies that are used to protect one’s investment with negative interest rates have been described as “picking up nickels in front of a steamroller”. Whereas, investors may make a series of small gains, they can be wiped out by a sudden large loss. Most of the time the market will not fall and the seller of put options pockets the premium. However, in times like October 1987 the full bill will come due. Government bonds have typically been used as “shock absorbers” with portfolios when activities of commodities are plummeting, government bonds tend to do very well. Even when bonds do badly, the pain is not that great. Since 1925 the biggest annual loss in real terms was 15.5% in 2009. In contrast, the biggest real loss in equities was 38.9% in 1930. When yields are zero or negative, government bonds clearly do not give investors  income. The problem is they may also not function as shock absorbers. Since prices move in opposite direction of yields, it is thus difficult to imagine investors buying bonds at current yields, making much of a capital gain. It is easy however, to imagine them making a big loss. If inflation returns nominal yields would rise sharply and  prices could plummet. If government bonds in the rest of the developing world start to behave like Japanese bonds with a negative skew, some investors may doubt whether they are worth holding at all. Many investors, pension funds, insurance companies are forced to hold government bonds for accounting or regulatory reasons. Such requirements are all very well, but in a declining bond market, could have severe negative implications.

SO FAR SO GOOD A deflationary scenario could lead to bond defaults, whereas, an inflationary scenario could lead to gigantic losses in bond portfolios. Wall Street is obviously hoping for a ‘Goldilocks Scenario’ of, not too hot and not to cold. So far, so good. However, like the man who jumped out of 100 story building said at the 50th floor “so far so good”, his long-term outlook appears to be in doubt.

INCOME INEQUALITY.  COMMENTS: on The New Yorker Magazine March 16, 2015 entitled RICHER AND POORER

Economic inequality has been measured on a scale, from 0 to 1 with an index known as the Gini index. If all the income in the world are earned by one person and everyone else earn nothing, the world will have a Gini index of one. If everyone in the world earned exactly the same income, the world would have a Gini index of zero. In 1928 the Gini index was at a high of .476, just before the stock market collapsed, with the top 1% earning 24% of all income. In 1944 the top 1% earned 11% and now in 2013, the top 1% once again earned 24% of all income and the Gini index is back to .476. Is there a correlation between the Gini index in 1928 before the stock market collapsed and the current situation? Income inequality in the United States is greater than any other democracy in the developed world.

Last year Thomas Pickety’s book, Capital In the 21st Century, became a bestseller. Basically the book explained that income inequality and economic growth could not go hand in hand after reaching a critical point. This book was followed by a book entitled The Unstable American State and a world version of this argument, entitled Inequality Matters in a report by the United Nations and a book by economists Joseph Stiglitz called The Price of Inequality, all of which indicated that income inequality is not good for economic growth on a worldwide basis. Last year, Pew research Center conducted a survey about which of the five dangers people in 45 countries considered to be the greatest threat in the world. Most countries polled had religious extremism and ethnic hatred at the top of their list. But most Americans and Europeans chose inequality as the number one problem. Capitalism may be the best system in the world, but it creates winners and losers by its very nature. And capitalism as Karl Marx pointed out;  can choke on its own success, as capital dominates the workers, causing wages to shrink beyond the ability to keep all boats afloat.

As stated in the Lone Bear Letter:  In the US all income growth in the last 15 years has gone to the top 1% of the economic ladder, whereas wages, adjusted for inflation, are down 4.3%. It is estimated by Oxfam America that the top 1% in the world own 99% of total world wealth and most of that belongs to the 0.01%, as worldwide only 80 billionaires control 50% of the global wealth (they own more than 3.5 billion people in the bottom half). There is nothing wrong with accumulating wealth; however, the excessiveness of wealth accumulation could have a stifling effect on the US and world consumer based economies and could make future economic growth unsustainable. The cause of this great wage slowdown and shifting of assets to the very rich has several main causes: 1) Globalization has forced many American and Developed Country’s workers to compete with worldwide poorer workers, who are willing to accept lower wages. 2) Computers and modern machines are replacing human labor in numerous ways. 3) The rest of the world has become more educated and more highly skilled than the US, which ranks 39th in basic education, according to the latest Social Progress Index. 4) Economic and political power (through political contributions) has been switched away from workers and toward billionaire entrepreneurs, corporations and high paid executives. 5) The very nature of the Internet makes pricing extremely competitive and thereby squeezes profit margins, causing companies to trim work force expenses in order to maintain competiveness. The proposals that the President made at his State of the Union Address on 1/20/15, for ‘Middle Class Economics’ have in my opinion, no chance of passage in the Republican Congress. Because of these factors, instead of all boats rising, this scenario isn’t good for anybody and it is possible that as in the 1930s depression, all boats will sink. After all, how many bars of soap and how many cars can each of the wealthy people buy? These excessive conditions, in my opinion, are taking the breath out of the economy, are shaking its base and have yet to be seen in the metrics.

In another book written by Robert Putnam entitled Our Kids The American Dream in Crisis an attempt to set statistics aside and instead tell a story. Our Kids, is a heartfelt portrait of four generations of Putnam’s fellow 1959 graduates and their children in the town of Port Clinton on Lake Erie. The world obviously changed and Port Clinton changed with it. Putnam states that most of the downtown shops of his youth now stand empty and derelict. In the 1970s the town’s manufacturing base collapsed. Between 1999 and 2013 the percentage of children in Port Clinton living in poverty rose from 10% to 40%. Wealthy newcomers began arriving in Port Clinton in the 1990s and built their mansions and golf courses and gated communities next to the trailer parks. A comment of one of the higher income residents to Putnam was, “If my kids are going to be successful, I don’t think they should have to pay other people who are sitting around and doing nothing for their success.” As income inequality expands, kids from the more privileged backgrounds start and probably finish further and further ahead of their less privileged peers. Putnam sees the American dream in crisis. He states, “Americans used to care about other people’s kids and now they only care about their own kids.” The situation is even getting worse. In states where Republican governors have cut taxes, they find they also have to cut educational expenditures.

The latest Social Progress Index has just been announced. The US ranks 16th overall, ranks 70th in health, 69th and in echo systems sustainability, 39th in basic education, 34th in access to water and sanitation and 31st and personal safety. Even access to cell phones and the Internet ranks us at a disappointing 23rd, partially because one of Americans in five lacks Internet access. The winners are New Zealand number one, followed by Switzerland, Iceland, the Netherlands and Canada. All are somewhat poorer than America per capita, yet they appear to do a better job of meeting the needs of their people, including free healthcare and reasonably priced colleges. Some politicians who propose cuts in Medicare and ending Obama Care and reducing food stamps and public services believe that such trends could boost America’s competitiveness. However, looking at this report, it seems that the opposite is true. In America, capitalism spiritual home, a survey conducted in 2013 found that just 54% had a positive view of the term. This seems to be the case because the benefits of capitalism have recently only gone to the top 1%. There seems to be a crisis in confidence as the Supreme Court has a ranking of only 30% public schools 26%, the criminal justice system 23% and Congress 7%. The recent election showed just how unsatisfied people are. They voted for change, but change is unlikely to come. Since Citizens United, that declared corporations are people, most changes in government is dictated by donors and election contributions. A recent Princeton study has shown that public opinion has no effect on the outcome of an issue in Congress, whether there is 0% approval or 100% approval, the line of accomplishment is flatlined. Donor power has taken over the rights of ‘we the people’. The current illusion that voters are being heard and are connected will soon diminish in my opinion. The risk now is that voters of both parties may pursue policies which damage the common good.

What’s new about the chasm between the rich and the poor in the United States is that American politicians are now all climbing on the bandwagon and talking about it. In a recent January forum sponsored by Freedom Partners (the Koch brothers), GOP presidential candidates Ted Cruz, RAM Paul, and Mark Rubio battled over which one of them disliked inequality more. At the end of Pres. Obama’s State of the Union address he said “let’s close the loopholes that lead to inequality by allowing the top 1% to avoid paying taxes on their accumulated wealth.” Speaker of the House John Bayner countered that with “the president’s policies have made income inequality worse.” The causes of income equality are much disputed. What is no longer in disputed, is that income inequality is bad for the economy and could eventually lead to its stagnation and the sinking of all boats.

CARL BIRKELBACH

INVESTMENT STRATEGY LETTER #624

18 Wednesday Mar 2015

Posted by Carl M. Birkelbach in Uncategorized

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Investement Straregy

MARKET ONCE AGAIN ABOVE 18,000

The markets were lower earlier today, ahead of the Fed’s announcement of its policy. However, the markets rallied on a statement from the Fed that, whereas it did promise to drop the patient statement, it is weighing interest rate hikes for eventual increase later this year. The fed suggestion, that rate hikes were not slated for June as feared, cause the market to rally. The 10 year yield on the US treasury plummeted 5.2% to 1.9% on the announcement. Fed Chairman Yellin, in her opening statement, soothed Wall Street’s frayed nerves by saying. “Just because we remove the word ‘patient’ doesn’t mean that we will be impatient.”
It seems to me, with oil prices dropping below $45 a barrel and yields on US Treasuries dropping, that the market would consider this as negative news and go down. However, this bull market continues to have a life of its own and so far, wants to just go up. There is an old saying on Wall Street, “don’t fight the tape.” I see longer-term negative implications because of deflation in Europe, slowing economies of China and Japan, the effects of lower oil prices and the effects of continued income inequality.

INCOME INEQUALITY.  COMMENTS: on The New Yorker Magazine March 16, 2015 entitled RICHER AND POORER

Economic inequality has been measured on a scale, from 0 to 1 with an index known as the Gini index. If all the income in the world are earned by one person and everyone else earn nothing, the world will have a Gini index of one. If everyone in the world earned exactly the same income, the world would have a Gini index of zero. In 1928 the Gini index was at a high of .476, just before the stock market collapsed, with the top 1% earning 24% of all income. In 1944 the top 1% earned 11% and now in 2013, the top 1% once again earned 24% of all income and the Gini index is back to .476. Is there a correlation between the Gini index in 1928 before the stock market collapsed and the current situation? Income inequality in the United States is greater than any other democracy in the developed world.

Last year Thomas Pickety’s book, Capital In the 21st Century, became a bestseller. Basically the book explained that income inequality and economic growth could not go hand in hand after reaching a critical point. This book was followed by a book entitled The Unstable American State and a world version of this argument, entitled Inequality Matters in a report by the United Nations and a book by economists Joseph Stiglitz called The Price of Inequality, all of which indicated that income inequality is not good for economic growth on a worldwide basis. Last year, Pew research Center conducted a survey about which of the five dangers people in 45 countries considered to be the greatest threat in the world. Most countries polled had religious extremism and ethnic hatred at the top of their list. But most Americans and Europeans chose inequality as the number one problem. Capitalism may be the best system in the world, but it creates winners and losers by its very nature. And capitalism as Karl Marx pointed out;  can choke on its own success, as capital dominates the workers, causing wages to shrink beyond the ability to keep all boats afloat.

As stated in the Lone Bear Letter:  In the US all income growth in the last 15 years has gone to the top 1% of the economic ladder, whereas wages, adjusted for inflation, are down 4.3%. It is estimated by Oxfam America that the top 1% in the world own 99% of total world wealth and most of that belongs to the 0.01%, as worldwide only 80 billionaires control 50% of the global wealth (they own more than 3.5 billion people in the bottom half). There is nothing wrong with accumulating wealth; however, the excessiveness of wealth accumulation could have a stifling effect on the US and world consumer based economies and could make future economic growth unsustainable. The cause of this great wage slowdown and shifting of assets to the very rich has several main causes: 1) Globalization has forced many American and Developed Country’s workers to compete with worldwide poorer workers, who are willing to accept lower wages. 2) Computers and modern machines are replacing human labor in numerous ways. 3) The rest of the world has become more educated and more highly skilled than the US, which ranks 39th in basic education, according to the latest Social Progress Index. 4) Economic and political power (through political contributions) has been switched away from workers and toward billionaire entrepreneurs, corporations and high paid executives. 5) The very nature of the Internet makes pricing extremely competitive and thereby squeezes profit margins, causing companies to trim work force expenses in order to maintain competiveness. The proposals that the President made at his State of the Union Address on 1/20/15, for ‘Middle Class Economics’ have in my opinion, no chance of passage in the Republican Congress. Because of these factors, instead of all boats rising, this scenario isn’t good for anybody and it is possible that as in the 1930s depression, all boats will sink. After all, how many bars of soap and how many cars can each of the wealthy people buy? These excessive conditions, in my opinion, are taking the breath out of the economy, are shaking its base and have yet to be seen in the metrics.

In another book written by Robert Putnam entitled Our Kids The American Dream in Crisis an attempt to set statistics aside and instead tell a story. Our Kids, is a heartfelt portrait of four generations of Putnam’s fellow 1959 graduates and their children in the town of Port Clinton on Lake Erie. The world obviously changed and Port Clinton changed with it. Putnam states that most of the downtown shops of his youth now stand empty and derelict. In the 1970s the town’s manufacturing base collapsed. Between 1999 and 2013 the percentage of children in Port Clinton living in poverty rose from 10% to 40%. Wealthy newcomers began arriving in Port Clinton in the 1990s and built their mansions and golf courses and gated communities next to the trailer parks. A comment of one of the higher income residents to Putnam was, “If my kids are going to be successful, I don’t think they should have to pay other people who are sitting around and doing nothing for their success.” As income inequality expands, kids from the more privileged backgrounds start and probably finish further and further ahead of their less privileged peers. Putnam sees the American dream in crisis. He states, “Americans used to care about other people’s kids and now they only care about their own kids.” The situation is even getting worse. In states where Republican governors have cut taxes, they find they also have to cut educational expenditures.

The latest Social Progress Index has just been announced. The US ranks 16th overall, ranks 70th in health, 69th and in echo systems sustainability, 39th in basic education, 34th in access to water and sanitation and 31st and personal safety. Even access to cell phones and the Internet ranks us at a disappointing 23rd, partially because one of Americans in five lacks Internet access. The winners are New Zealand number one, followed by Switzerland, Iceland, the Netherlands and Canada. All are somewhat poorer than America per capita, yet they appear to do a better job of meeting the needs of their people, including free healthcare and reasonably priced colleges. Some politicians who propose cuts in Medicare and ending Obama Care and reducing food stamps and public services believe that such trends could boost America’s competitiveness. However, looking at this report, it seems that the opposite is true. In America, capitalism spiritual home, a survey conducted in 2013 found that just 54% had a positive view of the term. This seems to be the case because the benefits of capitalism have recently only gone to the top 1%. There seems to be a crisis in confidence as the Supreme Court has a ranking of only 30% public schools 26%, the criminal justice system 23% and Congress 7%. The recent election showed just how unsatisfied people are. They voted for change, but change is unlikely to come. Since Citizens United, that declared corporations are people, most changes in government is dictated by donors and election contributions. A recent Princeton study has shown that public opinion has no effect on the outcome of an issue in Congress, whether there is 0% approval or 100% approval, the line of accomplishment is flatlined. Donor power has taken over the rights of ‘we the people’. The current illusion that voters are being heard and are connected will soon diminish in my opinion. The risk now is that voters of both parties may pursue policies which damage the common good.

What’s new about the chasm between the rich and the poor in the United States is that American politicians are now all climbing on the bandwagon and talking about it. In a recent January forum sponsored by Freedom Partners (the Koch brothers), GOP presidential candidates Ted Cruz, RAM Paul, and Mark Rubio battled over which one of them disliked inequality more. At the end of Pres. Obama’s State of the Union address he said “let’s close the loopholes that lead to inequality by allowing the top 1% to avoid paying taxes on their accumulated wealth.” Speaker of the House John Bayner countered that with “the president’s policies have made income inequality worse.” The causes of income equality are much disputed. What is no longer in disputed, is that income inequality is bad for the economy and could eventually lead to its stagnation and the sinking of all boats.

 

INVESTMENT STRATEGY LETTER #623

15 Sunday Mar 2015

Posted by Carl M. Birkelbach in Uncategorized

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INVESTMENT STRATEGY, Investment Stratgey

WEEKEND UPDATE.

I am lucky enough to be a voracious and fast reader. The two magazines that I read every week are The Economist Magazine and the New Yorker Magazine. The one newspaper that I read every morning and every evening is the online edition of the New York Times. As I mentioned in the last market letter there are two articles that would like to talk about 1) is an article about income inequality and its possible effect on the future and 2) article on nuclear proliferation and how the current Iranian negotiations are critical. My comments will follow and will be seen above under the POST heading INCOME INEQUALITY AND NUCLEAR PROLIFERATION.  But first let’s get an update on some current events.

Russia continues in the news, as the Russian economy continues to contract. In January, their prediction was minus 3% and now the latest prediction is that the economy of Russia will shrink between 3.5 and 4% 2015. The ruble has plunged 40% against the dollar in the last six months but has lately stabilized. This has allowed the Russian central bank to reduce their interest rates from 17% to 14%, highlighting the dire state of the country’s economy. The Bank of Russia is caught in a bind, inflation is soaring at 16.7% in February and food prices have jumped by 23% compared to last year. Cutting rates could push prices even higher, but leaving them at elevated levels may mean an even deeper and longer recession.

In China the Kaisa real estate company appears to be in trouble. The reason I mention this, is because I believe it is indicative of the stress many companies are having throughout the world and will have problems paying back their bonds or even being able to keep up the interest rates. Crediting Swiss borrowed $300 million to Kaisa in 2009. Then the company went public and raised other $450 million and embarked on an aggressive expansion into 20 more Chinese cities. Now, with the real estate market in China slumping, developers are under pressure investments and dry up. The company’s chairman Mr.Guo, has resigned due to health problems. Kaisa is now pushing for bondholders to accept 50% of the value of their holdings or risk getting pennies on the dollar is bankrupt. The Kaisa story is a window into what can go wrong investors rush into China, where profits have been tempting and warning signs such as complex corporate structures, opaque deals, and political influence has gone unheeded. Chinese authorities have just put a freeze on the sale of all Kaisa properties. A big warning sign!

In Europe, the DAX index has gone up approximately 11% in anticipation of national central banks begin their quantitative buying of bonds and a monthly rate of $60 billion euro. With interest rates effectively as zero, the ECB hopes to push down bond yields and push prices up. The idea is to lower borrowing costs across Europe, not just for the government, but for households and businesses. The 10 year government bond in Germany, now just yields .03% and the German five year bond is in negative territory along with other European countries bonds. The euro has slumped approximately 10% against the dollar in 2015, to trade at 11 year low  and may be heading for parity. That has twin  benefits of making European exports cheaper on the world markets and driving up the cost of imports which have been falling for  first three straight months. Cheaper money is also pushing investors into the stock market in search of better returns. There are as many negative factors for quantitative easing is there are positive factors. Although increases existing bailout program for Greece was extended by four months to the end of June, it appears unlikely that Greece will meet the European central banks demands for austerity. This is just kicking the can down the road for future problems.

On Wall Street, volatility is back with a vengeance. The Volatility Index is up 5% this week and 20% this month. To blame has been plunging oil prices back to $45 a barrel and  the resurgent US dollar. The strength of the dollar has driven the euro to a 12 year low. A stronger US dollar should hurt profits of big multinational companies that generate a big chunk of their sales overse,as these companies are hit two ways. International sales are lower once they are translated from weaker currencies back into American dollars and  a robust dollar makes it harder for US companies to compete abroad. The price for European and Japanese goods are going to be cheaper than American exports.  While lower oil prices should be great news for consumers, consumers do not appear to be taking advantage of lower prices. Very unexpectedly, retail sales have fallen for the last three months. The last time this happened was July through September 2008. We all know what happened next. Consumers may also just being thrifty. The savings rate is at a 5.5% level in January, the highest level since December 2012. The good news this week was the bank stress tests conducted by the Federal Reserve indicated we don’t have to worry about bank balance sheets. As I said in the last market letter, you can believe that I’ve got a bridge in Brooklyn I can sell you. The government does not like to give out bad news and denied such things as lead in paint and gasoline were a problem, that nuclear testing did not create harmful radiation, that nicotine does not cause lung cancer and that there is no direct relationship between CO2 levels and global warming. Be skeptical!

 

 

THE INVESTMENT STRATEGY LETTER #622

13 Friday Mar 2015

Posted by Carl M. Birkelbach in Uncategorized

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Investement Straregy

I plan on commenting on two recent articles over the weekend. The first article was about nuclear proliferation from the economist magazine, which had a picture on its cover of two intercontinental rockets being launched. The second article on which I will comment is an article  in the New Yorker about income the inequality.
The markets seem to be getting more volatile, down over 500 points in two days, up a couple hundred the next day and today so fa,r down a couple hundred. The market rallied yesterday because of the positive stress test that the banks received. If you believe that report, I can also sell you a bridge in Brooklyn and definitely guarantee that leaded gasoline and nicotine in cigarettes is not a problem.

MARKETS GET MORE VOLATILE!

So, what’s the problem? It’s a combination of a couple of things including the effect of the strong dollar on US corporate earnings, China’s decreased business Outlook, the price of oil is once again below $50 a barrel and the Fed is once again implementing stress test on banks.

First, let’s talk about US greenback the US dollar is trading at a 12 year high against the euro in an eight year high versus the Japanese yen. In one way this is a very positive indication that the US economy in the United States is much healthier than Europe, Japan and other parts of the world. It will be great news for overseas travelers. There is talk among traders that the euro could reach parity with the dollar very soon. Currently the euro is worth about $1.07. Investors are worried that American firms that generate a big chunk of sales abroad are likely to get hit with a report earnings. Microsoft, IBM, Procter & Gamble, Johnson & Johnson, and Caterpillar are just a few of the many blue-chip firms that have recently warned about what a stronger dollar will do to their sales and profits this year. It is hard for these companies to hedge against cheaper prices. Companies like General Motors and Ford, may find it tougher to compete with European carmakers on their home turf, if the dollar continues to show strength. KATIE Nixon, chief investment officer for wealth management at the highly respected Northern trust Chicago believes that earnings for the S&P 500 will only increase 3% this year “the speed of the change in the value of the dollar has surprised many. The impact on the competitive side is harder to hedge.” The dollar could appreciate even further now that the European Central Bank is finally buying bonds through a quantitative easing program and the DAX is making new highs at 11,800 up almost 3% today.

The price of oil, continues to bother investors as a trades below $50 a barrel and today is $47.60 a barrel down $.69 for the day. A Goldman Sachs report published this week reiterated their forecast of $40 a barrel is still a possibility. The lower price of oil continues to have an effect on such oil-producing countries as Venezuela, Brazil, Russia and oil-producing companies. There is also an effect on states budgets that depend on oil production taxes to meet their budget, such as Texas, Oklahoma and Louisiana. Our concern continues to be about the bonds that these countries, companies and states have issued and their ability to make interest payments and balance budgets. As a side note China’s breathtaking growth is slowing and the latest economic news from China only added to the believe that the slowing is accelerating. The recent producer price index in China showed manufacturers are struggling to make a profit.

Back in the United States, US markets took a nose dive on Friday after a strong US jobs report stirred rumors that the Federal Reserve would raise key interest rates perhaps by June. The current low interest rates have helped to drive the six-year-old bull market. There was concern that once interest rates start up again, the bull market could end. The CN and monies fear and greed index is shifting towards fear. A week ago it was at 71, but now is drop back to 48 the once popular Shiller PE index shows stocks are valued at levels last seen right before the 2008 financial crisis. You can see that chart on the Shiller P/E index in previous Investment Strategy Letters #619.

 Current  Dow NASDAQ S&P 500
17,660 4,853 2,042
Short Term UP UP UP
Int. Term UP UP UP
Long Term UP UP UP
ForecastedTrendd  DJIA NASDAQ S&P 500
Short Term Down Down Down
Int. Term ? ? ?
Long Term Sideways? Sideways? Sideways?
Breakout Points DJIA NASDAQ S&P 500
Short Term Up (Resistance) 18,288 5,008 2,119
Short Term Down (Support) 17,147/17,0000 4605/4,5455     1,991/1,9733
Int. Term Up (Resistance) 18,974 See Fibonacci Projections above 5,002 See Fibonacci Projections above 2,486 See Fibonacci Projections above
Int. Term Down (Support)  15,855         /15,356 /14,688 4,166 3,986/3294 1,820 /1,560
Long Term Up (Resistance) 18,974 5,132 3,044
Long Term Down Fibonacci Support 50%12,000  62% 10,750       50%2,958  62% 2,555 50%1,390 62% 1,177
 10 yr Treasury 2.11  Gold 1,149 Oil 47.77 

 

INVESTMENT STRATEGY LETTER #621

11 Wednesday Mar 2015

Posted by Carl M. Birkelbach in Uncategorized

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INVESTMENT STRATEGY

MARKET DOWN 3% FROM IT’S ALL TIME HIGH.

So, what’s the problem? It’s a combination of a couple of things including the effect of the strong dollar on US corporate earnings, China’s decreased business Outlook, the price of oil is once again below $50 a barrel and the Fed is once again implementing stress test on banks.

First, let’s talk about US greenback the US dollar is trading at a 12 year high against the euro in an eight year high versus the Japanese yen. In one way this is a very positive indication that the US economy in the United States is much healthier than Europe, Japan and other parts of the world. It will be great news for overseas travelers. There is talk among traders that the euro could reach parity with the dollar very soon. Currently the euro is worth about $1.07. Investors are worried that American firms that generate a big chunk of sales abroad are likely to get hit with a report earnings. Microsoft, IBM, Procter & Gamble, Johnson & Johnson, and Caterpillar are just a few of the many blue-chip firms that have recently warned about what a stronger dollar will do to their sales and profits this year. It is hard for these companies to hedge against cheaper prices. Companies like General Motors and Ford, may find it tougher to compete with European carmakers on their home turf, if the dollar continues to show strength. KATIE Nixon, chief investment officer for wealth management at the highly respected Northern trust Chicago believes that earnings for the S&P 500 will only increase 3% this year “the speed of the change in the value of the dollar has surprised many. The impact on the competitive side is harder to hedge.” The dollar could appreciate even further now that the European Central Bank is finally buying bonds through a quantitative easing program and the DAX is making new highs at 11,800 up almost 3% today.

The price of oil, continues to bother investors as a trades below $50 a barrel and today is $47.60 a barrel down $.69 for the day. A Goldman Sachs report published this week reiterated their forecast of $40 a barrel is still a possibility. The lower price of oil continues to have an effect on such oil-producing countries as Venezuela, Brazil, Russia and oil-producing companies. There is also an effect on states budgets that depend on oil production taxes to meet their budget, such as Texas, Oklahoma and Louisiana. Our concern continues to be about the bonds that these countries, companies and states have issued and their ability to make interest payments and balance budgets. As a side note China’s breathtaking growth is slowing and the latest economic news from China only added to the believe that the slowing is accelerating. The recent producer price index in China showed manufacturers are struggling to make a profit.

Back in the United States, US markets took a nose dive on Friday after a strong US jobs report stirred rumors that the Federal Reserve would raise key interest rates perhaps by June. The current low interest rates have helped to drive the six-year-old bull market. There was concern that once interest rates start up again, the bull market could end. The CN and monies fear and greed index is shifting towards fear. A week ago it was at 71, but now is drop back to 48 the once popular Shiller PE index shows stocks are valued at levels last seen right before the 2008 financial crisis. You can see that chart on the Shiller P/E index in previous Investment Strategy Letters #619.

 Current  Dow NASDAQ S&P 500
17,660 4,853 2,042
Short Term UP UP UP
Int. Term UP UP UP
Long Term UP UP UP
ForecastedTrendd  DJIA NASDAQ S&P 500
Short Term Down Down Down
Int. Term ? ? ?
Long Term Sideways? Sideways? Sideways?
Breakout Points DJIA NASDAQ S&P 500
Short Term Up (Resistance) 18,288 5,008 2,119
Short Term Down (Support) 17,147/17,0000 4605/4,5455     1,991/1,9733
Int. Term Up (Resistance) 18,974 See Fibonacci Projections above 5,002 See Fibonacci Projections above 2,486 See Fibonacci Projections above
Int. Term Down (Support)  15,855         /15,356 /14,688 4,166 3,986/3294 1,820 /1,560
Long Term Up (Resistance) 18,974 5,132 3,044
Long Term Down Fibonacci Support 50%12,000  62% 10,750       50%2,958  62% 2,555 50%1,390 62% 1,177
 10 yr Treasury 2.11  Gold 1,149 Oil 47.77 

 

INVESTMENT STRATEGY LETTER #620

04 Wednesday Mar 2015

Posted by Carl M. Birkelbach in Uncategorized

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STOCKS WORLDWIDE FELL FOR SECOND DAY IN A ROW

SEE THE LONE BEAR LETTER 1,2,3,4,5 ABOVE

Stocks fell for a second day in a row, with the NASDAQ falling below the 5000 level and the S&P 500 below 2100. Investors appear to be pulling back slightly after the major averages made new highs and the NASDAQ crossed above 5000 the first time in 15 years. Wall Street appears weary, particularly because winter stormy weather throughout the country has been hampering economic activity and in the West Coast the ports strike could also hamper economic activity. Wall Street is expecting a damping in new jobs growth to around 240,000, down from 257,000 in January. The unemployment rate is expected to trickle down to 5.6% from 5.7% European stocks closed higher as the 19 country euro zone economy appears to be inspired by  falling oil prices and the lower euro. Europe is also is expecting a surge in economic activity when the central banks begin a quantitative easing program in May. However, recovery is still far short of that experienced in the United States. In China, Hong Kong Hang Seng index dropped 1% and the Shanghai composite gained a percent. China’s Premier lowered this year’s official growth target to 7% from last year’s 7.5% India’s central bank today unexpectedly cut a key interest rate by a quarter of a percentage point. This was the second such reduction this year as the bank lends support to government efforts to boost economic growth. So, all seems quiet on the Western and Eastern front.

Warnings of a slowdown in Europe, China and South America and ongoing conflicts between Russia and the Ukraine and problems in parts of the Middle East are being ignored. There are still plenty of warning signs that the stock market can’t keep this pace going. Nobel prize-winning economist Robert Shiller has noted that his metric to measure how expensive US stocks are, the Shiller P/E10   index, is back to levels not seen since the financial crisis. The P/E ratio for the Dow Industrial s is at about 17, whereas the P/E ratio for the NASDAQ is at about 30. All of these P/E ratios are high, but are not necessarily excessive. HOWEVER THE PERCENTAGE OF THE MARKET ABOVE REGRESSION IS 91% ( that is very high) AND 39% ABOVE REGRESSION OF THE SHILLER P/E 10 ( well within the 5th Quintile)!  So bulls, enjoy your glory while it lasts.Click to View

 Current  Dow NASDAQ S&P 500
18,096 4,967 2,098
Short Term UP UP UP
Int. Term UP UP UP
Long Term UP UP UP
ForecastedTrendd  DJIA NASDAQ S&P 500
Short Term Down Down Down
Int. Term ? ? ?
Long Term Sideways? Sideways? Sideways?
Breakout Points DJIA NASDAQ S&P 500
Short Term Up (Resistance) 18,288 5,008 2,119
Short Term Down (Support) 17,147/17,0000 4605/4,5455     1,991/1,9733
Int. Term Up (Resistance) 18,974 See Fibonacci Projections above 5,002 See Fibonacci Projections above 2,486 See Fibonacci Projections above
Int. Term Down (Support)  15,855         /15,356 /14,688 4,166 3,986/3294 1,820 /1,560
Long Term Up (Resistance) 18,974 5,132 3,044
Long Term Down Fibonacci Support 50%12,000  62% 10,750       50%2,958  62% 2,555 50%1,390 62% 1,177
 10 yr Treasury 2.12  Gold 1,2131,198 Oil 51.78  

THE INVESTMENT STRATEGY LETTER #619

01 Sunday Mar 2015

Posted by Carl M. Birkelbach in Uncategorized

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MARKET UPDATE for the week of March 2, 2015

Last week the Republican-controlled Congress offered us no hope to end gridlock in Washington. Now that the Republicans control Congress and as they vowed to govern efficiently, they failed in their first major test in funding the Department of Homeland Security. The strong Republican vote from the Senate bill, also highlighted the deep rift between the house and Senate Republicans, who have struggled to agree on a pragmatic path forward to both keep the agency running and still express their displeasure with Mr. Obama’s recent immigration action. Sen. Mark S Kirk Republican of Illinois I believe said at best,” We should never have fought this battle. In my view, in the long run, if you are blessed with the majority, you are blessed with the power to govern. If you’re going to govern you have to responsibly”. The stock market in the US took this gridlock in stride. During the last government shutdown last summer, the market reacted quite violently on the downside. Apparently chaos is now expected and normal. Not a good thing on the long run.

A NEW REPORT WARNS ABOUT BANKS TO BIG TO FAIL

Asked the question, at the annual J.P. Morgan investor’s day, “Wouldn’t shareholders be better off if the company were smaller or broken? The company’s chief financial officer quickly replied “no, no and no. We expect big banks executives to believe in big finance, as they benefit from being a giant. For the rest of us however, it’s worth noting that the effects of a dominant financial industry are far less beneficial, as we learned in the 2008 financial crisis. According to a compelling new paper published two weeks ago by the Bank for International Settlements, says high growth financial sectors actually hurts the broader economy, by dragging down overall growth and curbing productivity. The paper is entitledWhy does financial sector growth crowd out real economic growth?. The report stated that the borrowing that banks initiated are among the least productive and leaves fewer dollars for more promising research and development’s, startups etc. that may have only intangibles such as knowledge and ideas. Banks have traditionally been motivated by profits and not helping the general welfare. After all, they are profit motivated, and the top executives get paid top dollars to motivate a profit incentive. Banks are not worrying about risk, as when they make mistakes they get bailed out by taxpayers. This is what happened in 2008, when the banks were motivated to give loans for housing that people could not afford. They are now giving loans for automobiles, which people cannot afford. They are also charging exorbitant rates and management fees on the mutual funds that they manage. As the banks now dominate the mutual fund industry, investors have little choice but to pay up. It is interesting, that a new study by the White House Council of Economic Advisers has found that financial advisors seeking higher fees and commissions drain $17 billion a year from retirement accounts by steering savers into high cost products and strategies rather than compatible lower cost ones. The report has rocked the financial service industry, not because it is news, but because the industry sees it correctly as a forceful statement of the Obama administration determination to do something about the problem. Even though the financial service industry has strong clout in Washington, the notion of a fiduciary duty for retirement by his advisors should be uncontroversial. We shall see!

Warnings of a slowdown in Europe, China and South America and ongoing conflicts between Russia and the Ukraine and problems in parts of the Middle East are being ignored. There are still plenty of warning signs that the stock market can’t keep this pace going. Nobel prize-winning economist Robert Shiller has noted that his metric to measure how expensive US stocks are, the Shiller P/E10   index, is back to levels not seen since the financial crisis. The P/E ratio for the Dow Industrial s is at about 17, whereas the P/E ratio for the NASDAQ is at about 30. All of these P/E ratios are high, but are not necessarily excessive. HOWEVER THE PERCENTAGE OF THE MARKET ABOVE REGRESSION IS 91% ( that is very high) AND 39% ABOVE REGRESSION OF THE SHILLER P/E 10 ( well within the 5th Quintile)!  So bulls, enjoy your glory while it lasts.Click to View

 Current  Dow NASDAQ S&P 500
18,132 4,963 2,104
Short Term UP UP UP
Int. Term UP UP UP
Long Term UP UP UP
ForecastedTrendd  DJIA NASDAQ S&P 500
Short Term Down Down Down
Int. Term ? ? ?
Long Term Sideways? Sideways? Sideways?
Breakout Points DJIA NASDAQ S&P 500
Short Term Up (Resistance) 18,209 4,968 2,115
Short Term Down (Support) 17,147/17,0000 4605/4,5455     1,991/1,9733
Int. Term Up (Resistance) 18,974 See Fibonacci Projections above 5,002 See Fibonacci Projections above 2,486 See Fibonacci Projections above
Int. Term Down (Support)  15,855         /15,356 /14,688 4,166 3,986/3294 1,820 /1,560
Long Term Up (Resistance) 18,974 5,132 3,044
Long Term Down Fibonacci Support 50%12,000  62% 10,750       50%2,958  62% 2,555 50%1,390 62% 1,177
 10 yr Treasury 2.00  Gold 1,213 Oil 49.52  

 

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