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.
|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|