What will the Fed do?

Truthfully, it doesn’t matter what the Fed does. Interest rates are almost at zero. INTEREST RATES are A SHORT TERM PROBLEM WHICH IS DISTRACTING INVESTORS AWAY FROM THE LONG TERM PROBLEM! The Federal Reserve has been punishing savers and retirees at the expense of a higher stock market. They bought $4 trillion worth of bonds and flooded the economy with dollars. Still, they couldn’t stir up inflation. They are out of bullets to help the economy. All they can do is delay reverse tapering. If oil goes down to $20 a barrel as forecast by Goldman Sachs, it will have the same effect as the mortgage debacle when mortgage bonds defaulted. Oil-producing nations have bonds that will be in trouble. Oil-producing companies have bonds that will be in trouble. The banks hold more derivatives on these trouble securities than they did of mortgage bonds in 2008. Once again, the banks are a house of cards. The shrinking middle class cannot hold up their consumer’s end of the market as all income increases have gone to the top 1%. Bernie Sanders has got it right; it’s all about income inequality. The big corporations and top 1% think they are immune to the worries of the shrinking middle class.Not so! Commodity prices are down 20% across-the-board.  Inflation has become unsustainable And the problem with that is; deflation is unacceptable. As I have repeatedly said, the markets fall first, and then when he find out why.

SORRY ABOUT THE BAD NEWS: You can’t believe how hostile everybody is to my position. Nobody wants to hear the bad news. I don’t like being the messenger! However, I’m not attached to the financial industry and its success and I am out of stock market, so I don’t have to feed on the Kool-Aid the hype and positive mental attitude. Yes, you need to be positive to be great and this is a great nation. However, sometimes the hype is nothing more than an illusion. And yes, I want this nation to be great again. We were great in the 1950s when big labor, big government and big business were in balance. Now big business, through Citizens United runs and will ruin everything, We are being governed by those elected that are beholding to big business and big money. Unless the balance is restored I believe all boats will sink.Maybe everyone is so involved with the hype that thing will just keep on going on.However, here are some facts that are hard to ignore: it is estimated by Oxfam America that the top 1% in the world own 99% of the world wealth and most of that belongs to the top 1/10 of 1% as worldwide only 80 billionaires control 50% of the global wealth. They own more than the 3.5 billion people in the bottom half. In In the United States 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%.  This is class warfare where in my opinion everybody will lose. It is estimated at only 400 families control over 50% of the wealth in the United States. How many bars of soap and how many cars can each of these wealthy people buy? These excessive conditions, in my opinion are taking the breath out of the world economy that have not yet been seen in the metrics.

1) Globalization has forced many Americans and well-developed countries and their workers to compete with worldwide poor workers who are willing to accept lower wages.2) computers and modern machines are replacing human labor in numerous ways 3)  basic education outside the US is quickly progressing 4) outsourcing has replaced many jobs and cut employees free without a safety net.5) the very nature of the Internet and high-technology makes pricing extremely competitive and will thereby squeeze profit margins causing companies to trim workforce in order to maintain competitiveness.

I believe that as happened in 2000 and 2008, the so-called experts will tell you it’s only a correction. I believe it’s much worse than a correction. I believe it’s going to take a major readjustment of our capitalistic system to upright the sinking boats and to get them all to rise again together. The whole world has moved Left, to universal healthcare and affordable education. Here, our evangelistic home schooled children are being taught that the earth was created 5000 years ago and science has nothing to do with evolution or global warming. Every president at the end of the speech has to say, And God bless America. That could not happen in Europe where Tony Blair had to play down his Christianity in order to be electable. God and prayer will not save us from this shaky economic situation. The United States is ranked number 39th in the world on basic education. We are behind the times and we’re falling further behind. People are frightened! There is a very dark nasty side to the current environment that includes racial slurs of our black president, hateful remarks about our Mexican immigrants and their anchor children and frightening fear of Islamic  people and African American people in cities. It reminds me of the fear that caused Nazism. The economic and social fabric of this country is being weakened by these verbal abuses. In the next 25 years it is estimated that over 70% of people in the world will  live in cities. We will have to learn how to coexist. Most wealthy people in the United States, move from monochromatic suburb to one that looks just like it outside of another city. I was grateful for such an existence, but now that I live in the city, I see textures black and white and various other colors that need to blend together to become the United States of America. I have a great deal of faith that no matter what happens, it will all happen for the best and in the end the United States will be stronger, more unified and the pursuit of happiness will be more equalized.

The economy increased at a revised +3.7% pace in the second quarter. That is almost 1.5% percent stronger than initial estimates for that period. Personal disposable income rose 0.4% after adjusting for inflation in the month of July. That is faster than consumer spending, which instant edged up 0.3% during the month. All good news! Then why is the market so weak? Harry Truman, is quoted as saying, “There is nothing new in the world except the history you do not know.”Remember the Markets went down in 2000 and 2008 before the bad news became public. The market’s current weakness, I believe is telling us something. It is telling us that there are weaknesses that have not yet been revealed. I have talked about those weaknesses over the months in The Investment Strategy Letter. SEE BEAR MARKET LETTERS 1,2,3,4,5,6,7,ABOVE  Read the book book: This Time Is Different, Eight Centuries of Economic Folly by Carmen M Reinhart.

 Current Dow NASDAQ S&P 500
16,370 4,805 1,953
Long Term Down? Down? Down?
Forecasted Trend DJIA NASDAQ S&P 500
Short Term Down Down Down
Int. Term Down Down Down
Long Term Bear Market? Bear Market? Bear Market?
Breakout Points DJIA NASDAQ S&P 500
Short Term Up (Resistance) 18,352 5,231 2,134
Short Term Down (Support) 15,855/ 4605/4,545 1970
Int. Term Up (Resistance) 18,352 5,157 2,134
Int. Term Down (Support)       /15,370 /14,688/ 13,377 4,116/ 3,986/3294 1,820 /1,560
Long Term Up (Resistance) 18,312 5,231 2,131
Long Term Down Fibonacci Support 50%12,000  62% 10,750     50%2,958  62% 2,555 50%1,390 62% 1,177
 10Treasury 2.18% Gold 1,107 Oil 44.12