Ebenezer Scrooge and Bob Cratchit on Christmas Eve

In this parody, Ebenezer Scrooge represents the top 1 percent

Bob Cratchit  represents the Middle Class

Scene Christmas Eve:  Scrooge let’s Cratchit know that there will be no raise this year, because there was no inflation (Ha!) and for the last 25 years all extra profits go to Scrooge.

Cratchit should be angry with Scrooge because 1) he had just spent $3 trillion bailing Scrooge out of a banking crisis. 2) he had just spent another $3 trillion on the war that gave Scrooges manufacturing plants huge profits and the war had no practical results.3) he has $1.3 trillion in student debt.4) he is being charged 15 percent on his credit cards by Scrooge 5) he can’t afford healthcare insurance offered by Scrooge. 6) he has most of his budget paying  $700 billion for the military and Scrooge wants to spend more and more on the military

As a result of the above Cratchit has experienced cutbacks in expenses for education, infrastructure for roads and bridges, environmental protection and social programs.

However, Cratchit is not outraged with the above. He is angry because of illegal immigrants, Planned Parenthood, gun control, Muslims and not winning the war.

Ghost #1The Past: Scrooge is reminded of those terrible 36 progressive liberal years between Roosevelt and Johnson when Congress  enacted the Glass Steagall Act, Social Security, Medicare, The Clean Air Act, The Urban Mass Transportation Act, The Wilderness Act, The Food Stamp Act, The Housing Act, The Freedom of Information Act, The Age Discrimination Act, The Gun Control Act, The Endowment for the Humanities, The Endowment for the Arts, and The Public Broadcasting Act that has given us PBS, and NPR, Higher Education and Facilities Act, The Elementary Education Act and the Vocation Education Act , The  Civil Rights Act and The Voting Rights Act, The Economic Opportunity Act and the ‘War on Poverty’ during which the Johnson Administration,  reduced the percentage of Americans living below poverty  from 23% to 13%. It was a nightmare!

Ghost #2 Today : He reads the Lone Bear Letter on the Investment Strategy blog.      Another nightmare.

Ghost #3 The Future: The middle class is so diminished it can no longer afford the consumption that keeps the engine of capitalism going. Oil prices go to $15 a barrel and all the bonds that depend upon income from natural resources default. As a result, banks close, industry shuts down and the government is paralyzed.

Christmas Eve morning: Scrooge is so happy that he is still alive and he still has an opportunity to prevent his demise by future events. As a result he decides to build higher walls around his home, to make his gates more secure and to prepare the police to put down any rebellion.

Bob Cratchit: Decides to vote for Trump

Tiny Tim says:

• “Blessed are those who discover the glory of the divine within themselves. Hallelujah, Hallelujah, Hallelujah, Hall-e-lu-lu-jah
• Blessed are we who gaze in amazement on a starlit night. Hallelujah, Hallelujah, Hallelujah, Hall-e-lu-lu-jah
• Blessed are those who see children in a moment when they are really children. Hallelujah, Hallelujah, Hallelujah, Hall-e-lu-lu-jah.
• Blessed are those who know love in their hearts. Hallelujah, Hallelujah, Hallelujah, Hall-e-lu-lu-jah
• Blessed are the meek: for they shall inherit the earth. Hallelujah, Hallelujah, Hallelujah, Hall-e-lu-lu-jah
• Blessed are they who mourn: for they shall be comforted. Hallelujah, Hallelujah, Hallelujah, Hall-e-lu-lu-jah
• Blessed are they that hunger and thirst for justice: for they shall be fulfilled. Hallelujah, Hallelujah, Hallelujah, Hall-e-lu-lu-jah
• Blessed are the merciful: for they shall obtain mercy. Hallelujah, Hallelujah, Hallelujah, Hall-e-lu-lu-jah
• Blessed are the innocent of heart: for they shall see the divine within themselves, Hallelujah, Hallelujah, Hallelujah, Hall-e-lu-lu-jah
• Blessed are the peacemakers: for they shall find salvation. Hallelujah, Hallelujah, Hallelujah, Hall-e-lu-lu-jah
• Blessed are they that suffer persecution for justice sake, Hallelujah, Hallelujah, Hallelujah, Hall-e-lu-lu-jah
• Blessed are those who are last, for they shall later be first. Hallelujah, Hallelujah, Hallelujah, Hall-e-lu-lu-jah
• Blessed is the newness, the fulfillment and the purity of our divine vision, Hallelujah, Hallelujah, Hallelujah, Hall-e-lu-lu-jah
• Blessed are those that join us in our cosmic dance of love and compassion. Hallelujah, Hallelujah, Hallelujah, Hall-e-lu-lu-jah”

Merry Christmas to all and to all a good night!

Forecasts for 2016 and why I am negative!

Goldman Sachs is forecasting 2015 S&P 500 earnings at $109 down 3% from 2014 $113. Original forecasts in December of last year called for an 8% increase. They were wrong!  2016 S&P 500 earnings are foretasted at $130 down from $231 a year earlier. 2017 are forecast at $129 down from $241 a year earlier. I believe earnings for 2016 and 2017 will be lower than forecasts from Goldman Sachs. My forecasts call for the Dow Jones Industrial average to be as low as 14,688, the NASDAQ to be as low as 4,506 and the S&P 500 to be as low as 1,560. Goldman Sachs calls for markets to be up approximately 8%. I disagree

I am not a negative person. I understand, however, that there are two sides to everything. The hubris and the hype that has made America a very positive force in the world, can sometimes ignore the very obvious, as was done in 2008. One of the reasons I have become The Lone Bear is because I don’t see anybody else talking about caution or concerns. Believe me; I would rather be talking about how wonderful Americans are, how great our market economy is and how kind our people are to one another. However, there is a lot we have to worry about and somebody has to talk about it.

An Adverse Political Environment

It’s no secret, that our political system in Washington is a shambles. Washington seems paralyzed by 40 Tea Party members that are not doing what is best for the general welfare and has the tail wagging the dog. Congress’s only concern seems to please their benefactors, which benefits the top 1%, gun advocates, anti-gender freedoms and a phobia about immigrants and terror. Tonight’s Republican debates recognized that people do not feel safe because of radical Islam terrorist attacks worldwide. However, their solution is war, war and war. They must have used the word ‘WAR’ a hundred of times. As Rubio said about a no fly zone for Russia, “If you want World War Three, you have your candidate.” Carpet bombing suggested by Ted Cruz will create enemies faster than we can kill them.  It’s mathematics, violence breeds violence through collateral damage. We have a $700 billion defense budget. We spend more than all the other nations combined and yet the Republican debates talked about reestablishing our military dominance. I agree with Trump on this one, every dollar spent on the failed Iraq war, was one dollar that we do not have to spend on educating our youth, giving medical care or rebuilding our infrastructure. In my opinion, the only thing that will defeat the Islamic states on the long run, as it defeated communism, is the equal opportunity in our economic system. The Statue of Liberty symbolizes our benevolence to refugees. The Islamic countries are failures economically, because of Sharia law. Thirty percent of their youth are unemployed. The refugees are running away from a system that doesn’t work. In addition, we destabilized the area when we attacked Iraq. When we left, Al Qaeda very simply faded into the population. If we put troops on the ground, they will very simply disappear into the population again and reemerge when we leave. This is a Middle East problem that can only be solved internally by Muslims.

This common and general statement is, “We want to take our country back.” Back to where, a Vietnam type war, no rights for women, no Social Security, no health care, no pollution control laws, no regulations on banks, no rights for gays, no civil rights, no labels on tobacco or lead in paint, no ban against atmospheric nuclear testing and of course I could go on. Congress’s majority is anti-government. We need politicians who have the general welfare of the entire nation as their first priority. This is a nonpartisan complaint. Both sides don’t get it. The middle class is shrinking and our current government’s response is unsustainable. Increasing our already huge military will take us in the wrong direction. I’ve outlined my scenario again and again and will continue to do so in hope that changes can be made.

Additional Dangers in 2016

The dangers of 2016 are as I have stated in the Lone Bear Letter and the market letters. However, there are some additional things that I’m concerned about that are non-economic issues, but which could have a devastating effect on our economy. They are as follows: 1) Since the attacks in Paris, US citizens are frightened of terrorists attacks in public places. The Republican debate tonight, talked about unlimited war in the Middle East and even confrontation with Russia, without considering the repercussions. The radical terrorists, of the Islamic state, have put themselves in a position to radicalize the US voting public. If there is a major terrorist act, like 9/11 or worse, they could affect who becomes the next president of the United States. Remember, it was the burning down of the German Parliament building that brought Hitler to power. Of course,. In my opinion, a Trump nomination, and possible election could skew all economic and political forecasts into a reckless future. 2) There is also the possibility of a mass cyber attack on US that could come from other than the Islamic state, but which could paralyze our economy. I heard a statement from Ted Koppel, on Sunday mornings NBC Meet the Press that struck a chord with me. He said, “There are two kinds of companies, those that have had cyber attacks and those who do not know they have had a cyber attacks.” With banking online as common, a cyber attack into our checking accounts could paralyze the economy.

One more thing: Happy New Year!

12/11/16 UPDATE

Today, oil prices have collapsed to $35.79 a barrel and the junk bond market is collapsing.

Oil prices are breaking into new low ground. Energy and mining companies and countries whose bonds are dependent upon commodity prices, are in trouble. This means that the banks that  hold the securities are also in trouble. In addition, The Third Avenue management mutual fund has stopped investors from withdrawing funds while it liquidates its high-yield bond portfolio. Third Avenue has said that poor bond market trading conditions makes it impossible to raise sufficient funds to meet redemption demands. This is an indication of how much the market for high yield corporate debt is deteriorating. High-yield bond assets in the US mutual funds are at about $300 billion. Third Avenue is the first mutual fund to halt redemption’s without obtaining an authorized SEC order. The SEC has been warning mutual fund managers that it may be difficult to buy or sell at stated prices because of lack of liquidity. In my opinion, this is the tip of the iceberg that will eventually sink the banks. The key to watching the banks is the German bank, Deutsche Bank, since April the stock has fallen from $36 to 23.30 today. The other thing to watch is the Chinese stock market which has fallen from 28,443 to 21,464. If the HS I  index breaks below 20,557, look for panic selling worldwide.

One more thing. The Fed has picked this time to increase interest rates!

12/10/15 Lower commodity prices once again affecting the markets.

Oil prices have fallen from $110 a barrel in the summer of 2014 to its present low price of $37.16 a barrel today. Iron ore prices are off 43% since the start of the year and copper prices are down 29% this year. The S&P commodity price index has fallen since the 2008 recovery from 702 to 318 today. Energy and mining companies and countries whose bonds and dependent upon higher commodity prices are in trouble. This means banks that hold the securities are also in trouble. A number of commodity related businesses have already declared bankruptcy or have fallen behind in their debt payment. There have already been about 40 chapter 11 bankruptcy filings by North American oil and gas producers this year, accounting for roughly $15 billion in losses in secured and unsecured debt. Almost 1200 or so oil rigs or two thirds of the American total, have been decommissioned since last year. On Monday Energy and Exploration Partners declared chapter 11 bankruptcy listing debt of more than $1 billion owed to companies like Baker Hughes and Stumberger. Anglo-American is reducing the company size by 60% with layoffs, cutting its business units and closing mines and its London office. We continue to believe that the commodity price declines are just the tip of the iceberg of a deflationary scenario that will have devastating effects on the markets worldwide in the years to come. That is why European countries bonds are selling below 0%.

The full extent of this commodity deflationary commodities market shakeout will depend on whether prices continue to fall. China has pulled back sharply in its purchases of commodities because of its economic slowdown. China now has four of the world’s largest world banks. It has expanded its lending to 150% of its GDP. Worldwide bank lending to emerging markets has ballooned in recent years from about 70% of GDP in 2007, to  about 140% this year. Dollar denominated loans make up 25% of corporate lending in Russia, 30% in Turkey and probably 40% in Nigeria. Commodity producers would normally be immune to this problem. However, since their income is in dollars, the plunge in commodity prices has ensnared them. There is little worry now in Wall Street, that bad debts will reach a catastrophic level. However, I might remind you that Catastrophes are rarely predicted and always come as a surprise. The credit worthiness of China’s big corporations is worsening. China’s big state firms are largely bloated, insufficient and noncompetitive and account for approximately 1/3 of the country’s economic output. The debt of these large state firms appear shaky. In a November 30 Standard and Poor’s report stated that because of lower commodity prices, a troubled property market and a slowing of economic growth, China could be in more trouble than most investment advisers believe. In China bond issuance this year has boomed to $1.9 trillion. China’s bond market appears to be  a bubble. In my opinion,China’s financial announcements from its centrally controlled dictatorial government cannot be trusted.

China is not alone in having potential problems with its bond market, for instance Italy’s burden of nonperforming loans now amounts to $370 billion, the equivalent of 21% of GDP. The founder of a Brazilian investment bank has recently been arrested as part of a vast bribery investigation centered on resilience state oil and gas giant. Too much corporate growth has been fueled by debt. We continue to believe that a deflationary scenario will continue causing problems with holders of debt, especially banks worldwide. The last economic debacle occurred because of a bubble in mortgage debt securities. This bubble is almost ready to burst because of bad debt of companies and countries depending upon higher and stable commodity prices. If you want to look for the canary in the mine, look at Deutsche Bank whose stock price has fallen from $52 a share to his present $24.38 a share. It keeps on making new loans. One can only wonder why?

In spite of the markets dodging a bullet in 2015, I continue to see corporate earnings as weakening, the bond market as dangerous, banks as a house of cards, and international emerging market growth as negative and my Bear Market deflation scenario is delayed, but on track.

Lower commodity prices once again affecting the markets.

Oil prices have fallen from $110 a barrel in the summer of 2014 to its present low price of $37.16 a barrel today. Iron ore prices are off 43% since the start of the year and copper prices are down 29% this year. The S&P commodity price index has fallen since the 2008 recovery from 702 to 318 today. Energy and mining companies and countries whose bonds and dependent upon higher commodity prices are in trouble. This means banks that hold the securities are also in trouble. A number of commodity related businesses have already declared bankruptcy or have fallen behind in their debt payment. There have already been about 40 chapter 11 bankruptcy filings by North American oil and gas producers this year, accounting for roughly $15 billion in losses in secured and unsecured debt. Almost 1200 or so oil rigs or two thirds of the American total, have been decommissioned since last year. On Monday Energy and Exploration Partners declared chapter 11 bankruptcy listing debt of more than $1 billion owed to companies like Baker Hughes and Stumberger. Anglo-American is reducing the company size by 60% with layoffs, cutting its business units and closing mines and its London office. We continue to believe that the commodity price declines are just the tip of the iceberg of a deflationary scenario that will have devastating effects on the markets worldwide in the years to come. That is why European countries bonds are selling below 0%.

The full extent of this commodity deflationary commodities market shakeout will depend on whether prices continue to fall. China has pulled back sharply in its purchases of commodities because of its economic slowdown. China now has four of the world’s largest world banks. It has expanded its lending to 150% of its GDP. Worldwide bank lending to emerging markets has ballooned in recent years from about 70% of GDP in 2007, to  about 140% this year. Dollar denominated loans make up 25% of corporate lending in Russia, 30% in Turkey and probably 40% in Nigeria. Commodity producers would normally be immune to this problem. However, since their income is in dollars, the plunge in commodity prices has ensnared them. There is little worry now in Wall Street, that bad debts will reach a catastrophic level. However, I might remind you that Catastrophes are rarely predicted and always come as a surprise. The credit worthiness of China’s big corporations is worsening. China’s big state firms are largely bloated, insufficient and noncompetitive and account for approximately 1/3 of the country’s economic output. The debt of these large state firms appear shaky. In a November 30 Standard and Poor’s report stated that because of lower commodity prices, a troubled property market and a slowing of economic growth, China could be in more trouble than most investment advisers believe. In China bond issuance this year has boomed to $1.9 trillion. China’s bond market appears to be  a bubble. In my opinion,China’s financial announcements from its centrally controlled dictatorial government cannot be trusted.

China is not alone in having potential problems with its bond market, for instance Italy’s burden of nonperforming loans now amounts to $370 billion, the equivalent of 21% of GDP. The founder of a Brazilian investment bank has recently been arrested as part of a vast bribery investigation centered on resilience state oil and gas giant. Too much corporate growth has been fueled by debt. We continue to believe that a deflationary scenario will continue causing problems with holders of debt, especially banks worldwide. The last economic debacle occurred because of a bubble in mortgage debt securities. This bubble is almost ready to burst because of bad debt of companies and countries depending upon higher and stable commodity prices. If you want to look for the canary in the mine, look at Deutsche Bank whose stock price has fallen from $52 a share to his present $24.38 a share. It keeps on making new loans. One can only wonder why?

In spite of the markets dodging a bullet in 2015, I continue to see corporate earnings as weakening, the bond market as dangerous, banks as a house of cards, and international emerging market growth as negative and my Bear Market deflation scenario is delayed, but on track.

WORLD MARKETS DODGE A BULLET IN 2015

At the beginning of 2015 I wrote the LONE BEAR LETTER on 1/23/2015 with the Dow:17,672; NASDAQ 4757: S&P 500 2,051. In August the market made our first stated downside objective and fell to lows as follows: Dow 15,351, NASDAQ 4292 and S&P 500 1,867. Since then the markets have rallied back to approximately the same levels they were when the LONE BEAR LETTER was written, with the NASDAQ 10% higher. World markets have not fared as well, with the Chinese market with a 2015 high 28,443, a low of 20,557 and is now at 22,479. The European DAX index with a high of 12,375 a low of 9.334 and is presently at 11,190. Emerging nations stocks have recovered very little since the August. Likewise certain sections of the US market have not fared well including the Russell 2000 index the Dow transportation index and energy stocks. Deutsche Bank is at a yearly low, probably because of the VW scandal.

However, generally speaking the markets have done much better than I expected. Slowing in China did not spill out causing a catastrophe in developing nations and China’s currency has been added to selected basket of RESERVE currencies, known as special drawing rights by the International Monetary Fund. In addition, although oil prices fell to as low as $35 a barrel and are now at about $40 a barrel, disasters did not occur in oil-producing nations like Brazil and Russian, or oil-producing companies like Exxon. Likewise, there appears to be no disaster in Europe even though their economy is flat and may have been stung by terrorist acts and overwhelmed by immigrants. As a matter-of-fact, the Bank of England just declared an end to years of financial crisis saying that British banks are now healthy. The European Central Banks continue to buy $64 billion of bonds or months under is qualitative easing program. However many European bonds have a negative you and do not qualify for purchase. I still believe we have a deflationary scenario worldwide and that’s why yields are negative in Europe. Our banks in the US continue to appear healthy on the outside, while possibly vulnerable because of low quality loans and a portfolio of bonds that may start decreasing in value as the Fed raises interest rates. So, “so far so good!”  the man said  while falling  at the 20^th story of a 50 story building.

Why the stock market rally? As I said once before ‘It’s three men in a tub, rub a dub dub, nobody wants to pull the plug. There is talk, the Fed wants to delay increasing interest rates because of an unsure economy. Monetary policy, in my opinion, seems useless. The only thing, I believe can save this economic bear market scenario, is a progressive fiscal policy. This under current conditions will be impossible to execute.

In spite of the markets dodging a bullet in 2015, I continue to see corporate earnings as weak, the bond market as dangerous, banks as a house of cards, and international emerging market growth as negative and my Bear Market deflation scenario is delayed, but on track.