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WORLD BANKS BEGIN TO TREMBLE!

One of the headlines in the New York Times today was as follows: “Toxic loans around the world weigh on global growth.” The word about the trouble banks, slowly, ever so slowly, is reaching the public. Quoting from the article “China is the biggest source of worry. Some analysts estimate that China’s trouble credit could exceed $5 trillion, a staggering number that is equivalent to half the size of the country’s annual economic output.” ( And remember the 2008 bank bailout was only about $2 trillion) Charlene Chu, an analyst in Hong Kong for Anonymous Research, said China’s financial sector will have loans and other financial assets of $30 trillion at the end of this year, up from $9 billion,7 years ago…. The world has never seen credit growth of this magnitude over such a short time.” The article also points out that China is not the only problem” analysts that say Europe has over $1 trillion of bad loans. Italy for instance, announced plans to clear up bad loans from its weak baking industry, causing shares of bank stocks in Italy to plummet. Italy’s largest and oldest bank, Baca Montel of Siena could be broken up. The European Central Bank has requested further details on nonperforming loans. What worries me most is a comment by the economic minister Pier Padoan, saying “there is no reason to panic.”

I continue to believe that the canary in the mine’s Deutsche Bank, which shoed a loss in the 4th quarter of $2.3 billion and a loss of $6 billion for 2015 in spite of their reducing their workforce and pulling out of 10 countries.  DB is down 27% for the year and German banks are down 22% for the year, so far. The United Kingdom’s banks exposure to China is high as Britain’s biggest bank HSBC (-8% for the year) is the largest bank in Hong Kong and recently suffered from a cyber attack. This bank, along with Standard Charter, and DBS Group are largely exposed to the Chinese economy, which many believe is actually declining at a faster rate than reported. British banks are curbing mortgage provisions to Chinese national,s that want to buy US properties.  In a desperate attempt to make a last-ditch effort to use China’s currency, before a collapse, ChenChina announce that it is trying to buy Swiss agricultural giant, Syngenta for $43 billion. Raoul Pal, former Goldman Sachs and hedge fund executive says of European banks “some of the biggest ones could go bankrupt, and the trouble could spread to US banks.” Recent reports by Exxon, Shell and British Petroleum show negative earnings reports. Job cuts soar 218% in the US in January!

The Federal Reserve has for 7 years try to stop deflation by initiating zero interest rates and $3.7 trillion of quantitative easing and the printing of approximately $6 trillion of cash into the economy. European banks and the Bank of Japan have reduced their deposit rates to-0%. They can’t stop deflation and have run out of bullets. It’s a losing battle. Loan demand is down 11% as corporations scaled-back their plans. J.P. Morgan reduced its Standard & Poor’s projection for the year from 2200 to 2000. How brave of them. They won’t become bearish until they can unload all the worthless securities to countries like Iceland and Ireland, as they did the last time with nonperforming loans and bonds. See the movie, The Big Short. However this time, I believe they will be stuck with the loss and US tax payers will not bail them out. The GDP  growth in the 4th quarter of 2015 did not even grow 1%. There is presently a growth forecast for 2016 as a growth rate of 3%. What are the chances?

Charts now forecast oil below $20 (If no major changes). Good-by Venezuela, Nigeria, North Dakota etc, and then the banks! DEFLATION! Look out below

2/1/16 WHAT’S WRONG WITH THE MARKETS? 1) DEFLATION 2) THE TOP 1% 3) FLINT MICHIGAN!

Most markets in the US and in the world have broken below their August lows, except for the Dow Jones Industrial Average. The following miscellaneous averages, indexes and stocks now appear to be in a Bear Market: NASDAQ, S&P 500, The Dow Jones Transportation index, Apple, the London FTSE, the DAX, the Shanghai, FXI index and HSI index, the Nikkei, the Russell 2000, Russia, Brazil, Venezuela, Mexico, various bank stocks including the Deutsches Bank, high-yield corporate bonds, the XLI Industrials, the EEM Emerging Markets Index and oil.

In market letter 683, I outlined two factors (see below) that I used to widen my 2016 market projections lower as follows: My forecasts for 2016 call for the Dow Jones Industrial average to be as low as 14,688 to 12,000, the NASDAQ to be as low as 4,506 to 3,000 and the S&P 500 to be as low as 1,560 to 1,400 because of two factors. I now want to add a number three reason.

3) What has gone on in Flint Michigan is both scary and typical of what is going on in our country. The Republican governor cut taxes by billions of dollars for the high income 1% and corporations, and then cut the budget for the poor and public. To save $15 million, they changed the water system to allow dangerous lead into the homes of Flint Michigan residents. What he did was criminal and in my opinion should be put in jail. He has endangered the health of hundreds of thousands children, for which there is no remedy. Flint Michigan residents are primarily poor and are mostly African-American. Why are they being ignored and marginalized? They don’t write the checks for the governor. Since Citizens United, that declared corporations are people (If they are people, they are sociopaths), most changes in government are 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 flat-lined. ‘Donor power,’ has taken over the rights of ‘We the people’.

The infrastructure of the United States cities is deteriorating and is being ignored by the thirty-one states run by Republican governments. For example: Scott Walker in Wisconsin has given big tax breaks to the wealthy while cutting back on education and trying to destroy unions. Scott Brownback of Kansas has done the same thing and almost bankrupted the State. The newly elected Matt Bevin of Kentucky has just eliminated Obama care and left 3 million people without health care alternatives. In my opinion, those that have an ideology of a libertarian and Conservative Republicans, are saying they are pro-business, free markets, less taxes and less regulation, I believe are naturally motivated by greed and only want less regulation and less taxes so their corporate and rich donors can make more profits. That’s the nature of the animal.

I conclude, that the balance between capital and labor has been tilted in such a way, that it is unstabilizing the US and world economies and that all boats could sink. Nobody can stop this except the voters. Up until now the disenfranchised middle class and poor have voted against their own self-interest and in favor of the top 1% and been sidetracked by issues like gun control, women’s birth control rights, immigrants, Muslims and gay rights.  Unless a balance is reestablished, we are headed back to the Middle Dark Ages, where the NEW Royally owns everything and the rest of us are serfs. In US the top 1% own more than the bottom 90% combined and in the World today, only eighty people own 50% of the wealth and they won’t stop until they get the other 50%. In the long, this is also against their self-interest. It is better to have all boats rise, than to have of all boats sink. However, greed has no boundaries and is self destructive! None of the Republican candidates in my opinion offer NO solutions or answers except for a stronger military confrontation and bigger military budgets. The leading candidate, Donald Trump acts as though hubris is all we need to be great again. I don’t think so! Even his fellow Republicans dislike Ted Cruz and the former Speaker of the House called him,” a horses ass”

The ground swelling support of Bernie Sanders is an indication that voters are looking for progressive answers AND THAT WE NEED A CHANGE IN OUR CULTURE THAT PROMOTES INCOME GROWTH EQUALITY, EDUCATION AND HEALTH CARE AND IS RELIGIOUSLY NEUTRAL . I first liked Bernie, because I thought he would push Hillary Clinton more to the left. However, it now appears that Bernie actually has a chance of becoming the Democratic nominee. As he moves from the hypothetical to a real candidate, many questions have to be answered. For one thing, it is obvious that Bernie is a Democratic Socialist and not a pure socialist. Pure socialism calls for the takeover of all industries such as automobiles, steel, etc. Bernie has to explain this and has not as of yet, done so. He should also be able to explain how his business plans will be good for small business owners and entrepreneurs that are being pushed out a business by the large corporations. He must also explain how it will cost the average taxpayer in addition $5000 a year to get single-payer health insurance, but will probably save $10,000 a year on insurance premiums. America does everything in increments and a direct change to single-payer could be softened by starting with insuring all children under twelve, such as we do in Medicare. College for all that can qualify theoretically sounds like a great idea. However, how will we pay for this? In the long run, educating our poor will benefit the country by their ability to be bigger consumers and for our incarceration costs and police protection costs to diminish. So, Bernie has a lot of explaining to do. The big question of course remains, that with a Republican Congress which is guaranteed for reelection by gerrymandering, how can any aggressive legislation be passed? For the time being, I don’t see an answer to gridlock in Congress or candidates for the presidency that will be able to solve our problems. In my opinion, it may take a market crash and possibly a revolutionary furor to shake our present intransigent political system to adjust to a new reality! Sorry, don’t kill the messenger!

1/27/16 I DIDN’T EXPECT TO MAKE MY 2016 DOW LOW OF 14,688 ALL IN ONE MONTH! However, I am widening my 2016 projections lower. If the Dow Indu and the NASDAQ can hold above their August lows for the next couple of weeks, markets could once again begin going higher for a little while. However, I believe risks for a big drop are higher this year than last year and I am widening my downside projections as follows: My forecasts for 2016 call for the Dow Jones Industrial average to be as low as 14,688 to 12,000, the NASDAQ to be as low as 4,506 to 3,000 and the S&P 500 to be as low as 1,560 to 1,400 because of two factors.

  • If oil prices continue lower, as the charts show, countries like Russia (markets down 80%, Venezuela (ALMOST BANKRUPT), Nigeria (oil 90% of government revenue) Brazil (politically corrupt), Iraq ISSIS), Mexico , etc. and even Saudi Arabia could have problems with their sovereign debt. States like North Dakoda, Kansas, Oklahoma and Texas depend on higher oil prices to support their State budget. In addition, approximately 10% of the S&P 500 are made up of companies that depend upon higher energy prices and natural resource prices. These corporations have issued hundreds of billion dollars of debt, which may default, if oil prices and commodity prices stay at these levels. The banks hold these bonds and more speculative derivatives than ever. , I believe the Canary in the mine are bank stocks, particularly  Deutsches Bank (DB),now, below 19 dollars a share, down from a high of 52.  Deutsches Bank has approximately $7 billion of sub-prime automobile loans, many on Volkswagen. Bad debt, in my opinion, will lead to a banking crisis larger than we had 2008. That is because in 2008, the government was willing to bail out the banks with trillions of dollars of taxpayer money. This time, Congress is in no mood or politically structured to save the banks and the Fed is out of bullets and hold trillions of dollars of high-yield bonds that they purchased during quantitative easing. They can’t stop deflation. That’s why European banks and now the Bank of Japan banks offer intrest rates below -0. Wach out below!
  • For the last twenty years all the income growth has gone to the top 1% in the US and in the World only eighty people own 50% of the wealth (they won’t stop until they get the other 50%). I concluded that on a worldwide basis, a consumer oriented and market oriented economy was unsustainable under these circumstances. Those that have an ideology of a libertarian and are saying they are pro-business, free markets, less taxes and less regulation, I believe are naturally motivated by greed and are causing  unstabilizing forces between capital and labor.Richard Fink, chief strategist for the Koch’s family, was quoted in a recent article in the New Yorker Magazine saying, “We want to decrease regulations so we can make more profits. We want to cut government spending so we pay lower taxes.” In my opinion, corporations are not individuals. If they are, they are sociopaths! I conclude, that the balance between capital and labor has been tilted in such a way, that it is unstabilizing US and world economies and that all boats could sink.
 Current noon Dow NASDAQ S&P 500
16,348 4,491 1,908
Short Term DOWN DOWN DOWN
Int. Term DOWN DOWN DOWN
Long Term SIDEWAYS? DOWN? Down?
Foretasted 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) 16,912 5,057 2,062
Short Term Down (Support) 15,885/15,484

/15,370

4,468/4,338/  4,116 1850/1816
Int. Term Up (Resistance) 18,352 5,231 2,134
Int. Term Down (Support)     /15,370 /14,688/ 13,377  3,986/3294  1,560
Long Term Up (Resistance) 18,352 5,231 2,134
Long Term Down Fibonacci Support 50%12,000

62%10,750

2008 LOW 6,627

50% 3,000

62% 2,555

2008 LOW 1,204

50%1,400

62% 1,177

2008 LOW 666

 10 Treasury 1.86%% Gold 1,154 Oil 26.59low now 32.71
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