AS PREDICTED IN THE LONE BEAR LETTER – STOCKS PLUNGE – GOLD SOARS!
“In a time of universal deceit, telling the truth is a revolutionary act” George Orwell.
All stock market indexes are now in free-fall, except for the Dow Jones Industrial Average which has not yet broken its August low of 15,370 (maybe today or tomorrow). Default worries in Europe have European bank stocks down between 5% and 9% today. Credit Suise Bank announced a $5.8 billion loss in its fourth-quarter. Oil at 26.92 a barre, could lead to further defaults in loans and bonds of companies depended upon higher prices to manage its debt. Investors are jumping into U.S. Treasury bonds and driving yields on the 10 year treasury’s down to a record 1.6% and yields on three-month treasuries to 0.26%. That of course is better than a negative interest rates offered by many European and Japanese banks. The banks throughout the world are out of bullets to stop deflation and and worldwide economic slowdown or worse. Banks like Wells Fargo have put aside $1.2 billion against their loans from $17 billion from oil related companies. J.P. Morgan is only put aside $124 million and Citicorp $600 million. These are inefficient amounts and investors know it. There were forty-two drillers that went bankrupt last year and this year, some 72%of energy related companies are facing default.Chinese millionaires are buying over 50% of all mew gold production. Why?
Federal Reserve Chairman, Yellen, has just said she will not rule out negative interest rates for the United States. This is not a solution, it is an acknowledgment of the Federal Reserve’s inability to control deflation. Six BANKS in the US now control over 70% of all banking assets. This far exceeds the problem of ‘too big to fail’ from 2008. Ted Cruz has just put out a statement that he would not bail out the banks if they needed it! This means, because of the dominantly controlled Republican Congress, all boats will sink.
FOUR NEW BOOKS TO READ
- The Age of Stagnation by Satvajit Das. This book explains the failures of central banks to stop an economic and financial catastrophe. His solution is austerity, which seems unlikely to happen
- The Only Game in Town by El-Erain. He believes that central banks cannot avoid a financial catastrophe with monetary policy alone and needs fiscal policy to aid the economy. With Republican Congress, this does not seem possible.
- Dark Money and the rise of the radical right, by Jane Mayer. This book explains how economic growth is unsustainable if eighty people own 50% of the world’s wealth and 1% of people own more than the 90% of wealth in the US. (dah!)
- The Fourth Industrial Revolution by Klaus Schwab. This book shows what a wonderful world of technological wonders awaiting us once we get through this economic and financial catastrophe. Here the only problem is, once Artificial Intelligence has access to unlimited knowledge in the cloud and is able to reproduce itself, silicon intelligence will not need us. However, that’s a problem for another day.
THREE MAIN REASONS FOR THE DECLINE
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 three factors.!)
- As If oil prices continue lower, as the charts show ($17-19), 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, $15.57 (down 4%), 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 interest rates below -0. Once again, Greece, Italy and Spain are all in trouble! Watch out below!
2) 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 conclude, that on a worldwide basis, a consumer oriented and market oriented economy is 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.
3) What has gone on in Flint Michiganis 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’.
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Mr Birkelbach does not offer investment advice, but merely his own personal opinion. This report has been prepared from original sources and data we believe reliable but make no representations as to the accuracy or completeness. Mr.Birkelbach , his affiliates and subsidiaries and/or their officers and employees may from time to time acquire, hold or sell a position in securities. Past performance is no guarantee of future success. Upon request, we will supply additional information. CarlBis@aol.com