DOW ABOVE 19,000! BULL MARKET CONTINUES?
I wrote my Lone Bear Letter on the January 25, 2015 when the Dow was at 17,672. Up until now, this was the right advice, as the DOW was 17,140 in June of this year. Then something happened! I got Trumped. Now, with the Dow above 19,000, it appears that we could be headed higher, based on a highly stimulated economy, with lower taxes, big spending and huge- huge debt. President-elect Trump should have a news conference; however, he either tweets or goes on You-Tube. We are not sure what’s going to happen first, the wall, dropping Obama care, tax cuts, spending on infrastructure, cutting regulations or extracting immigrants.
1) Although I can’t imagine a conservative Congress and Senate going along with tax cuts and at the same time authorizing a huge spending program, it could happen. That would increase the deficit by at least $5 trillion. We know that Trump believes in debt and has had no qualms about taking it on to build his projects. Some have worked out, and some have ended in bankruptcy. The scale of consequences increases if failure occurs on a federal level. If he succeeds in this stimulus of tax cuts and spending increases, expect the Federal Reserve (GOAL OF 2% INFLATION),to skyrocket interest rates back above 10%.Net effect? Trouble!
2) President-elect Trump has lots of conflicts of interest with being president and running a brand name business. For instance, it would be natural for diplomats to stay at his Trump Washington hotel, which is negotiating a rental agreement with the federal government that owns the land. Or he could influence the building of wind powered turbines close to his British golf courses. His loans are at the Deutsche Bank. which is in trouble with the Justice department. The stock is up 20% since his election. The Trump foundation has admitted ‘self-dealing’ with the IRS. The Constitution is very clear about using political influence for personal financial gain, its called impeachment.
3) I see another problem with President-elect Trumps comments about holding money back from cities that don’t cooperate with extracting immigrants. 70% of the jobs are in major cities, how is he going to create a better economy, if the government spending doesn’t help cities?
4) If Trump increases tariffs on places like Mexico, China and Japan in international trade war may develop that will stifle world trade, as it did in 1929. This will cost jobs and increase the cost of foreign goods.
5) He has got to produce a better economy and fast. Fast is the problem. The government doesn’t move fast and in spite of his power, resistance could delay any changes. In a way, his promises are impossible to be met. We cannot make America as great as it was in the mythical 1950s, because we had a unique situation at that time. The world’s factories had been destroyed by World War II. We were the only functioning manufacturers in the world. Therefore, we had Happy Days that are impossible to duplicate. If Apple brings back its factories to the United States, from China as Trump has requested, they will be completely automated.
6) Over half the country is concerned about the alt-right movement of the Trump administration. Many have taken Trumps promise to Make America Great Again to mean Make America White Again. So far, his choices key administrative positions have been all white older males and some with either alt-right or hawkish tendencies. There is a Constitution that protects us against segregation and violation of civil rights. However, this clash between whites and the multi-cultural society, rural and cities, peace and doves, rich and poor, blue-collar and white-collar could intensify into very active public demonstrations. As we saw with the Hamilton protest, Trump called this inappropriate. Talk about calling the kettle black, Trump is the King of inappropriateness. A President Trump’s personality will have difficulty with living in the White House, dealing with Congress and with public outrage. Unfortunately I believe President Trump will be challenged and tested immediately after January 20, by terrorists’ attacks and aggressive moves by Russia and/or China.
7) My bear market scenario was based upon deflation not inflation. Both are destructive to an economic system. However, an inflationary scenario, together with a unstable government is not something I had considered. The results may be the same, but it may take a longer for the weaknesses to show up.
8) My greatest fear is that America will be turned into an oligarchy, similar to Russia. In a recent (Oct 22, 2016) Economist Magazine they describe Putin’s domestic policy to reduce competition to favor his oligarchs. They describe a system he developed which Kirll Rogov, a Russian political economist describes as “soft legal constraints.” To quote from the Economist Magazine, “It involves writing the rules in such a way that to observe them is either prohibitively expensive or downright impossible to follow, then handing out licenses to break those rules to the oligarchy.” Doesn’t this sound exactly like what has happened in our financial industry? The SEC and FINRA have made the rules (compliance) to run an independent brokerage firm as either prohibitively expensive or downright impossible to follow. In this way, the government has eliminated independent competition and has turned over the entire financial industry to the banks and large financial institutions. They allow Wall Street to break the rules for the cost of a small fine, as compared to the large profit that they made in breaking the rules. In this way the large financial institutions feed the SEC, that guards their monopoly. In my opinion, with Trump functioning without restraints, he will favor his buddies, causing the United States to look more and more like Putin’s Russia and its economy, dominated by the privileged few 400 families (top tenth of 1%).
| Current 11/22/16
|Foretasted Trends||DJIA||NASDAQ||S&P 500|
|Breakout Points||DJIA||NASDAQ||S&P 500|
|Short Term Up (Resistance)||19,023||5,386||2,202|
|Short Term Down (Support)||17,140/||4,594||2,001|
|Int. Term Up (Resistance)||?||?||?|
|Int. Term Down (Support)||16,865 15,484 /15,370 /14,688/ 13,377||4,267/4,209/3,986/3,294||1,850/1,560|
|Long Term Up (Resistance)||?||/|
|Long Term Down Fibonacci Support||50%12,000
2008 LOW 6,627
2008 LOW 1,204
2008 LOW 666
|10 Treasury L0W 1.37^ NOW 2.32%||Gold 1,211||Oil 26.59 low Now 48.00|
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Carl 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. Carl, 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