The market is having trouble at the 18,000 level of the Dow

Recent average hourly wage reports show a nine cent increase in November to $24.66, the biggest gain in 17 months. The Federal Reserve has pointed to wages as a key reason to keep rates low. Higher wages could lead to higher prices and the Fed might feel committed to raise rates to limit inflation. Many analysts expect the economy to grow 3% in 2015. This would mark the first time in a decade that annual growth would reach that threshold. However there are still 7 million people with part-time jobs who would prefer full-time work and there are millions of people who have stopped looking for a job and they are no longer counted as unemployed. The real rate of unemployment is probably closer to 9%. However, the US is doing better than the 18 European nation alliance where the reported unemployment rate is 11.5%. Japan appears to be in a recession and China’s growth has slowed along with Russia and Brazil. The good news continues to be that crude oil prices have continued to drop to $63.03 a barrel. This is down from $140 a barrel in 2008 and a two-year hiatus, where the price of crude oil stayed above $100 a barrel.

GOLD

It is interesting to note that the price of gold is getting some notice, 43 years after Pres. Nixon scrap the gold standard. Gold appears to be reemerging as the centerpiece of a handful of initiatives in Europe, Asia and the Middle East. Voters in Switzerland considered and eventually rejected a populist plan to force its central banks to buy gold to stabilize its currency. Russia and China have both made the headlines by snapping up enormous stores of gold. In France, politicians are calling for the government to start amassing gold and the Netherlands followed suit by asking for its $5 billion of gold in the vaults of New York to be delivered to them. Even the Islamist state is declaring they wanted to avoid the ‘tyrannical financial system’ of the West by buying gold. What’s going on here? Holding gold for people and government reflects our anxieties about the future. Even though it might seem somewhat retrograde to many investors, having it on hand makes people feel safe

.
I have been reading a recent book called The Death of Money and the Coming Finincial Collapse of the International Monetary System by James G Richards Mr. Richards asserts that he expects the economy to be in a economic bubble. He believes that the old normal is gone, but the new normal has not yet arrived and that the economy is in a phase of transition from one state to another. He believes that a new international monetary system will rise from the ashes of our present system based on the dollar, just as the British Commonwealth at Bretton Woods in 1944 happened. He believes the mortgage problem in 2008 was manageable however unmanageable were the trillions of dollars in derivatives created from underlying mortgages and trillions more and of repurchase agreements. From 2009 two 2012 the U.S. Treasury increased a $5 trillion cumulative deficit and the Federal Reserve printed $3 trillion in new money. The bankers jobs and bonuses were preserved but nothing was achieved for the average citizen. The Fed sees inflation as a way to dilute the real value of US debt and avoid the specter of deflation. He expects skyrocketing gold prices and the crashing dollar to be two sides of the same coin and that will occur quickly. Deflation is the Federal Reserve’s worst nightmare for many reasons as real gains from deflation cannot be easily text. Deflation would increase the real value of government debt making it harder to repay. If deflation is not reversed there will be an outright default on the national depth rather than the less dramatic outcome of default by inflation. He suggests the breaking up of the banks that would eliminate the problem of too big to fail. He believes where larger financing is required small the banks can acquire syndicate. He believes that ff large banks continue to dominate the financial situation, and that financial failure on a global basis will follow and that the task every qualifying the finances of the world will fall to the IMF, because the IMF will have the only clean balance sheet left among institutions. He believes the IMF will then rise to the occasion with a towering issuance of SDR’s, and this monetary operation will effectively end the dollar’s role as a leading reserve currency. If this does occur United States be allowed to print money. So in these uncertain times, gold should be looked at as an alternative investment to stop

Carl M. Birkelbach 12/9/14

BELOW ARE MY ELLIOTT WAVE FIBONACCI UPSIDE PROJECTIONS FOR THE DOW S&P AND NASDAQ FROM MY 4/5/12 book; INVESTMENT STRATEGY HANDBOOK FOR VOLATILE MARKETS 

DOW JONES INDUSTRIAL AVERAGE INDEX

UPSIDE RESISTANCE ZONES

1st Resistance	2nd Resistance	3rd Resistance	4th Resistance	5th Resistance
14,198	14,198	14,198	14,198	14,198
-6,470	-6,470	-6,470	-6,470	-6,470
7,728	7,728	7,728	7,728	7,728
X138.2%	X150%	X161.8%	X 100%	X 61.8%
2,752	3,864	4,776	7,728	12,503
14,198	14,198	14,198	14,198	14,198
17,150	18,062	18,974	21,926	26,701

Should the Dow break above its old 2007 high of 14,198 the upside potential can be at Fibonacci Resistance Zones of 17,150, 18,062, 18,974, 21,926 and 26,701. This would indicate that a new Bull Market and the Hybrid age has arrived. Even though I don’t tell the market what to do. It would be nicer for all of us than the Downside scenario. If we do enter a new Bull Market, Bull markets in the past occur is a series of doubles. 14,198 would then become an Elliott wave and the most powerful upwave #3 should follow! We  can hope.

S&P 500 INDEX

UPSIDE RESISTANCE ZONES

1st Resistance	2nd Resistance	3rd Resistance	4th Resistance	5th Resistance
1,576	1,576	1,576	1,576	1,576
-666	-666	-666	-666	-666
910	910	910	910	910
X138.2%	X150%	X161.8%	X 100%	X 61.8%
1,267	455	562	910	1,472
1,576	1,576	1,576	1,576	1,576
1,702	2,031	2,132	2,486	3,044

 

Should the S&P break above its old 2000 and 2007 double top of 1,576 the upside potential would be a Fibonacci Resistance points of 1,702, 2,031, 2,132, 2,486 and 3,044. As with the Dow, this would indicate a new series of Bull Market could be beginning. It would also mean that we have somehow solved our economic and environmental problems. Now that I think about it, this seems a more unlikely scenario than the Bearish Downside scenario. However, what will be, it is not for the future for be to see, but obey.

NASDAQ COMPOSITE INDEX

UPSIDE RESISTANCE ZONES

1st Resistance	2nd Resistance	3rd Resistance	4th Resistance	5th Resistance
2,861	2,861	2,861	2,861	2,861
1,268	1,268	1,268	1,268	1,268
1,593	1,593	1,593	1,593	1,593
X138.2%	X150%	X161.8%	X 100%	X 61.8%
1,267	455	562	910	1,472
2,861	2,861	2,861	2,861	2,861
3,469	3,658	3,845	4,454	5,062

The 2009 low of 1,268 was higher than the 2007 low of 1,108. However, a new high in 2011 failed to have any follow through. This is a positive and negative offset. Another break above the old 2011 will continue to run into supply from the 2000-2002 meltdown. Upside Resistance is at 3,469, 3,658, and 3,845 and around the 2000 recovery high of 4,300 and of course at the all time high at the 5000 level. That’s a long way off. But who knows!

FROM THE 4/5/12 INVESTMENT STRATEGY HANDBOOK FOR VOLATILE MARKETS

Carl M Birkelbach 12/6/14

NOT A DAY FOR NEW HIGHS

The stock market in the United States was pretty flat today. European stocks were down severely (1.2%) as the European Central Bank held off on implementing any stimulus plan. However the Chinese market is up some 4.3% the easing of crisis in Hong Kong. Unemployment, diped below 300,000 last week. Although, most of the newly employed are employed at minimum wage. Sears holding company posted a disappointing third-quarter. We continue to be concerned about consumer spending.

This is typically time of year when the stock market goes up for mechanical reasons. Buying is done by hedge funds and pension funds that receive additional funds at this time year and try to get their performance to catch up to the market. We continue to believe that there are underlying negative factors that will affect the economy that have not shown up yet. Number one in that list of priorities is that all the income growth is going to the top 1% and leaving the middle class sucking air. Recent reports has shown that in the United States 40 people own approximately 50% of the wealth. Although job growth is up, most of that job growth is in the area of minimum wage jobs. The working poor sooner or later will have to capitulate and consumer spending, which drives our economy, will decline sharply. The other big problem I see, is that the 10 largest banks that owned 23% of the assets in the economy, during the last fiscal crisis, now have over 40% of the deposits. Too big to fail is getting dangerously close to causing another financial crisis. How long this bull market will last, no one can tell. The hype and  hubris can continue into 2015. However, I believe is the time to lighten up and maybe even buy a little gold.

Current Value 12/4/2014	Dow	NASDAQ	S&P 500
	17,900	4,769	2,071
Short Term	UP	UP	UP
Int. Term	Up	Up	Up
Long Term	UP	UP	UP
Forecasted Trends	DJIA	NASDAQ	S&P 500
Short Term	UP	UP	UP
Int. Term	?	?	?
Long Term	Sideway	Sideways	Sideways
Breakout Points	DJIA	NASDAQ	S&P 500
Short Term Up (Resistance)	17,937	4,810	2,077
Short Term Down (Support)	15,855	4,116	1,820/1814
Int. Term Up (Resistance)	18,062	5,002	2,486
Int. Term Down (Support)	15,356/14,688	3,986/3294	1,560
Long Term Up (Resistance)	18,974	5,132	3,044
Long Term Down (Support)	50%12,025 62% 10,750	50%2,958 62% 2,555	50%1,390 62% 1,177

Carl M. Birkelbach 12/4/14

Another New High? After pausing for one day, (a record 23 days in a row up) the market is once again making all time new highs. Newly built homes and schools have boosted constructions in October to its highest level since May. The Commerce Department indicates construction spending is up 1.1% in October after declining in September. In Asia the Nikkei is close to making a seven year high. Apparently the bank of Japan might start buying exchange traded securities. European markets are mixed the Chinese market plunged 2.6% yesterday as police used pepper spray and clubs against protesters demanding democratic reform. This is typically time of year when the stock market goes up for mechanical reasons. Buying is done by hedge funds and pension funds that receive additional funds at this time year and try to get their performance to catch up to the market. We continue to believe that there are underlying negative factors that will affect the economy that have not shown up yet. Number one in that list of priorities is that all the income growth is going to the top 1% and leaving the middle class sucking air. Recent reports has shown that in the United States 40 people own approximately 50% of the wealth. Although job growth is up, most of that job growth is in the area of minimum wage jobs. The working poor sooner or later will have to capitulate and consumer spending, which drives our economy, will decline sharply. The other big problem I see, is that the 10 largest banks that owned 23% of the assets in the economy, during the last fiscal crisis, now have over 40% of the deposits. Too big to fail is getting dangerously close to causing another financial crisis. How long this bull market will last, no one can tell. The hype and  hubris can continue into 2015. However, I believe is the time to lighten up and maybe even buy a little gold.

Carl M. Birkelbach 12/2/14

THE DEATH OF THE STOCK BROKER  

When I grew up, small brokerage firms where as common as Starbucks franchises are today. What ever happened to E F Hutton, Paine Webber, Bache, AG Edwards, Shearson Hammel and  the hundred of other names that were well known to us? Registered Broker Dealers have gone from 10,000 to some 4606. Within this group are a very small group of small broker-dealers and regional firms. (http://www.businessinsider.com/demise-of-the-stockbroker-2012-3)  Small broker-dealer are considered ones that have less than 150 brokers. These small firms are quickly closing again this year because they are unable to cope with the massive regulations and keeping up with the expense of compliance. Being a compliance officer or supervisor at a small firm, is analogous to committing financial suicide.  The industry has been taken over by the banks and FINRA and SEC regulations have  encourage this.  A recent Barron’s Magazine released its list of 1200 state-by-state rankings of the top Investment Advisers show that of the 1200 investment advisers listed, most are serviced by large firms such as Merrill Lynch owned by J.P. Morgan, Morgan Stanley, Wells Fargo and UBS (all banks). Only 39 are local independent firms. In the past, small regional brokerage firms were helping small businesses that wanted to go public. This option is no longer available for small businesses and they no longer have access to the capital markets. Now, the only option for small businesses is to go to the banks for a loan, that are servicing mostly a large global conglomerates.  For individuals, rather than investing in a portfolio of stocks through your stock broker, investors use investment advisers, that  suggest that you diversify your money in a series of no load mutual funds, also owned by the banks. Without the old fashioned stockbrokers individual investors are either investing in no load mutual funds (84% of which under perform the market), through their investment advisers or trying to trade stocks on the internet, which I believe is like feeding anchovies to the sharks. Without stockbrokers I believe small businesses and investors are being undeserved.

In 1963, and 23 years old,I was following my dream and became a stockbroker with a local Chicago firm, called McCormick and Company. We made markets in local stocks that normally traded below three dollars a share, in what was called the pink sheets. These stocks are now banned from ‘solicited trading’ under the guise that the SEC and FINRA are protecting the public from ‘speculative securities’ rather than helping small local bushiness get access to the capital markets. McCormick and Co. also helped regional Midwest firms  go pubic. One of those firms was Kentucky Fried Chicken and my first IPO. Yes the Col. in 1963 was there, all dressed in white. There wasn’t a big demand for the stock, as people were unsure as to whether franchising would work.That was considered a  new concept then. My Dad bought 1000 shares and doubled his money. My Uncle bought 1000 shares and kept it until his death. It was his largest asset. Those times and stock brokers are gone and probably forever. I don’t believe the regulators FINRA and the SEC understand what the ruined. In my opinion, they certainly are not serving the best interests of the public. They knowingly or unknowing represent only the Big Bucks. ( It make good business sense as the banks can afford to pay the billions of dollars in fines the SEC and FINRA has leveled against them) Hot deals now go to the professionals and hedge funds. A local small business is pretty much cut off from bank loans, unless they don’t need the money.  Brokerage firms don’t help local firms go public anymore because the local firms are all gone and the current brokerage firms are now global and owned by the banks, as are the mutual funds. Also, most people don’t invest in stocks anymore through their stockbrokers, because their aren’t any stockbrokers around anymore. Most invest in no-load mutual funds controlled by the banks, through their domesticated well-trained investment planners.

Mutual funds don’t offer many alternatives to protecting  your portfolio in a Bear Market. Professional investors can easily go short or long with ease. For instance, while Goldman Sachs was selling worthless mortgage-backed securities to Iceland and Ireland, they were shorting the same securities in their own portfolios. It is human nature for most investors to be positive and patriotic and therefore to be bullish. We want the market to go up because it is in our general best interests that the economy prospers, so that our careers and our families can prosper. However, markets don’t always go up.

The financial industry approves of the Efficient Market Hypothesis Theory(EMHT), which proposes that it is impossible to beat the market by trading in it out and that investors should at all times be fully invested in the market in the aggregate, by owning an allocation of mutual funds, because in the long run the market will go up. The dangerous beauty of this theory is that accordingly, your goals will always be achieved sometime in the future. If you just ‘hang in there’ long enough you will make your money back. This gives investors a false theory of contentment. However, during a very long period between 1997 and 2012, the market was up 50% of the time and down 50% of the time. Also during that period there were two stock market collapses of 50%, one between 2000 and 2003 and the other between 2008 and 2009. The financial industry would have you believe that trying a methodology that uses’market timing’ is an ‘heretical tactic’. Lately, the EMHT methodology, has investors drinking euphorically from the common Kool-Aid trough and believing that the market will just continue to go up and that Bear Markets are a thing of the past.  Besides, for those who have a fiduciary responsibility, ‘market timing’, is frowned upon by regulators. For any small brokerage firms that doesn’t drink from the common Kool-Aid trough, the SEC and FINRA  encourages investor arbitration claims for ‘trading’.

In America, capitalism spiritual home, a survey conducted in 2013 found that just 54% had a positive view of the term. This seems to be the case because the benefits of capitalism have recently only gone to the top 1%. There seems to be a crisis in confidence as the Supreme Court has a ranking of only 30%, public schools 26%, the criminal justice system 23%, and Congress 7%. The recent election showed just how unsatisfied people are. They voted for change, but change is unlikely to come. Since Citizens United, that declared corporations are people (If they are people, they are sociopaths), most changes in government is 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 current illusion that voters are being heard and are connected, will soon diminish in my opinion. The risk now is that since government agencies are not responding to the public “we the people”, they have pursued policies which I believe, are damaging the common good.

It was George Orwell book of  1984 fame who said: “anyone who challenges the prevailing authority, can find himself suddenly silenced”.  I believe political stagecraft, through skilled manipulation of facts, has given the public the perception and the illusion of power, rather than participation in real power. Public opinion has been manipulated and nullified.  We have only ourselves to blame. Like Pogo said “We have seen the enemy and it is us”. My fear is that this process has corporations and the top 1% dominating  the financial industry and has left small businesses and the investing public very vulnerable and the general public has become to weakened and powerless to stop it from progressing.

Carl M. Birkelbach 11/28/1
4

HAPPY THANKSGIVING

Some good new from a friend

Turner Investments

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Navigating the forest A common metaphor for explaining human shortsightedness is a person can’t see the forest for the trees. Growth-stock investors can be as susceptible to not seeing the forest as anyone. It’s easy for growth investors, for better or worse, to get fixated on the trees. For instance, they may be keen on assessing fundamental criteria such as how Apple Pay, the new iPhone app that enables consumers to make purchases in stores, will affect Apple’s revenue and earnings. Or they may try to gauge the attractiveness of the price/earnings ratios of fast-growing companies benefiting from two key business phenomena of our times, the rise of social networking and cloud computing. Cases in point: Facebook, whose shares trade at 39 times next year’s earnings, and Workday, trading at 15 times projected sales for the next 12 months. Others may attempt to pull back from the trees somewhat and examine broader quantitative measures such as the S&P 500 Index companies’ earnings growth, which is still impressive at 9% year over year, or valuations, which we believe remain reasonable if not exactly table-pounding cheap at 15 times projected earnings for 2015. Or they may scrutinize the duration of the current bull market, which as of November 2014 is approaching 69 months, versus the historical average of 60 months. Or they might seek to look at the magnitude of gains generated by this bull market: the S&P 500 Index has returned more than 190% cumulatively from when the upswing began on March 9, 2009 to November 17, 2014, compared with the historical average of 185%, according to the CFA Institute. Bull alive and well? Such perspectives might provide some comfort that this bull market could have a ways to go yet. But then growth investors, being the tree huggers they are, might be tempted to shorten their sights and contemplate such microeconomic issues as whether 3-D printing will revolutionize manufacturing and thus be a bonanza for a major player like Stratasys. We hasten to emphasize that in growth-stock investing, not all tree hugging (or gazing) is bad. Far from it. It’s just that focusing only on the trees won’t furnish a bigger picture as to where the stock market may be headed. Since we didn’t foresee the extent of the 2008-2009 bear market, we thought at one point it might be a good analytical exercise to imagine our acquiring the investment equivalent of a sophisticated military tool – the drone – so that we could zoom over the stock-market forest to see what we could possibly be missing. We reasoned that an investment drone might give us the ideal vantage point to determine which way the market is moving – in a bullish or bearish trend. But then our research indicated that a drone would only further muddle things; it would introduce additional criteria of marginal usefulness to our efforts to deduce the market’s direction. Criteria such as stocks that are trading above their 200-day moving average, the global demand for stocks, the supply of U.S. stocks, merger-and-acquisition activity as a percentage of the gross domestic product, and so on. Alas, we realized the list of potential criteria could simply go on and on, like modern-day presidential campaigns. Who’s that on CNBC? Then there are subjective criteria – most prominently, market forecasts. For every one opinion by market strategists who make a handsome living divining the course of the stock market, there are scores of indicators to support (or not support) their predictions. Being right once can make a strategist’s career. Being wrong often merely results in a strategist being invited less often to appear on CNBC. But here’s the good news: we have come to realize that there’s a better way to discern the prospects of the stock-market forest. In our judgment, it’s more simple and reliable than any other fundamental, quantitative, or subjective criteria: credit-market analysis. Brian Reynolds, the chief market strategist at Rosenblatt Securities, has been in the forefront of analyzing credit data perceptively. He has concluded that the credit market’s direction parallels that of the stock market. Typically the credit market enjoys a boom for an extended period (to the benefit of stocks) but ultimately goes bust (to the detriment of stocks). Investors apply leverage As Brian Reynolds has documented, in today’s world of paltry and declining interest rates, institutional investors covet certain desired rates of investment returns for their portfolios. For instance, pension plans typically want investment returns of 7.5% annually, and endowments typically seek returns of 4-5% annually. To achieve those kinds of returns, some money managers for institutional investors are compelled to use leverage – lots of it. The outsized use of leverage has been particularly pronounced in the past five years, when 10-year Treasury yields have struggled to stay above 2.50% and the return potential of bonds has been subpar. Also, the bear market of 2008-2009 burned many investors so badly that they subsequently avoided stocks, thereby impairing the results of those investors’ portfolios. All that has helped to fuel an investment boom in credit (see Display 1). Display 1: Corporate Bond Issuance ($bil) Source: Bloomberg. 2014 annualized through 6.30 A credit boom has an array of consequences – at first, favorable consequences, then not-so-favorable consequences. Of course, low rates make it financially advantageous for companies to issue debt. For instance, in April 2013 Apple floated a then-record $17 billion worth of bonds, with its 10-year issue yielding a meager 2.38%. The upshot: higher stock prices Also, the issuing companies often use the new cash to buy back their shares (see Display 2). Or they often raise their dividend payouts. Or they acquire other firms. Most often, they invest in research and development and production plants and equipment. All of this, happily, can lead to the ultimate favorable consequence: companies’ stock prices move higher – potentially much higher (see Display 3). Display 2: S&P 500 Quarterly Stock Buybacks Actual and Announced, Cumulative in $ Billions Source: S&P, Bloomberg Display 3: S&P Composite Index Source: Robert Shiller, FactSet, JP Morgan Asset Management Even though stocks have risen sharply over the past five and a half years, we think this bull market can still rage quite a while longer. For one thing, stocks remain much less richly valued than bonds are (see Display 4). For another thing, as long as interest rates remain low and institutional investors’ desire for substantial total returns remains high, the credit boom is likely to persist, thereby aiding the stock market. (Incidentally, contrary to the conventional wisdom, stocks can continue to perform well when interest rates rise – as long as that rise isn’t too dramatic.) Display 4: Stock vs. Corporate Bond Valuation S&P 500 Earn Yield as % of Junk Yields Source: Bloomberg, Rosenblatt Inevitably the time will come when credit investors are hurt by the use of leverage and receive the dreaded margin call from their brokers. When that happens, as in the past, the credit boom is likely to end badly – and is likely to take stocks down as well. But we believe that’s unlikely to happen for a few years at least. In the meantime, we believe it’s an opportune time to wade into the forest and take a hard look at the trees to identify growth stocks capable of soaring at this advanced stage of the bull market. At the same time, we will keep our ears alert for the alarm sounded by the discerning forest ranger in the lookout station who’s commonly known as the credit market. As we see it, when that forest ranger finally does sound his alarm, savvy stock investors should take note and adopt a more conservative positioning in their portfolios, in anticipation of a market downturn. But until then, looking at the trees may continue to prove rewarding. Robert E. Turner, CFA Chairman and Chief Investment Officer The views, opinions, and content presented are for informational purposes only. They are not intended to reflect a current or past recommendation; investment, legal, tax, or accounting advice of any kind; or a solicitation of an offer to buy or sell any securities or investment services. Except as otherwise specified, any companies, sectors, securities, and/or markets discussed are solely for illustrative purposes regarding economic trends and conditions or investment process and may or may not be held by Turner, the Turner Funds, or other investment vehicles or accounts managed by Turner or its affiliates. Past performance is no guarantee of future results. As of October 31, 2014, Turner held in client accounts 7,465,608 shares of Apple Inc., 5,718,737 shares of Facebook Inc., 7,976,590 shares of Workday Inc., and 2,800,777 shares of Stratasys Ltd. Turner Investments refers to Turner Investments, L. P., its subsidiaries, and affiliates. Nothing presented should be considered to be an offer to provide any Turner product or service in any jurisdiction that would be unlawful under the securities laws of that jurisdiction. Turner Investments, founded in 1990 and based in Berwyn, Pennsylvania, manages growth, global/international, and alternative separately-managed accounts and mutual funds for institutions and individuals.

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THE INVESTMENT STRATEGY LETTER

ANOTHER DAY OF DULL NEW HIGHS Just another normal day of all time new highs. The DAX and Nikkei markets are quiet. In in the last 24 days the market has made new highs. That is among the longest such upward streaks since 1960. The current uptrend is being driven both by seasonal factors, (the last two months of the year tends to be among the strongest for stocks) and the need for under-invested participants to play catch-up, such as hedge funds.

THE DEATH OF THE STOCK BROKER  I have just written a new page listed above

When I grew up, small brokerage firms where as common as Starbucks franchises are today. What ever happened to E F Hutton, Paine Webber, Bache, AG Edwards, Shearson Hammel and  the hundred of other names that were well known to us? Registered Broker Dealers have gone from 10,000 to some 4606. Within this group are a very small group of small broker-dealers and regional firms. (http://www.businessinsider.com/demise-of-the-stockbroker-2012-3)  Small broker-dealer are considered ones that have less than 150 brokers. These small firms are quickly closing again this year because they are unable to cope with the massive regulations and keeping up with the expense of compliance. Being a compliance officer or supervisor at a small firm, is analogous to committing financial suicide.  The industry has been taken over by the banks and FINRA and SEC regulations have  encourage this.  A recent Barron’s Magazine released its list of 1200 state-by-state rankings of the top Investment Advisers show that of the 1200 investment advisers listed, most are serviced by large firms such as Merrill Lynch owned by J.P. Morgan, Morgan Stanley, Wells Fargo and UBS (all banks). Only 39 are local independent firms. In the past, small regional brokerage firms were helping small businesses that wanted to go public. This option is no longer available for small businesses and they no longer have access to the capital markets. Now, the only option for small businesses is to go to the banks for a loan, that are servicing mostly a large global conglomerates.  For individuals, rather than investing in a portfolio of stocks through your stock broker, investors use investment advisers, that  suggest that you diversify your money in a series of no load mutual funds, also owned by the banks. Without the old fashioned stockbrokers individual investors are either investing in no load mutual funds (84% of which under perform the market), through their investment advisers or trying to trade stocks on the internet, which I believe is like feeding anchovies to the sharks. Without stockbrokers I believe small businesses and investors are being undeserved.

In 1963, and 23 years old,I was following my dream and became a stockbroker with a local Chicago firm, called McCormick and Company. We made markets in local stocks that normally traded below three dollars a share, in what was called the pink sheets. These stocks are now banned from ‘solicited trading’ under the guise that the SEC and FINRA are protecting the public from ‘speculative securities’ rather than helping small local bushiness get access to the capital markets. McCormick and Co. also helped regional Midwest firms  go pubic. One of those firms was Kentucky Fried Chicken and my first IPO. Yes the Col. in 1963 was there, all dressed in white. There wasn’t a big demand for the stock, as people were unsure as to whether franchising would work.That was considered a  new concept then. My Dad bought 1000 shares and doubled his money. My Uncle bought 1000 shares and kept it until his death. It was his largest asset. Those times and stock brokers are gone and probably forever. I don’t believe the regulators FINRA and the SEC understand what the ruined. In my opinion, they certainly are not serving the best interests of the public. They knowingly or unknowing represent only the Big Bucks. ( It make good business sense as the banks can afford to pay the billions of dollars in fines the SEC and FINRA has leveled against them) Hot deals now go to the professionals and hedge funds. A local small business is pretty much cut off from bank loans, unless they don’t need the money.  Brokerage firms don’t help local firms go public anymore because the local firms are all gone and the current brokerage firms are now global and owned by the banks, as are the mutual funds. Also, most people don’t invest in stocks anymore through their stockbrokers, because their aren’t any stockbrokers around anymore. Most invest in no-load mutual funds controlled by the banks, through their domesticated well-trained investment planners.

Mutual funds don’t offer many alternatives to protecting  your portfolio in a Bear Market. Professional investors can easily go short or long with ease. For instance, while Goldman Sachs was selling worthless mortgage-backed securities to Iceland and Ireland, they were shorting the same securities in their own portfolios. It is human nature for most investors to be positive and patriotic and therefore to be bullish. We want the market to go up because it is in our general best interests that the economy prospers, so that our careers and our families can prosper. However, markets don’t always go up.

The financial industry approves of the Efficient Market Hypothesis Theory (EMHT), which proposes that it is impossible to beat the market by trading in it out and that investors should at all times be fully invested in the market in the aggregate, by owning an allocation of mutual funds, because in the long run the market will go up. The dangerous beauty of this theory is that accordingly, your goals will always be achieved sometime in the future. If you just ‘hang in there’ long enough you will make your money back. This gives investors a false theory of contentment. However, during a very long period between 1997 and 2012, the market was up 50% of the time and down 50% of the time. Also during that period there were two stock market collapses of 50%, one between 2000 and 2003 and the other between 2008 and 2009. The financial industry would have you believe that trying a methodology that uses’market timing’ is an ‘heretical tactic’. Lately, the EMHT methodology, has investors drinking euphorically from the common Kool-Aid trough and believing that the market will just continue to go up and that Bear Markets are a thing of the past.  Besides, for those who have a fiduciary responsibility, ‘market timing’, is frowned upon by regulators. For any small brokerage firms that doesn’t drink from the common Kool-Aid trough, the SEC and FINRA  encourages investor arbitration claims for ‘trading’.

In America, capitalism spiritual home, a survey conducted in 2013 found that just 54% had a positive view of the term. This seems to be the case because the benefits of capitalism have recently only gone to the top 1%. There seems to be a crisis in confidence as the Supreme Court has a ranking of only 30%, public schools 26%, the criminal justice system 23%, and Congress 7%. The recent election showed just how unsatisfied people are. They voted for change, but change is unlikely to come. Since Citizens United, that declared corporations are people (If they are people, they are sociopaths), most changes in government is 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 current illusion that voters are being heard and are connected, will soon diminish in my opinion. The risk now is that since government agencies are not responding to the public “we the people”, they have pursued policies which I believe, are damaging the common good.

It was George Orwell book of  1984 fame who said: “anyone who challenges the prevailing authority, can find himself suddenly silenced”.  I believe political stagecraft, through skilled manipulation of facts, has given the public the perception and the illusion of power, rather than participation in real power. Public opinion has been manipulated and nullified.  We have only ourselves to blame. Like Pogo said “We have seen the enemy and it is us”. My fear is that this process has corporations and the top 1% dominating  the financial industry and has left small businesses and the investing public very vulnerable and the general public has become to weakened and powerless to stop it from progressing.

Current Value 11/25/2014	Dow	NASDAQ	S&P 500
	17,843	4,762	2,070
Short Term	UP	UP	UP
Int. Term	Up	Up	Up
Long Term	UP	UP	UP
Forecasted Trends	DJIA	NASDAQ	S&P 500
Short Term	UP	UP	UP
Int. Term	?	?	?
Long Term	Sideway	Sideways	Sideways
Breakout Points	DJIA	NASDAQ	S&P 500
Short Term Up (Resistance)	17,843	4,762	2,070
Short Term Down (Support)	15,855	4,116	1,820/1814
Int. Term Up (Resistance)	18,062	5,002	2,486
Int. Term Down (Support)	15,356/14,688	3,986/3294	1,560
Long Term Up (Resistance)	18,974	5,132	3,044
Long Term Down (Support)	50%12,025 62% 10,750	50%2,958 62% 2,555	50%1,390 62% 1,177

Carl M. Birkelbach 11/25/14

THE INVESTMENT STRATEGY LETTER

ANOTHER DAY OF DULL NEW HIGHS

Just another normal day of all time new highs and a 2% gain in the China market. The DAX and Nikkei markets are quiet. The RUSSEL 2000 was up 1 1/4% although since March, it has avoided making new highs. The STANDARD AND POORS index hasn’t dropped more than 0.3%  in the last 23 days. That is among the longest such upward streaks since 1960. The current up is being driven both by seasonal factors, (the last two months of the year tends to be among the strongest for stocks) and the need for under-invested participants to play catch-up, such as hedge funds. What continues to bother me is the lack of economic resilience in Europe and Japan and a slowing economic growth in China. Stimulus packages are online for all three. However, I see these economies as listless THAT eventually will affect the United States  economies.
It would not take much to set off a vicious cycle of a reallocation of 1% of the total holdings of the world’s 500 biggest asset managers, away from emerging markets. With a $1.3 trillion dollars in the flow of this year a I continue to be concerned about investors seeking high yielding asset in an unliquid market.

Last week was not a good week for the Feds.
A Senate report indicated that banks such as Goldman Sachs can influence commodity prices.Carl Levin, Democrat of Michigan said the current rules were not adequate to stop the problem . There have been allocations by Congress suggesting that FED supervisors when soft on such firms as Goldman. That regulators called some transactions legal but shady.
Barron’s Magazine released its list of 1200 state-by-state rankings of the top Investment Advisers. In case you haven’t noticed, investments advisers have taken over the job of the old traditional stockbrokers. Of the 1200 investment advisers most are serviced by large firms such as Merrill Lynch owned by J.P. Morgan, Morgan Stanley, Wells Fargo and UBS.( all banks). When I grew up small brokerage firms where is as common as Starbucks franchises are today Registered broker dealers have gone from 10,000 to some 4606. Within this group are a very small group of small broker-dealers. Small broker-dealer are considered ones that have less than 150 brokers. The industry has been taken over by investment advisers and the banks control the investment advisers. These small regional brokerage firms were helping small businesses that wanted to go public. This option is no longer available for small businesses. Your only option is to go to the banks for loans that are servicing mostly a large clove conglomerates. Rather than investing in a portfolio of stocks, investment advisers suggest that you diversify your money in a series of no load mutual funds, also owned by the banks.
I bring all this up, because it appears to me that the stock market at current levels is living off hype, rather than real growth prospects. This can work for a while, such as it did in 2000 with the dot.com companies and inflated real estate prices of 2008. Eventually, the situation collapses along with stock prices. As I said earlier, this is a period of time, for the next two months where the stock market usually has its best performance. Don’t let the hype and hubris overcome her common

Current Value 11/24/2014	Dow	NASDAQ	S&P 500
	17,817	4,754	2,069
Short Term	UP	UP	UP
Int. Term	Up	Up	Up
Long Term	UP	UP	UP
Forecasted Trends	DJIA	NASDAQ	S&P 500
Short Term	UP	UP	UP
Int. Term	?	?	?
Long Term	Sideway	Sideways	Sideways
Breakout Points	DJIA	NASDAQ	S&P 500
Short Term Up (Resistance)	17,830	4,754	2,069
Short Term Down (Support)	15,855	4,116	1,820/1814
Int. Term Up (Resistance)	18,062	5,002	2,486
Int. Term Down (Support)	15,356/14,688	3,986/3294	1,560
Long Term Up (Resistance)	18,974	5,132	3,044
Long Term Down (Support)	50%12,025 62% 10,750	50%2,958 62% 2,555	50%1,390 62% 1,177

Carl M. Birkelbach 11/24/14

THE INVESTMENT STRATEGY LETTER

THE MARKETS IN THE US SURGE TO NEW RECORD LEVELS

China, Japan and Europe are all encouraging growth of their economies in face of a global economic slowdown.  I find it strange that the markets are encouraged by the stimulus and not concerned of why the countries need to artificially stimulate their economies. Neither are investors worried about the $1.2 trillion of bonds issued by emerging market nations, which are also faceting a global slowdown. So, it is full speed ahead and dam the torpedoes! There actually is some good news. Congress will only be in session 8 day until the end of the year.
Carl M. Birkelbach 11/21/14

THE INVESTMENT STRATEGY LETTER

Another sleepy Day/ and once again All Time New Highs

The New York Stock Exchange finished quietly with barely eking out a new all-time high in the Dow to new  record levels. Action across sectors was more colorful as gains in energy and technology sectors outweighed losses in healthcare and consumer staples stocks. Investors appeared to focus on positive earnings results from retailers such as Best Buy and Urban Outfitters, while a rise in oil prices lifted energy stocks. Helping all sectors was a binge of information data that pointed to continuing improvement in the economy. Small companies outperformed large companies with the Russell 2000 adding 1.1%, the DAX, China and Nikkei averages were about unchanged. Transportation stocks were up one half of 1%, gold was up slightly.

.
Because stocks are surging corporations are ambitious. Also debt is reasonably cheap. The result is that mergers and acquisition transactions are being booked at about $1.5 trillion, so far this year. This is the largest amount of mergers and acquisitions since the year 2000 during the.com bubble and in 2008 just before the financial crisis. The other thing that corporations are doing, is buying back their own stock, as treasury stock. Corporations are doing everything they can to spend their money on anything except creating new employment. This kind of exuberance for mergers and acquisitions, is usually unsustainable.
Just as a side note, China’s inflated and highly leveraged Real Estate prices are beginning to fall.

Carl M. Birkelbach 11/120/14