The Trump Rally or the Chump Rally?

Why I haven’t written since November 22?

I haven’t written on this blog since the Trump victory. I was shocked, as were many and needed some time to put this unexpected change into perspective. Not only was I shocked by the victory, but I am also surprised with the stock market rally (up 13%) that has become known as the Trump Rally. It is obvious that Wall Street expects huge tax cuts for individuals and corporations, a diminishing of regulations and infrastructure projects that will stimulate the economy. I don’t believe Trump and the Republicans are capable of governing and these promises (and others like health care for everybody, a wall, getting coal jobs back etc.) will be difficult to fulfill. In my last written market letter November 22, I listed eight points that I believe are negative for both the economy and the country. Now, that we are into sixty-seven days into the Trump presidency, I can see that these items continue to be monumental roadblocks to the success of the Trump presidency.

The main reason I had written the Lone Bear Letter with the Dow at 17,672, was that I believe that income inequality and a resulting oligarchy, would eventually lead to an economic shakeup that would be worse than that which occurred in 2008. In my post “In a time of universal deceit, telling the truth is a revolutionary act”   George Orwell. I said, “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 Big Corporations and the top 1%, dominating the financial industry” (and now the government) “has left small businesses and the investing public very vulnerable. The general public, in my opinion, has become so weakened, that it is powerless to stop a crisis from progressing.”

Although President Trump won the election with only 26% of those able to vote and has a unbelievably low 36% approval rating and a 57% disapproval rating, this narrow segment of citizen support claims the exclusive right to speak on behalf of ‘We the people’. I believe that there is a danger to the norms and institutions necessary for our Republic to function. Like all authoritarian populous leaders, President Trump is defiant to all that challenge this rule, such as judges, journalists, democrats and Congressional oversight. He declares them as enemies of the people. The president’s dark rhetoric and outright lies sound quite familiar to anybody who has an understanding of history and knows how quickly democracies die.

Can Republicans govern?

The recent defeat to abolish ObamCare and replace it with TrumpCare was a disaster for the Republicans and the big supposed closer, President Trump. With his limited knowledge of politics, he assumed that the Republican Party was unified. However, he forgot about the 40 members of the Freedom Caucus, (the former tea party members), who basically don’t believe in government. They will vote against anything (except defense) that has government involvement, which is what government does. The healthcare bill had only a 17% public approval rating, because it took away many of the advantages of healthcare privileges, with savings for the government of an estimated $1 trillion. This one trillion dollars was going to be used to offset some of the reduction of government income, that are expected to be lost by tax cutting measures, when a new tax bill is proposed. Here is why I believe a tax bill will not pass this year. 1) The administrations ineptitude in proposing a new health care plan, will probably also surface in any new tax bill. There will continue to be a leadership vacuum as many Republicans will concentrate on the deficit and debt. The tea party and many republicans has deeply held convictions that any tax overhaul should not add to the national debt. While the president is known as the King of Debt, his party is deeply concerned about debt. It is expected that he proposed tax cut and infrastructure plan, could add $7.2 trillion to the $20 trillion national debt over a decade. 2) In addition, Republicans want to include a large import tax known as a ‘border adjustment tax’ in the package. This would include a 20% tax on imports that the Republicans believe will raise as much as $1 trillion to offset cuts in individual and business tax rates.  However, retail giants like Walmart, are bitterly opposed and willing to wage a costly advertising war against this plan they believe will increase the price of products and end up raising prices for American consumers. In effect, it is a $1 trillion tax on working poor consumers, while giving a huge tax cut to the wealthy. 3) It is also possible that popular tax breaks for individuals, such as deductions for mortgage interest, charitable giving and state and local taxes will no longer be allowed. Individuals, the real estate industry, charitable groups and state and local governments are just a few of the constituencies that will revolt against such changes. 4) Now, there is also an indication that President Trump is backing away from the 15% corporate tax rate and is more likely to propose a 25% tax rate. This will be very disappointing to Wall Street, although most of the 500 S&P largest corporations do not pay any tax. 5) Lastly, the Republicans must decide whether to use a process known as ‘budget reconciliation’ to speed changes through Congress by a simple majority vote. However, because of the structures of the ‘budget reconciliation’ process, any tax plan would not be allowed to add to the deficit for the next ten years. There is a lot that can go wrong and probably will. Therefore, be warned Wall Street, we see no tax plan this year and maybe never, because as follows:

The Russian factor?

Because I had knee surgery on March 17, and therefore not being ambulatory, I was able to constantly watch CNN, Fox News and MSNBC during the most unbelievable March 20th week, since Watergate. The week began, with testimony to the House Intelligence Committee by James B Colby, the director of the FBI, which disclosed for the first time, that the agency is running an investigation into Russian interference in the US election and possible ties between Trump associates and Russia. This immediately brought up the question of why the FBI director made a disclosure about Hillary Clinton’s emails a week before the election, but no discussion about the Trump Russian inquiries which had been going on since July? Tuesday had testimony by Supreme Court nominee Neil Gorsuch and was followed with the circus atmosphere that ended up with speaker of the house, withdrawing the TrumpCare vote. It was truly, the week that was! I could go on with details, but more importantly, there is the feeling that there is not only smoke, but fire under the accusations that Trump associates met with Russians and may have discussed deals to eliminate sanctions. In addition there is a possible Watergate type cover-up that may lead to the top. If you want to get a better feel of Putin, I suggest you take a look at the CNN documentary called, ‘The most powerful man in the world / Putin  In his book New Seeds of Contemplation which  was published in 1962, Trappist priest Thomas Merton wrote: ‘The world is full of great criminals with enormous power, and they are in a death struggle with each other. It is a huge gang battle, using corporations, lawyers and policemen and clergymen as their front, controlling papers, means of communication, and enrolling everybody in their armies.” 

The house intelligent committee chairman Devin Nunes, who served on the Trump transition team, has not acted in an independent manner. Adam Schiff  (along with Senator McCain), the committees Democratic leader has suggested that Nunus step down as chairman as Nunes, last week showed President Trump information (without showing it to other committee members),that Trumps closest associates may have been ‘incidentally’ swept up in foreign surveillance by American spy agencies.  New meetings for the committee have been canceled.Sally Yates was previously scheduled to speak today.

Today, Trump tweets “Trump Russia story is a hoax.’ Methinks he protests too much. A cover-up? If there is nothing to hide, let’s do a wide-open independent investigation. The hoax was the claim that President Obama wiretapped his phones. Let’s take a look at Trumps tax records and see if any of his income has come from Russia? I think he is involved with the Russians in business. Does Trumps business associations with foreign powers create a conflict of inters that violate the emolument clause of the constitution? The latest event is that Trumps son-in-law has had conversations with the Putin’s Russian bank, which is under sanctions in the US not to deal with the Bank. The Russians say it was  about business! At the minimum, a conflict of interest? Will all those Trump Associates be allowed to testify? The truth about the Trump administrations associates being involved with the Russians will eventually come out. In the meantime, this issue will continue to be a cloud over the authenticity of the Trump administration would be eventually be devastating to Wall Street and the stock market.

Government shutdown April 28th?

Carl M Birkelbach

3/28/17

Geopolitical risk and the US stock market at record high!

I believe this is an election year created bubble!

Investors are very bullish even though the headlines are showing geopolitical risk at a record high, strife in the European Union, a coup attempt in Turkey, tensions in this South China Sea, numerous terrorist attacks and rhetoric from a presidential candidate giving authoritarianism  a full embrace. Investors seem convinced that economic prosperity and good corporate profits are just ahead of us. However, for the past four quarters earnings-per-share the S&P 500 have been falling by about 12% per the year prior. The falling dollar and cheap energy prices are hurting earnings. For instance, Coca-Cola’s global sales have risen in local currency terms, but have declined in dollars for the last two years. Dollar and oil prices have probably stabilized. The economy seems to be growing just fast enough to keep demand for products moving without much inflation. (Harley any growth for the first two quarters of 2016). A Goldilocks economy. Wages and labor costs have been rising at only  an annual rate of only 2.3%. However, there is now pressure for wages to grow faster. A 5% rise in wages could lower profits by about 15%.

The biggest risk in the market seems to be coming from a political climate that is frighteningly uncertain. Hillary Clinton has promised to put pressure on drug pricing which encompasses 14% of all profits the US. Donald Trump seems to be pursuing an agenda of global trade protection, large tax cuts, an expensive wall, restructuring projects, the deportation of 11 million consumers and workers, major punishment of corporations that are US-based  and want to leave the US Or have already left the US. In addition, HE is basically willing to scrap the NATO agreement. Markets don’t like uncertainty.

So where is the buying coming from??  US corporations are using my earnings and low interest rates to buy back  $165 billion a quarter of their own stock. In addition, Citicorp analysts have said that the Central Bank’s worldwide are buying stock, to prop up a sagging worldwide economy.

For the following reasons below, I believe this is a bubble that is being held up by corporate buy- backs, excessive Central Bank buying (don’t fight the Fed) and political considerations to keep the bubble fully blown during this US election period. I don’t think the markets will hold up that long, which will be good for Trump and bad for the world!

1) The US MARKETS ARE making new highs. Now, everything is OK again? Sure!  A Citigroup analyst has reported buying is coming from Central Banks. They are creating a fantasy that all is OK, before the US election.   the BEAR MARKET decline may take longer to develop than I first thought and I am extending my 2016 FORCAST TO 7/4/2017. See below

2). Retail stocks such as Macy’s, Disney and Sears are having trouble with their earnings. Store closings are commonplace today as people are buying online. This is not good for profit margins or employment. The economy could be stimulated with a backlog of infrastructure spending. Not a chance with this Congress.

3). Gold is making new highs, while the 10 year treasury WENT TO 1.37% is a new low. That is where the money is going. This means that INDIVIDUAL investors are very cautious. 

4). Donald Trump, the  nominee of the Republican Party, continues to blurt out dangerous statements.  He recently said, “why worry about Debt, we can print money.” That’s true, except that excessive printing of money turns into hyperinflation. If you don’t know the history of the Weimar Republic in Germany you are likely to repeat history’s mistakes. Besides, it’s the Federal Reserve’s job to monitor monetary policy. Of course a dictator, can easily appoint flunkies at the Federal Reserve, which he could control. The market dislikes uncertainty and instability. The possibility of the Trump presidency, however unlikely, is still un- stabilizing to the markets. His quote of “fight fire with fire” will mean more meaningless and expensive wars~! His comments on NATO are based on financing not commitment or global strategy. This will encourage Putin.

5).I believe most of buying has occurred because of Central Bank stimulus, continued low interest rates (-0% some places) and corporate stock buybacks in the last 12 months  are a record $600 billion. If it were not this stimulus, I believe the market would be down some 20% at this point. Companies are not investing in production or innovation. this is bad for employment and the economy.

6). The middle class continues to take it on the chin. According to recent data between 2000 and 2014, the middle class shrunk from 55% to under 51%. It’s probably now below 50%. An economy  based on consumer spending of the middle class, like the United States, cannot grow without a healthy middle-class. International corporations  do well for a while, as they are now. But eventually, I feel the present economic environment will lead to a deflationary economy, which will hurt all economic levels.

7). If commodity prices and companies engaged in retail sales continue to suffer, their bonds will eventually suffer and therefore the banks that are holding securities will suffer. 2008 all over again, only this time no government bailout! The ‘canary in the mine’ Deutsche Bank at 14.35 is down from its recent high of 19.46 and above its recent low  at 12.60, Also see weak charts of BCS, CS, HBC.BE, BNP.PA   WHY IS THE US MARKETS MAKING NEW HIGHS AND THE BANKS MAKING NEW LOWS? BECAUSE OF, I BELIEVE CENTRAL BANK INTERFERANCE, WHICH WILL STOP AFTER THE ELECTION. CAN NEW HIGHS LAST UNTILL THEN?

8). China continues to show lackluster economic growth. China’s rate of loans is far above the rate of money supply growth. Right now, China is using its currency to buy as many companies in the West as it can, while it can. Just as has happened to Japan in the 1990s, we expect the same deflationary scenario to begin to occur in China. . In China, for example, has $1.3 trillion of corporate loans, one seventh of the total are owned by companies whose profits don’t cover their interest payments, a problem that could trigger banks losses equal to 7% of gross domestic product.”

9). The central banks have done everything they can to stop inflation in Europe and in the United States with  the results  that many corporations in Europe are issuing bonds and financing them at close to zero interest rates. What this means, is that central banks cannot stop deflation. Rick Santelli of CNBC says “nobody says anything good about negative interest rates.” Central banks are helpless to stop deflation.

10). I continue to believe that economic growth in the United States is being slowed by all the income growth going to the top 1%. A recent Economist Magazine showed the upper 1% standing on top of their money with the guarded by barbed wire fence around, with the title WINNERS TAKE ALL. This is a lose, lose policy for everyone, where all boats will sink.

11) Brazil and Petrobas its oil company($500 Bil debt) are going bankrupt because of corruption. the Olympics will show what a disaster this is! What will happen to its Bonds that the banks hold?

12) Cyber theft at the banks can’t be stopped. $80 billion, another attack right after that. Soon there will be no confidence in on line banking.

My forecasts for next 12 months TO JULY 4TH 2017 call for the Dow Jones Industrial average to be as low as 14,688 to 12,000, the NASDAQ to be as low as 4,000 to 3,000 and the S&P 500 to be as low as 1,560 to 1,400 because  (See previous market letters)

ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST
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

HERE ARE 12 ITEMS THAT WORRY ME ABOUT THE STOCK MARKET

I AM EXTENDING MY 2016 FORECAST  TO 7/4/2017

1) The market is close to making new highs. However each time it nears the new high, it backs off and on low volume. Brexit was the excuse this time. Now, everything is OK again? Sure! I expect the current rally to also fall short of new highs. However the BEAR MARKET decline may take longer to develop than I first thought and I am extending my 2016 FORCAST  TO 7/4/2017. See below

2). Retail stocks such as Macy’s, Disney and Sears are having trouble with their earnings. Store closings are commonplace today as people are buying online. This is not good for profit margins or employment. The economy could be stimulated with a backlog of infrastructure spending. Not a chance with this Congress.

3). Gold is making new highs, while the 10 year treasury and 1.47% is a new  low. That is where the money is going. This means that investors are very cautious. 

4). Donald Trump, the expected nominee of the Republican Party, continues to blurt out dangerous statements. Yesterday he said, “why worry about Debt, we can print money.” That’s true, except that excessive printing of money turns into hyperinflation. If you don’t know the history of the Weimar  Republic in Germany you are likely to repeat history’s mistakes. Besides, it’s the Federal Reserve’s job to monitor monetary policy. Of course a dictator, can easily appoint flunkies at the Federal Reserve, that he could control.The market dislikes uncertainty and instability. The possibility of the Trump presidency, however unlikely, is still on stabilizing to the markets. His quote of “fight fire with fire” will mean more meaningless and expensive wars~!

5).I believe most of buying has occurred because of Central Bank stimulus, continued low interest rates (-0% some places) and corporate stock buybacks this year  are a record $150 billion. If it were not this stimulus, I believe the market would be down some 20% at this point. Companies are not investing in production or innovation. this is bad for employment and the economy.

6). The middle class continues to take it on the chin. According to recent data between 2000 and 2014, the middle class shrunk from 55% to under 51%. It’s probably now below 50%. An economy  based on consumer spending of the middle class, like the United States, cannot grow without a healthy middle-class. International corporations  do well for a while, as they are now. But eventually, I feel the present economic environment will lead to a deflationary economy, that will hurt all economic levels.

7). If commodity prices and companies engaged in retail sales continue to suffer, their bonds will eventually suffer and therefore the banks that are holding securities will suffer. 2008 all over again, only this time no government bailout! The ‘canary in the mine’ Deutsche Bank at 14.08 is down from its recent high of 19.46 and below the old low  at 14.78, watch out below!!!!! Also see weak charts of BCS, CS, HBC.BE, BNP.PA

8). China continues to show lackluster economic growth. China’s rate of loans is far above the rate of money supply growth. Right now, China is using its currency to buy as many companies in the West as it can, while it can. Just as has happened to Japan in the 1990s, we expect the same deflationary scenario to begin to occur in China. . In China, for example, has $1.3 trillion of corporate loans, one seventh of the total are owned by companies whose profits don’t cover their interest payments, a problem that could trigger banks losses equal to 7% of gross domestic product.”

9). The central banks have done everything they can to stop inflation in Europe and in the United States with  the results  that many corporations in Europe are issuing bonds and financing them at close to zero interest rates. What this means, is that central banks cannot stop deflation. Rick Santelli of CNBC says “nobody says anything good about negative interest rates.” Central banks are helpless to stop deflation.

10). I continue to believe that economic growth in the United States is being slowed by all the income growth going to the top 1%. A recent Economist Magazine showed the upper 1% standing on top of their money with the guarded by barbed wire fence around, with the title WINNERS TAKE ALL. This is a lose, lose policy for everyone, where all boats will sink.

11) Brazil and Petrobas its oil company($500 Bil debt) are going bankrupt because of corruption. the olympics will show what a disaster this is! What will happen to its Bonds that the banks hold?

12) Cyber theft at the banks can’t be stopped. $80 billion, another attack right after that. Soon there will be no confidence in on line banking.

My forecasts for next 12 months call for the Dow Jones Industrial average to be as low as 14,688 to 12,000, the NASDAQ to be as low as 4,000 to 3,000 and the S&P 500 to be as low as 1,560 to 1,400 because  (See previous market letters)

ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST
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

Below 6/16 inter day low: DJIA -3.4%, NASDAQ -4.12%, S&P 500 -3.6%

Deutsche Bank -17.5%, Credit Suisse Bank – 16.16%, BNP.PA -17.4%

NEW LOW: 10 year T-bond 1.57%

Japan -7.9%, China -3%, DAX -6.8%, Russia -5.1% Emerging Markets-5.8%, Oil-2.9%

Gold $1,321 +58.10

Pound -11% lowest level in 35 years

To blame: Brexit? WRONG! Read below:

There appears to be a dichotomy between US stock markets and world markets, as US markets are close to a new high, while foreign markets are closer to new lows. Also, US Treasury bond yields are at new lows. What does this mean? Trouble! Investors are leaving stock markets worldwide and buying US treasuries as fast as they can. Also troubling markets is a recently US jobs report and 38,000 which is the lowest since 2010 and a possible exit of Britain from the common market to be voted on June 23. Our Federal Reserve will probably not raise interest rates this week because of worries in China, Europe, and Japan. Most troubling to me, are European banks. Most Bears think next problem that will sink the markets will be China and its precarious situation with dubious loans. However, I believe the problem that will finally sinks the markets, may come out of European banks. Once again as in 2008, the problem may lie with too many derivatives. It is estimated Deutsches Bank alone has $75 trillion in potential derivative exposure. That is 20 times larger than the GDP of the entire German economy. HSBC bank is not far behind with large derivative exposure. Too big to fail is now called Strategically Important Financial Institutions, (or SIFI’s).  A recent article from INVESTOPEDIA, it is estimated that European SIFI’s banks have more derivatives than the GDP of the entire world economy.

Don’t’ forget the classic THIS TIME ITS DIFFERENT by Carmen Reinhart: It tells the story of eight centuries of Financial Folly. Each time after a catastrophe, such as the Great Depression or 2008, economists agree that it could never happen again. Who could be so stupid to allow the banks to own $500 trillion in derivatives, let six banks control 70% of the US assets (too big to fail) and allow all the economic growth to go to the 1%, while eighty people own 50% of the world’s wealth? NAH!

We are not done dodging bullets!   As reported by Reuters news, the judge refused to throw out a private lawsuit accusing the 14 banks of rigging an interest rate benchmark (ISDAfix) used in the $553 trillion derivatives markets. That’s right folks, I said the $553 trillion derivative markets. That dwarfs the problem of derivatives 2008, which almost brought the banks to their demise. The Credit Suisse bank has announced a 6000 employee layoff.  J.P. Morgan is doubling its reserve oil loan losses $1.3 billion. I do not believe this is nearly enough. However it does give an indication of the changing landscape of the way the public is looking at loan losses from energy-related companies. The news is out. The banks the United States, China and in Europe are holding billions of dollars of loans that will probably default. US Banks have built up their assets due to differential between low interest rates and the rates they can charge the public. As I have said in previous market letters, “Banks have built up their assets on the backs of the middle class. In cooperation with the Federal Reserve, Interest rates are at virtually at zero, penalizing savers and retirees and weakening the middle class as banks make huge profits from consumers who pay high rates on credit cards and small businesses on loans. Because banks can borrow at almost nothing, whatever they charge above zero is pure profit. Auto and mortgage rates are 3% or 4%,( there are $1 trillion of subprime auto loans), industrial loans are between eight and 12% (growth down 11% this year ) and credit cards are anywhere from 15% to 29%.This is  high-way robbery and this is weakening middle-class consumers, small businesses and retirees, with the result, as I have said many times, ‘All boats will sink!” This loan reevaluation by J.P. Morgan is just the tip of the iceberg. World wide, Russia is bailing out its national banks as it severely reduces it reserves and Brazil and Venezuelan are facing financial collapse!

My ‘canary in the mine’ In my opinion remains Deutsches Bank at  $14.43  today (52 week low 14.78), down from a recent  high of $19.50  per share in April, (down 70% in the last 2 years). The Wall Street Journal has reported that “When Donald Trump needs a loan, he chooses Deutsches Bank.” While most big banks have shunned Donald Trump the Deutsches Bank has been a steadfast financial backer of the Republican presidential candidate. Just one more reason to mistrust their judgment. In addition to the above Deutsches Bank is facing a class action lawsuit. There shares are now selling below BOOK VALUE! Watch out below!

STILL Problems still in China. The Federal Reserve chair Yellen, has called for a more cautious forecast for the economy and therefore it appears that any additional interest rate increase will be delayed. The markets loved it, as treasury yields dropped and stocks rose. Yellen appears to be worried about the world economies especially China, where debt has gotten out of hand at 2.5% of GDP. Of course, China’s premier Lie Kegiaing has said publicly that China’s growth rate is secure. In reaction, Pen Am securities announced that the government is relaxing its decree against short selling. Since then, the, Chinese stocks have fallen. The continued weakness of China is the unknown factor. China is a controlled society, socially and economically. One third of its industry’s is directly government controlled, with the rest under the threat of the direct control. For instance, the person in charge of regulating the Chinese stock market Xiao Ganghas, has just been fired. He is being blamed for the 40% drop in the Chinese stock market and criticized the People’s Bank of China when they said that they would let banks sell trouble loans to investors. Moody’s and S&P have cut China’s credit rating to negative over debt concerns. The People’s Bank of China has warned that lending to corporations is on the high side, compared with the overall size of the Chinese economy. China’s corporate debt has been on a spending binge.  I believe this is unsustainable and the reported growth of China is unreliable.

China’s total debt now stands at 2.5 years of GDP. As stated above, Moody’s and now S&P have changed the ratings on Chinese government bonds from neutral to negative. In addition there is a warning about the viability of China’s credit rating. China has been decreasing its bank reserve requirements five times in a row. Government debt is now 40% of GDP up from 32% and foretasted to rise to 43% of GDP. (as above total China’s total debt now stands at 2.5 years of GDP.) Foreign-exchange reserves are down $1 billion. Cash outflows are estimated to be about $1 trillion as Chinese investors scurry away from their homeland. China continues to be a continued problem in world markets. Their growth rate of 6% is being questioned. China’s three largest state banks reported no earnings growth and big jumps of 40% in nonperforming loans. this has the potential for a full blown world wide crisis. Is the breakdown of their economy, an indication that the worldwide economy will start to break down?

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 4,000 to 3,000 and the S&P 500 to be as low as 1,560 to 1,400 because  (See previous market letters)

ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST
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

NEW LOWS: Deutsche Bank -3.31%, Credit Suisse Bank – 2.2%

NEW LOW: 10 year T-bond 1.57%

Japan -3.05%, China -2.1%, Europe -1.55%, Russia -2.3% Emerging Markets-1.7%, Oil-2.9%

Gold $1,317 +29.10

To blame: Brexit? WRONG! Read below:

There appears to be a dichotomy between US stock markets and world markets, as US markets are close to a new high, while foreign markets are closer to new lows. Also, US Treasury bond yields are at new lows. What does this mean? Trouble! Investors are leaving stock markets worldwide and buying US treasuries as fast as they can. Also troubling markets is a recently US jobs report and 38,000 which is the lowest since 2010 and a possible exit of Britain from the common market to be voted on June 23. Our Federal Reserve will probably not raise interest rates this week because of worries in China, Europe, and Japan. Most troubling to me, are European banks. Most Bears think next problem that will sink the markets will be China and its precarious situation with dubious loans. However, I believe the problem that will finally sinks the markets, may come out of European banks. Once again as in 2008, the problem may lie with too many derivatives. It is estimated Deutsches Bank alone has $75 trillion in potential derivative exposure. That is 20 times larger than the GDP of the entire German economy. HSBC bank is not far behind with large derivative exposure. Too big to fail is now called Strategically Important Financial Institutions, (or SIFI’s).  A recent article from INVESTOPEDIA, it is estimated that European SIFI’s banks have more derivatives than the GDP of the entire world economy.

Don’t’ forget the classic THIS TIME ITS DIFFERENT by Carmen Reinhart: It tells the story of eight centuries of Financial Folly. Each time after a catastrophe, such as the Great Depression or 2008, economists agree that it could never happen again. Who could be so stupid to allow the banks to own $500 trillion in derivatives, let six banks control 70% of the US assets (too big to fail) and allow all the economic growth to go to the 1%, while eighty people own 50% of the world’s wealth? NAH!

We are not done dodging bullets!   As reported by Reuters news, the judge refused to throw out a private lawsuit accusing the 14 banks of rigging an interest rate benchmark (ISDAfix) used in the $553 trillion derivatives markets. That’s right folks, I said the $553 trillion derivative markets. That dwarfs the problem of derivatives 2008, which almost brought the banks to their demise. The Credit Suisse bank has announced a 6000 employee layoff.  J.P. Morgan is doubling its reserve oil loan losses $1.3 billion. I do not believe this is nearly enough. However it does give an indication of the changing landscape of the way the public is looking at loan losses from energy-related companies. The news is out. The banks the United States, China and in Europe are holding billions of dollars of loans that will probably default. US Banks have built up their assets due to differential between low interest rates and the rates they can charge the public. As I have said in previous market letters, “Banks have built up their assets on the backs of the middle class. In cooperation with the Federal Reserve, Interest rates are at virtually at zero, penalizing savers and retirees and weakening the middle class as banks make huge profits from consumers who pay high rates on credit cards and small businesses on loans. Because banks can borrow at almost nothing, whatever they charge above zero is pure profit. Auto and mortgage rates are 3% or 4%,( there are $1 trillion of subprime auto loans), industrial loans are between eight and 12% (growth down 11% this year ) and credit cards are anywhere from 15% to 29%.This is  high-way robbery and this is weakening middle-class consumers, small businesses and retirees, with the result, as I have said many times, ‘All boats will sink!” This loan reevaluation by J.P. Morgan is just the tip of the iceberg. World wide, Russia is bailing out its national banks as it severely reduces it reserves and Brazil and Venezuelan are facing financial collapse!

My ‘canary in the mine’ In my opinion remains Deutsches Bank at  $14.43  today (52 week low 14.78), down from a recent  high of $19.50  per share in April, (down 70% in the last 2 years). The Wall Street Journal has reported that “When Donald Trump needs a loan, he chooses Deutsches Bank.” While most big banks have shunned Donald Trump the Deutsches Bank has been a steadfast financial backer of the Republican presidential candidate. Just one more reason to mistrust their judgment. In addition to the above Deutsches Bank is facing a class action lawsuit. There shares are now selling below BOOK VALUE! Watch out below!

STILL Problems still in China. The Federal Reserve chair Yellen, has called for a more cautious forecast for the economy and therefore it appears that any additional interest rate increase will be delayed. The markets loved it, as treasury yields dropped and stocks rose. Yellen appears to be worried about the world economies especially China, where debt has gotten out of hand at 2.5% of GDP. Of course, China’s premier Lie Kegiaing has said publicly that China’s growth rate is secure. In reaction, Pen Am securities announced that the government is relaxing its decree against short selling. Since then, the, Chinese stocks have fallen. The continued weakness of China is the unknown factor. China is a controlled society, socially and economically. One third of its industry’s is directly government controlled, with the rest under the threat of the direct control. For instance, the person in charge of regulating the Chinese stock market Xiao Ganghas, has just been fired. He is being blamed for the 40% drop in the Chinese stock market and criticized the People’s Bank of China when they said that they would let banks sell trouble loans to investors. Moody’s and S&P have cut China’s credit rating to negative over debt concerns. The People’s Bank of China has warned that lending to corporations is on the high side, compared with the overall size of the Chinese economy. China’s corporate debt has been on a spending binge.  I believe this is unsustainable and the reported growth of China is unreliable.

China’s total debt now stands at 2.5 years of GDP. As stated above, Moody’s and now S&P have changed the ratings on Chinese government bonds from neutral to negative. In addition there is a warning about the viability of China’s credit rating. China has been decreasing its bank reserve requirements five times in a row. Government debt is now 40% of GDP up from 32% and foretasted to rise to 43% of GDP. (as above total China’s total debt now stands at 2.5 years of GDP.) Foreign-exchange reserves are down $1 billion. Cash outflows are estimated to be about $1 trillion as Chinese investors scurry away from their homeland. China continues to be a continued problem in world markets. Their growth rate of 6% is being questioned. China’s three largest state banks reported no earnings growth and big jumps of 40% in nonperforming loans. this has the potential for a full blown world wide crisis. Is the breakdown of their economy, an indication that the worldwide economy will start to break down?

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 4,000 to 3,000 and the S&P 500 to be as low as 1,560 to 1,400 because  (See previous market letters)

ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST
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

Teflon markets near new highs!

It is possible that the US markets have dodged another bullet as it did in February 2016 and as it did earlier in August 2015. Since February lows, US markets have rallied 13%, (mostly on short covering.) Oil prices are once again above $40 and US markets are close to breaking above November 2015 high and their all-time high. European and Asian markets have recovered much less and are closer to their February lows then they are to their November highs. However, if the S&P 500 can break above 2,131 only 50 points higher than the current price, my Bear Market scenario may be in question. The breakout point for the NASDAQ is 5,231, and the current price is 4,944. The breakout point for the Dow is 18,352 with its current price at 17,920.

Nothing but bad news, but still the markets are higher. 1)Bank of America and Wells Fargo Bank have posted lower quarterly earnings can announced that they have increased their reserves to cover them from the stress energy companies.2) The Fed and the FDIC has announced that most of the largest banks are still too big to fail and do not have adequate plans for a 2008 type economic disaster. 3) The Wall Street Journal has reported that there are approximately $147 billion in questionable loans that banks have on their books. Citicorp Bank of America J.P. Morgan Wells Fargo and Morgan Stanley have over 50% of these loans unfunded. 4) As an example of the problem, the largest  coal producer Peabody Energy, has just filed bankruptcy. There have been similar filings by Arch Coal Incorporated, Alpha Natural Resources, Patriot Coal Corp and Walter Energy Incorporated. 5) The IMF is worried about splitting risks in emerging markets. I quote from the April 14 Wall Street Journal, “the ballooning debt of giant companies in fast-growing economies is of particular concern, because of their close ties to banks as well as national governments. In China, for example $1.3 trillion of corporate loans, one seventh of the total are owned by companies whose profits don’t cover their interest payments, a problem that could trigger banks losses equal to 7% of gross domestic product.”

CNN MONEY ESTIMATES 1^ST QUARTER S&P EARNINGS TO BE DOWN 7.9% For the first quarter the S&P 500 companies are expected to plunge 7.9%. Wall Street is bracing itself for the deepest decline in earnings since 2009. This has the potential for upsetting a rather fragile applecart. Low-priced oil and a strong dollar deserve a chunk of the blame for this bleak profit outlook. However, even if energy earnings were excluded, S&P 500 profits are still expected to decline 3.7%. Tech companies are bracing for a 5.9% decline. It will be interesting to see how the  bank’s earning go as J.P. Morgan and Citicorp will report earnings next week. Look out below!

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. EVENTUALLY, the only problem is, once Artificial Intelligence has access to unlimited knowledge in the cloud and is able to reproduce itself, silicon based intelligence will not need carbon based intelligence The next step in evolution?. However, that’s a problem for another day.
• Don’t’ forget the classic THIS TIME ITS DIFFERENT by Carmen Reinhart: It tells the story of eight centuries of Financial Folly. Each time after a catastrophe, such as the Great Depression or 2008, economists agree that it could never happen again. Who could be so stupid as to let six banks control 70% of the US assets (to big to fail) and allow all the economic growth to go to the 1%, while eighty people own 50% of the world’s wealth? NAH!

Solutions!

I believe we need to do three things. 1) Eliminate Citizens United and reinstate Glass–Steagall and enforce Dodd Frank. The corporations and Wall Street are running this country. A recent survey has shown that even if 100% of the population believes in an issue, it is only the donor influence that matters. 2) Eliminate gerrymandering. Today in Congress there are actually one more million votes for Democrats than Republicans. However because of gerrymandering Republicans rule and are assured of being reelected. 3) Start four year election terms for the House of Representatives and set term limits. Maybe there is a #4 which is to speak out.

THE LONE BEAR LETTER 310 ISL #700     Problems still in China. The Federal Reserve chair Yellen, has called for a more cautious forecast for the economy and therefore it appears that any additional interest rate increase will be delayed. The markets loved it, as treasury yields dropped and stocks rose. Yellen appears to be worried about the world economies especially China, where debt has gotten out of hand at 2.5% of GDP. Of course, China’s premier Lie Kegiaing has said publicly that China’s growth rate is secure. In reaction, Pen Am securities announced that the government is relaxing its decree against shortselling. Since then, the, Chinese stocks and fall approximately 2%. The continued weakness of China is the unknown factor. China is a controlled society, socially and economically. One third of its industry’s is directly government controlled, with the rest under the threat of the direct control. For instance, the person in charge of regulating the Chinese stock market Xiao Ganghas, has just been fired. He is being blamed for the 40% drop in the Chinese stock market and criticized the People’s Bank of China when they said that they would let banks sell trouble loans to investors. Moody’s and S&P have cut China’s credit rating to negative over debt concerns. The People’s Bank of China has warned that lending to corporations is on the high side, compared with the overall size of the Chinese economy. China’s corporate debt has been on a spending binge.  I believe this is unsustainable and the reported growth of China is unreliable.

As stated above, Moody’s and now S&P have changed the ratings on Chinese government bonds from neutral to negative. In addition there is a warning about the viability of China’s credit rating. China has been decreasing its bank reserve requirements five times in a row. Government debt is now 40% of GDP up from 32% and foretasted to rise to 43% of GDP. (as above total China’s total debt now stands at 2.5 years of GDP.) Foreign-exchange reserves are down $1 billion. Cash outflows are estimated to be about $1 trillion as Chinese investors scurry away from their homeland. China continues to be a continued problem in world markets. Their growth rate of 6% is being questioned. China’s three largest state banks reported no earnings growth and big jumps of 40% in non performing loans. this has the potential for a full blown world wide crisis. Is the breakdown of their economy, an indication that the worldwide economy will start to break down?

IN THE US It appears the economy in the United States is slowing down. Fourth-quarter 2015 showed almost a negative growth figure. First-quarter growth in 2016 has been reduced from above 3% to forecasts under 2% growth. Federal Reserve Chairman Yelled is obviously worried about slow US economic growth and problems in both Europe and especially China. We continue to believe that economic growth United States is being slowed by all the income growth going to the top 1%. Latest reports show that only one family the Waltons, have more wealth than the bottom 40%. The most recent Economist Magazine cover showed the upper 1% standing on top of their money with the guarded barb wire fence around it, with the caption, “WINNERS TAKE ALL“” The election is getting perverse with Republicans talking about each other’s wives instead of issues. Donald Trump has called for the use of nuclear weapons against Muslims and North Korea while stating that women who have abortions should be punished. It’s all going downhill fast.

THE END OF DODD-FRANK!  Dodd- Frank regulations were put into effect to classify a certain large banks and non-bank institutions as deserving of increase capital requirements and greater scrutiny by calling them “to big to fail”. However a judge of the Federal District Court for the district of Columbia overturned MetLife’s designation as too big to fail, raising questions about how regulators determine ‘to big to fail’. This decision could also sway future rule making efforts that are systematically important to guard against  another 2008 near collapse of the global financial system. As is pointed out, in the book, THIS TIME ITS DIFFERENT, mistakes are continually made over and over again, without lessons learned.

Terrorist worries! Markets worldwide were stunned by the terrorist acts in Brussels. These attacks in Europe have far-reaching effects as individual European countries disagree with immigration policies. Brexit, the exit of Britain from the European Community, increase the odds of a potential exits with terrorists attacks. In the US, Donald Trump wants to stop all immigration of Muslims in the US and has suggested torture, ground troops and nuclear weapons to stop the Islamic state and added a nuclear threat to North Korea! Ted Cruz has suggested Carpet bombing and extra police vigilance in Muslim neighborhoods. The net result of all this is uncertainty. Markets dislike uncertainty.

CORPORATE STOCK BUYBACKS THIS YEAR, A RECORD $150 BILLION. Stock markets worldwide are up about 13% from their February lows. I believe most of buying has occurred because of Central Bank stimulus, continued low interest rates (-0% some places) and corporate stock buybacks this year that are a record $150 billion. If it were not this stimulus, I believe the market would be down some 20% at this point. Problems continue in China where the People’s Bank of China said that they would let banks sell trouble loans to investors. China’s corporate debt has been on a spending binge. In order to keep China’s economy humming, China’s total debt now stands at 2.5 years of GDP. I believe this is unsustainable and the reported growth of China is unreliable.

BANKS WORLDWIDE STILL TROUBLING! A US judge in Manhattan has rejected throwing out a rate rigging lawsuit against 14 largest banks. As reported by Reuters news, the judge refused to throw out a private lawsuit accusing the 14 banks of rigging an interest rate benchmark (ISDAfix) used in the $553 trillion derivatives markets. That’s right folks, I said the $553 trillion derivative markets. That dwarfs the problem of derivatives 2008, that almost brought the banks to their demise. The Credit Suisse bank has announced a 6000 employee layoff.  J.P. Morgan is doubling its reserve oil loan losses $1.3 billion. I do not believe this is nearly enough. However it does give an indication of the changing landscape of the way the public is looking at loan losses from energy-related companies. The news is out. The banks the United States, China and in Europe are holding billions of dollars of loans that will probably default. US Banks have built up their assets due to differential between low interest rates and the rates they can charge the public. As I have said in previous market letters, “ Banks have built up their assets on the backs of the middle class. In cooperation with the Federal Reserve, Interest rates are at virtually at zero, penalizing savers and retirees and weakening the middle class as banks make huge profits from consumers who pay high rates on credit cards and small businesses on loans. Because banks can borrow at almost nothing, whatever they charge above zero is pure profit. Auto and mortgage rates are 3% or 4%,( there are $1 trillion of subprime auto loans), industrial loans are between eight and 12% (growth down 11% this year ) and credit cards are anywhere from 15% to 29%.This is  high-way robbery and this is weakening middle-class consumers, small businesses and retirees, with the result, as I have said many times, ‘All boats will sink!” This loan reevaluation by J.P. Morgan is just the tip of the iceberg. world wide, Russia is bailing out its national banks as it severely reduces it reserves and Brazil and Venezuelan are facing financial collapse! We are not done dodging bullets!

My ‘canary in the mine’ Deutsches Bank bottomed at $15.38 in February and went to a high of  $19.04 per share, 9 still down 70% in the last 2 years) is now at $17.29. The Wall Street Journal has reported that “When Donald Trump needs a loan, he chooses Deutsches Bank.” While most big banks have shunned Donald Trump the Deutsches Bank has been a steadfast financial backer of the Republican presidential candidate. Just one more reason to mistrust their judgment.

MARKETS CELEBRATE 7 YEAR ANNIVERSARY OF BULL MARKET/SELL In the last seven years since March 9, 2009, the Dow has risen 160%, the S&P 500 up 194% and the NASDAQ up 311%. This is the third longest running Bull Market since World War II. However, there is an Elliott Wave 7 year cycle to worry about that calls for a market top now.  Earnings for the S&P 500 are only up 148% compared to the 194% rise of the S&P index. Earnings in the fourth quarter of 2015 for the S&P were down 32% or $23.25 and were only up $7.52 in the first quarter of 2016. US markets made their all-time highs in May 2015. Since then there were two drops of over 10%. Since May of 2015 US markets are down 7%, Chinese markets are down 40%, European markets down 16%, emerging market markets down 21% and commodity prices down 21%.

There appears to be a respite in our bear market predictions. Oil prices are back to thirty-eight dollars a barrel and banks have admitted the problem of unsecured debt by oil and natural resource companies. China has reduced its growth predictions and Europe seems to once again be stimulating its economy. Many think that the worst is now behind us. However, I believe that this rest period will be temporary.

Investment strategy/Sell rallies

I don’t tell the market what to do. The market tells me what it is doing. The Dow Jones industrial average broke its August 25 low of 15,666 in February by closing at 15,660. This was the last major index or average to not break below August lows. All major indexes and averages worldwide have now broken below their August 25 lows and we are officially in a BEAR Market.

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 4,000 to 3,000 and the S&P 500 to be as low as 1,560 to 1,400 because  (See previous market letters)

ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST
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

Problems still in China. The Federal Reserve chair Yellen, has called for a more cautious forecast for the economy and therefore it appears that any additional interest rate increase will be delayed. The markets loved it, as treasury yields dropped and stocks rose. Yellen appears to be worried about the world economies especially China, where debt has gotten out of hand at 2.5% of GDP. Of course,China’s premier Lie Kegiaing has said publicly that China’s growth rate is secure. In reaction, Pen Am securities announced that the government is relaxing its decree against shortselling. Since then, the, Chinese stocks and fall approximately 2%. The continued weakness of China is the unknown factor. China is a controlled society, socially and economically. One third of its industry’s is directly government controlled, with the rest under the threat of the direct control. For instance, the person in charge of regulating the Chinese stock market Xiao Ganghas, has just been fired. He is being blamed for the 40% drop in the Chinese stock market and criticized the People’s Bank of China when they said that they would let banks sell trouble loans to investors. Moody’s and S&P have cut China’s credit rating to negative over debt concerns. The People’s Bank of China has warned that lending to corporations is on the high side, compared with the overall size of the Chinese economy. China’s corporate debt has been on a spending binge.  I believe this is unsustainable and the reported growth of China is unreliable.

As stated above, Moody’s and now S&P have changed the ratings on Chinese government bonds from neutral to negative. In addition there is a warning about the viability of China’s credit rating. China has been decreasing its bank reserve requirements five times in a row. Government debt is now 40% of GDP up from 32% and foretasted to rise to 43% of GDP. (as above total China’s total debt now stands at 2.5 years of GDP.) Foreign-exchange reserves are down $1 billion. Cash outflows are estimated to be about $1 trillion as Chinese investors scurry away from their homeland. China continues to be a continued problem in world markets. Their growth rate of 6% is being questioned. China’s three largest state banks reported no earnings growth and big jumps of 40% in non performing loans. this has the potential for a full blown world wide crisis. Is the breakdown of their economy, an indication that the worldwide economy will start to break down?

IN THE US It appears the economy in the United States is slowing down. Fourth-quarter 2015 showed almost a negative growth figure. First-quarter growth in 2016 has been reduced from above 3% to forecasts under 2% growth. Federal Reserve Chairman Yelled is obviously worried about slow US economic growth and problems in both Europe and especially China. We continue to believe that economic growth United States is being slowed by all the income growth going to the top 1%. Latest reports show that only one family the Waltons, have more wealth than the bottom 40%. The most recent Economist Magazine cover showed the upper 1% standing on top of their money with the guarded barb wire fence around it, with the caption, “WINNERS TAKE ALL“” The election is getting perverse with Republicans talking about each other’s wives instead of issues. Donald Trump has called for the use of nuclear weapons against Muslims and North Korea while stating that women who have abortions should be punished. It’s all going downhill fast.

THE END OF DODD-FRANK!  Dodd- Frank regulations were put into effect to classify a certain large banks and non-bank institutions as deserving of increase capital requirements and greater scrutiny by calling them “to big to fail”. However a judge of the Federal District Court for the district of Columbia overturned MetLife’s designation as too big to fail, raising questions about how regulators determine ‘to big to fail’. This decision could also sway future rule making efforts that are systematically important to guard against  another 2008 near collapse of the global financial system. As is pointed out, in the book, THIS TIME ITS DIFFERENT, mistakes are continually made over and over again, without lessons learned.

Terrorist worries! Markets worldwide were stunned by the terrorist acts in Brussels. These attacks in Europe have far-reaching effects as individual European countries disagree with immigration policies. Brexit, the exit of Britain from the European Community, increase the odds of a potential exits with terrorists attacks. In the US, Donald Trump wants to stop all immigration of Muslims in the US and has suggested torture, ground troops and nuclear weapons to stop the Islamic state and added a nuclear threat to North Korea! Ted Cruz has suggested Carpet bombing and extra police vigilance in Muslim neighborhoods. The net result of all this is uncertainty. Markets dislike uncertainty.

Oil glut gets worse. One of the reasons the market has rallied some 13% in the last several weeks is because oil prices have risen from low of $26 a barrel to over $40 a barrel. (current $38.37 It was falsely claimed that stockpiles of oil were decreasing. It turns out that US oil stockpiles have skyrocketed by 9.4 million barrels last week to 532.5 million barrels according to figures released by the US Energy Information Administration. Oil is presently priced at $38.88 per barrel. The price of oil has been in direct relationship to the price of the US markets, going either up or down with the price of oil. Expect lower oil prices and therefore lower stock prices.

SELL RALLIES! It is possible that the US markets have dodged another bullet as it did in February 2016 and as it did earlier in August 2015. Since February lows, US markets have rallied 13%, (mostly on short covering.) Oil prices were once again above $40 a barrel (see above, as we expect another down move) and US markets are close to breaking above November 2015 high and their all-time high. European and Asian markets have recovered much less and are closer to their February lows then they are to their November highs. However, if the S&P 500 can break above 2,131 only 100 points higher than the current price, my Bear Market scenario may be in question. The breakout point for the NASDAQ is 5,231, and the current price is 4800. The breakout point for the Dow is 18,352 with its current price at 17,918. There were real risks in February that the oil price below $26 would affect the bank’s and energy bonds. (SandRidge Energy out of Oklahoma announce it is exploring chapter 11 bankruptcy. along with other shale oil drillers) However the central banks of Europe, Japan and the United States have come to the rescue with stimulation programs, which in my opinion, only delay the inevitable economic crisis. However, as with last year’s August decline, the markets and the economy may have dodged another bullet, at least temporary. With this in mind, my Bear Market scenario may have to go on hold. We shall see! Market will tell us. So watch for the US markets. If US markets break into new high ground, we may have to change our investment strategy. Stay tuned!

CORPORATE STOCK BUYBACKS THIS YEAR, A RECORD $150 BILLION. Stock markets worldwide are up about 13% from their February lows. I believe most of buying has occurred because of Central Bank stimulus, continued low interest rates (-0% some places) and corporate stock buybacks this year that are a record $150 billion. If it were not this stimulus, I believe the market would be down some 20% at this point. Problems continue in China where the People’s Bank of China said that they would let banks sell trouble loans to investors. China’s corporate debt has been on a spending binge. In order to keep China’s economy humming, China’s total debt now stands at 2.5 years of GDP. I believe this is unsustainable and the reported growth of China is unreliable.

BANKS WORLDWIDE STILL TROUBLING! A US judge in Manhattan has rejected throwing out a rate rigging lawsuit against 14 largest banks. As reported by Reuters news, the judge refused to throw out a private lawsuit accusing the 14 banks of rigging an interest rate benchmark (ISDAfix) used in the $553 trillion derivatives markets. That’s right folks, I said the $553 trillion derivative markets. That dwarfs the problem of derivatives 2008, that almost brought the banks to their demise. The Credit Suisse bank has announced a 6000 employee layoff.  J.P. Morgan is doubling its reserve oil loan losses $1.3 billion. I do not believe this is nearly enough. However it does give an indication of the changing landscape of the way the public is looking at loan losses from energy-related companies. The news is out. The banks the United States, China and in Europe are holding billions of dollars of loans that will probably default. US Banks have built up their assets due to differential between low interest rates and the rates they can charge the public. As I have said in previous market letters, “ Banks have built up their assets on the backs of the middle class. In cooperation with the Federal Reserve, Interest rates are at virtually at zero, penalizing savers and retirees and weakening the middle class as banks make huge profits from consumers who pay high rates on credit cards and small businesses on loans. Because banks can borrow at almost nothing, whatever they charge above zero is pure profit. Auto and mortgage rates are 3% or 4%,( there are $1 trillion of subprime auto loans), industrial loans are between eight and 12% (growth down 11% this year ) and credit cards are anywhere from 15% to 29%.This is  high-way robbery and this is weakening middle-class consumers, small businesses and retirees, with the result, as I have said many times, ‘All boats will sink!” This loan reevaluation by J.P. Morgan is just the tip of the iceberg. world wide, Russia is bailing out its national banks as it severely reduces it reserves and Brazil and Venezuelan are facing financial collapse! We are not done dodging bullets!

My ‘canary in the mine’ Deutsches Bank bottomed at $15.38 in February and went to a high of   $19.04 per share, 9 still down 70% in the last 2 years) is now at $16.95 down 1% today. The Wall Street Journal has reported that “When Donald Trump needs a loan, he chooses Deutsches Bank.” While most big banks have shunned Donald Trump the Deutsches Bank has been a steadfast financial backer of the Republican presidential candidate. Just one more reason to mistrust their judgment.

Solutions!

I believe we need to do three things. 1) Eliminate Citizens United and reinstate Glass–Steagall and enforce Dodd Frank. The corporations and Wall Street are running this country. A recent survey has shown that even if 100% of the population believes in an issue, it is only the donor influence that matters. 2) Eliminate gerrymandering. Today in Congress there are actually one more million votes for Democrats than Republicans. However because of gerrymandering Republicans rule and are assured of being reelected. 3) Start four year election terms for the House of Representatives and set  term limits. Maybe there is a #4 which is to speak out as I did below.

I must take issue with  statements from Kim McGahey, Summit County Republican Chairman, in a letter posted in the Summit Daily News on Friday March 11, in which she questions liberal progressive values, asks us to “vote for truth” and gives the Bible and the Constitution as sources rejecting that the “government is obligated to” help the poor “at taxpayer expense.”  Republicans, during this election year seem to live in a fact free world. In fact, the Constitution states to promote “the general welfare” and the message of the New Testament can be summarized as one of “love and compassion.” In our capitalistic and market place society, there are winners and losers. However, the top 1% wants it all and leaves nothing for the bottom 50%. The facts are, as stated by the recognized world standard measurement of social progress, the 2015 Social Progress Index (https://en.wikipedia.org/wiki/List_of_countries_by_Social_Progress_Index), the United States, as ranked against other nations, ranks 35th in meeting basic human needs, 39^th in basic education, has the highest first day infant mortality rate and the highest child poverty rate (21%) among industrialized nations.  That’s one in every five children living in poverty! As a Great Nation, we can do better than that. The 1960s Great Society drove down the general US poverty rate from 23% to 13%, but it is now back up to 16%. How do we combat all of the growth and income going to the top 1% and eighty people owning 50% of the world’s wealth? In my opinion, voters are looking for progressive answers, which calls for a change in our culture that promotes income growth equality, quality education, affordable healthcare and is religiously neutral.

MARKETS CELEBRATE 7 YEAR ANNIVERSARY OF BULL MARKET/SELL In the last seven years since March 9, 2009, the Dow has risen 160%, the S&P 500 up 194% and the NASDAQ up 311%. This is the third longest running Bull Market since World War II. However, there is an Elliott Wave 7 year cycle to worry about that calls for a market top now.  Earnings for the S&P 500 are only up 148% compared to the 194% rise of the S&P index. Earnings in the fourth quarter of 2015 for the S&P were down 32% or $23.25 and were only up $7.52 in the first quarter of 2016. US markets made their all-time highs in May 2015. Since then there were two drops of over 10%. Since May of 2015 US markets are down 7%, Chinese markets are down 40%, European markets down 16%, Emerging market markets down 21% and commodity prices down 21%.

There appears to be a respite in our bear market predictions. Oil prices are back to thirty-eight dollars a barrel and banks have admitted the problem of unsecured debt by oil and natural resource companies. China has reduced its growth predictions and Europe seems to once again be stimulating its economy. Many think that the worst is now behind us. However, I believe that this rest period will be temporary.

Investment strategy/Sell rallies

I don’t tell the market what to do. The market tells me what it is doing. The Dow Jones industrial average broke its August 25 low of 15,666 in February by closing at 15,660. This was the last major index or average to not break below August lows. All major indexes and averages worldwide have now broken below their August 25 lows and we are officially in a BEAR Market.

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 4,000 to 3,000 and the S&P 500 to be as low as 1,560 to 1,400 because  (See previous market letters)

ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST
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

OIL GLUT GETS WORSE

MARKETS DOWN FOR 3 DAY HOLIDAY AND TERRORIST WORIES

One of the reasons the market has rallied some 10% in the last several weeks is because oil prices have risen from low of $26 a barrel to over $40 a barrel. It was falsely claimed that stockpiles of oil were decreasing. It turns out that US oil stockpiles have skyrocketed by 9.4 million barrels last week to 532.5 million barrels according to figures released by the US Energy Information Administration. Oil is presently priced at $38.88 per barrel. The price of oil has been in direct relationship to the price of the US markets, going either up or down with the price of oil. Expect lower oil prices and therefore lower stock prices.

Markets worldwide were stunned by the terrorist acts in Brussels. These attacks in Europe have far-reaching effects as individual European countries disagree with immigration policies. Brexit, the exit of Britain from the European Community, increase the odds of a potential exits with terrorists attacks. In the US, Donald Trump wants to stop all immigration of Muslims in the US and has suggested torture, ground troops and nuclear weapons to stop the Islamic state. Ted Cruz has suggested Carpet bombing and extra police vigilance in Muslim neighborhoods. The net result of all this is uncertainty. Markets dislike uncertainty.

With markets closed tomorrow, the safe thing is to add to cash.

3/21/16 MARKET UP 10% FROM FEBRUARY LOWS/CLOSE TO NOVEMBER HIGHS!    UNLESS S&P CAN BREAK ABOVE 2,134 (NOW 2,049)/SELL RALLIES!It is possible that the US markets have dodged another bullet as it did in February 2016 and as it did earlier in August 2015. Oil prices are once again above $40 a barrel and US markets are close to breaking above November 2015 high and their all-time high. European and Asian markets have recovered much less and are closer to their February lows then they are to their November highs. However, if the S&P 500 can break above 2,131 only 100 points higher than the current price, my Bear Market scenario may be in question. The breakout point for the NASDAQ is 5,231, and the current price is 4800. The breakout point for the Dow is 18,352 with its current price at 17,918. There were real risks in February that the oil price below $26 would affect the bank’s and energy bonds. However the central banks of Europe, Japan and the United States have come to the rescue with stimulation programs, which in my opinion, only delay the inevitable economic crisis. However, as with last year’s August decline, the markets and the economy may have dodged another bullet, at least temporary. With this in mind, my Bear Market scenario may have to go on hold. We shall see! Market will tell us. So watch for the US markets. If US markets break into new high ground, we may have to change our investment strategy. Stay tuned!

The continued weakness of China is the unknown factor. China is a controlled society socially and economically. One third of its industry’s is directly government controlled, with the rest under the threat of the direct control. For instance, the person in charge of regulating the Chinese stock market Xiao Ganghas, has just been fired. He is being blamed for the 40% drop in the Chinese stock market and criticized the People’s Bank of China when they said that they would let banks sell trouble loans to investors. Moody’s has cut China’s credit rating to negative over debt concerns. The People’s Bank of China has warned that lending to corporations is on the high side, compared with the overall size of the Chinese economy. China’s corporate debt has been on a spending binge. In order to keep China’s economy humming, China’s total debt now stands at 2.5 years of GDP. I believe this is unsustainable and the reported growth of China is unreliable.

My ‘canary in the mine’ Deutsches Bank bottomed at $15.38 in February and is now at $19.04 per share, down 70% in the last 2 years. The Wall Street Journal has reported that “When Donald Trump needs a loan, he chooses Deutsches Bank.” While most big banks have shunned Donald Trump the Deutsches Bank has been a steadfast financial backer of the Republican presidential candidate. Just one more reason to mistrust their judgment.

3/15/16 CORPORATE STOCK BUYBACKS THIS YEAR, A RECORD $150 BILLION. Stock markets worldwide are up about 10% from their February lows. I believe most of buying has occurred because of Central Bank stimulus, continued low interest rates (-0% some places) and corporate stock buybacks this year that are a record $150 billion. If it were not this stimulus, I believe the market would be down some 20% at this point. Problems continue in China where the People’s Bank of China said that they would let banks sell trouble loans to investors. China’s corporate debt has been on a spending binge. In order to keep China’s economy humming, China’s total debt now stands at 2.5 years of GDP. I believe this is unsustainable and the reported growth of China is unreliable.

I believe we need to do three things. 1) Eliminate Citizens United and reinstate Glass–Steagall and inforce Dodd Frank . The corporations and Wall Street are running this country. A recent survey has shown that even if 100% of the population believes in an issue, it is only the donor influence that matters. 2) Eliminate gerrymandering. Today in Congress there are actually one more million votes for Democrats than Republicans. However because of gerrymandering Republicans rule and are assured of being reelected. 3) Start four year election terms for the House of Representatives and set  term limits. Maybe there is a #4 which is to speak out as I did below.

I must take issue with  statements from Kim McGahey, Summit County Republican Chairman, in a letter posted in the Summit Daily News on Friday March 11, in which she questions liberal progressive values, asks us to “vote for truth” and gives the Bible and the Constitution as sources rejecting that the “government is obligated to” help the poor “at taxpayer expense.”  Republicans, during this election year seem to live in a fact free world. In fact, the Constitution states to promote “the general welfare” and the message of the New Testament can be summarized as one of “love and compassion.” In our capitalistic and market place society, there are winners and losers. However, the top 1% wants it all and leaves nothing for the bottom 50%. The facts are, as stated by the recognized world standard measurement of social progress, the 2015 Social Progress Index (https://en.wikipedia.org/wiki/List_of_countries_by_Social_Progress_Index), the United States, as ranked against other nations, ranks 35th in meeting basic human needs, 39^th in basic education, has the highest first day infant mortality rate and the highest child poverty rate (21%) among industrialized nations.  That’s one in every five children living in poverty! As a Great Nation, we can do better than that. The 1960s Great Society drove down the general US poverty rate from 23% to 13%, but it is now back up to 16%. How do we combat all of the growth and income going to the top 1% and eighty people owning 50% of the world’s wealth? In my opinion, voters are looking for progressive answers, which calls for a change in our culture that promotes income growth equality, quality education, affordable healthcare and is religiously neutral.

3/10/16 MARKETS CELEBRATE 7 YEAR ANNIVERSARY OF BULL MARKET/SELLIn the last seven years since March 9, 2009, the Dow has risen 160%, the S&P 500 up 194% and the NASDAQ up 311%. This is the third longest running Bull Market since World War II. However, there is an Elliott Wave 7 year cycle to worry about that calls for a market top now.  Earnings for the S&P 500 are only up 148% compared to the 194% rise of the S&P index. Earnings in the fourth quarter of 2015 for the S&P were down 32% or $23.25 and were only up $7.52 in the first quarter of 2016. US markets made their all-time highs in May 2015. Since then there were two drops of over 10%. Since May of 2015 US markets are down 7%, Chinese markets are down 40%, European markets down 16%, Emerging market markets down 21% and commodity prices down 21%.

There appears to be a respite in our bear market predictions. Oil prices are back to thirty-eight dollars a barrel and banks have admitted the problem of unsecured debt by oil and natural resource companies. China has reduced its growth predictions and Europe seems to once again be stimulating its economy. Many think that the worst is now behind us. However, we believe that this rest period will be temporary.

3/2/15 WORLD STOCK MARKETS RALLIES                                        

Moody’s rates China government Bonds negative. Moody’s has changed the ratings on Chinese government bonds from neutral to negative. In addition there is a warning about the viability of China’s credit rating. China has been decreasing its bank reserve requirements five times in a row. Government debt is now 40% of GDP up from 32% and foretasted to rise to 43% of GDP. Foreign-exchange reserves are down $1 billion. Cash outflows are estimated to be about $1 trillion as Chinese investors scurry away from their homeland. China continues to be a continued problem in world markets. Their growth rate of 6% is being questioned. Is there breakdown of their economy an indication that the worldwide economy will start to break down?

2/24/16 The big news is that J.P. Morgan is doubling its reserve oil loan losses $1.3 billion. I do not believe this is nearly enough. However it does give an indication of the changing landscape of the way the public is looking at loan losses from energy-related companies. The news is out. The banks the United States and in Europe are holding billions of dollars of loans that will probably default. Banks have built up their assets due to differential between low interest rates and the rates they can charge the public. As I have said in previous market letters, “ Banks have built up their assets on the backs of the middle class. In cooperation with the Federal Reserve, Interest rates are at virtually at zero, penalizing savers and retirees and weakening the middle class as banks make huge profits from consumers who pay high rates on credit cards and small businesses on loans. Because banks can borrow at almost nothing, whatever they charge above zero is pure profit. Auto and mortgage rates are 3% or 4%,( there are $1 trillion of subprime auto loans), industrial loans are between eight and 12% (growth down 11% this year ) and credit cards are anywhere from 15% to 29%.This is  high-way robbery and this is weakening middle-class consumers, small businesses and retirees, with the result, as I have said many times, ‘All boats will sink!” This loan reevaluation by J.P. Morgan is just the tip of the iceberg.

I don’t tell the market what to do. The market tells me what it is doing. On Thursday the Dow Jones industrial average broke its August 25 low of 15,666 by closing at 15,660. This was the last major index or average to not break below August lows. All major indexes and averages worldwide have now broken below the August 25 lows and are officially in a BEAR Market.

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 4,000 to 3,000 and the S&P 500 to be as low as 1,560 to 1,400 because of three factors! (See previous market letters)

ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST
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