Calm, before another storm?

Markets in China, Europe and the US, have so far, (noon EST) steadied today. China took off at 7% breakoff point for closing markets, after the Shanghai market yesterday was only open for fourteen minutes before it was closed down with a 7% loss. Sanctions to restrict selling by large shareholders and no short selling, continues in effect. These restrictions will do nothing more than lead to further instability in the China markets. The jobs report today in the US was very positive. However, wages once again were reported as lower. Oil prices are once again lower at 32.88 a barrel. This price is well below breakeven prices most countries except Saudi Arabia. However, even Saudi Arabia is having trouble meeting its government’s budget with these lower oil prices. We continue to worry about default of bonds that are dependent upon the price of oil, which includes  various commodity product corporations around the world. Not only will the effect of low oil prices have an effect on these companies, but will also be detrimental to their bond ratings, which are held by banks, etc. This of course, could lead to another 2008 debacle that was caused by the defaults of mortgage bonds. George Soros said yesterday, that this economic situation reminds him of 2008. Only in 2008, Congress bailed out the banks. I doubt if they will do that this time, it’s a situation occurs.

1/7/16 Sorry, this is just the beginning of the Bear Market.Markets in China are falling apart as the Shanghai index was barely able to open before it was down 7%. In  2007 this index was at 5903, today it is at 3125, with an August low of 2927. It should break its August lows tomorrow. The China Hang Seng index today as at 20,333, and has already broken below its August low along with the China Large cap (FXI  31.95) below the Aug low of 33.22. If August lows are being taken out in in China, will the US markets be next? The Dow Transports index has already broken below its August low. Other markets that have broken below their August lows are The Russell 2000, Russia, Emerging Markets. the Commodity index and Deutsches Bank. Whereas US markets are well above their August lows today, we believe the deterioration of the Chinese markets and lower oil prices will eventually bring our markets down below the August lows. So far, US markets have been able to dodge a bullet with their relationship to a deteriorating China and the effect of  lower oil prices on supporting bonds. Don’t hang on. There is nothing to hang on to. Read last couple of Investment Strategy Letters below and our Lone Bear Letters.

1/5/16 Market Update.Markets throughout the world held up pretty well today considering the volatility of yesterday. The latest news from China is that they will extend their curbs limiting volatility for a little longer. This means that large investors and corporate insiders have not been able to sell their stock for seven months. In my opinion, this doesn’t decrease volatility, but will increase volatility and destabilization. Who knows what’s going on in China’s state owned corporations? Despite destabilization in the Middle East, oil is down eighty cents today at 35.96! If markets can hold above their August lows for the next couple of weeks, markets could once again begin going higher. However, I believe risks for a big drop are higher this year than last year. My forecasts for 2016 call for the Dow Jones Industrial average to be as low as 14,688, the NASDAQ to be as low as 4,506 and the S&P 500 to be as low as 1,560.

1/4/16 Welcome to 2016. US markets down 2%, Shanghai down 7%.Today, US markets were shaken by big drop in the Chinese market and trouble in the Middle East. Chinese trading curbs are scheduled to come off sometime this week. In August steps were taken to curb volatility. These steps included suspended initial public offerings, restricting big investors and corporate insiders from selling and limiting the trading behavior of so-called short-sellers. The decline in the Chinese market may be due to the fear that once these trading curbs are taken off, the Chinese market will once again go into freefall. The Hang Seng index had a low of 20,368 in August and is now at 21,327. If this low is broken, it could once again affect US markets. China has a controlled economy and it is very difficult to tell what is true and untrue. We do know this, the government sanctioned industries (FXI) are inefficient, debt ridden and over employed. Shanghai market was down 7% before the government closed down for the day.

European markets were also down some 4% today. The DAX low in August was 9,325, and it is now 10,283. I continue to believe that the canary in the mine is the Deutsches  Bank stock. It has fallen from fifty-one dollars a share to 23.49 in the last two years, and has broken below its August low by far.

The other canary in the mine is the Dow Jones Transportation index which has fallen below its August low. My worry in the US continues to be bonds that are held by banks worldwide and that depend upon their income and debt payments on higher oil and commodity prices. Once again, as it was with the mortgage bonds,’ the Emperor has no clothes; but everybody’s afraid to say so.

Continued trouble in the Middle East

More than 85% of the world’s 1.5 billion Muslims are Sunni. They live in almost all the countries across the Arab world including Saudi Arabia, Iraq, Turkey, Pakistan, India, Bangladesh, Malaysia and Indonesia. Shiites are largely in Iraq and Bahrain. The Saudi royal family practices austere and conservative Sunni Islam known as Wahhabism and controls Islam’s holiest shrines in Mecca and Medina. The recent flare-up between Saudi Arabia and Iran occurred when a Shiite cleric was executed along with forty-seven others for inciting violence against the state. The terrorist group, The Islamic State are Sunnis. This is really a civil war that has been going on in the area for centuries. Troops on the ground will not help. As during the Iraqi war, the terrorists merely faded back into the population until we were gone. There appears to be no real solution unless the Middle East Muslims decide to solve it themselves. Until then, expect more trouble. In spite of this trouble in the Middle East which theoretically reduce the supply of oil and theoretically therefore increases the price of oil did not happen today. Instead, oil prices once again fell and are at 36.88. To me this indicates that the problem in today’s markets is not the Middle East, but the problem is China.

Forecasts for 2016 and why I am negative! Goldman Sachs is forecasting 2015 S&P 500 earnings at $109 down 3% from 2014 $113. Original forecasts in December of last year called for an 8% increase. They were wrong!  2016 S&P 500 earnings are forecasted at $130 down from $231 a year earlier. 2017 are forecast at $129 down from $241 a year earlier. I believe earnings for 2016 and 2017 will be lower than forecasts from Goldman Sachs. My forecasts call for the Dow Jones Industrial average to be as low as 14,688, the NASDAQ to be as low as 4,506 and the S&P 500 to be as low as 1,560. Goldman Sachs calls for markets to be up approximately 8%. I disagree

I am not a negative person. I understand, however, that there are two sides to everything. The hubris and the hype that has made America a very positive force in the world, can sometimes ignore the very obvious, as was done in 2008. One of the reasons I have become The Lone Bear is because I don’t see anybody else talking about caution or concerns. Believe me; I would rather be talking about how wonderful Americans are, how great our market economy is and how kind our people are to one another. However, there is a lot we have to worry about and somebody has to talk about it.

Additional Dangers in 2016 The dangers of 2016 are as I have stated in the Lone Bear Letter and the market letters. However, there are some additional things that I’m concerned about that are non-economic issues, but which could have a devastating effect on our economy. They are as follows: 1) Since the attacks in Paris, US citizens are frightened of terrorists attacks in public places. The Republican debate tonight, talked about unlimited war in the Middle East and even confrontation with Russia, without considering the repercussions. The radical terrorists, of the Islamic state, have put themselves in a position to radicalize the US voting public. If there is a major terrorist act, like 9/11 or worse, they could affect who becomes the next president of the United States. Remember, it was the burning down of the German Parliament building that brought Hitler to power. Of course,. In my opinion, a Trump nomination, and possible election could skew all economic and political forecasts into a reckless future. 2) There is also the possibility of a mass cyber attack on US that could come from other than the Islamic state, but which could paralyze our economy. I heard a statement from Ted Koppel, on Sunday mornings NBC Meet the Press that struck a chord with me. He said, “There are two kinds of companies, those that have had cyber attacks and those who do not know they have had a cyber attacks.” With banking online as common, a cyber attack into our checking accounts could paralyze the economy.

One more thing: Happy New Year!

Sorry, this is just the beginning of the Bear Market.

Markets in China are falling apart as the Shanghai index was barely able to open before it was down 7%. In  2007 this index was at 5903, today it is at 3125, with an August low of 2927. It should break its August lows tomorrow. The China Hang Seng index today as at 20,333, and has already broken below its August low along with the China Large cap (FXI  31.95) below the Aug low of 33.22. If August lows are being taken out in in China, will the US markets be next? The Dow Transports index has already broken below its August low. Other markets that have broken below their August lows are The Russell 2000, Russia, Emerging Markets. the Commodity index and Deutsches Bank. Whereas US markets are well above their August lows today, we believe the deterioration of the Chinese markets and lower oil prices will eventually bring our markets down below the August lows. So far, US markets have been able to dodge a bullet with their relationship to a deteriorating China and the effect of  lower oil prices on supporting bonds. Don’t hang on. There is nothing to hang on to. Read last couple of Investment Strategy Letters below and our Lone Bear Letters.

1/5/16 Market Update.Markets throughout the world held up pretty well today considering the volatility of yesterday. The latest news from China is that they will extend their curbs limiting volatility for a little longer. This means that large investors and corporate insiders have not been able to sell their stock for seven months. In my opinion, this doesn’t decrease volatility, but will increase volatility and destabilization. Who knows what’s going on in China’s state owned corporations? Despite destabilization in the Middle East, oil is down eighty cents today at 35.96! If markets can hold above their August lows for the next couple of weeks, markets could once again begin going higher. However, I believe risks for a big drop are higher this year than last year. My forecasts for 2016 call for the Dow Jones Industrial average to be as low as 14,688, the NASDAQ to be as low as 4,506 and the S&P 500 to be as low as 1,560.

1/4/16 Welcome to 2016. US markets down 2%, Shanghai down 7%.Today, US markets were shaken by big drop in the Chinese market and trouble in the Middle East. Chinese trading curbs are scheduled to come off sometime this week. In August steps were taken to curb volatility. These steps included suspended initial public offerings, restricting big investors and corporate insiders from selling and limiting the trading behavior of so-called short-sellers. The decline in the Chinese market may be due to the fear that once these trading curbs are taken off, the Chinese market will once again go into freefall. The Hang Seng index had a low of 20,368 in August and is now at 21,327. If this low is broken, it could once again affect US markets. China has a controlled economy and it is very difficult to tell what is true and untrue. We do know this, the government sanctioned industries (FXI) are inefficient, debt ridden and over employed. Shanghai market was down 7% before the government closed down for the day.

European markets were also down some 4% today. The DAX low in August was 9,325, and it is now 10,283. I continue to believe that the canary in the mine is the Deutsches  Bank stock. It has fallen from fifty-one dollars a share to 23.49 in the last two years, and has broken below its August low by far.

The other canary in the mine is the Dow Jones Transportation index which has fallen below its August low. My worry in the US continues to be bonds that are held by banks worldwide and that depend upon their income and debt payments on higher oil and commodity prices. Once again, as it was with the mortgage bonds,’ the Emperor has no clothes; but everybody’s afraid to say so.

Continued trouble in the Middle East

More than 85% of the world’s 1.5 billion Muslims are Sunni. They live in almost all the countries across the Arab world including Saudi Arabia, Iraq, Turkey, Pakistan, India, Bangladesh, Malaysia and Indonesia. Shiites are largely in Iraq and Bahrain. The Saudi royal family practices austere and conservative Sunni Islam known as Wahhabism and controls Islam’s holiest shrines in Mecca and Medina. The recent flare-up between Saudi Arabia and Iran occurred when a Shiite cleric was executed along with forty-seven others for inciting violence against the state. The terrorist group, The Islamic State are Sunnis. This is really a civil war that has been going on in the area for centuries. Troops on the ground will not help. As during the Iraqi war, the terrorists merely faded back into the population until we were gone. There appears to be no real solution unless the Middle East Muslims decide to solve it themselves. Until then, expect more trouble. In spite of this trouble in the Middle East which theoretically reduce the supply of oil and theoretically therefore increases the price of oil did not happen today. Instead, oil prices once again fell and are at 36.88. To me this indicates that the problem in today’s markets is not the Middle East, but the problem is China.

Forecasts for 2016 and why I am negative! Goldman Sachs is forecasting 2015 S&P 500 earnings at $109 down 3% from 2014 $113. Original forecasts in December of last year called for an 8% increase. They were wrong!  2016 S&P 500 earnings are forecasted at $130 down from $231 a year earlier. 2017 are forecast at $129 down from $241 a year earlier. I believe earnings for 2016 and 2017 will be lower than forecasts from Goldman Sachs. My forecasts call for the Dow Jones Industrial average to be as low as 14,688, the NASDAQ to be as low as 4,506 and the S&P 500 to be as low as 1,560. Goldman Sachs calls for markets to be up approximately 8%. I disagree

I am not a negative person. I understand, however, that there are two sides to everything. The hubris and the hype that has made America a very positive force in the world, can sometimes ignore the very obvious, as was done in 2008. One of the reasons I have become The Lone Bear is because I don’t see anybody else talking about caution or concerns. Believe me; I would rather be talking about how wonderful Americans are, how great our market economy is and how kind our people are to one another. However, there is a lot we have to worry about and somebody has to talk about it.

Additional Dangers in 2016 The dangers of 2016 are as I have stated in the Lone Bear Letter and the market letters. However, there are some additional things that I’m concerned about that are non-economic issues, but which could have a devastating effect on our economy. They are as follows: 1) Since the attacks in Paris, US citizens are frightened of terrorists attacks in public places. The Republican debate tonight, talked about unlimited war in the Middle East and even confrontation with Russia, without considering the repercussions. The radical terrorists, of the Islamic state, have put themselves in a position to radicalize the US voting public. If there is a major terrorist act, like 9/11 or worse, they could affect who becomes the next president of the United States. Remember, it was the burning down of the German Parliament building that brought Hitler to power. Of course,. In my opinion, a Trump nomination, and possible election could skew all economic and political forecasts into a reckless future. 2) There is also the possibility of a mass cyber attack on US that could come from other than the Islamic state, but which could paralyze our economy. I heard a statement from Ted Koppel, on Sunday mornings NBC Meet the Press that struck a chord with me. He said, “There are two kinds of companies, those that have had cyber attacks and those who do not know they have had a cyber attacks.” With banking online as common, a cyber attack into our checking accounts could paralyze the economy.

One more thing: Happy New Year!

1/5/16 Market Update.

Markets throughout the world held up pretty well today considering the volatility of yesterday. The latest news from China is that they will extend their curbs limiting volatility for a little longer. This means that large investors and corporate insiders have not been able to sell their stock for seven months. In my opinion, this doesn’t decrease volatility, but will increase volatility and destabilization. Who knows what’s going on in China’s state owned corporations? Despite destabilization in the Middle East, oil is down eighty cents today at 35.96! If markets can hold above their August lows for the next couple of weeks, markets could once again begin going higher. However, I believe risks for a big drop are higher this year than last year. My forecasts for 2016 call for the Dow Jones Industrial average to be as low as 14,688, the NASDAQ to be as low as 4,506 and the S&P 500 to be as low as 1,560.

1/4/16 Welcome to 2016. US markets down 2%, Shanghai down 7%.Today, US markets were shaken by big drop in the Chinese market and trouble in the Middle East. Chinese trading curbs are scheduled to come off sometime this week. In August steps were taken to curb volatility. These steps included suspended initial public offerings, restricting big investors and corporate insiders from selling and limiting the trading behavior of so-called short-sellers. The decline in the Chinese market may be due to the fear that once these trading curbs are taken off, the Chinese market will once again go into freefall. The Hang Seng index had a low of 20,368 in August and is now at 21,327. If this low is broken, it could once again affect US markets. China has a controlled economy and it is very difficult to tell what is true and untrue. We do know this, the government sanctioned industries are inefficient, debt ridden and over employed. Shanghai market was down 7% before the government closed down for the day.

European markets were also down some 4% today. The DAX low in August was 9,325, and it is now 10,283. I continue to believe that the canary in the mine is the Deutsches  Bank stock. It has fallen from fifty-one dollars a share to 23.49 in the last two years, and has broken below its August low by far.

The other canary in the mine is the Dow Jones Transportation index which has fallen below its August low. My worry in the US continues to be bonds that are held by banks worldwide and that depend upon their income and debt payments on higher oil and commodity prices. Once again, as it was with the mortgage bonds,’ the Emperor has no clothes; but everybody’s afraid to say so.

Continued trouble in the Middle East

More than 85% of the world’s 1.5 billion Muslims are Sunni. They live in almost all the countries across the Arab world including Saudi Arabia, Iraq, Turkey, Pakistan, India, Bangladesh, Malaysia and Indonesia. Shiites are largely in Iraq and Bahrain. The Saudi royal family practices austere and conservative Sunni Islam known as Wahhabism and controls Islam’s holiest shrines in Mecca and Medina. The recent flare-up between Saudi Arabia and Iran occurred when a Shiite cleric was executed along with forty-seven others for inciting violence against the state. The terrorist group, The Islamic State are Sunnis. This is really a civil war that has been going on in the area for centuries. Troops on the ground will not help. As during the Iraqi war, the terrorists merely faded back into the population until we were gone. There appears to be no real solution unless the Middle East Muslims decide to solve it themselves. Until then, expect more trouble. In spite of this trouble in the Middle East which theoretically reduce the supply of oil and theoretically therefore increases the price of oil did not happen today. Instead oil prices once again fell and are at 36.88. To me this indicates that the problem in today’s markets is not the Middle East, but the problem is China.

Forecasts for 2016 and why I am negative! Goldman Sachs is forecasting 2015 S&P 500 earnings at $109 down 3% from 2014 $113. Original forecasts in December of last year called for an 8% increase. They were wrong!  2016 S&P 500 earnings are forecasted at $130 down from $231 a year earlier. 2017 are forecast at $129 down from $241 a year earlier. I believe earnings for 2016 and 2017 will be lower than forecasts from Goldman Sachs. My forecasts call for the Dow Jones Industrial average to be as low as 14,688, the NASDAQ to be as low as 4,506 and the S&P 500 to be as low as 1,560. Goldman Sachs calls for markets to be up approximately 8%. I disagree

I am not a negative person. I understand, however, that there are two sides to everything. The hubris and the hype that has made America a very positive force in the world, can sometimes ignore the very obvious, as was done in 2008. One of the reasons I have become The Lone Bear is because I don’t see anybody else talking about caution or concerns. Believe me; I would rather be talking about how wonderful Americans are, how great our market economy is and how kind our people are to one another. However, there is a lot we have to worry about and somebody has to talk about it.

Additional Dangers in 2016 The dangers of 2016 are as I have stated in the Lone Bear Letter and the market letters. However, there are some additional things that I’m concerned about that are non-economic issues, but which could have a devastating effect on our economy. They are as follows: 1) Since the attacks in Paris, US citizens are frightened of terrorists attacks in public places. The Republican debate tonight, talked about unlimited war in the Middle East and even confrontation with Russia, without considering the repercussions. The radical terrorists, of the Islamic state, have put themselves in a position to radicalize the US voting public. If there is a major terrorist act, like 9/11 or worse, they could affect who becomes the next president of the United States. Remember, it was the burning down of the German Parliament building that brought Hitler to power. Of course,. In my opinion, a Trump nomination, and possible election could skew all economic and political forecasts into a reckless future. 2) There is also the possibility of a mass cyber attack on US that could come from other than the Islamic state, but which could paralyze our economy. I heard a statement from Ted Koppel, on Sunday mornings NBC Meet the Press that struck a chord with me. He said, “There are two kinds of companies, those that have had cyber attacks and those who do not know they have had a cyber attacks.” With banking online as common, a cyber attack into our checking accounts could paralyze the economy.

One more thing: Happy New Year!

Quiet, before the storm

Isn’t life wonderful? The Dow is above 17,000, the DAX is above 10,000, and the Nikkei is above 18,000 and oil is above the $45 a barrel. Although, there are still some shocks with earnings reports like Walmart and some banks, the earnings season does not seem to be affecting the stock market. However the big problem appears to be a threat government shutdown in November. Until that unknown is decided the Fed will probably stay on the sidelines by delaying any rate increase. The NASDAQ and the Russell 2000 has so far not followed the Dow and the S&P 500 into higher ground. If this rally is to continue, that must happen soon. So, keep your eye out for the NASDAQ to breakout above 4,960 or watch out below.

I continue to feel that the sideways market we have seen since September is an anomaly and that the Bear Market will continue again soon. In the meantime, enjoy the respite and prepare for the worst.

10/9/2015 Dow breaks above September high. Will the S&P and NASDAQ markets follow?

Wall Street is celebrating the dodging of a bullet, after the Dow industrial s broke out into high ground, above the August selloff 16,933 high. The markets seem to have shaken off a lot of negatives. China’s market went down 45%, commodity prices continued to fall, oil prices fell below $40 a barrel, and earnings forecast are lower, GDP has been foretasted lower from 2.4% to 1.9% for 2015. By negative scenario seems to be waived off in favor of hubris. There is a crack in the egg, but the egg remains intact. The Dow, appears to be leading the pack with the NASDAQ index and the Russell 1000 lagging behind. Consumers seem to be leading US economy away from any recession. Credit card debt is a share of GDP is dropped to 1994 lows. Mortgage debt is back to 2005 levels. However, a government shutdown in November could put our Bear Market scenario back on track.

I am surprised by the strength of the Dow. The question continues to remain will China in emerging markets hold of the US economy or will the US economy revitalize the global economy. China may be the key to this as 29 countries depend on China to buy at least 20% of their exports. We shall see? The stock markets in the US are showing some unexpected strength. After meeting our intermediate down side goal for the Dow Industrial’s and 15,331 in August, the markets have since been moving sideways. However, the Dow has broken above 16 933  September  high. If the S&P 500 goes above 2020, and the NASDAQ composite above 4960, our Bear Market scenario may be delayed.  I believe the new highs, if they do occur, will be temporary and will indicate an Elliott Wave a Un- Orthodox top, which is what occurred in 1929., This I believe will be a “false rally”. Do not join the crowd! The hubris is all hype at this level. The stage is set for not just a severe decline, but an economic scenario that will be very dangerous for everyone.

Why a stock market rally? As I said once before ‘It’s three men in a tub, rub a dub dub, nobody wants to pull the plug. There is talk, the Fed wants to delay increasing interest rates because of an unsure economy. Monetary policy, in my opinion, seems useless. The only thing, I believe can save this economic bear market scenario, is a progressive fiscal policy. This under current conditions will be impossible to execute.

I continue to see corporate earnings as weak, the bond market as dangerous, banks as a house of cards, and international emerging market growth as negative and my Bear Market deflation scenario as on track.

The DAX Index has broken below its Aug 2015 low!

The DAX Index has fallen below its August low of 9,648 and is now 9,427. At 27.34 Deutsche Bank has broken into hew low ground. The Japanese Nikkei August low is only 180 points away from making a new low. The FTSE is only 70 points from breaking into low ground. What this means is, the markets worldwide are becoming more vulnerable. Any further drop in any of these indexes and could probably lead the world markets lower.

Trouble with illiquid bonds

The Wall Street Journal has been issuing reports on the bond market. One of the things  that they point out, is that US mutual bond funds have invested over 15% or more of their money in rarely traded securities. This practice runs counter to long held SEC guidelines. By the Journal’s count, 10 of the 18 largest bond mutual funds have invested meaningfully in corporate debt that have significant holdings in bonds that are seldom traded. Bond buyers are concerned that the funds could cause market turmoil, if they tried to sell these ill liquid investments to meet redemption requirements. The crux of the problem is that mutual funds own more bonds that seldom trade than ever before, but they still promise to pay out investors within 7 days of redemption of the shares. John Ramsey, acting director of the SEC’s trading in markets division from 2012 to 2014 has said “in some sense, we have a crisis waiting!” If liquidation in bond funds begins to increase beyond a certain limit, fund managers will have to sell their more highly liquid grade A bonds in order to meet liquidation requirements. The Walls St., Journal mentions several bond funds and the percentage of bonds the fund would have trouble selling in 7 days as follows: Vanguard high quality corporate bond fund 40%, American funds American high income trust 39%, Vanguard long-term investment grade 39%, Dodge and Company income 31% and Lord Abbott short duration income 29%. According to the Wall Street Journal these bond funds hold approximately $132 billion of illiquid securities. Ponds connected to the price of oil trouble already, particularly Brazil.I wonder how many trillion dollars worth of illiquid securities the Fed owns?

9/18/2015 THE FED IF FRIGHTENED! – THEY CAN’T EASE AND THEY CAN’T TAPER!

The Federal Reserve decided to hold to their zero interest rate policy. They are concerned that if they raise rates, the economic crisis in the world will go mainstream. There only tool is to use monetary policy, as there is no fiscal policy collaboration with the do-nothing Congress.The primary driver of our present financial bubble in the United States has been the Federal Reserve. Through quantitative easing and zero interest rates, they have tried to encourage inflation, which has remained close to zero. They mention in this report that international considerations have influenced their decision, which for the first time is not unanimous. China is definitely part of a bigger problem. In today’s Wall Street Journal James Chanos said “As long as China adds credit faster than its growth, the real story is months and years ahead.” The Fed has done everything it can to bolster inflation. However, nothing yet has worked. The Fed says that it will delay any interest rate rise until December or 2016. This may give the stock market one more short-term boost. This will only delay the inevitable. Zero interest rates and overnight lending has directly created debt bubbles in numerous areas. The Fed QE1,2,3,bought $4 trillion worth of bonds and flooded the economy with dollars and still, they couldn’t stir up inflation.  CPI in August was down -0.1% and is only up 0,2%in the last year. They are out of bullets to help the economy. All they can do is delay or slow reverse tapering. If oil goes down anywhere close to the $20 a barrel, as forecast by Goldman Sachs, it will have the same effect as the mortgage debacle, when mortgage bonds defaulted causing another financial crisis. Oil-producing nations have bonds that will be in trouble. Jim Flores the vice chairman of Free Port McMoran said “Whe’re all going to get wet. A few people are going to drown” Oil-producing companies have bonds that will be in trouble. The banks hold more derivatives on these trouble securities than they did of mortgage bonds in 2008. Once again, the banks are a house of cards. If the economy is doing so well, why is the capacity utilization rate at 77%? Before the recession it was at 80% and during the 1990s averaged 82%? S & P 500 earnings for the 3rd quarter are down -4.4% and more worrisome, revenue is down -2.9%. What is the real unemployment rate of those who have stopped seeking employment or have settled for poverty wages? the economy is in trouble and without fical policy changes from the do-nothing Congress, the Fed is at the opposite end of the Fed funds spectrum to help. Another quantitative easing will just make the end game worse, as the Fed already owns $4 trillion worth of questionable securities. They can’t ease and they can’t taper . We are ……!

THE REPUBLICAN DEBATE In my opinion the world is headed for an economic catastrophe and the Republican debate didn’t give us any SOLUTIONS. They are all on the same page when it comes to immigration, Planned Parenthood worth shutting down the government, gay marriage, abortion, Obama-care, the cancellation of the Iran deal, being tough with Russia, less regulation, lower taxes, denial of climate change, more drilling for oil and gun control. They all want a bigger defense budget and for our military to take an active role. We already have a $700 billion defense budget that is larger than all the military budgets of other economies put together. Cary Fiornia was the biggest hawk, suggesting a process for an increased militarily to directly confront Russia that would once again take money away from social programs and infrastructure. There are consequences for military intervention which in most cases are more negative than positive There were no solutions given about how Trump is going to take care of women, what is the alternative to Obama care, how do we obtain a promised 4% growth in our economy and how we can prevent the demise of the middle class.The answer the Republicans gave to any foreign-policy problem was to use the military. The answers they gave to help the economy was that anything that helped the rich is capitalism and anything that helps the poor Is socialists..

Here are the problems as I see, without proposing mature solutions. They did all agree with each other as though they were taking a litmus test. as follows:1) Send 11 million of our undocumented workers and 4 million children back to Mexico. This will make the current refugee problem in the Middle East look like a trickle. I suggest they all see the movie “A Day without Mexicans” where the earth stood still in the United States. A deportation plan and the wall would cost trillions and our economy would be crippled without Mexican workers. As the debate was at the Reagan Library, they could’ve taken the advice from Reagan, who offered amnesty during his administration. During the Obama administration, Mexican immigration has stopped to a trickle. We could use some legislation, but the Republicans are resistant to collaboration. 2)  They claimed the Planed Parenthood video was shocking. The video taking body parts from a fetus was not a Planned Parenthood video. Lies, if said often enough do no make them true! What is more shocking than the video, is the insistence of the Republican Congress that we shut down the government in October on this issue.3) Abortion, if you don’t like it, don’t have one. I am also pro-life, but I will not insist that my religious values he thrust on others. That’s what Islamic Shari law does. Family planning avoids unwanted children. In California birth control is public and is the only state where unwanted pregnancies have almost disappeared. There is no alternative to abortion and birth control except to take care of those children that are unwanted through governmental public care, educational and health programs  that would be very costly and are unwilling to be paid for by evangelistic capitalists. If you promote unwanted children, in my opinion, then you have the complete responsibility of taking care of them 4) What’s the alternative to the insistence that Obama-care be canceled. What are they going to do about the 15 million people that now have health insurance? The uninsured have gone down by 50% because of Obama-care. It’s a success. Don’t break what is not broken! 5) The Iran deal is an international agreement. Is there’s something  the tea party Republicans don’t like about the strategic arms limitation treaty, the anti-ballistic missile Treaty, and the opening of diplomatic relations with China? That all seemed to work out. And as Reagan said, when he dealt with Gorbachev to reduce nuclear weapons from 36,000 warheads to the mere 2000 we have now, “trust but verify.” The alternative is war with Iran and if you haven’t noticed it borders Russia. All the Republicans want to be tough with Russia. As their position with Iran. How brave of them. The’re not talking about their lives, we’re talking about the lives of our troops. Diplomacy is an alternative to military action, which should always be the last alternative. 6) All the Republicans are unified against gay marriage. 50% of American marriages end in divorce. Let’s see how much they like it. Love is love. Sex when viewed by the third-party can be vulgar. Judge not that ye shall not be judged.7) All the Republicans want less regulation. The Glass Steigle Act would have kept us out of the 2008 debacle. Enforcement of the Dodd/Frank could keep this out of the next debacle. However, with the influence of Citizens United, our Congress is bought and sold to big business. If corporations are people, then in my opinion, corporations are sociopaths, and should be institutionalized under government care. Both capitalism and socialism has tendencies to be selfish and only government overseers can keep the playing field level. Which if you read my LONE BEAR LETTER ABOVE, you will find that labor and capital are out of balance and are due for either collaboration or mutual destruction. 8). Lowering taxes? Kansas tried it and now they’re bankrupt. Taxes have to be lowered for the middle class and increased for the top 1%, so that educational programs, social programs and infrastructure programs can be initiated to make this country great again. Even Trump agrees. 9) The Republicans not only deny climate change, they say even if it is true, we can’t afford to do anything about it. The Defense Department said, “if climate change continues at its present course they will not be able to defend this country.” This year is the hottest year on record since records have been kept in 1880. Scientist’s consensus is that CO2 levels are causing climate change. Why is that so difficult to understand and to deal with? The government has a great history of denial. Atmospheric A-bombs tests do not cause damaging radiation, smoking does not cause cancer, lead in paint and gas is not dangerous, Iraq had weapons of mass destruction and fracking does not cause earthquakes in Kansas.  The era of wood is over, the area of steam is over and the era of oil is over. The sooner the better. For the Middle East countries 10)Congress he is beholding to the gun lobby. There are enough guns in each one of our cities to sink a battleship. How many murders and attacks will it take for common sense to prevail and for collaboration to reach a reasonable compromise without endangering the public.

THE FED IF FRIGHTENED! – THEY CAN’T EASE AND THEY CAN’T TAPER!

The Federal Reserve decided to hold to their zero interest rate policy. They are concerned that if they raise rates, the economic crisis in the world will go mainstream. There only tool is to use monetary policy, as there is no fiscal policy collaboration with the do-nothing Congress.The primary driver of our present financial bubble in the United States has been the Federal Reserve. Through quantitative easing and zero interest rates, they have tried to encourage inflation, which has remained close to zero. They mention in this report that international considerations have influenced their decision, which for the first time is not unanimous. China is definitely part of a bigger problem. In today’s Wall Street Journal James Chanos said “As long as China adds credit faster than its growth, the real story is months and years ahead.” The Fed has done everything it can to bolster inflation. However, nothing yet has worked. The Fed says that it will delay any interest rate rise until December or 2016. This may give the stock market one more short-term boost. This will only delay the inevitable. Zero interest rates and overnight lending has directly created debt bubbles in numerous areas. The Fed QE1,2,3,bought $4 trillion worth of bonds and flooded the economy with dollars and still, they couldn’t stir up inflation.  CPI in August was down -0.1% and is only up 0,2%in the last year. They are out of bullets to help the economy. All they can do is delay or slow reverse tapering. If oil goes down anywhere close to the $20 a barrel, as forecast by Goldman Sachs, it will have the same effect as the mortgage debacle, when mortgage bonds defaulted causing another financial crisis. Oil-producing nations have bonds that will be in trouble. Jim Flores the vice chairman of Free Port McMoran said “Whe’re all going to get wet. A few people are going to drown” Oil-producing companies have bonds that will be in trouble. The banks hold more derivatives on these trouble securities than they did of mortgage bonds in 2008. Once again, the banks are a house of cards. If the economy is doing so well, why is the capacity utilization rate at 77%? Before the recession it was at 80% and during the 1990s averaged 82%? S & P 500 earnings for the 3rd quarter are down -4.4% and more worrisome, revenue is down -2.9%. What is the real unemployment rate of those who have stopped seeking employment or have settled for poverty wages? the economy is in trouble and without fical policy changes from the do-nothing Congress, the Fed is at the opposite end of the Fed funds spectrum to help. Another quantitative easing will just make the end game worse, as the Fed already owns $4 trillion worth of questionable securities. They can’t ease and they can’t taper . We are ……!

THE REPUBLICAN DEBATE In my opinion the world is headed for an economic catastrophe and the Republican debate didn’t give us any SOLUTIONS. They are all on the same page when it comes to immigration, Planned Parenthood worth shutting down the government, gay marriage, abortion, Obama-care, the cancellation of the Iran deal, being tough with Russia, less regulation, lower taxes, denial of climate change, more drilling for oil and gun control. They all want a bigger defense budget and for our military to take an active role. We already have a $700 billion defense budget that is larger than all the military budgets of other economies put together. Cary Fiornia was the biggest hawk, suggesting a process for an increased militarily to directly confront Russia that would once again take money away from social programs and infrastructure. There are consequences for military intervention which in most cases are more negative than positive There were no solutions given about how Trump is going to take care of women, what is the alternative to Obama care, how do we obtain a promised 4% growth in our economy and how we can prevent the demise of the middle class.The answer the Republicans gave to any foreign-policy problem was to use the military. The answers they gave to help the economy was that anything that helped the rich is capitalism and anything that helps the poor Is socialists..

Here are the problems as I see, without proposing mature solutions. They did all agree with each other as though they were taking a litmus test. as follows:1) Send 11 million of our undocumented workers and 4 million children back to Mexico. This will make the current refugee problem in the Middle East look like a trickle. I suggest they all see the movie “A Day without Mexicans” where the earth stood still in the United States. A deportation plan and the wall would cost trillions and our economy would be crippled without Mexican workers. As the debate was at the Reagan Library, they could’ve taken the advice from Reagan, who offered amnesty during his administration. During the Obama administration, Mexican immigration has stopped to a trickle. We could use some legislation, but the Republicans are resistant to collaboration. 2)  They claimed the Planed Parenthood video was shocking. The video taking body parts from a fetus was not a Planned Parenthood video. Lies, if said often enough do no make them true! What is more shocking than the video, is the insistence of the Republican Congress that we shut down the government in October on this issue.3) Abortion, if you don’t like it, don’t have one. I am also pro-life, but I will not insist that my religious values he thrust on others. That’s what Islamic Shari law does. Family planning avoids unwanted children. In California birth control is public and is the only state where unwanted pregnancies have almost disappeared. There is no alternative to abortion and birth control except to take care of those children that are unwanted through governmental public care, educational and health programs  that would be very costly and are unwilling to be paid for by evangelistic capitalists. If you promote unwanted children, in my opinion, then you have the complete responsibility of taking care of them 4) What’s the alternative to the insistence that Obama-care be canceled. What are they going to do about the 15 million people that now have health insurance? The uninsured have gone down by 50% because of Obama-care. It’s a success. Don’t break what is not broken! 5) The Iran deal is an international agreement. Is there’s something  the tea party Republicans don’t like about the strategic arms limitation treaty, the anti-ballistic missile Treaty, and the opening of diplomatic relations with China? That all seemed to work out. And as Reagan said, when he dealt with Gorbachev to reduce nuclear weapons from 36,000 warheads to the mere 2000 we have now, “trust but verify.” The alternative is war with Iran and if you haven’t noticed it borders Russia. All the Republicans want to be tough with Russia. As their position with Iran. How brave of them. The’re not talking about their lives, we’re talking about the lives of our troops. Diplomacy is an alternative to military action, which should always be the last alternative. 6) All the Republicans are unified against gay marriage. 50% of American marriages end in divorce. Let’s see how much they like it. Love is love. Sex when viewed by the third-party can be vulgar. Judge not that ye shall not be judged.7) All the Republicans want less regulation. The Glass Steigle Act would have kept us out of the 2008 debacle. Enforcement of the Dodd/Frank could keep this out of the next debacle. However, with the influence of Citizens United, our Congress is bought and sold to big business. If corporations are people, then in my opinion, corporations are sociopaths, and should be institutionalized under government care. Both capitalism and socialism has tendencies to be selfish and only government overseers can keep the playing field level. Which if you read my LONE BEAR LETTER BELOW, you will find that labor and capital are out of balance and are due for either collaboration or mutual destruction. 8). Lowering taxes? Kansas tried it and now they’re bankrupt. Taxes have to be lowered for the middle class and increased for the top 1%, so that educational programs, social programs and infrastructure programs can be initiated to make this country great again. Even Trump agrees. 9) The Republicans not only deny climate change, they say even if it is true, we can’t afford to do anything about it. The Defense Department said, “if climate change continues at its present course they will not be able to defend this country.” This year is the hottest year on record since records have been kept in 1880. Scientist’s consensus is that CO2 levels are causing climate change. Why is that so difficult to understand and to deal with? The government has a great history of denial. Atmospheric A-bombs tests do not cause damaging radiation, smoking does not cause cancer, lead in paint and gas is not dangerous, Iraq had weapons of mass destruction and fracking does not cause earthquakes in Kansas.  The era of wood is over, the area of steam is over and the era of oil is over. The sooner the better. For the Middle East countries 10)Congress he is beholding to the gun lobby. There are enough guns in each one of our cities to sink a battleship. How many murders and attacks will it take for common sense to prevail and for collaboration to reach a reasonable compromise without endangering the public.

LONE BEAR LETTER #8

INTEREST RATES ARE A SHORT TERM PROBLEM, WHICH IS DISTRACTING INVESTORS AWAY FROM THE LONG TERM PROBLEM! The Federal Reserve has been punishing savers and retirees at the expense of a higher stock market. They are the primary driver of this massive financial bubble now in place and most of the world’s markets. Most of this was accomplished with a zero interest rate policy. Zero interest rates and overnight lending has directly created debt bubbles in numerous areas. They bought $4 trillion worth of bonds and flooded the economy with dollars and still, they couldn’t stir up inflation.  CPI in August was down -0.1% and is only up 0,2%in the last year. They are out of bullets to help the economy. All they can do is delay or slow reverse tapering. If oil goes down anywhere close to the $20 a barrel, as forecast by Goldman Sachs, it will have the same effect as the mortgage debacle, when mortgage bonds defaulted causing another financial crisis. Oil-producing nations have bonds that will be in trouble. Jim Flores the vice chairman of Free Port McMoran said “where all going to get wet. A few people are going to drown” Oil-producing companies have bonds that will be in trouble. The banks hold more derivatives on these trouble securities than they did of mortgage bonds in 2008. Once again, the banks are a house of cards. If the economy is doing so well, why is the capacity utilization rate at 77%? Before the recession it was at 80% and during the 1990s averaged 82%? The shrinking middle class cannot hold up their consumer’s end of the market, as all income increases have gone to the top 1%. Bernie Sanders has got it right; it’s all about income inequality. The big corporations and top 1% think they are immune to the worries of the shrinking middle class. Not so! Commodity prices are down 20% across-the-board.  Inflation has become unsustainable.  The problem with that is; deflation is unacceptable. S & P 500 earnings for the 3rd quarter are down -4.4% and more worrisome, revenue is down -2.9%. What is the real unemployment rate of those who have stopped seeking employment or have settled for poverty wages? the economy is in trouble and without fical policy changes from the do-nothing Congress, the Fed is at the opposite end of the Fed funds spectrum to help. Another quantitative easing will just make the end game worse, as the Fed already owns $4 trillion worth of questionable securities. They can’t ease and they cant’t taper .As I have repeatedly said, the markets fall first, and then when he find out why.

SORRY ABOUT THE BAD NEWS: You can’t believe how hostile everybody is to my position.  Is it unpatriotic to be negative about the US stock market? Nobody wants to hear the bad news. Negative economic reports in Muslim countries, Russia, China will get you jailed. Recently an analyst Nirhin Mangle in India was put in jail, because he wrote a negative report on an Indian firm. It was George Orwell, of 1984 fame who said: “Anyone who challenges the prevailing authority can find himself suddenly silenced,” I don’t like being the messenger! However, I’m not attached to the financial industry and its success and I am out of stock market, so I don’t have to feed on the Kool-Aid the hype and positive mental attitude. Yes, you need to be positive to be great and this is a great nation. However, sometimes the hubris is nothing more than an illusion. And yes, I want this nation to be great again. We were great in the 1950s when big labor, big government and big business were in balance. Now big business, through Citizens United runs and will ruin everything. We are being governed by those elected  that are beholding to big business and big money. Unless the balance is restored between labor and capital, I believe all boats will sink. Capitalism has an Achilles heel. Read Thomas Piketty’s ‘ CAPITAL IN THE 21ST CENTURY. However, maybe everyone is so involved with the hype, that thing will just keep on going on. After all, the money in our pockets is nothing more than paper, which gets passed on in full acceptance. Illusion works if everybody believes it. It’s three men in a tub, rub a dub dub, nobody please pull the plug.

However, here are some facts that are hard to ignore: 1) It is estimated by Oxfam America that the top 1% in the world own 99% of the world wealth and most of that belongs to the top 1/10 of 1%. 2) Only 80 billionaires control 50% of the global wealth. They own more than the 3.5 billion people in the bottom half. 3) In the United States all income growth in the last 15 years has gone to the top 1% of the economic ladder whereas wages, adjusted for inflation are down 4.3%.  4) It has been estimated that in the United States, the top 1% own 90% of the total wealth of the country. 5) Home ownership in the United States has gone down from 48% to 32%. Upward mobility is gone. The middle class can no longer afford a modest house, college education for their children and healthcare for their family. This is ‘class warfare’ where in my opinion; everybody in the long run will lose. 6)  It is estimated at only 400 families control over 50% of the wealth in the United States. How many bars of soap and how many cars can each of these wealthy people buy? 7) Corporate CEOs are getting 500 times the average wage of their employees and hedge fund managers are getting 5000 times the average wage of an employee and paying low taxes. When the CEO gets $42 million a year in wages, in my opinion, they appear to be more of a gangster and interested in their own self interest, rather than a corporate representative of their company. At least Capone and dictators take all the money they can blatantly using violence. Our CEOs and hedge fund managers hide behind the pretense of respectability. These excessive conditions, in my opinion are taking the breath out of the US and world economies that has not yet been seen in the metrics or in a reaction from the working poor.

I am reminded of the time when labor did rise up and ask for its share of the pie. Just to name a few instances: In 1886 there was a riot in Chicago’s Haymarket Square for the eight hour workday where there were 4 deaths and 72 injuries, the 1894 Pullman strike for union recognition, were there were 30 deaths and 70 injuries, the 1937 Republic Steel Memorial Day massacre were 10 were killed and 37 were injured for proper working conditions and pay. Labor was out of balance with capital and rather than government playing the role, the workers took to the streets in protest. The process eventually righted itself and the United States became the most prosperous nation in the world and its working middle class prospered. We have not yet heard the old shout of “workers unite.” Instead, we have had the perpetrators of union demise, like Scott Walker of Wisconsin, received public support from those that are suffering. There’s the old saying, that those who do not learn from history are cursed to repeat its errors. There are solutions. The Bernie Sanders agenda calls for a government run health care program that covers every American, plus large sums to rebuild roads and bridges and the expansion of Social Security and tuition free at public colleges. How much will this cost? Probably $10 trillion, over 10 years. However, that the a lot less than the demise and disruptions in our government, should we not take this route. In my opinion, the adjustment in the re balancing of labor and capital will occur in one of two ways. The redistribution of wealth can occur violently as I fear, or politically. As of now, the political solution seems unlikely. There is nothing wrong with the accumulation of wealth. However, the excessiveness of our current wealth accumulation, I believe, will have a stifling effect on the US and world consumer-based economies and could make future economic growth unsustainable. To me, it makes common sense to fix it if we can.

However, part of the problem that we are now facing, cannot be fixed. Times have changed because globalization and technology  as follows: 1) Globalization has forced many Americans and well-developed countries and their workers to compete with worldwide poor workers who are willing to accept lower wages.2) Computers and modern technologies are replacing human labor in numerous ways 3)  Basic education outside the US is quickly progressing, giving competition also in a high level jobs 4) Outsourcing has replaced many jobs and cut employees free without a safety net.5) The very nature of the Internet and high-technology makes pricing extremely competitive and will thereby continue to squeeze profit margins, causing companies to trim their workforce in order to maintain competitiveness.

I believe that as happened in 2000 and 2008, the so-called experts will tell you it’s only a correction. I believe it’s much worse than a correction. I believe it’s going to take a major readjustment of our capitalistic system to upright the sinking boats and to get them all to rise again together. The whole world has moved Left, to universal healthcare and affordable education. Here, our evangelistic home schooled children are being taught that the earth was created 5000 years ago and science has nothing to do with evolution or global warming. The United States is ranked number 39th in the world on basic education. We are behind the times and we’re falling further behind.  Every President at the end of the speech has to say, And God bless America. If you believe in the Christian God, that’s wonderful for you. But in my opinion evangelist ideologies are over influencing our political system. The tail is wagging the dog and that’s not good for the general welfare of everyone in this colorful nation of ours. That could not happen in Europe, where Tony Blair had to play down his Christianity in order to be electable. We have to be pragmatic to solve our problems. God and prayer will not save us from this shaky economic situation.

People are frightened! There is a very dark nasty side to the current environment that includes racial slurs of our black president, hateful remarks about our Mexican immigrants and their anchor children and frightening fear of Islamic people and African American people in cities. It reminds me of the fear that caused Nazism. The economic and social fabric of this country is being weakened by these verbal abuses. In the next 25 years it is estimated that over 70% of people in the world will live in cities. We will have to learn how to coexist. Most wealthy people in the United States, move from monochromatic suburb to one that looks just like it outside of another city. I was grateful for such an existence, but now that I live in the city, I see textures black and white and various other colors  that need to blend together to become the United States of America. We are not a Christian nation, we are secular nation, which by our Constitution does not repress or judge those of different faiths or different ideas or atheists. WE HE PEOPLE need couple of things 1) A level playing field. 2) Upward mobility 3) The right to a good education 4) Access to universal healthcare. And  Social Security. I have a great deal of faith, that no matter what happens, it will all happen for the best and in the end the United States will be stronger, more unified and the pursuit of happiness will be more equalized. However, the process may be painful.

The economy increased at a revised +3.7% pace in the second quarter. That is almost 1.5% percent stronger than initial estimates for that period. Personal disposable income rose 0.4% after adjusting for inflation in the month of July. That is faster than consumer spending, which instant edged up 0.3% during the month. All good news! Then why is the market so weak? Harry Truman, is quoted as saying, “There is nothing new in the world except the history you do not know.

Read the book book: This Time Is Different, Eight Centuries of Economic Folly by Carmen M Reinhart.

“Remember the Markets went down in 2000 and 2008 before the bad news became public. The market’s current weakness, I believe is telling us something. It is telling us that there are weaknesses that have not yet been revealed. I have talked about those weaknesses over the months in The Investment Strategy Letter. SEE BEAR MARKET LETTERS 1,2,3,4,5,6,7,ABOVE

THE FED IF FRIGHTENED! – NO INTEREST RATE RISE!

The Federal Reserve decided to hold to their zero interest rate policy. They are concerned that if they raise rates, the economic crisis in the world will go mainstream. There only tool is to use monetary policy, as there is no fiscal policy collaboration with the do-nothing Congress.The primary driver of our present financial bubble in the United States has been the Federal Reserve. Through quantitative easing and zero interest rates, they have tried to encourage inflation, which has remained close to zero. They mention in this report that international considerations have influenced their decision, which for the first time is not unanimous. China is definitely part of a bigger problem. In today’s Wall Street Journal James Chanos said “As long as China adds credit faster than its growth, the real story is months and years ahead.” The Fed has done everything it can to bolster inflation. However, nothing yet has worked. The Fed says that it will delay any interest rate rise until December or 2016. This may give the stock market one more short-term boost. This will only delay the inevitable. Zero interest rates and overnight lending has directly created debt bubbles in numerous areas. The Fed QE1,2,3,bought $4 trillion worth of bonds and flooded the economy with dollars and still, they couldn’t stir up inflation.  CPI in August was down -0.1% and is only up 0,2%in the last year. They are out of bullets to help the economy. All they can do is delay or slow reverse tapering. If oil goes down anywhere close to the $20 a barrel, as forecast by Goldman Sachs, it will have the same effect as the mortgage debacle, when mortgage bonds defaulted causing another financial crisis. Oil-producing nations have bonds that will be in trouble. Jim Flores the vice chairman of Free Port McMoran said “Whe’re all going to get wet. A few people are going to drown” Oil-producing companies have bonds that will be in trouble. The banks hold more derivatives on these trouble securities than they did of mortgage bonds in 2008. Once again, the banks are a house of cards. If the economy is doing so well, why is the capacity utilization rate at 77%? Before the recession it was at 80% and during the 1990s averaged 82%? What is the real unemployment rate of those who have stopped seeking employment or have settled for poverty wages?

THE REPUBLICAN DEBATE In my opinion the world is headed for an economic catastrophe and the Republican debate didn’t give us any answers. They are all on the same page when it comes to immigration, Planned Parenthood worth shutting down the government, gay marriage, abortion, Obama-care, the cancellation of the Iran deal, being tough with Russia, less regulation, lower taxes, denial of climate change, more drilling for oil and gun control. They all want a bigger defense budget and for our military to take an active role. We already have a $700 billion defense budget that is larger than all the military budgets of other economies put together. Cary Fiornia was the biggest hawk, suggesting a process to confront Russia that would once again take money away from social programs and infrastructure. There are consequences for military intervention which in most cases are more negative than positive There were no solutions given about how Trump is going to take care of women, what is the alternative to Obama care, how do we obtain a promised 4% growth in our economy and how we can prevent the demise of the middle class.The answer the Republicans gave to any foreign-policy problem was to use the military. The answers they gave to help the economy was that anything that helped the rich is capitalism and anything that helps the poor was socialists..

Here are the problems as I see it without proposing mature solutions. They did all agree with each other as though they were taking a litmus test. as follows:1) Send 11 million of our undocumented workers and 4 million children back to Mexico will make the current refugee problem in the Middle East look like a trickle. I suggest they all see the movie “A Day without Mexicans” where the earth stood still in the United States. A deportation plan and the wall would cost trillions and our economy would be crippled without Mexican workers. As the debate was at the Reagan Library, they could’ve taken the advice from Reagan, who offered amnesty during his ministration. During the Obama administration Mexican immigration has stopped to a trickle. We could use some legislation, but the Republicans are resistant to collaboration. 2)  They claimed the Planed Parenthood video was shocking. The video taking body parts from a fetus was not a Planned Parenthood video. Harvesting stem cells is legal. What is more shocking than the video, is the insistence of the Republican Congress that we shut down the government in October on this issue.3) Abortion, if you don’t like it, don’t have one. I am also pro-life, but I would not and will not insist that my values he thrust on others. That’s what Islamic Shari law does. Family planning avoids unwanted children. In California birth control is public and is the only state where unwanted pregnancies have almost disappeared. There is no alternative to abortion and birth control except to take care of those children that are unwanted through public care, educational and health programs  that would be very costly and are unwilling to be paid for by evangelistic capitalists. If you promote unwanted children, in my opinion, then you have the complete responsibility of taking care of them 4) What’s the alternative to the insistence that Obama-care be canceled. What are they going to do about the 15 million people that now have health insurance? The uninsured have gone down by 50% because of Obama-care. It’s a success. Don’t break what is not broken! 5) The Iran deal is an international agreement. And as Reagan said, when he dealt with Gorbachev to reduce nuclear weapons from 36,000 warheads to the mere 2000 we have now, “trust but verify.” The alternative is war with Iran and if you haven’t noticed it borders Russia. All the Republicans want to be tough with Russia. As their position with Iran, how brave of them. The’re not talking about their lives, we’re talking about the lives of our troops. Diplomacy is an alternative to military action, which should always be the last alternative. 6) All the Republicans are unified against gay marriage. 50% of American marriages end in divorce. Let’s see how much they like it. Love is love. Sex when viewed by the third-party can be vulgar. Judge not that ye shall not be judged.7) All the Republicans want less regulation. The Glass Steigle Act would have kept us out of the 2008 debacle. Enforcement of the Dodd/Frank could keep this out of the next debacle. However, with the influence of Citizens United, our Congress is bought and sold to big business. If corporations are people, then in my opinion, corporations are sociopaths, and should be institutionalized under government care. Both capitalism and socialism has tendencies to be selfish and only government overseers can keep the playing field level. Which if you read my LONE BEAR LETTER BELOW, you will find that labor and capital are out of balance and are due for either collaboration or mutual destruction. 8). Lowering taxes? Kansas tried it and now they’re bankrupt. Taxes have to be lowered for the middle class and increased for the top 1%, so that educational programs, social programs and infrastructure programs can be initiated to make this country great again. Even Trump agrees. 9) The Republicans not only deny climate change, they say even if it is true, we can’t afford to do anything about it. The Defense Department said, “if climate change continues at its present course they will not be able to defend this country.” This year is the hottest year on record since records have been kept in 1880. Scientist’s consensus is that CO2 levels are causing climate change. Why is that so difficult to understand and to deal with? The government has a great history of denial. Atmospheric A-bombs tests do not cause damaging radiation, smoking does not cause cancer, lead in paint and gas is not dangerous, Iraq had weapons of mass destruction and fracking does not cause earthquakes in Kansas.  The era of wood is over, the area of steam is over and the era of oil is over. The sooner the better. For the Middle East countries 10)Congress he is beholding to the gun lobby. There are enough guns in each one of our cities to sink a battleship. How many murders and attacks will it take for common sense to prevail and for collaboration to reach a reasonable compromise without endangering the public.

LONE BEAR LETTER #8

INTEREST RATES ARE A SHORT TERM PROBLEM, WHICH IS DISTRACTING INVESTORS AWAY FROM THE LONG TERM PROBLEM! The Federal Reserve has been punishing savers and retirees at the expense of a higher stock market. They are the primary driver of this massive financial bubble now in place and most of the world’s markets. Most of this was accomplished with a zero interest rate policy. Zero interest rates and overnight lending has directly created debt bubbles in numerous areas. They bought $4 trillion worth of bonds and flooded the economy with dollars and still, they couldn’t stir up inflation.  CPI in August was down -0.1% and is only up 0,2%in the last year. They are out of bullets to help the economy. All they can do is delay or slow reverse tapering. If oil goes down anywhere close to the $20 a barrel, as forecast by Goldman Sachs, it will have the same effect as the mortgage debacle, when mortgage bonds defaulted causing another financial crisis. Oil-producing nations have bonds that will be in trouble. Jim Flores the vice chairman of Free Port McMoran said “where all going to get wet. A few people are going to drown” Oil-producing companies have bonds that will be in trouble. The banks hold more derivatives on these trouble securities than they did of mortgage bonds in 2008. Once again, the banks are a house of cards. If the economy is doing so well, why is the capacity utilization rate at 77%? Before the recession it was at 80% and during the 1990s averaged 82%? The shrinking middle class cannot hold up their consumer’s end of the market, as all income increases have gone to the top 1%. Bernie Sanders has got it right; it’s all about income inequality. The big corporations and top 1% think they are immune to the worries of the shrinking middle class. Not so! Commodity prices are down 20% across-the-board.  Inflation has become unsustainable.  The problem with that is; deflation is unacceptable. As I have repeatedly said, the markets fall first, and then when he find out why.

SORRY ABOUT THE BAD NEWS: You can’t believe how hostile everybody is to my position.  Is it unpatriotic to be negative about the US stock market? Nobody wants to hear the bad news. Negative economic reports in Muslim countries, Russia, China will get you jailed. Recently an analyst Nirhin Mangle in India was put in jail, because he wrote a negative report on an Indian firm. It was George Orwell, of 1984 fame who said: “Anyone who challenges the prevailing authority can find himself suddenly silenced,” I don’t like being the messenger! However, I’m not attached to the financial industry and its success and I am out of stock market, so I don’t have to feed on the Kool-Aid the hype and positive mental attitude. Yes, you need to be positive to be great and this is a great nation. However, sometimes the hubris is nothing more than an illusion. And yes, I want this nation to be great again. We were great in the 1950s when big labor, big government and big business were in balance. Now big business, through Citizens United runs and will ruin everything. We are being governed by those elected  that are beholding to big business and big money. Unless the balance is restored between labor and capital, I believe all boats will sink. Capitalism has an Achilles heel. Read Thomas Piketty’s ‘ CAPITAL IN THE 21ST CENTURY. However, maybe everyone is so involved with the hype, that thing will just keep on going on. After all, the money in our pockets is nothing more than paper, which gets passed on in full acceptance. Illusion works if everybody believes it. It’s three men in a tub, rub a dub dub, nobody please pull the plug.

However, here are some facts that are hard to ignore: 1) It is estimated by Oxfam America that the top 1% in the world own 99% of the world wealth and most of that belongs to the top 1/10 of 1%. 2) Only 80 billionaires control 50% of the global wealth. They own more than the 3.5 billion people in the bottom half. 3) In the United States all income growth in the last 15 years has gone to the top 1% of the economic ladder whereas wages, adjusted for inflation are down 4.3%.  4) It has been estimated that in the United States, the top 1% own 90% of the total wealth of the country. 5) Home ownership in the United States has gone down from 48% to 32%. Upward mobility is gone. The middle class can no longer afford a modest house, college education for their children and healthcare for their family. This is ‘class warfare’ where in my opinion; everybody in the long run will lose. 6)  It is estimated at only 400 families control over 50% of the wealth in the United States. How many bars of soap and how many cars can each of these wealthy people buy? 7) Corporate CEOs are getting 500 times the average wage of their employees and hedge fund managers are getting 5000 times the average wage of an employee and paying low taxes. When the CEO gets $42 million a year in wages, in my opinion, they appear to be more of a gangster and interested in their own self interest, rather than a corporate representative of their company. At least Capone and dictators take all the money they can blatantly using violence. Our CEOs and hedge fund managers hide behind the pretense of respectability. These excessive conditions, in my opinion are taking the breath out of the US and world economies that has not yet been seen in the metrics or in a reaction from the working poor.

I am reminded of the time when labor did rise up and ask for its share of the pie. Just to name a few instances: In 1886 there was a riot in Chicago’s Haymarket Square for the eight hour workday where there were 4 deaths and 72 injuries, the 1894 Pullman strike for union recognition, were there were 30 deaths and 70 injuries, the 1937 Republic Steel Memorial Day massacre were 10 were killed and 37 were injured for proper working conditions and pay. Labor was out of balance with capital and rather than government playing the role, the workers took to the streets in protest. The process eventually righted itself and the United States became the most prosperous nation in the world and its working middle class prospered. We have not yet heard the old shout of “workers unite.” Instead, we have had the perpetrators of union demise, like Scott Walker of Wisconsin, received public support from those that are suffering. There’s the old saying, that those who do not learn from history are cursed to repeat its errors. There are solutions. The Bernie Sanders agenda calls for a government run health care program that covers every American, plus large sums to rebuild roads and bridges and the expansion of Social Security and tuition free at public colleges. How much will this cost? Probably $10 trillion, over 10 years. However, that the a lot less than the demise and disruptions in our government, should we not take this route. In my opinion, the adjustment in the re balancing of labor and capital will occur in one of two ways. The redistribution of wealth can occur violently as I fear, or politically. As of now, the political solution seems unlikely. There is nothing wrong with the accumulation of wealth. However, the excessiveness of our current wealth accumulation, I believe, will have a stifling effect on the US and world consumer-based economies and could make future economic growth unsustainable. To me, it makes common sense to fix it if we can.

However, part of the problem that we are now facing, cannot be fixed. Times have changed because globalization and technology  as follows: 1) Globalization has forced many Americans and well-developed countries and their workers to compete with worldwide poor workers who are willing to accept lower wages.2) Computers and modern technologies are replacing human labor in numerous ways 3)  Basic education outside the US is quickly progressing, giving competition also in a high level jobs 4) Outsourcing has replaced many jobs and cut employees free without a safety net.5) The very nature of the Internet and high-technology makes pricing extremely competitive and will thereby continue to squeeze profit margins, causing companies to trim their workforce in order to maintain competitiveness.

I believe that as happened in 2000 and 2008, the so-called experts will tell you it’s only a correction. I believe it’s much worse than a correction. I believe it’s going to take a major readjustment of our capitalistic system to upright the sinking boats and to get them all to rise again together. The whole world has moved Left, to universal healthcare and affordable education. Here, our evangelistic home schooled children are being taught that the earth was created 5000 years ago and science has nothing to do with evolution or global warming. The United States is ranked number 39th in the world on basic education. We are behind the times and we’re falling further behind.  Every President at the end of the speech has to say, And God bless America. If you believe in the Christian God, that’s wonderful for you. But in my opinion evangelist ideologies are over influencing our political system. The tail is wagging the dog and that’s not good for the general welfare of everyone in this colorful nation of ours. That could not happen in Europe, where Tony Blair had to play down his Christianity in order to be electable. We have to be pragmatic to solve our problems. God and prayer will not save us from this shaky economic situation.

People are frightened! There is a very dark nasty side to the current environment that includes racial slurs of our black president, hateful remarks about our Mexican immigrants and their anchor children and frightening fear of Islamic people and African American people in cities. It reminds me of the fear that caused Nazism. The economic and social fabric of this country is being weakened by these verbal abuses. In the next 25 years it is estimated that over 70% of people in the world will live in cities. We will have to learn how to coexist. Most wealthy people in the United States, move from monochromatic suburb to one that looks just like it outside of another city. I was grateful for such an existence, but now that I live in the city, I see textures black and white and various other colors  that need to blend together to become the United States of America. We are not a Christian nation, we are secular nation, which by our Constitution does not repress or judge those of different faiths or different ideas or atheists. WE HE PEOPLE need couple of things 1) A level playing field. 2) Upward mobility 3) The right to a good education 4) Access to universal healthcare. And  Social Security. I have a great deal of faith, that no matter what happens, it will all happen for the best and in the end the United States will be stronger, more unified and the pursuit of happiness will be more equalized. However, the process may be painful.

The economy increased at a revised +3.7% pace in the second quarter. That is almost 1.5% percent stronger than initial estimates for that period. Personal disposable income rose 0.4% after adjusting for inflation in the month of July. That is faster than consumer spending, which instant edged up 0.3% during the month. All good news! Then why is the market so weak? Harry Truman, is quoted as saying, “There is nothing new in the world except the history you do not know.

Read the book book: This Time Is Different, Eight Centuries of Economic Folly by Carmen M Reinhart.

“Remember the Markets went down in 2000 and 2008 before the bad news became public. The market’s current weakness, I believe is telling us something. It is telling us that there are weaknesses that have not yet been revealed. I have talked about those weaknesses over the months in The Investment Strategy Letter. SEE BEAR MARKET LETTERS 1,2,3,4,5,6,7,ABOVE

EVERYTHINGS COMING UP ROSES IN THE ECONOMY. THEN WHY IS THE MARKET WEAK?

Welcome to September!  September and October are traditionally some of the stock markets worst months. Europeans are returning from vacation and finding their markets down some 20%. China continues to report bad news as the Hang Seng is down 2.3% today. The New York Times reports that China, like the old Soviet Union is keeping failing factories open, so that it appears that the country is fully employed. As with the Soviet Union, these kind of subterfuges can surface with disastrous results. Recent data shows that China’s manufacturing sector shrank at its fastest pace in three years and manufacturing data in the United States also slowed in August to its weakest level in two years. The Nikkei averages are down 3.84% today. The Dow, so far this morning is down -324 2%. Crude oil is at 46.28 down 6%, but up as low of $38 a barrel. The market is now acting even weaker than I anticipated AND I’M THE LONE BEAR! I expected some kind of a rally, and one may still occur, before  for the next drop. However, Bear markets have a mind of their own. My watchword continues to be: Watch out below!

The economy increased at a revised +3.7% pace in the second quarter. That is almost 1.5% percent stronger than initial estimates for that period. Personal disposable income rose 0.4% after adjusting for inflation in the month of July. That is faster than consumer spending, which instant edged up 0.3% during the month. All good news! Then why is the market so weak? Harry Truman, is quoted as saying, “There is nothing new in the world except the history you do not know.”Remember the Markets went down in 2000 and 2008 before the bad news became public. The market’s current weakness, I believe is telling us something. It is telling us that there are weaknesses that have not yet been revealed. I have talked about those weaknesses over the months in The Investment Strategy Letter.

8/26/2015 After six record sessions on the down side, the market finally rallied . This kind of rally was pretty much expected and overdue. However, a lot of damage has been done. In a very short time the Dow made our Intermediate downside objectives of 15,370, NASDAQ Intermediate downside objective of the 4,116 and the Intermediate downside objective of the S&P 500 1,820. All these downside intermediate objectives were given to you in The INVESTMENT STRATEGY letter, before the decline. Our next downside objective for the Dow is 13,377 and then 10,000!

Read the book book: This Time Is Different, Eight Centuries of Economic Folly by Carmen M Reinhart.

Now what? I would imagine that for a while the technical damage will be ignored and so will the possibility of problems occurring because of my bearish scenario. It will be interesting to see what happens on Friday, when traders have to face another weekend of uncertainty. Before the market collapsed, Chinese stocks reached a market capitalization close to 10 trillion, making it the second most valuable exchange. Once  governments encourage an equity bubble, it will collapse. However, China’s markets were not the only ones that collapsed. The Brazilian stock market is down 45%, Russian bonds down 43%, Indonesia equities down 26%, Turkish and Korean equities down 25%, Mexican equities 22%, the Australian stock market down 20%.

If you want to see how crazy this is getting, just look at the chart below. In 1990 China had the capacity to manufacture 1 million tons of steel. That figure today is 1.1 billion tons of steel, which is almost twice the amount of annual demand for steel.. The price of oil has gone down from 140 dollars per barrel to below 38 dollars a barrel. The price of iron ore has gone down from $200 per ton, to fifty dollars per ton.The prices of other commodities are down 50% such as copper, zinc, tin, nickel and molyddenum. The falling price of COMMODITIES  such as iron and the price of oil per barrel is the canary in the mine, when we’re looking at a deflation scenario.

I have heard some comments from my readers that believe I am against capitalism.

That’s not true. Capitalism and free markets are definitely the way to go. However, there are inequities within the capitalistic system that create inequalities between capital and labor. When capital and labor are out of balance, drastic economic and market volatility occurs. That’s not good for anybody. Both capitalism and socialism are selfish. The answer lies somewhere in between with bipartisan solutions. It is discouraging for me to see  no bipartisan cooperation and 24% of the Republicans following a radical ideological huckster.

8/25/2013

The markets are collapsing and the bad news hasn’t even been announced yet

Today, 8/25/15, markets unsuccessfully tried to rally. The Dow had 661 points between its high and low. Investors are nervous and blaming the decline in the weakness Chinese market. However, in my opinion, that’s not why the markets are going down. Wait till the bad news does come out. That’s when you’ll really see the market drop. As of now, corporate earnings (except for oil related issues) are doing very well. Today, research reports came out recommending the Bank of America and J.P. Morgan. The banks are not the solution to the problem; they are part of problem . So, in my opinion, investors still don’t get it yet. They believe that this is just another correction. I don’t think so!

Read the book; This Time It’s Different, Eight Centuries of Economic Folly. The problem as I see it is an unsustainable economy with half the population unable to afford basic human needs. If upward mobility is over, because consumers cannot sustain a viable economy, then prices will go down. If it is a deflationary economy, then real estate prices and oil prices go down. If real estate prices and oil prices go down, then the debt backed by his entities will be in trouble. If bonds and mortgages are in trouble, then the derivatives that speculate on these entities will be in trouble. If derivatives are in trouble, then the banks are in trouble. If the banks are in trouble, then the Federal Reserve will be helpless, as they have no plan to deal with deflation. With QE 123, purchases of bonds, they will hold trillions of dollars of worthless paper. If the Feds are in trouble and the banks are in trouble, then the US economy is in trouble. If the US economy is in trouble, the world and its stock markets have a problem. Dow support at 15,336, 13,377,10,000/6,666

All this won’t happen at once. ‘The Panics’ are just beginning!

Read the book book: This Time Is Different, Eight Centuries of Economic Folly by Carmen M Reinhart.

The Fed is not prepared deflation. Today oil prices were down to $38.35 a barell. Lower commodity prices are down worldwide by 20%. Smart investors are galloping into US Treasuries. The 10 year yield is now 2% down 2.8% for the day and the five-year yield is 1.36% down 5.5% for the day. Not an attractive rate, but it is better than seeing your capital shrink by 50% or more. We should see a rally in the next couple days, as some support areas held today. However, I don’t believe the support areas will hold and I look for much lower levels. this is just the tip of the iceberg! Europe is on vacation. Wait till they get back in September. October is usually the worst month for the market. Use rallies for selling and buying US treasuries. It can get a lot worse!

Finally a rally!

After six record sessions on the down side, the market finally rallied up 619 points. This kind of rally was pretty much expected and overdue. However, a lot of damage has been done. In a very short time the Dow made our Intermediate downside objectives of 15,370, NASDAQ Intermediate downside objective of the 4,116 and the Intermediate downside objective of the S&P 500 1,820. All these downside intermediate objectives were given to you in The INVESTMENT STRATEGY letter, before the decline. Our next downside objective for the Dow is 13,377 and then 10,000!

Read the book book: This Time Is Different, Eight Centuries of Economic Folly by Carmen M Reinhart.

Now what? I would imagine that for a while the technical damage will be ignored and so will the possibility of problems occurring because of my bearish scenario. It will be interesting to see what happens on Friday, when traders have to face another weekend of uncertainty. Before the market collapsed, Chinese stocks reached a market capitalization close to 10 trillion, making it the second most valuable exchange. Once  governments encourage an equity bubble, it will collapse. However, China’s markets were not the only ones that collapsed. The Brazilian stock market is down 45%, Russian bonds down 43%, Indonesia equities down 26%, Turkish and Korean equities down 25%, Mexican equities 22%, the Australian stock market down 20%.

If you want to see how crazy this is getting, just look at the chart below. In 1990 China had the capacity to manufacture 1 million tons of steel. That figure today is 1.1 billion tons of steel, which is almost twice the amount of annual demand for steel.. The price of oil has gone down from 140 dollars per barrel to below 38 dollars a barrel. The price of iron ore has gone down from $200 per ton, to fifty dollars per ton.The prices of other commodities are down 50% such as copper, zinc, tin, nickel and molyddenum. The falling price of COMMODITIES  such as iron and the price of oil per barrel is the canary in the mine, when we’re looking at a deflation scenario.

I have heard some comments from my readers that believe I am against capitalism.

That’s not true. Capitalism and free markets are definitely the way to go. However, there are inequities within the capitalistic system that create inequalities between capital and labor. When capital and labor are out of balance, drastic economic and market volatility occurs. That’s not good for anybody. Both capitalism and socialism are selfish. The answer lies somewhere in between with bipartisan solutions. It is discouraging for me to see  no bipartisan cooperation and 24% of the Republicans following a radical ideological huckster.

8/25/2013

The markets are collapsing and the bad news hasn’t even been announced yet

Today, 8/25/15, markets unsuccessfully tried to rally. The Dow had 661 points between its high and low. Investors are nervous and blaming the decline in the weakness Chinese market. However, in my opinion, that’s not why the markets are going down. Wait till the bad news does come out. That’s when you’ll really see the market drop. As of now, corporate earnings (except for oil related issues) are doing very well. Today, research reports came out recommending the Bank of America and J.P. Morgan. The banks are not the solution to the problem; they are part of problem . So, in my opinion, investors still don’t get it yet. They believe that this is just another correction. I don’t think so!

Read the book; This Time It’s Different, Eight Centuries of Economic Folly. The problem as I see it is an unsustainable economy with half the population unable to afford basic human needs. If upward mobility is over, because consumers cannot sustain a viable economy, then prices will go down. If it is a deflationary economy, then real estate prices and oil prices go down. If real estate prices and oil prices go down, then the debt backed by his entities will be in trouble. If bonds and mortgages are in trouble, then the derivatives that speculate on these entities will be in trouble. If derivatives are in trouble, then the banks are in trouble. If the banks are in trouble, then the Federal Reserve will be helpless, as they have no plan to deal with deflation. With QE 123, purchases of bonds, they will hold trillions of dollars of worthless paper. If the Feds are in trouble and the banks are in trouble, then the US economy is in trouble. If the US economy is in trouble, the world and its stock markets have a problem. Dow support at 15,336, 13,377,10,000/6,666

All this won’t happen at once. ‘The Panics’ are just beginning!

Read the book book: This Time Is Different, Eight Centuries of Economic Folly by Carmen M Reinhart.

The Fed is not prepared deflation. Today oil prices were down to $38.35 a barell. Lower commodity prices are down worldwide by 20%. Smart investors are galloping into US Treasuries. The 10 year yield is now 2% down 2.8% for the day and the five-year yield is 1.36% down 5.5% for the day. Not an attractive rate, but it is better than seeing your capital shrink by 50% or more. We should see a rally in the next couple days, as some support areas held today. However, I don’t believe the support areas will hold and I look for much lower levels. this is just the tip of the iceberg! Europe is on vacation. Wait till they get back in September. October is usually the worst month for the market. Use rallies for selling and buying US treasuries. It can get a lot worse!