When I grew up, small brokerage firms where as common as Starbucks franchises are today. What ever happened to E F Hutton, Paine Webber, Bache, AG Edwards, Shearson and  the hundred of other names that were well known to us? Registered Broker Dealers have gone from 10,000 to some 3,600. Within this group are a very small group of small broker-dealers and regional firms. (  Broker-dealers, not connected to large banks are quickly closing  because they are unable to cope with the massive regulations and keeping up with the expense of compliance. Being a compliance officer or supervisor at a small firm, is analogous to committing financial suicide.It is dangerous!

The industry has, intentionally or unintentionally, been taken over by the banks and FINRA and SEC regulations have  encouraged this.  Dodd/Frank regulation continue to be delayed or weakened. A recent Barron’s Magazine released its list of 1200 state-by-state rankings of the top Investment Advisers shows that of the 1200 investment advisers listed, most are serviced by large firms such as Merrill Lynch owned by J.P. Morgan, Morgan Stanley, Wells Fargo and UBS (all banks). Only 39 are local independent firms.

In the past, small regional brokerage firms were helping small businesses that wanted to go public. This option is no longer available for small businesses and they no longer have access to the capital markets. Now, the only option for small businesses is to go to the banks for a loan, that are servicing mostly a large global conglomerates.  For individuals, rather than investing in a portfolio of stocks through your stock broker, investors use investment advisers, that  suggest that you diversify your money in a series of no load mutual funds, also owned by the banks. Without the old fashioned stockbrokers, individual investors are either investing in no load mutual funds (84% of which under perform the market), through their investment advisers or trying to trade stocks on the internet, which I believe is like feeding anchovies to the sharks. Without stockbrokers and regional small broker dealers, I believe small businesses and investors are being underserved.

In 1963, and 23 years old,I was following my dream and became a stockbroker with a local Chicago firm, called McCormick and Company. We made markets in local stocks that normally traded below three dollars a share, in what was called the ‘pink sheets’. These stocks are now barred from ‘solicited trading’ under the guise that the SEC and FINRA are protecting the public from ‘speculative securities’, rather than helping small local bushiness get access to the capital markets. McCormick and Co. also helped regional Midwest firms  go pubic. One of those firms was Kentucky Fried Chicken and my first IPO. Yes the Col. in 1963 was there, all dressed in white. There wasn’t a big demand for the stock, as people were unsure as to whether franchising would work. New ideas are not instantly popular. Franchising was considered a  new concept then. My Dad bought 1000 shares and doubled his money. My Uncle bought 1000 shares and kept it until his death. It was his largest asset. Those times and stock brokers are gone and probably forever.

I don’t believe the regulators FINRA and the SEC understand what the ruined. In my opinion, they certainly are not serving the best interests of the public. They knowingly or unknowing represent only the Big Banks. ( It make good business sense as the banks can afford to pay the billions of dollars in fines the SEC and FINRA has leveled against them). Hot deals now go to the professionals and hedge funds. A local small business is pretty much cut off from bank loans, unless they don’t need the money. Brokerage firms don’t help local firms go public anymore because the local firms are all gone and the current brokerage firms are now global and owned by the banks, as are the mutual funds. Also, most people don’t invest in stocks anymore through their stockbrokers, because their aren’t any stockbrokers around anymore. Most invest in no-load mutual funds controlled by the banks, through their domesticated well-trained investment planners.

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

The financial industry approves of the Efficient Market Hypothesis Theory (EMHT), which proposes that it is impossible to beat the market by trading in and out and that investors should at all times be fully invested in the market in the aggregate, by owning an allocation of mutual funds, because in the long run the market will go up. The dangerous beauty of this theory is that accordingly, your goals will always be achieved sometime in the future. If you just ‘hang in there’ long enough you will make your money back. This gives investors a false theory of contentment.

However, during a very long period between 1997 and 2012, the market was up 50% of the time and down 50% of the time. Also during that period there were two stock market collapses of 50%, one between 2000 and 2003 and the other between 2008 and 2009. The financial industry would have you believe that trying a methodology that uses’market timing’ is an ‘heretical tactic.’ Lately, the EMHT methodology, has investors drinking euphorically from the common spiked Kool-Aid trough and believing that the market will just continue to go up and that Bear Markets are a thing of the past.  Besides, for those who have a fiduciary responsibility, ‘market timing,’ is frowned upon by regulators. For any small brokerage firm that doesn’t drink from the common spiked Kool-Aid trough, the SEC and FINRA  encourages investor arbitration claims for ‘trading.’ Small firms can’t afford the legal expenses to defend themselves.

In America, ‘capitalism’s’ spiritual home, a survey conducted in 2013 found that just 54% had a positive view of the term. This seems to be the case because the benefits of ‘capitalism’ have recently only gone to the top 1%. There seems to be a crisis in confidence as the Supreme Court has a ranking of only 30%, public schools 26%, the criminal justice system 23%, and Congress 7%. In the US all the growth in income is going to the top 1% and just 400 people control 62% of the wealth. It’s actually a little worse worldwide where only 80 people control over 50% of the wealth. The recent election showed just how unsatisfied people are. They voted for change ( a Republican President, House and Senate), but change is unlikely to come.

Since Citizens United, that declared corporations are people (If they are people, they are sociopaths), most changes in government are dictated by donors and election contributions. A recent Princeton study has shown that public opinion has no effect on the outcome of an issue in Congress, whether there is 0% approval or 100% approval, the line of accomplishment is flat-lined. ‘Donor power,’ has taken over the rights of ‘We the people’. Most of the tax cuts went to the top 1% and Corporations,very little will trickle down.  Tbelieve that voters are being heard, is an illusion in my opinion. There is a big risk that since government agencies are not responding to the public (“We the people”), the public may not bail out the Banks and their high priced executives next time. The Congress, by it’s inaction of  Dodd/Frank and its budget fiasco, of allowing the banks more lead way with derivatives and increasing large donations, have pursued policies, which I believe, are damaging to the common good.

It was George Orwell book of  ‘1984′ fame who said: “Anyone who challenges the prevailing authority, can find himself suddenly silenced.” (For example Giordano Bruno burnt at the stake in 1600 for saying the earth revolves around the sun). There has been a major effort to silence me! I got ‘barred’ after appealing a minor $25,000 fine and 90 day suspension. I lost my business, my largest asset, my retirement from 12b1 fees and my reputation. I also lost my access to being quoted (once a month) by such media as The Wall Street Journal, Barron’s Magazine and Reuters international News service. I found out a little to late, that ‘Due Process’ at the SEC, is not tolerated. And just recently my bank JP Morgan, canceled all my accounts and my charge cards. Faced with this tyranny and censorship, it is important to still speak out.

I believe political stagecraft, through skilled manipulation of facts, has given the public the perception and the illusion of power, rather than participation in real power. Public opinion has been manipulated and nullified.  We have only ourselves to blame. Like Pogo said “We have seen the enemy and it is us.”

(Oct 22,2016) Economist Magazine they describe Putin’s  domestic policy to reduce competition to favor his oligarchs. They describe system he developed which Kirll Rogov, a Russian political economist describes as “soft legal constraints.” To quote from the Economist Magazine, “It involves writing the rules in such a way that to observe them is either prohibitively expensive or downright impossible to follow, then handing out licenses for cash payyments, to break those rules.” Doesn’t this sound exactly like what has happened in our financial industry? The SEC and FINRA have made the rules (compliance) to run an independent brokerage firm as either prohibitively expensive or downright impossible to follow. In this way, they have eliminated the independent competition and have turned over the entire financial industry to the banks and large financial institutions. They allow these companies to break the rules and for the cost of a small fine, as compared to the large profit that they made in breaking the rules. In this way the large financial institutions feed the SEC, that guards their monopoly. In my opinion, my firm, Birkelbach Investments Securities Inc., was just one of the firms taken out of business using SEC and FINRA “soft legal constraints” as a tool of the oligarchy. In my opinion, with Trump functioning without restraints, he will favor his buddies, causing the United States  to look more and more like Putin’s Russia and its economy, dominated by the privileged few 400 families (top tenth of 1%).

My fear is that, Now with a Trump presidency, this process has Big Corporations and the top 1%, dominating  the financial industry and our economy and has left individuals, small businesses and the investing public very vulnerable. The general public, in my opinion, has become so weakened, that it is powerless to stop this  crisis from progressing.


New books that I have just read that I highly recommend:                                Democracy in Chains by Nancy MacLean explains in detail how the Koch brothers and the Mercers are executing  a plan to divide us through our fear of multiculturalism and racial differences.The Road to Unfreedom by Robert Snyder which explains how Putin is executing a plan to have us loose faith in our institutions (Presidency, the rule of law, the safety of our identity and our financial information) though cyber attacks. Can Democracy Survive Global Capitalism by Robert Kuttner describes how Fascism is winning through out the world and how the US oligarchy and corporations have captured the machinery of the government to promote it. and The Soul of America by Jon Meacham; While the American story has not always—or even often—been heroic, we have been sustained by a belief in progress even in the gloomiest of times., “The good news is that we have come through such darkness before”—as, time and again, Lincoln’s better angels have found a way to prevail.

Two book that I have just read with a positive attitude:Hope in the Dark by Rebecca Solnit; Enlightenment Now by Steven Pinker

Also books I am reading now  Evicted:Poverty and Profit in the America City by Matthew Desmond;6,000 people are evicted evey day! How Democracies Die by Steven Levitsky; The Common Good by Robert Reich;

Just Published:: War vs Peace by Ronan Farrow:that tell s how diplomacy of the state department is being replaced by military policy;Us vs Them by Ian Bremmer: tells how we are being distracted from solutions of automation and globalization.  Tailspin by Steven Brill how the aristocracy and oligarchy are perpetuating a take it all that will make our economic system dis-function.

A novel: Ready Player One by Ernest Cline that presents a virtual reality world of the future,

Two  articles:


Mr Birkelbach does not offer investment advice, but merely his own personal opinion. This report has been prepared from original sources and data we believe reliable but make no representations as to the accuracy or completeness. Mr.Birkelbach , his affiliates and subsidiaries and/or their officers and employees may from time to time acquire, hold or sell a position in securities. Past performance is no guarantee of future success. Upon request, we will supply additional information.


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