What A Mess We've Gotten Ourselves Into

"Do not go where the path may lead, go instead where there is no path and leave a trail."

• Ralph Waldo Emerson

The Fed and the Markets

After 134 years of the economy and corporate earnings being the major driver of stock prices, the last 3 ½ years have shown that this is no longer the case; the US stock market has not been correlated to economic fundamentals. The major game changer has been the government’s massive intrusion into the economy, highlighted by the Fed's money printing (QE) and zero short term interest rates (ZIRP).  And the same is true for Europe, Japan, China and the rest of the world’s stock markets. The world seems to now believe that massive easy monetary policies can solve all problems. Unfortunately, my research is telling me that we are about find out that reality always comes home to roost and we are approximately not more than a few months at most from the inevitable end.

Many now believe in Fairy Tales

Owning stocks when the Fed wants you to own them removes the risk of a Bear Market.  ZIRP and Exploding record high margin debt is one the major signs, warning - Danger Ahead.   Risk takers believe the FED and the ECB will prop up the market "no matter what it takes." Only socialist economists are dumb enough to believe that is possible in the long run.

The bond market has also benefitted from ZIRP, QE and "operation twist." With real inflation at 10% to 18% who in their right mind wants to buy 30 year Treasuries yielding less than 2% just because the Government tells us that inflation is only 1.5%?  It seems that a master counterfeiter (the Fed) can turn a weak economy into a booming stock market BUT it can’t get the economy moving.  So what could possibly go wrong? Ask anyone who ever got caught up in a PONZI SCHEME.

Geopolitical Hotspots Pose Uncontrollable Risk

I think the potential risks in the market (apart from GOD’S natural laws of economics), are geopolitical hotspots (Potential Black Swans) that can boil over into something that could have very negative fallout for the global economy and financial markets.  Historically, markets don't discount war until it is happening.  World War I and II are two perfect examples of that thesis.  An erupting geopolitical hot spot can cause a significant decrease in global trade, which might even precipitate a trade war.  The Fed and/or foreign central banks won't be able to stop or control such geopolitical eruptions, even if they print more money.

Energy/oil and gas prices could dramatically increase as a result of hostilities in Ukraine.  Russia could decrease or stop exports of liquid natural gas to Europe.  They could control oil prices too, despite Saudi Arabia acting as the swing OPEC producer and the US producing more oil, but there is a shortage of oil and especially LNG carriers & tankers.

Note: Russia’s net crude oil export revenues amounted to approximately $290 billion in 2012 and therefore were more than four times as high as net natural gas exports in the same year.  Energy Information Agency (EIA) data shows that in 2012, Russia exported approximately 7.4 million barrels per day of total liquid fuels.  The majority (79%) of Russia’s crude oil exports were to European countries (including Eastern Europe).

While the probability of a major world conflict is low, a major spike in energy prices could logically trigger numerous stock market crashes especially since most markets are hugely overpriced, living on ZIRP and Fiat Money Printing.

The Russian Federation

Russia is the highest risk to the global economy and the markets.  Moving into Ukraine might be just the first stop on their agenda of reconstructing a "greater Russia."  As a leading oil and gas supplier, Russia might be able to raise energy costs either directly (by raising prices) or indirectly (curtailing supplies by cutting off energy supplies to Western Europe). 

No one can stop Russia -no matter what it wants to do.  Their military strength is superior to any country especially since there is no national leader to take on Putin. Russia has a total military force of 3,250,000 (766,000 active military, 2,035,000 reserves, and 449,000 Para-military).  In contrast, Germany has a total military of 326,927 with only 182,927 on active duty.

Who can stop Russia? If Russia puts boots on the ground in Ukraine and later other countries in Eastern Europe, would President Obama be able to stop him?  Not a  chance!  Also, Putin might force Europe to buy oil/gas in Rubles, which would severely damage the US Dollar.   That tactic could spread and cause other countries to trade in their own currencies. Say Good BY to the US PETRO $. 

It’s obvious that China wants to make the Yuan the world’s reserve currency.  That could be the death knell for the dollar, which would have likely crashed a long time ago if it were not the world's reserve currency and the currency used to buy/sell OPEC oil. What would happen then to the US stock markets?

Sanctions are laughable as a deterrent. They've done nothing to stop Russia's aggressive involvement in Ukraine or their support for the Assad regime in Syria.   Do you think sanctions on Cuba have worked?  The Cuba embargo/sanctions are 52 years old, but the Castro brothers are still in total control of that island nation.  They couldn't care less about changing their totalitarian version of Communism (Fascism) to benefit the people who live there.

As a payback for European sanctions, Russia could cut off natural gas shipments to Europe.  Shortages of gas and higher energy prices might even cause the Euro to breakup, as leaders are voted out of office and more nationalist politicians take their place.   Elections in Europe are due May 22-25, 2014. In the end, I think sanctions don't have much impact other than to anger the target country into responding in a way that would hurt both Europe and the US as well as the global economy.

Iran and Israel

Iran's uranium enrichment program is obviously part of a master plan to develop nuclear weapons.  Iran and the five permanent members of the UN Security Council – the United States, France, Britain, Russia, China plus Germany have been holding talks aimed at reaching a comprehensive deal on the Islamic Republic’s nuclear energy program.  Under the Geneva agreement, the six countries undertook to impose some sanctions on Iran: Now offering relief in exchange for the Islamic Republic agreeing to limit certain aspects of its nuclear activities.  But the monitoring of Iran's nuclear reactors has been impossible, so compliance is in doubt. Besides thus far the sanctions have done us more harm than they have to Iran.

Israel's Netanyahu has repeatedly stated that Iran must not be permitted to possess a nuclear bomb.  Many foreign affairs experts have speculated that Israel would launch a pre-emptive strike on Iran's nuclear reactors to prevent them from obtaining nuclear weapons. This has been on the front burner for a long time now and although many people feel it won't happen. That’s only because they don’t understand “NEVER AGAIN.” It's my opinion that Israel cannot allow Iran to develop nuclear weapons that can kill 20% to 50% of its population with as little as one bomb. Then there would be radioactive fallout that would kill even more people.  Israel, the homeland for the Jews, is a very small country with 7.7 million people of which 1.5 million are Palestinian Arabs, living on 8,019 square miles of territory. Could the Jewish state survive such a catastrophe?  I don't think so. 

Therefore, I believe that at some point in time Israel will be forced to attack Iran's nuclear facilities, probably the evening of Iran’s first nuclear Bomb Test: which could lead to oil prices spiking to $150 to $200 a barrel.  Such an oil shock would likely crater world stock markets.  Like Russia's invasion of Ukraine, it would be another unanticipated event that neither the Fed nor foreign central banks would be able to control.

Other Geopolitical Hotspots

Another problem is China vs. Japan over a territorial dispute of the five uninhabited Islands.  Japan controls the islands, but China wants them. While international law favors Japan, since the early 1970's, China has argued that Japan seized the islands in violation of international law.  Whether Japan should resist or retreat is a military and political question, not a legal one.  No one knows if China’s ambitions extend only to these tiny unoccupied islands in the South China Sea, but it is the oil that these islands may possess that is China’s main interests. Japan becomes a significant problem if they can’t peacefully settle their disputes with China.  Japan's stated Debt to GDP ratio is 227.2%, the highest in the world.  Any increase in Japan's budget deficit (e.g. for military spending), at this high risk level, could cause a meltdown of Japan's economy.

Then there is China vs. Vietnam over oil drilling rigs 200 miles off shore Vietnam. Chinese ships have been ramming into and firing water cannons at Vietnamese vessels trying to stop Beijing from putting an oil rig in the South China Sea.  This is a dangerous escalation of tensions over waters that are considered a global flashpoint. 

Venezuela produces an estimated 2.9 million barrels of oil a day (as of February, 2014).  Any civil war or internal fighting (like in Syria) could cause Brent crude oil to move towards $130 to $150 per barrel or more. That would certainly be a significant shock to the global economy.

Nuclear armed North Korea has long been seen as a threat to both South Korea and Japan.  These tensions cannot be overlooked as their leader, Kim Jong-Un, is an unpredictable, calculating ruler.  Some say that Mr. Kim, who has proved to be more ruthless, aggressive and tactically skilled than anyone expected, most likely has a psychological disorder.

Civil War in Venezuela (a full blown Statist government): Venezuela's economy is in shambles.  There are food scarcities and now water rationing.   The government has started to issue cards to track families' purchases of food.  Critics say it's another sign the oil-rich Venezuelan economy is headed toward a Cuba-style dysfunction.  If its economy deteriorates further, that could instigate a people's revolt.  There have already been a series of protests, political demonstrations and civil unrest throughout Venezuela. Those protests could worsen into a full blown civil war.

Venezuela produces an estimated 2.9 million barrels of oil a day (as of February 2014).  Any civil war or internal fighting (like in Syria) could cause Brent crude oil to move towards $130 per barrel. That would certainly be a significant risk to the global economy.

Elections in Europe are due on May 22-25, 2014.  UKIP of the United Kingdom and the National Front of France are gaining more momentum leading up to elections later this month.  That could spell trouble for European economies and the Euro.     

State of the Markets and Monetary Policy      

Despite a very weak economy, sky high unemployment and President Hollande's horrible approval rating, the French stock market (as measured by the CAC 40) has been in a steep uptrend for the last two years. Go figure! That strange market reaction is hardly an exception.  The stock markets in Japan, Europe, the UK and US are up strongly and are at or near all-time/record highs for only one reason: Central Banks easy monetary policy - holding short term interest rates at virtually zero for five full years, coupled with the Fed's QE buttressed by ECB’s head, Draghi saying he'll do "whatever it takes...."  And he may actually follow through with that next month! In a statement last week, Draghi hinted the Eurozone economies could see the emergence of negative interest rates as early as this June.  He told reporters that the ECB has room available to use various monetary policy tools and that the 24-member ECB Governing Council is “comfortable with his acting upon it at any time.”   He said policymakers discussed all tools available, including extending the offer of unlimited central bank cash against collateral (what kind of collateral). Other possibilities include long term loans to banks and halting the sterilization of liquidity created by crisis era bond purchases. I think anticipation of such ECB easy money action is preventing European stock markets from falling, which would otherwise be expected considering the weak economies in the region (with the possible exception of Germany).

As bizarre as it seems, the evidence suggests that weak economies and high unemployment is actually bullish for equity markets.  Why?  It makes the Fed and/or other central banks print more money which then flows into financial markets.  Stock market correlation with QE has certainly been true for the US and Japan. Draghi hints that the Euro-zone is next to experience QE and possibly negative interest rates.   In reality, that's a monetary policy only an Economic illiterate would conceive of.  Credit is created by central bank money printing to buy debt issued and/or already sold by the Treasuries of the countries using QE.  But the Fed’s QE is a Ponzi scheme of the highest order. QE does nothing to promote the welfare of ordinary citizens who don't own stocks nor does it do anything for Main Street.

Meanwhile, corporations are hoarding cash rather than investing in new plants, equipment or hires.  Wages are contained due to economic uncertainty and lack of any employee bargaining power., due to the high rates of unemployment.  Workers are afraid of losing their jobs so they are more cautious with their purchases.  The velocity of money has been dropping precipitously, so there's been no inflation to speak of given the level of pump priming.  Like it or not, we are all playing RUSSIAN ROULETTE!

CAPITALISM THE UNKNOWN IDEAL

Price inflation is advancing on the cost side while economic deflation is killing us on the asset side. By calling the manipulated near 1% price inflation a good sign; they completely ignore the forces pulling the national economy apart.

Economists have completely missed the true picture composed of two important parts engendering very different forces. The Bureau of Labor Statistics reported that 181,000 non-farm payroll jobs were created in March. But the #’s were fudged since more than half of them (81,000) were imagined, make-believe, new jobs created by phantom new businesses that the Labor Department pretended started up in March. Of that 81,000, 40,000 were temporary jobs, reducing the figure to 41,000. And the Government created over 50,000 government jobs which means the real economy actually lost jobs again in March. With 150,000 new entrants into the job market in March due to normal population growth, this means the economy fell short by at least 150,000 jobs and their fuzzy math allowed unemployment to remain unchanged. A major problem is that Government has grown in size by so much that it has overtaken the financials as being the largest sector of the economy and continues to grow with reckless abandon. This completely negates the reasons for creating Glass Steagle in 1933, in the first place.

Global financial assets have more than tripled since 1980, relative to GDP. In just this past decade, the volume of Credit Default Swap Contracts (asset backed bond insurance) increased five-fold in a span of four years and equity derivatives (stock index contracts) also increased nearly five-fold during the same period of time. Leverage has also exploded to a mind boggling degree. You would think that they learned something. But why should they since the Government guarantees them against loss? Tremendous flaws in logic, coupled with a complete lack of understanding of Free Market economics has resulted in misguiding the nation into a course that leads from one disaster to another. One crisis leading to another and another is now considered the norm.

The US Federal Reserve has overseen a vast expansion of the money supply for years. It has now risen to such an exaggerated size that it has become a disaster just waiting to happen. The tipping point will come when all the US Government deficits, US Treasury Bond issuance and a tsunami of US bank failures lead to sharp rises in interest rates in an attempt to defend the US Dollar, which will bring about changes in investment sentiment toward the Markets and the US Dollar. At some point, all world players will attempt to exit at the same time. The US markets will not be able to clear and liquidate and thus will be unable to enjoy the fresh breeze of rebirth that is only inherent to Capitalism. Financial markets, unless backed by the Government, throughout the entire US economy are essentially frozen. A huge waiting game has emerged between the expectant beneficiaries of FED largess in their efforts to stimulate inflation and economic recovery. But in doing so, this will speed up the encroachment of Socialism as the real US Economy continues to deteriorate until that last “straw”  breaks the back of the Capitalist goose that laid all those golden eggs for the last 75 years.

THE STIMULUS EFFECT OF FIAT DOLLARS

It has been determined that the effect of a new dollar of debt today actually only produces 55 cents in economic activity (down from $1 to $2 where it used to be in the 1950’s and 60’s). So instead of stimulation, each Fiat Dollar now actually shrinks the economy. The engines of debt are totally dysfunctional as debt saturation levels have already been reached. And yet they still refuse to learn as their only response continues to be to press the money creation pedal to the metal, making matters worse not better. Calling the manipulated 1% to 2% and climbing price inflation a good thing completely ignores the empirical evidence pulling the national economy apart. Its structural defects are not being repaired. Such uniform aggregate views actually point out the spectacular shortcomings of American Ivy League Economists who fail to recommend any meaningful remedies and are making things worse instead of better. As I have often pointed out in the past, this actually proves the spectacular shortcomings of the Socialist Economists who are completely lost as to what to do; as slowly but surely their agendas are proven not to work. But like their political patrons, the facts do not seem to play any part in their analysis.

Financial markets are not functioning properly since interventions are the norm and accounting rules have been suspended. (What are the banks’ real profits?) These rules are likely to be even further corrupted with the looming commercial real estate loan fiasco and an expanding Fannie and Freddie (now that there are no longer any limits to their Government backing) we have not done anything to solve our problems. This means that it is just a matter of time before one of two things happen: Either the stock and bond markets’ crash resumes until we finally hit the lows around DJII 3,000, or they keep printing money to paper it over, eventually destroying the dollar and undermining the entire economy.  The US Government is printing money and monetizing debt at an unprecedented rate and yet it cannot revive the housing market, cannot revive business lending, nor bring the banks back to solvency. The continuing infusion of new “Out Of Thin Air” money will accelerate until powerful inflation that can no longer be masked, breaks loose catching the Government and the nation off guard. As the world will soon refuse to accept US$’s  as payment. As of today the only buyers of our Treasuries is the FED.

THE USA AND THE WIEMAR REPUBLIC

The parallels are absolutely shocking between the US climate of 2014 and that of the infamous Weimar Republic of the 1920’s:

• Bernanke monetizing the US Government debt after the Wall Street collapse is exactly the same as the monetizing of debt by the German Government after World War I. Both debt monetizations’s dragged on long past their supposed initial stop-gap measure stage, but the spending and debt continued just like the effects of the insolvency of the banks and the real estate crash continues.
• Political factions were deeply polarized then just like Democrats and Republicans are today. War reparations were a huge factor in the German debt to cover ratio, just like Wall Street bank extortions and US Government nationalizations are a huge factor today. The mass unemployment and home loss tell a tale about domestic economic and political crisis on both fronts.  Back then, they missed the connection between the continued issuance of new paper money and the rise of commodity prices amidst foreign exchange rate volatility. Just like today, Bernanke, Yellen et al fails to comprehend the link between monetary growth and the oil, commodities, precious metals, and the stock market but most of all: Food  price increases.
• Both missed the connection between the continued issuance of new notes and foreign exchange rate volatility. There’s more but you get my point.

QUANTATIVE EASING (QE)

Talk of reducing or eliminating QE is pure wishful fantasy. There is no way that Yellen would take a chance of tightening in this economy. QE will just be pushed further and further down the road. Will we never learn? Just recall all of his wrong past QE easing pronouncements such as the “contained sub-primes”, the “Green Shoots”, the “sound equity basis of Wall Street firms”, etc., etc. The nation is in deep trouble and although the printing of new money has been proven to be wrong headed, it will still be urgently demanded and the printing and monetization will continue. THE GOOD SHIP AMERICA MAY BE SINKING BUT NO WORRY, JUST PASS THE BOURBON.

The next round of QE in England is a certainty, (regardless of all the speeches) which will then be matched by the US. Threats of sovereign default and prolific money printing will spawn a global currency crisis with the US Dollar at the epicenter. Major portions of debt denominated in US Dollars will be determined to be next to worthless. The end result will be a US Dollar collapse, an event that I have mentioned in the past that is already “Baked into the Cake”. It is only a matter of “when not if.”

So why has “It” not happened yet? Would you believe, it’s been the explosion of credit derivatives exceeding $2.4 quadrillion that has so far prevented it. But alas, that too is a GIANT BUBBLE just awaiting a rise in interest rates that will prick that bubble and bring the whole house of cards tumbling down. So while the back door machinations covers trillions of leveraged losses, the fires will soon be treated with an accelerant, as both the US and UK Governments succumb to pressures and announce the next phase of QE. That will trigger the inflation that they think is so necessary, all the while vigorously denying the possibility of the hyper-inflation that will surely follow.

HOW NOW DOW

The markets will always do whatever they have to do to make the majority wrong. So today, the topping-out process is doing exactly the opposite of what it did in 2007–2008 when the US markets topped out first followed by the rest of the world a year later.  This time around, while everyone is glorifying China, Brazil and the Asian emerging markets as the next investment NIRVANA, just take a look at their charts. The Treasury Bond Market had its blow-off high back in October 2009 and the European STOXX and most commodities topped out this January. The world watches and waits with hope as the US Markets try to convince EVERYONE that we are now back in a new bull market. But in reality, the market is building its massive top so as to trap as many investors, worldwide as possible.

Analysts, economists and investors and most of all, the Government are bullish and are only listening to what they want to hear, that which reinforces their opinions. We contrarians on the other hand, examine all the Facts especially the unintended consequences, such as the effect on the economy of a slew of new OBAMACARE taxes in conjunction with the expiration of the Bush Tax Cuts which will become the largest tax increases in history - all that in the midst of the worst Recession in 70 years?  Many analysts are actually hailing the rise in oil prices as being good for the stock markets. They do not seem to realize the increases in gas prices are tantamount to an insidious regressive tax increase: It broke the back of the market the last time, why should it be any different this time?

Even though I do not have a clear-cut SELL SIGNAL yet, I have started to nibble on the short side by taking initial positions in BGZ, TZA, and FAZ and of course GDX and GDXJ.

GOLD

Although my emphasis is always on Gold, I expect Silver to outperform Gold both up and down; so anything I say about Gold also applies to Silver.  The $1100 price level has shown solid enough support in the past and should once again set the foundation for the next upward thrust to take place. However the Manipulators read the same charts as we do so we should an all out effort to break the $1100 floor: Whether successful or not that will be the best time to load up. The Chinese ,Russians and Indians surly will. The rising moving averages confirm the trend. Watch the 20-week moving average, which has offered support in the latest assault on price by the huge naked COMEX short positions as they continue to sell Gold without benefit of Gold collateral, with full impunity. If that does not convince you of Government manipulation of the market, nothing will. But the US Government is no longer big enough or strong enough to hold back the inevitable for much longer. When price inflation becomes visible for all to see, the effect on the Gold price will be something to behold (I may have to revise my 2005 projection of $6,250 target by 2017 upward).

Both the Governments and the public are still in the DENIAL STAGE. The monetary crisis is only beginning to rev up and it won’t be that much longer before the world will seek Gold as its last sanctuary of wealth.  If, as I expect, Gold and Gold stocks are only at the end of a phase (Elliott Fourth Wave) (When it comes to commodities 5th waves are usually the longest and strongest) of a bull market, we should see many more years of upside and countless opportunities to increase our wealth over time.  A bull market is not a sudden surprise event; it is an ongoing process that is not recognized by the majority until the final (Fifth Wave) blow-off. A bull market spends at least half of its time consolidating previous gains, shaking out the weak holders while allowing true believers to accumulate ever larger positions at ever lower prices. Even the mighty USA, which is no longer so mighty, will not be able to hold back Gold’s inevitable blow off.

The only time prices really explode is when we have a parabolic blow off top, like we had in Gold and Silver in late 1979/1980, NASDAQ in 1999/2000 and Oil in 2009. These blow off tops are very cruel and destroy investor confidence for the next 10 to 20 years. As of now, we have not even come close to a blow off top.  After the blow off in 1980, Gold went into a twenty year bear market: History Repeats! Learn from it.

Every few generations or so, the amount of money pouring into one investment (Gold) shifts to a critical point. The last time it did this was in 1973 soon after Nixon abandoned the Gold Standard and Gold went from $35 an ounce to $200 consolidated for a few years and then exploded to $850 in less than 6 months.  Meanwhile, stocks proceeded to have one of their worst periods ever dropping from 1000 in February 1973 to 577 in December 1974.   

When the price of Gold rises dramatically, it starts to make Gold Mining companies extremely attractive: Once that point is reached, Gold stocks will seem like they have wings.

WHAT MAKES UNCOMMON COMMON SENSE DIFFERENT?

The one major thing that sets me apart from most of the others is that I am constantly assessing the most recent actions of Government’s and their economic effects of their laws and policy changes on the stock markets and the economy in the future. Just to prove my point:

The Democrats and their Media Lackeys have been babbling about how Obama inherited a huge deficit from Bush. Amazingly enough, a lot of people swallow this nonsense, including most Republicans. So once more, a short civics lesson is in order.  Budgets do not come from the White House. They come from Congress, and the party that controlled Congress completely since January 2007 was the Democratic Party. They controlled the budget process for FY 2008, FY 2009 and all the way up until today. During that first year (2008), they had to contend with George Bush (who was not yet a lame duck) which caused them to compromise when Bush got tough on spending increases. For FY 2009, Nancy Pelosi and Harry Reid bypassed George Bush entirely, passing continuing resolutions to keep Government running until Obama took office. (Bush actually allowed Obama to take over soon after the election to ease the transition.) At that time, the Democrats passed a massive omnibus spending bill and an $870 billion stimulus package to complete the FY 2009 budgets.  And where was Obama during this time?  He was a member of that very same Congress that passed all of these massive spending bills and he signed the omnibus bill as President to complete FY 2009.  

Let's remember what the deficits looked like during that period:  If the Democrats inherited any deficit, it was the FY 2007 deficit, the last of the Republican budgets.  That deficit was the lowest in five years, and the fourth straight decline in deficit spending accompanied by a 4.7% unemployment rate. After that, Democrats in   Congress took control of spending, and that includes Obama, who voted for the budgets. If Obama inherited anything, he inherited it from himself. In a nutshell, what Obama is saying is I inherited a deficit that I voted for and then I voted to expand that deficit six-fold since January 20th, 2008.  I only mention this so as to emphasize how the process works and what we should expect going forward, so we can then factor it all into our projections. Did I not hear somewhere that “The Truth Will Set Us Free?”

The great sovereign debt crisis that I’ve been warning you about has leapt across the Atlantic and is already starting to eat into the United States. Already, billions in municipal bonds are in default across the nation. New York, California, Florida, Rhode Island, Massachusetts and many other states are exhibiting the same symptoms that pushed Greece and Cyprus to the brink of default: Huge deficits, accounting tricks to hide debt, the use of risky derivatives to make up shortfalls and millions of workers counting on benefits that states will not be able to pay are all going on strike in a fight against cutbacks. Make no mistake: We are facing a debt crisis and future currency meltdown of biblical proportions. This is the crisis that will impact every major asset class, driving some sky-high in value and crushing others.  Once again, unprepared investors will be skinned alive. But those of us who see this record size hurricane headed our way and take the proper precautions can ride out the coming storm; safeguard our wealth and also have the chance to multiply it several times over.

Beneath the surface of the market's steady advance, dramatic changes are taking place. While the S&P 500 Index hangs near all time bull market highs, having risen from its 2009 bear market low, four of its 10 most-valuable companies — Wal-Mart, Apple, JP Morgan, Chase and Berkshire Hathaway — weren't among the top 10 at the market's recent peak.  This reshuffling may provide clues as to which companies and industries will lead. "It's a changing landscape," revealing changes in the market's mega leadership including: The rise of Apple from underdog to titan. It appeared close to collapse 10 years ago, but is now the fourth most-valuable company in the S&P 500, beating out Warren Buffett’s Berkshire Hathaway and General Electric (which like Citi is in my opinion technically bankrupt). Should “CARDCHECK” be implemented? What will happen to Wal-Mart when they are forced to become unionized?  And what will happen to No. 1. Exxon Mobil should Cap and Trade become the Law of the Land? With the new rising values comes a richer price evaluation:  15 P/E for Wal-Mart and 16 for Microsoft (earnings multiples that historically have always signaled stock market peaks).  As little as three years ago, the kings of the hill were the banks, now they are being surpassed by technology. But technology has that habit of suddenly and rapidly changing. Remember RCA, the introducer of radio and TV, is no longer with us.

The market is usually more about optimism than reality. But somewhere along the way, “Fear” along with Reality always creeps into the forefront: So where are we now? Verizon (many more soon to follow) recently announced that it is taking a nearly $1 billion quarterly charge against earnings due to it their increase in costs directly related to the new Health Care Law. This is amazing. Multiply this by tens of thousands of businesses and you can see that this law is a disaster for our economy and for the future of stock prices and jobs. These announcements are but one of the unintended consequences of Obamacare and Sarbanes Oxley which, of course, Congress has exempted itself from the need to follow either Law.

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GOOD LUCK AND GOD BLESS

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UNCOMMON COMMON SENSE

Aubie Baltin CFA, CTA, CFP, PhD.

2078 Bonisle Circle

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This letter/article, like all my others, is for education purposes only and is designed to help you make up your own mind; not for me to make it up for you. Although I include recommendations from time to time, being a bi-monthly publication, it is not meant to be a trading letter. Only you know your own personal circumstances, so only you can decide the best places to invest your money and the degree of risk that you are prepared to take.