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December 26, 2013

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UNFORTUNATELY after viewing the video of the week, Bill, I do not think we will get much help from Hillary's husband by 2017. I have great respect for his intellect but his age/health limits his ability to act as President through his proxy wife. And, after watching her performance as Secretary of State I shudder to think of the impact on our international image and performance with her in charge alone. The new Mayor of New York did not appear much better. Where do we get these politicians?

I GUESS the market says that it was worth it to delay your harvesting of capital gains after a 30% up market until Jan 2 in order to defer the taxes until 2015 rather than pay them out in 2014. If that is what was going on today then it makes sense that the tax money will be put back to work soon. Perhaps tomorrow. What's to lose? If you lose money in 2014 then you can take the losses in December and offset the gains this year. If you make even more gains you can defer the new gains into 2016 and use the new gains to pay your taxes for 2013 in 2015. Kind of works like a chain letter doesn't it? Now you know why the rich get richer and the rest of us buy houses to shelter our investments--but those were the days before Bernanke.

TODAY WILL TELL us something. At 11:15 technology is leading the market down and the analysts are now comparing today to the past 6 years foretelling doom base on 100 minutes of data. So far for two straight years every time the stocks fell for a few days or even a few hours some days in came the buyers and the surge continued. Let's see where we are at 4 PM. Only a fool goes against the Fed they say. We haven't even begun to stop the presses yet. We have an even more DOVISH Fed Chair not even confirmed yet. Economic data as interpreted by analysts seems to be improving. Whoever thought 7% advertised unemployment was strong? We have the Democrats begging for an extension of the unemployment benefits of 1.3 million Americans which will become an actual number of 4 million by years end as more people's expire. Could it be that Bernanke's announcement of a Taper in February was nothing more than a political smokescreen to get fellow DOVE confirmed and that things will get even more Dovish afterwards? There are lots of indicators that the money printing will continue for a long time and if it does then inflation should continue to be seen in the market. And, if it doesn't interest rates will rise and that will usher in a whole new era of increasing deficits as the government tries to cover their debt service. Me too as I am on a 1 year ARM. Welcome to 2014.

AS THE NEW YEAR APROACHES: let's consider a few things.

---Many housing experts consider the age of the "white picket fence" dream to be over. They are detecting a move away from suburb living and back to smaller more urban housing. If true then that bodes poorly for the American tendency to invest in their houses for the long term. Perhaps this is a result of longer urban commutes, higher gas prices (despite recent drops), the ultimate insult: the move to lower family income as a result of the move away from permanent full time jobs and perhaps the higher cost of food and healthcare.

---Online and mobile purchasing is beginning to affect the retail malls. the move is away from the bigger spaces and toward smaller more demonstration (Apple store) type of distributed locations to support the online strategy. While retail has always been described as a wheel rotating to and from big stores this tendency is untested and there will be a definite impact on employment in retail as more product is sold outside the store.

---What is exactly the secret to managing the international economies? can it be that just printing money is the long term answer? Bernanke printed $4T and pushed the stock market in the US up 120% from the lows. Japan just printed trillions of Yen in 2013 and their stock market went up 72%. It has always been said that markets reflect what is coming not the past. If so is this massive increase in prices (inflation) simply foretelling us of the inflation we will face soon? As a young man I remember the value of the Mexican Peso and the Italian Lira(?) going to virtually zero. Printing cannot be a long term strategy can it?

--This is really scary: Apple income per share fell 11% in 2013 and the stock rose 15% in the last 6 months. Corning glass income per share fell 38% in 2013 and the stock rose 60% in the past 16 months. Freeport income fell 33% in 2013 and the stock price rose 20% in the past 16 months. Whiting petroleum income fell 16% and its price increased 34% in the past 16 months. Meanwhile the guys getting the printed dollars the banks: Wells Fargo income increased 19% in 2013 and it's price is up 35% in 16 months. JP Morgan earnings were up 12% and stock increased 12% in the past 16 months. Is there any logic to all this? I was happy to own these stocks for my employees but it is scary. All these companies have a current PE ratio of between 13 and 15.

---America has an average age of cars on the road of 11.5 years. Detroit is bankrupt. financial analysts use this age as a reason to buy auto stock. The logic is that the public will eventually drive the age back down to 5 years. But, will they or is this the new average age of cars that last longer, shorter commutes, sell extended warranties and 31 million immigrants who buy the new set of clunkers not destroyed in Obama's clunker buy up. Maybe even the under employed and unemployed 15% of Americans drive them as well.

All I hear on the financial news channels is "are we creating a new bubble?" We are creating a bubble of dependent poor people who have given up looking for the jobs that never came. Soon, if this period of high unemployment continues we will create another bubble of kids who see no reason to go to college only to finish with a lot of debt and no job.

I like to believe that things will be better in 2014 and a future will unfold with promise for our kids and grandkids. I wish you all a healthy, happy and financially better 2014.

MORE INFO ON PROSPERITY: CNN's poll last week (hardly Fox News)showed that 70% of consumers think that the economy is weak.

MORE INFO ON JOBS: With the Feds printing money the appetite for companies to take risk and expand in the USA is very low. Instead they simply use their cash to buy back their stock making it easier to hit their future EPS by minimizing the shares outstanding. With the Tax laws making it difficult to bring cash home expansion comes overseas OR the companies borrow capital against the overseas cash and buy back stock over here. (Apple for example.)

GETTING RICH on the stock market surge? In 2008 the Dow was at 14,000. Today it is at 16,000. So, exactly how is it that those of us who were long term investors in 2008 and stuck it out through the Bernanke years are thought to be getting rich? When the stocks go down 50% they have to go back up 100% in order to be back to even. And, for most of us that is exactly what happened. Rich--hardly. Over all we are up 14% in 5 years. On a compounded basis that is about 1% a year.

Let's compare that to the money supply under Bernanke. In 2008 the money in circulation was about $400B. After 5 years of printing money there is around $4.4T in circulation. An increase of 1100%. After all of that we have gotten to 2.5% GDP growth--maybe. Inflation is advertised to be 1%. How is this possible? Why aren't we getting better faster? Because the printed dollars are not going into circulation. They are sitting on the books of the large banks drawing .25% from the Feds who have regulated safety into the banks by increasing their deposit requirements. SO, banks don't lend except in mortgages which are then purchased at $40B/month by the government using their printed money which is then put on the books of the banks to meet their requirements. Does this even sound like a good system to grow the economy?

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