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July 31, 2014

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BUBBLES? I listen every day to people talking about the great Bull market of 2009-2014 and the incredible returns that the rich have earned. Now even the President is telling us of the riches that the top 1% have earned under his administration. So what? The rich always get richer. Here are two facts to put in perspective this last 7 years.

1. In October 2007 the Dow was at 14,000. in January 2013 the Dow returned to 14,000. If you held through those years then you broke even after 6 years. That is akin to losing 9% a year for 6 years. Or 50% if we don't compound it. So the not so rich among us, the unions, the 401k's, the IRA's and the pension holders went 6 years with their nest egg going no where. Now since January 2013 we have gained 17.8% as the Dow rose to 16,500. So, if you simply held on (with courage) then you managed to earn about 2.5% for the 7 years. Not even considered a good return in the "old days". In fact you beat the GDP of our country. On average for most of our lives the DOW has risen about 9% a year. So exactly where is the over priced stock market? If there is a bubble it is in job creation and it burst 7 years ago. Job creation cannot occur if the DOW companies financially engineer their growth through stock repurchases. take the time to look at the revenue growth of Apple,3M,Microsoft,etc. Then look at their outstanding shares. Stock price is related directly to EPS. EPS goes up without growth if you simply reduce shares outstanding. It goes up even faster if you reduce the number of people you employ. And, so it goes.

2. The rich do get richer with higher stock prices but so too do the retired people living on their investments. So to do the employed people with pension funds(public union workers), IRA's, 401K's, etc. And those people for the most part added dramatically to their funds from 2008-2014 and have dramatically beaten the 2.5% that those who simply held have earned.

Why are the DOW companies and the small businesses that support them so important? Because the companies of the US supply the opportunity for people to build security through employment and savings. Adding through ups and down make us all better off. Forget the President's comments on the rich--we need them. That is exactly how things trickle down to us. I see little bubbles in a market up 17.8% in 7 years.

ECONOMIC PROGRESS? A report from an Executive Search Firm: Today's job numbers and the subsequent RISE in the unemployment rate simply validates the claim of those of us who have for the past 4 years made the point that there are Millions and millions of Americans who want to work in quality full time jobs who aren't. The invisible unemployed, the visible part timers, the visible unemployed are not all counted in the official unemployment rate that so conveniently fell as the last 6 years unfolded. During this time regulations and healthcare implementation took their toll on the full time job creation in America and continue to do so. Now as the true unemployed begin to move back into the search for employment (official labor force) the unemployment rate rises. Will they find jobs? Perhaps not, perhaps so. It will likely be a mixed adventure. There are jobs in spots. Geographically and industry wide the jobs needs are growing. Manufacturing and oil and gas need workers with special abilities. Construction needs leaders but not yet workers. This quarter for interviews and full time hires is weaker than Q2. It is unlikely that Q4 will be any better except for the part time jobs of the Christmas hiring. So, it is possible that the labor force expansion may be short lived. Part time hiring continues. The FED CHAIR knows this very well. And the fears that she will be raising interest rates soon are very likely to be unfounded. Economic progress? Yes. Economic return to normal? Not yet. Remember Obamacare implementation has not been completed most of it was delayed a year or two and small businesses are still very uncertain of it's impact.

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