It would appear we have escaped the bounds of congestion and have lifted off to new highs. Sometimes appearances can be deceiving.

Market Statistics

The Dow ($INDU), S&P-500 ($SPX), S&P-100 ($OEX), Nasdaq ($NDX, $COMPQ), Dow Transports ($TRAN), Russell 1000 ($RUI), Russell 3000 ($RUA), NYSE Composite ($NYA) all set new historic closing highs on Thursday. The Nasdaq high was a new 14 year high but nobody is complaining.

Left out of that list above was the Russell 2000 ($RUT) and S&P Midcap 400 ($MID), which both missed new closing highs by a faction of a point. They may have missed a new record by a fraction but again, nobody should be complaining.

We constantly talk about volume and breadth. Holiday volume was low at 3.5 billion shares and breadth was 2:1 advancers to decliners. To have all the major indexes breaking out to new highs you really want to see much better market breadth.

However, the holiday spike was welcomed. All sectors appeared to participate with financials leading the charge. Financials are higher because the strong payroll numbers suggest the Fed will raise interest rates sooner rather than later and banks can finally make money on their trillions in deposits. While that may be good for banks and investors with money in interest bearing accounts it is also bad for the economy to some extent because it raises the cost of money for individuals and corporations.

We are still a long way from that happening so in the short term the improvement in the payroll numbers is positive for the economy and the market.

There were a lot of economic reports on Thursday but the most important was the Nonfarm Payrolls. The report showed there were +288,000 jobs added in June compared to estimates in the 215,000 range. This was a blowout number that confirmed the +281,000 headline on the ADP report on Wednesday.

Also, May was revised higher by +7,000 to 224,000 and April was revised up by +22,000 to 304,000. This was a very strong number and the upward revisions to April and May brought the three month average to a whopping +272,000 jobs. The separate Household Survey showed a gain of +407,000 jobs.

The unemployment rate fell from 6.3% to a post recession low at 6.1% and the labor force participation rate remained flat for the last three months at 62.8%. The BLS said the labor force increased by 81,000 in June.

The private sector added +262,000 jobs and the public sector added +26,000 with 18,000 of that coming from public education hiring. The average workweek remained flat at 34.5 hours as employers hired more workers rather than increase weekly hours over the 30 hour threshold for ObamaCare coverage. Average hourly wages increased +0.2% for the second month.

This was a good report but it was not without flaws. The number of people working part time for economic reasons, meaning they can't get a full time job, rose by +275,000 or almost all of the new job gains. As one commentator put it, "We are becoming a nation of burger flippers" rather than scientists, engineers and professionals. When you have to make the mortgage payment and put food on the table you have to take whatever job is available.

There are help wanted signs all over the Denver area where I live and they have been there for weeks. Yes, they are all in places like Walmart, Burger King, Olive Garden, etc. These are not what you would call career jobs but they do provide a weekly paycheck.

On a positive note the percentage of unemployed workers out of work for more than a year fell to 33% and a post-recession low.

It will be hard for analysts to say business activity is not picking up in Q2. The ADP Employment report and the Nonfarm Payrolls finally suggest the economy is accelerating. If this continues the negative points from forced part time work to weak retail sales will fade away. As more and more of the unemployed find work those new paychecks will immediately be spent.


The ISM Non-Manufacturing report for June came in at 56.0 and only slightly lower than May's 56.3. This is still in expansion territory and the internals were slightly improved. The consensus estimate was 56.3. The new orders component rose from 60.5 to 61.2 and employment rose from 52.4 to 54.4. Exports rose from 53.0 to 55.0 while order backlogs declined slightly from 54.0 to 53.0.

However, the business activity index declined from 62.1 to 57.5 suggesting a lot of buyers took off early for the summer. The business activity component normally prints in the mid 50s. However, in April and May the number spiked to 60.9 and 62.1 respectively. Analysts believe this was the snapback from the winter weather and the component is now trending back to its norms as the activity spike fades.

Fifteen of the 18 industries in the survey reported a growth in new orders with only 2 reporting declines. Fourteen of the 18 industries reported business expansion in June saying business conditions and the economy were improving. Four industries declined including Mining, Educational Services, Accommodation/Food Services and Healthcare.


The calendar for next week is very light with the only pothole the FOMC minutes on Wednesday. With some of the economic indicators suddenly improving the analysts will be looking for signs of disagreement between meeting participants and signs a rate hike could come sooner rather than later.


There were adjustments to rate expectations popping up all over. The Bank of Tokyo said the payroll report showed just how far behind the curve the Fed really was. The bank believes the first rate hike will be in March rather than their prior forecast for June. Roberto Perli of Cornerstone Macro, said the Fed would have to raise its projections for the interest rate at the end of 2015 and 2016 as a result of the rising economics. Currently the Fed is projecting 1.13% at the end of 2015 and 2.5% at the end of 2016. The Fed Funds Futures are projecting 0.78% by the end of 2015 and 1.82% at the end of 2016. All of those numbers are going to rise if the economic reports continue to improve.

The Fed claims it is in a "data dependent" mode on stimulus and interest rate hikes. If that is the case their actions could accelerate if the numbers continue to be strong. When new jobs spiked in April to 304,000, analysts said it was snapback hiring from the winter weather. The +224,000 number in May was the fourth consecutive month over 200,000 and right where the slow growth economy was expected to remain for the summer. The +288,000 in June has no "reason" behind it. The weather excuse has been used and this number represents an acceleration of the rebound trend from the low of 84,000 jobs gained in December.

Janet Yellen confirmed the very slow path to normalization in her recent speech and said the rising inflation number was just noise. Suddenly that inflation claim may be in error and that slow path comment due to change soon.

Remember the Fed has NEVER predicted an economic problem in advance. They are always overly optimistic. If we are depending on the Fed for guidance we are likely to be disappointed.

John Ryding, chief economist at RDQ Economics and a former economist with the Fed, now expects the first rate hike in March. Stephen Stanley, chief economist at Pierpoint Securities, moved his rate hike projection up from September 2015 to June. Michael Feroli, chief economist at JP Morgan, pulled his rate estimate forward from Q4 to Q3 2015 with rates at 1.0% by year-end 2015 and 2.5% at the end of 2016.

Bill Gross downplayed the forecast changes. Gross said in order for the Fed to reach its inflation target at 2%, assuming a 1% productivity number, you are going to have to see wage growth at 3% plus so the Fed is going to be willing to stay put at the current stimulus stance. Hourly earnings only rose +0.2% in June and +2.0% over the past 12 months so there is plenty of room to grow.

As you can imagine on the day before a holiday weekend the stock news was very light. PetSmart (PETM) shares rallied +12% after activist hedge fund Jana Partners disclosed a 9.9% stake and plans to talk to the retailer's board about performance improvements or possibly selling the company. The company said it "welcomes open communications with its shareholders and values constructive input toward the goal of enhancing shareholder value." That sure sounds like a canned response some attorney thought up ages ago to cover a situation like this. The company posted disappointing results in Q1 because of increasing competition and lower consumer spending.


Lululemon (LULU) shares jumped +3% after the WSJ reported founder Dennis Wilson was talking to private equity firms about taking the yoga apparel firm private. The WSJ said Wilson had talked to Leonard Green & Partners among others. No deal had been reached but Wilson was actively exploring options. However, with declining fortunes and a $7.5 billion market cap a deal would be expensive. Any LBO would require a steep premium on the famous name and that may be hard for Wilson to engineer. Now would be the right time for a takeout with the shares trading at a four year low after a high of $82 in 2013.


Lorillard (LO) rose +5% on speculation they would merger with Reynolds American to create a giant tobacco company. Reports claim they could avoid antitrust claims by selling off specific non-core assets to smaller tobacco companies. This is an old story with the speculation returning every few weeks since March 1st. This time it appeared to gain some traction to push the shares back to 52-week highs.


PACCAR (PCAR) rallied +5% on speculation it could be the target of an acquisition by Volkswagen. Like the Lorillard merger rumors the PCAR-Volkswagen rumors are a recurring theme. However, this time Volkswagen denied any interest in acquiring the truck maker. Surprisingly PCAR did not decline after Volkswagen denied the rumors.


Blackrock (BLK) shares spiked +$23 after the close but I could not find any news to support the spike. There was a news item at 11:30 about a 150,000 euro fine by European regulator Consob. The company made an erroneous statement about its holdings in UniCredit in December 2011. Blackrock found the error and reported it to the regulator in January 2012 and offered to cooperate in the investigation. Blackrock had disclosed a reduction in their stake in UniCredit when no actual reduction occurred. The regulator fined Blackrock for market manipulation in the matter. The disclosure forced shares of UniCredit lower just before the bank announced a secondary offering and the European sovereign debt crisis was in full swing. I doubt this was the reason for the spike in Blackrock shares.


On Wednesday Greenbrier Companies (GBX) reported earnings of $1.03 compared to estimates of 74 cents. Revenue increased +37% to $593.3 million and well over estimates for $571 million. The company builds railcars and it delivered 4,300 in the quarter, up from 2,500 in the comparison quarter. They also received orders for 15,600 new cars during the quarter and another 2,600 after their quarter ended. The orders were valued at more than $2 billion. Their backlog is now 26,400 cars compared to 15,200 at the end of February. The average sales price per car is $104,000, up from $101,000 in February. Gross margin rose from 11.5% in February to 16.3% in the current quarter. This allowed them to raise full year estimates to $2.98-$3.08 per share, up from $2.45-$2.70 previously. Shares rallied +7 on Wednesday and then gained another +2.70 on Thursday. Davidson raised the price target to $75. I added this company as a recommendation in Ultimate Investor back at $36 and it is still in the portfolio. Definitely a home run.


Now that the major economics are behind us for a couple weeks all eyes will turn to the Q2 earnings cycle. That could be a blessing or a curse. More than 90 S&P-500 companies have already warned about Q2. That is sure to exceed 100 and 20% of the index components in the week ahead. I reported last week that expectations had declined to 5.2% earnings growth, down from 7.3%, and +2.6% revenue growth according to S&P Capital IQ. Financials are expected to be the biggest drag at only +0.6% earnings growth.

The U.S. economy may be improving but 50% of the revenues of S&P companies come from outside the USA. Europe is dragging and Asia has been in a slump. South America is in turmoil with currency issues plaguing companies doing business there. The Middle East is in a war and tourism and consumer spending is minimal. When bullets are flying down your street buying a new flat screen TV or an iPad are not the top thoughts on your mind.

The earnings calendar for next week is minimal. Only three companies stand out. Alcoa on Tuesday is important because it tells us about aluminum demand, which is a proxy for global economic activity. Progressive on Thursday could be our first look at the casualty amounts for Q2. Some estimates from wind and hail are over $1 billion for the quarter. Lastly Wells Fargo on Friday gives us the health of the mortgage market. They are the largest originator of mortgages and home equity loans.

The following week really heats up with about 30% of the S&P 500 reporting. It will be a virtual fire drill for market reporters.


The markets broke out to new highs and did it convincingly. The newspapers this weekend are going to be headlined by "Dow Breaks 17,000, Bull Market Continues." The most hated bull market ever will become even more hated by those on the sidelines. With the majority of professional traders expecting a correction the short interest remains high and funds remain under invested. Retail traders were holding 22% cash in Q1 and that has risen to 27% in Q2 as everyone waits for the correction.

Normally new highs attract new money faster than flies to a picnic but the exception is a summer rally. A rally during the summer doldrums is always looked at skeptically. They typically come on high volatility with a lot of sudden moves inside the overall trend before eventually collapsing in September/October.

We have no volatility with the Volatility Index ($VIX) closing at a new seven-year low. When this situation reverses it is going to be with a vengeance. It could be next week or next month but once panic arrives it is going to be ugly. The VIX spent several weeks under 10 back in late 2006 before shooting up to 90 during the 2008 crash. Obviously nobody expects that to happen again in the near future but the VIX can remain low as long as the Fed continues tapering QE and every minor dip of 2-3% is bought.

They say the trend is your friend until it ends. The current trend is falling volatility and rising markets. In the chart below note that every major spike came in very few candles. When the stuff hits the fan the reaction is immediate.


I listened to the market analysts this week and nearly all were expecting a bout of serious profit taking after Dow 17,000 was achieved. Personally I believe the real level to worry about is S&P 2,000. The Dow is only 30 stocks and the S&P is 500. It takes a lot more to push the S&P around than the Dow. The Dow has been the laggard with only a +2.97% gain year to date. That is the smallest gain of all the indexes.

The S&P is up +7.42% after a +29% gain in 2013. While that is a lot for an index that normally rises 8% in a year there have been plenty of pauses to consolidate. The current rally did not begin until the end of May after the S&P traded in a range for nearly three months. Even with that consolidation pause the S&P took profits in early June and then again starting on June 24th. As long as these 3-2 day dips continue to be bought the trend will continue higher. This gives the current holders a chance to take profits and provides a chance for new investors to buy the dip. Our problem will come when the first dip is not bought. That will be the clue the trend has changed.

The sprint over the last several days from 1,950 to 1,985 has put the S&P within range of the 2,000 target level. When we get to 2,000 there will only be 8 analysts with year-end forecasts that are higher. Clearly some of those estimates are pie in the sky at 2,100-2,185 but we can always hope.

The key point is that at 2,000 the S&P will have already met or exceeded the forecasts of two-thirds of the analyst community. If you are a fund manager and all the major forecasts have been met what do you do? You don't hit the sell button but you do tighten up your risk management and raise your stops.


The worst two months of the year are still ahead. Even in 2013 when we had a blowout year and +29% gains in the S&P the months of September and October were still rocky. From the August high to the September low there was an -82 point drop in the S&P. From the September high to the October low there was a -83 point drop. Fortunately by Halloween both declines had been erased.

We could easily see an 80 point drop in the next 120 days before Halloween. Maybe more! Historically the summer period in midterm election years is very rocky.

On the flip side we could continue to press our gains if the economic reports continue to marginally improve. We don't need any monster gains in the ISM or the regional Fed reports. Slow and steady wins the race. If the reports continue to improve at their recent snail's pace then the market can continue to move higher in measured steps.

Right now the markets are afraid of prosperity breaking out. (HT Art Cashin) If the economy suddenly caught fire and surged ahead the Fed would be forced to scrap the "considerable period" clause on rate hikes after QE and take evasive action to offset a rapidly rising economy. In the Fed's mind they want +3% annual GDP for the rest of the decade. They don't want to see 4-5% or even higher because that becomes a breeding ground for inflation. If prosperity were to breakout with new jobs surging to 350,000 or even 400,000 a month it would scare the skirt off Janet Yellen. The hawks on the FOMC would be dining on red meat from the terrified doves.

Since there are no economic reports of note for next week the only pothole is the FOMC minutes. Analysts are pretty sure what they are going to say since this was a press conference meeting and all the questions have already been asked and the answers dissected. Therefore I don't consider the minutes a major stumbling block. I could be wrong.

If the S&P moves over Thursday's closing high at 1,985 on Monday I think we have a good chance of testing 2,000 before the week is out. Once we hit 2,000 all bets are off. There could be quite a few sell stops at or just below 2,000 even though the economy is tiptoeing higher. It is a money management problem. Expectations have been met and some risk comes off.

Remember, the first five days of July are powered by end of quarter, end of half retirement contributions. That incoming cash flow dries up next week.

More than 90% of the S&P stocks are trading over their 200-day average.


Also, 85% of the S&P stocks are trading over their 50-day short term average. This is right at the level where they topped out since June of 2013.


Last but not least 84.4% of the stocks in the S&P have a point and figure buy signal. This is exactly the level of bullishness where the market failed multiple times since early 2012.


Markets can remain bullish far longer than analysts can remain skeptical of the move. Once everybody turns bullish the move is over.

Support at 1,950 is growing and regardless of what happens at 2,000 I believe 1,950 will hold.


The Dow punched through the 17,000 level with conviction. It is too bad it only occurred on volume of 3.5 billion shares. Next week we should see volume pick up as fund managers and individuals make decisions based on the new highs and round numbers.

The Dow hit 13,000 in February 2012 and it took it a year to hit 14,000. The next 1,000 points only took just over three months and the next 2,000 points took about seven months for each 1,000 points. The only one of those increments that did not see significant declines before hitting the next level was the 14K to 15K sprint in just over three months.

13,000 February 11th, 2012
14,000 February 1st, 2013 - 12 months
15,000 May 7th, 2013 - 3.5 months
16,000 November 18th 2013 - 7 months
17,000 July 3rd, 2014 - 7 months

There is nothing magic about these round numbers. Several of those saw the Dow trade above and below those numbers for hundreds of points numerous times before moving to the next level.

For the Dow these are just numbers on a chart. With only 30 stocks in the index any 4-5 stocks making decent gains over a month or two can overcome all the rest and power the index higher. In the current case it was Caterpillar (CAT) that pushed the Dow higher. CAT's gain since November has accounted for nearly +250 Dow points. That is another Ultimate Investor position that we added at $95.


Chevron gained +22 points or +176 Dow points.
Disney gained +27 or +216 Dow points.
3M gained +20 or +160 Dow points.
JNJ gained +20 or +160 Dow points.

However, for every gainer there were several decliners. It is a wonder we actually reached the 17,000 level. When you have some free time this weekend sit down and run through the charts for each of the Dow stocks. If just 5-6 of the weak stocks started to trend higher we would be talking about 18,000 instead of 17,000.


Can the Dow go higher? Absolutely but all it would take is a couple earnings warnings to knock it significantly lower.

We all know from past experience the markets move higher and faster when we least expect it. Very few analysts are expecting the Dow to move materially higher in the short term.

On Friday an associate and I were having a conversation about exiting positions because the market could put in a top any time now. My point was that nobody can time the market every time. Ask the millions of investors in cash on the sidelines today and hating this rally. They thought they could time the market. I have been there and done that and been frustrated more times than I can count. My parting thought in our conversation was "The trend is your friend until it ends and when that happens your stop loss orders suddenly become your new friend." Peter Lynch is famous for saying, "Cut the losers and let your winners grow." Jesse Livermore said, "Always sell what shows you a loss and keep what shows a profit." Lynch also warned that "more money had been lost trying to avoid a downturn than would have been lost in the downturn."

The Dow spiked higher on July 1st from 16,800. It consolidated for a day at 16,950 and then blasted well past 17,000 to close at 17,068. The consolidation on Wednesday should give us initial support at 16,950 on any future weakness. Even if we dipped back to uptrend resistance at 16,825 would that be so bad? People are picking apart handfuls of points when we are talking about a major long term move. Since the rebound in February the Dow has been a steady gainer BUT only if you look at the daily chart. You can't look at a shorter term chart or all you will see is static.


On the weekly chart the last month is a very smooth, low volatility rally. Contrast that with the 90 min chart above and the difference is amazing. Don't get too close to the market or all you will see is static.


Support at 16,825 and 16,950 with resistance at 17,300.


The Nasdaq Composite is in blue sky territory. The last material resistance is 4,500 and it should be clear sailing after that to 4,800. I know that sounds like I have been drinking the Ralph Acampora Kool-Aid but it is the truth. Any dips along the way will be headline related or the result of some earnings disaster or simply profit taking. What I am trying to say is there is very little in the way of technical resistance for the next 300 points.

I obviously don't expect the index to just run in a straight line to 4,800. There will be dips and possibly major declines. This is especially true considering the calendar period ahead. This is even more likely because the Nasdaq has gained +450 points since May 15th. There were multiple consolidation periods along the way but that is still a huge +11% gain. When you consider the Nasdaq is only up +7% for the year that emphasizes the profit taking in March and April. The Nasdaq declined -9.7% from 4,371 to 3,946 from the March highs to the April lows.

The Nasdaq is only 12.5% below its all time high of 5,132 on March 10th, 2000. The low after that high came in October 2002 at 1,108. It has been 4,285 days since that low and the Nasdaq has rallied +302%. Most of that came after the March 2009 recession low with a +253% gain as of Thursday. The Nasdaq has rallied +13.7% since the April lows. If it were to repeat that move over the next two months we would be back at new historic highs.

Whenever the Nasdaq goes through a rocky period like we saw in March/April it tends to erase that decline and then sprint higher as the bears are forced to cover when the prior highs are surpassed. I do think the Nasdaq is over extended today but every 2-3 day dip should be bought.

In this case support is well below at 4,371 and 4,344 or prior resistance levels. That is more than 100 points below Friday's close so don't buy the first big drop. Wait for support to appear.



The Russell 2000 is troubling me today. The Russell failed to break out by half a point. Normally that would be no big deal. However, given the +110 point rebound since May and the dead stop for three consecutive days at the prior high of 1,208 we have the potential for a double top.

The Russell had the benefit last week of the reconstitution buying and the end of quarter retirement contributions. That is now over. The Russell will have to move higher on the back of some successful earnings reports. With the warnings in the S&P just under 20% and rising the strength of the small caps may be over estimated.

This would be the perfect place for the Russell 2000 to fail.


However, if the Russell can power over the 1,210 level the shorts would be forced to cover. A strong gain at the open on Monday could trigger that short covering. Traders not in the office on Thursday will play catch up on Monday. Hopefully their first act will not be to hit the sell button.

Support is 1,180 and resistance 1,208-1,210.


The Russell 1000 is another picture perfect index since late 2012. A nicely formed trend channel with plenty of room to move higher before reverting to the mean. This is the top 1,000 stocks by market cap. Buy the dip until the uptrend support fails.


To summarize I don't expect the market to continue straight up. In fact I hope it does the opposite. I would love to see another 2-3 day dip and then a move to new highs. I have said for several weeks we are in "buy the dip" mode. Until longer term uptrend support fails we need to honor the trend.

Random Thoughts

Get ready to pay up for those summer vacations by car. The spike in crude prices caused by the Iraq insurgency has pushed the average price for gasoline to $3.67 and almost 20 cents over year ago levels. Drivers on the west coast are paying up to $4.50 while drivers around the Gulf are closer to $3.25. The spike in 2008 was the only other year where prices were as high this time of year.

AAA expects 34.8 million Americans to take to the roads this weekend. Historically gas prices decline in June but they rose +20 cents this year because of Iraq. The closer gas prices are to $4 the bigger hit we will see to consumer spending. In 2008 there was a dramatic decline in spending because all the extra money consumers could scrape up was going into the gas tank.

Wall Street Journal Gas Price Chart

Gasoline is not the only holiday expense rising sharply. Ground beef for hamburgers has risen 16.5% since last year and price hikes are similar on bread, cheese, lettuce, tomatoes, ice cream, etc. your holiday cookout has never cost you more. Welcome to the age of prosperity brought to you by five years of QE by the Fed.

Blackrock Budget Comparison


Saudi Arabia positioned 30,000 troops on its border with Iraq after Iraqi soldiers withdrew from the area. Reportedly more than 2,500 Iraqi soldiers left their posts and fled deeper into Iraq and away from the ISIS fighting. Saudi Arabia shares a 500 mile border with Iraq. King Abdullah ordered all "necessary measures to protect the kingdom against potential terrorist threats" according to the SPA news agency. Many people believe Saudi Arabia is a principal supporter of ISIS and the Sunnis that are joining ISIS to fight. An Iraq interior spokesman said the entire operation was a cover to position Saudi troops on the border in preparation for an invasion of Iraq to claim its own piece of the pie should Iraq self destruct as expected.

ISIS or ISIL depending on the reporter has now changed its name to simply IS for Islamic State. Iraq has been using jets purchased/borrowed from Russia to pound the IS positions and the Iraqi army has finally mobilized their artillery and are slowly taking back the outward edges of the ground held by IS.

Ukraine has vowed to retake Crimea and the fighting just keeps getting worse. On Friday three Russian military helicopters crossed the border into Ukraine to help Russian separatists in a village in the Luhansk region. Nine civilians died in those skirmishes.

On Friday Russia passed a law requiring all websites that handled the personal data of Russian citizens to host those websites on servers in Russia. On the face the law was passed for protection of that data but analysts believe it is really to control what is said on the Internet. Starting in 2016 all companies handling Russian data will be forced to use Russian servers or be blocked from operating in Russia. This is seen as a way to block sites like Facebook, Twitter, YouTube, etc, and prevent the rapid sharing of information between Russian citizens and block political comments. Russia just enacted a rule requiring blogs and news websites with more than 3,000 daily visitors to register with a communications watchdog. Another law allows Russia to shut websites down immediately without a court order.

Critics claim all these laws are a new wave of Russian censorship. If you shutdown the websites and social communication in times of civil strife the spread of information ceases. Putin, a former KGB officer has called the Internet a "CIA project." Russia already has a law that allows the blocking of websites deemed "extremist" or a "threat to public order." Many websites of Kremlin critics have already been shut down because they "contained calls for illegal activity." Twitter officials met with the Russian communication watchdog last month and the Russians demanded that more than a dozen twitter accounts be shutdown. Russian protestors used social media to generate massive protests against Putin and coordinate their moves when he ran for office again in 2012.

On the same topic China blocked Flickr photo sharing and messaging applications Line and Kakao last week. YouTube, Facebook and Twitter are also unavailable in China.

The Iraqi Kurds started a move toward independence last week. President Massoud Barzani, speaking to parliament, asked lawmakers to start making plans for an independence referendum. Barzani said he no longer felt bound by the Iraqi constitution and wants a vote on the right of self-determination, which would be the Kurd's boldest move towards statehood in 94 years. "The time has come to determine our fate and we should not wait for other people to determine it for us." The sudden motivation comes on the heels of Iraq's inability to act decisively to protect them from the invading ISIS force. Kurdish forces seized Kirkuk and protected it from ISIS when Iraqi forces fled in the face if the ISIS advance. The president said, "We will try to help our Shia and Sunni brothers … to get out of this crisis, but to be truthful we will [be responsible for] a new people [Kurds] who believe in coexistence, democracy and constitution. We will not deal with those who sabotaged the country." The Kurdish parliament believes a vote on independence could be held within two months.

JP Morgan cut its GDP estimates again. The bank now expects only a +1.4% GDP for the entire year and the lowest rate since the recession. This comes after a -2.9% GDP in Q1. The bank lowered its GDP forecast for Q2 from 3% to 2.5% but kept the 3% estimate for Q3 and Q4 for at least a few more weeks. The bank said now that Q2 has ended it looks like the real GDP for the first half will be negative despite a surge in job growth. At the same time labor costs rose by roughly 5%. Stephanie Pomboy of MacroMavens said, "How do you go from a -2.9% contraction in GDP to +3% GDP growth in a couple quarters? I don't see it happening."

Analyst Joe Donohue pointed out that once the extended unemployment benefits were halted in January and the food stamp rolls were cut that employment suddenly surged beginning in February with 220,000 jobs and rising strongly ever since. When you subsidize unemployment by sending out billions in extended compensation you get more unemployment. Many people would prefer to sit at home and collect a variety of monthly checks and food stamps rather than have a job. When the skillfully unemployed can game the system for up to $75,000 in benefits a year that is a strong incentive not to work at a $40,000 a year job. Once those checks went away the laggards were forced to find work to support their eating habit. There is still a serious problem with unemployment. For instance millennials, those who reached adulthood around the year 2000, have an unemployment rate of about 40%. They are roughly 30-35 years old now and a high percentage still live at home with their parents.

"Investors should acknowledge that this is not an ordinary, average, typical or normal bull market and thus many approaches and metrics are not useful or applicable." Lazlo Birinyi on Thursday. Uber bull Jeremy Siegel called for Dow 18,000 by year-end and a move to 20,000 in 2015. Let's hope he is right.

Macy's will spend $6 million on their fireworks show in New York City. The Boston Pops spent $2.5 million and Philadelphia spent $2 million. There are about 14,000 professionally prepared fireworks shows in America this weekend costing about $320 million. Consumers spent $645 million on "at home" fireworks in 2012, up from $284 million in 1998. The average American spends about $28 a year on fireworks. The 18-24 age bracket averages $70 per season while the age 65 and over spends only $15 each. When you consider how many people don't buy fireworks you realize those individual purchases by those that do are actually a lot higher.

The S&P has now gone 1,005 days without a 10% correction. That is the fifth longest stretch since 1928. It is the longest since a 1,127 day rally from July 1984 to August 1997. The longest ever was a 2,553 day run from October 1990 to October 1997.

Since the Dow was created in 1896, if the index is up in the first half of the year it was up in the second half 71% of the time. If it was down in the first half then it was down in the second half 67% of the time.

The Bank of International Settlements (BIS) is a hub for gathering and analyzing data provided by the 58 member central banks. They provide in depth analysis and broad policy recommendations. They warned last week that short term policy responses to the last crisis may be creating a bigger one down the road. BIS warns that "policymakers have failed to address the root problems that caused the 2007-2008 financial meltdown. Instead of taking a long-term perspective aimed at increasing real economic productivity and output — the kind that actually benefits people by raising living standards — government officials have sought to pump up the numbers through monetary and fiscal stimulus." The bank warned that not only stock exchanges but a whole group of world financial markets are rallying in unison for the first time in 20 years. Commodities, stocks and bonds appear to be betting on continued stimulus and low rates from central banks for years to come. This is creating a bubble that will eventually burst.

The cost of credit default swaps on U.S. debt is rising. The price is not set by the U.S. but by traders demanding more credit insurance on U.S. debt. The reason for this is the rising debt load, now over $17.5 trillion and projected to be $25 trillion by 2022. Secondly the growing hostility in Washington between the President and lawmakers is expected to increase. Republicans are expected to gain a larger and more vocal majority in the House and potentially gain control of the Senate. This means a serious confrontation when the debt ceiling comes up for debate in early 2015. With Obama a lame duck and republicans in control of both houses there will be a huge fight for spending cuts when the current spending limit expires. President Obama has declared forcefully he will not negotiate on the debt limit even though both parties have used the debt limit as a bargaining chip in the negotiations for the last 60 years. The president will negotiate with terrorists but not with lawmakers. How does that work?

With the debt rising and interest rates set to rise the U.S. could see its debt service payments triple by 2020 even if yields on the ten-year note only rise to 3.5-4.0%. Tripling the debt service to $1 trillion a year only means the U.S. will sell another trillion in debt each year to pay for the interest on existing debt. You can't get a cash advance on your credit card to pay your bill forever. Eventually that plan comes to an abrupt halt. Apparently international debt buyers are putting 2 and 2 together and realizing the long term risk of default is growing.

On Thursday Mario Draghi released the plans for what the ECB is calling the "Targeted Long-Term Refinancing Operations" or TLTROs. He said the eventual scope of the program could far exceed the 400 billion euros initially discussed. Under the new program European banks could borrow up to one trillion euros at 0.15% interest as long as they promise to loan the money out. Can you say giga-bubble ahead?

If you want to get out of Mexico and safely into the U.S. hassle free for at least a year you don't have to pay a smuggler or risk your life swimming across the Rio Grande River. Homeland Security is now handing out "Get Out of Mexico Free" cards. The only catch is that you have to snitch on Mexican cartels or drug dealers. If you provide "credible information" that results in arrests the DHS will invite you into the U.S. as a reward. That assumes you live long enough after snitching on your druggie friends to actually get across the border. In order to have enough credible information to qualify you would probably have to be a member of one of the cartels or involved in a drug operation. No problem, all your past sins are forgiven, come on over!

In an interview on CNN a border patrol agent said the U.S. government was giving illegal immigrants a free pass. He said the feds were releasing immigrants coming into the U.S. using the equivalent of an honor system and asking them to report to an immigration hearing 90 days later even though they know very few will actually show up. Agent Hector Garcia defied a government gag order on border patrol agents to tell his story on CNN. Agents have been told not to talk to anyone about their orders and operations and sites where the underage children are being bused are off limits even to Congressmen wanting to see conditions themselves. He also said 70% of border patrol agents have been taken off patrol and assigned to desk duties. You can't make this stuff up.

Enter passively and exit aggressively!

Jim Brown

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"Today we deal with 65,000 more pieces of information each day than did our ancestors 100 years ago."

Dr. Jean Houston