MARKET TURMOIL YTD February 1st

Week end January 30, 2015
The word Turmoil according to the Dictionary means, “a state of great disturbance, confusion, or uncertainty and its synonyms are confusion an turbulence; this pretty much sums up the US Stock Market results YTD.

We ended the week with major Equity indexes off over 3% YTD. The DOW is off 3.69% and the better representative index S&P-500 was down 3.06% since year end 2014.

A few facts need to be reiterated.
---The Dow Jones highest closing price thus far was recorded on 12-26-2014 at $18,054
---The Dow closed on 1-30-15 at $17,165 down $889 from the December all time high or 4.92%.

We are now in the reality of the law of high numbers; when the market is up or down a couple of hundred bucks a day our mindset is “Gee, what a huge move” and you’re scared or euphoric because in your memory these moves were unusual. Get over it, at Dow %18,000 a 10 percent correction is a down move of $180,000. That 10 percent down move from the high would take us to $16,200; that’s a very normal move that will scare a lot of people.

My view is that the market goes down another 3% or so before heading back to its highs. I’m buying NOBL, SPY, DGRW and if your into only Mutual Funds Fidelities FUSEX tracks the S&P-500.

Google presents the Business concept of “FREE”

We all know Google; it’s a part of our lives and one of those strange words that is both a noun and a verb. What isn’t as often noted is how they have pioneered an entirely new Business concept that could be called “Free” stuff for all.

Google started in 1998 and 16 years later it enjoys revenues of $17Billion mostly be giving their products to the ultimate consumers for free; a business plan that has put fear into the Big-business community.

It is very easy to understand how Amazon and Apple make money. They sell books, computers, software, apps, electronic gadgets, consumer goods, electronic books, music, video and so on to their customer base.

In contrast, Google spends vast sums of money developing products then gives them away for free. Some examples are,
1. Their Search engine, the verb / noun “Google”
2. Google email (Gmail) Do you remember when AOL wasn’t free?
3. Operating system Software, Chromecast
4. Operating system for PCs that stores in the “Cloud” , ChromeOS
5. Maps (Google Maps) on cell-phones and computers.
6. Cloud-based apps (Google Docs)
7. Video hosting and sharing (YouTube)
8. Matrix, The Google way to find cheap air flights
9. Photo sharing, editing and organization (Picasso)
10. RSS reader (Google Reader)
11. Photo storage in the “Cloud” with Picasso
12. Free Blogging sites & tools (Blogger)
13. Language translation (Google Translate)
14. 3D modeling software (SketchUp)
15. Operating systems (Android).

In addition to these “Free” to the consumer programs and apps they are pouring research and development cash into driverless automobiles, lifespan expansion and their own wireless phone company (think Verizon).

They are a serial disruptor of established Business plans. They give away a Computer operating system that challenges Microsoft and things like Google maps on your cell phone have upended the various GPS unit manufacturers. It is very difficult to beat a competitor who is happy giving away his product. AT&T and Verizon must now contemplate viable competition to the near monopoly they have enjoyed for years.

Google, in contrast to the way businesses have been structured, believes that all information should be freely available and abundant. They make great effort to ensure that information remains free.

Microsoft has long been the Darth-Vader of tech innovation but even they seem to sense the change. Their business plan is essentially an annuity-like charge for everything, but in the last few years they have introduced “Bing” a search engine that mirrors Google and in January 2015 they announced that their new Windows-10 would be free to past customers. I think they see Google in their rear-view mirror and we all know that “objects in mirror are closer than they appear.”

So, how does Goggle make money? To understand the paradox of essentially gifting your products, you have to understand what exactly Google is selling. Google is so dependent on free and abundant information that if info becomes scarce, Google’s business model will collapse. That means that Google, unlike Microsoft, Amazon and Apple, et-al is not in the business of selling information. So, what are they selling?

To understand exactly what Google is selling, there is a crucial point to understand; in Google’s ideal universe, information is free and abundant, but consumer attention is scarce. This is a positive feedback loop that attracts the attention of the consumer. This info loop forces businesses to give more and more information away, which in turn causes information to be more abundant (collectively), which in turn makes consumer attention even more scarce (for each individual businesses), which forces businesses to give yet even more information away. And by the way, the fact that you are reading this for free is testament to the fact that I’m trying to attract your attention.

And here is the crux of Google‘s business model—it sells access to consumers’ attention (access to you BTW). By using Google’s free products, your attention is totally captured by Google. Then it sells your attention to businesses in the form of advertisements (e.g. paid advertisement in search engine results page, blogs, your emails if you’re using Gmail etc). It’s kinda a very sophisticated kind of “Shopper-Tabloid”

That is why Google is so busy giving away wholly integrated sites of interesting products and services. The whole purpose is to capture your attention which they then sell. To put it simply, Google, at its core, is an advertising company that has discovered that creating interesting products to give-away captures the eyeballs that advertiser’s prize.

That’s why Google will never charge for the free stuff that it is giving away. If they do charge you can bet they will lose a lot of the attention of their consumers. As a result, they will then have less attention to sell.

This is beyond wonderful for the consumer but the source of much angst in boardrooms around the globe. The business world greatly values predictability and Goggle’s business plan is the anti-profit predictor.

As you use the free to the consumer services of Twitter, Facebook, Snapchat or any of the hundreds of free apps for your phone, thank Google as the pioneer of “Free.”

Disruption in your business or investment is not just possible but now it's probable; If you think I'm kidding just Google it.

let’s be careful out there!

Stock Market Hysteria & Tulips
By: Murray Stahl -Circa 2014

Could a mere tulip bulb be worth $76,000? It is if people are willing to pay for it! It may sound preposterous, but this is exactly what happened in Holland in the 1630’s. It’s a story that sometimes describes the Antique Car market and our Investor World. These are my two main interests and I often revisit this parable in times of Market Stress.

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The seeds of this craze were planted in 1593. A man by the name of Conrad Guestner imported the first tulip bulb into Holland from Constantinople, in present day Turkey. After a few years, tulip bulbs became a status symbol and a novelty for the rich and famous. Eventually, tulip bulbs became a hot ticket item in neighboring Germany, as well. After some time, a few tulip bulbs contracted a non-harmful plant virus called mosaic. The effects of this mosaic virus were tulip petals with beautiful “flames” of color. This unique effect furthermore increased the value of the already rare and highly exclusive tulip bulb.

Initially, only the true connoisseurs bought tulip bulbs, but the rapidly rising price quickly attracted speculators looking to profit. It didn’t take long before the tulip bulbs were traded on local market exchanges, which were not unlike today’s stock exchanges. By 1634, tulip mania had feverishly spread to the Dutch middle class. Pretty soon everybody was dealing in tulip bulbs, looking to make a quick fortune. The majority of the tulip bulb buyers had no intentions of even planting these bulbs! The name of the game was to buy low and sell high, just like in any other market. The whole Dutch nation was caught in a sweeping mania, as people traded in their land, livestock, farms and life savings all to acquire 1 single tulip bulb!

In less than one month, the price of tulip bulbs went up twenty-fold! To put that into perspective, if you had invested $1,000 and came back on month later, your investment would have ballooned to $20,000! Now you can understand the mad rush to buy tulip bulbs at any cost. Tulip bulb mania affected the public psyche to an extreme. One drunk man in a bar started peeling and eating what he thought was an onion, while it was in fact it was the bar owner's tulip bulb on display. This man was jailed for many months!

All common sense and logic was thrown to the wind, and even scoffed at. This is exemplified by how many USEFUL items it cost to buy 1 single tulip bulb:
• four tons of wheat
• eight tons of rye
• one bed
• four oxen
• eight pigs
• 12 sheep
• one suit of clothes
• two casks of wine
• four tons of beer
• two tons of butter
• 1,000 pounds of cheese
• one silver drinking cup.

Mind you, these valuable items COMBINED only equaled the value of 1 tulip bulb! The modern day value of these items is over $40,000!

In 1636, tulips were trading hands on the Amsterdam stock exchange as well as on exchanges in Rotterdam, Harlem, Levytown, Horne and many other exchanges in other nearby European countries. These exchanges started to offer option contracts to speculators. These option contracts allowed tulip bulbs to be speculated upon for a fraction of the price of a real tulip bulb. This allowed people of lower means to speculate in the tulip market. Additionally, options allowed for leverage. Due to leverage, option buyers were able to control larger amounts of tulip bulbs, allowing a greater profit. In a previous example, we showed how a $1,000 dollar investment would have yielded $20,000 in one month. As if this weren’t enough, option leverage allowed this same investment of $1,000 to balloon into $100,000! Unfortunately, leverage is a double-edged sword. If the tulip bulb price moved downwards ever so slightly, the option buyer’s investment would be lost and they might even owe money! Talk about risky. But at this point, it was commonly believed that the tulip market was immune to crashing and that it would “always go up”.

After some time, the Dutch government started to develop regulation to help control the tulip craze. It was at this point that a few informed speculators started liquidating their tulips bulbs and contracts. It was these people, or the smart money, that secured large profits that were now in the form of cold hard cash. In addition, more tulip bulbs were added to the supply due to people harvesting new tulip bulbs. Suddenly tulip bulbs weren’t as quite as rare as before. The tulip market began a slight down trend, but shortly after started to plummet much faster than prices went up. Suddenly the market began a widespread panic when everyone started realizing that tulips were not worth the prices people were paying for them. In less than 6 weeks, tulip prices crashed by over 90%. Fortunes were lost. Wealthy became paupers. Bankruptcies were everywhere due to the negative side of option leverage. People that traded in farms and live savings for a tulip bulb were left holding a worthless plant seed. Many defaults occurred, where speculators couldn’t pay off their debts.

The Dutch government avoided intervening, only to advise tulip speculators and owners to form a council to attempt to stabilize prices and mend public confidence. Every one of these plans failed miserably, as tulip prices plummeted even lower than before.

Assembled deputies of Amsterdam nullified all of the contracts purchased at the height of the mania. The supreme judges of Amsterdam declared all tulip speculation to be gambling, and refused to honor these contracts. As a result, payments were not enforced by any of Holland’s courts. This further fueled the market crash.

The financial devastation that followed the tulip bulb crash lasted for decades, crippling Dutch commerce. The price of tulips at the height of the mania was $76,000; 6 weeks later they were valued at less than one dollar! The only people who prospered from the insanity were the smart money who liquidated at the top.

In market manias, the investors are acting irrationally. Excessive greed causes people to feel financially invincible and make decisions that cause financial devastation. This process occurs regardless of if the market is a commodity market or a paper market like stocks. The moral is clear; the only way to survive is to be the smart money.

As in all thing, “the more things change, the more they stay the same.” The next time you see a nondescript antique car auctioned for big bucks take a seat in your garage, sip a beer and think of tulips. It goes without saying that investing in the stock market “Story Stocks” can resemble the old game of “missing Chairs,” if you have to buy into a bubble be sure you're not left without a chair!

The message Kids is, “be careful out there.”

NOBL--- ProShares S&P 500 Dividend Aristocrats ETF

Fund Strategy
The investment seeks investment results, before fees and expenses, that track the performance of the S&P 500® Dividend Aristocrats® Index (the "index"). The index, constructed and maintained by S&P Dow Jones Indices LLC, targets companies that are currently members of the S&P 500®, have increased dividend payments each year for at least 25 years, and meet certain market capitalization and liquidity requirements. Under normal circumstances, the fund will invest at least 80% of its total assets in component securities.

-----Dividend payout of 1.6% a Year
-----2013 performance of +15.5% Growth in NAV (S&P-500 returned 13.8%)

-----Top-10 company stocks held in NOBL are –Lowes—Target stores—Sherwin Williams—3M Corp.—Genuine Parts (NAPA)----Walgreens Drug----ABBV Drus----Air Products. These ten holdings are 22% of the 54 total holdings in NOBL

Welcome to our "new" taxes

A reminder for those who forgot or for
many that didn't know

Here is what happened on January 1, 2015 :
Top Medicare tax went from 1.45% to 2.35%
Top Income tax bracket went from 35% to 39.6%
Top Income payroll tax went from 37.4% to 52.2%
Capital Gains tax went from 15% to 28%
Dividends tax went from 15% to 39.6%
Estate tax went from 0% to 55%



These taxes were all passed under the Affordable Care Act, aka Obamacare.