This week in Barrons ... 04.27.2009
Today's Commentary:
Thoughts: My worry is that the average “Joe” is paying more attention to what the economic experts have to say, because he's been affected directly by the meltdown. He has seen his friends laid off, his home value fall, and his 401K get decimated. So, he’s now trying to get a handle on current affairs, however he's being fed a line of BS from the very media he's attempting to learn from. So, in a way, it’s not “Joe’s” fault, and he’s becoming convinced that Uncle Sam will ultimately pull us out of all this and life will go on. CNBC tells him that it's the best possible time ever to buy stocks because "by Q4 – 2009 everything will be rockin." The media tells him every day that things are "less bad" than they were, and the numbers aren't sliding as fast as they were. All in all “Joe” has come to the conclusion that it's "all going to be okay". In boxing there’s an old saying “it’s the punch you don’t see – that knocks you out!”
This week we finally got what everyone already knew, that the government forced the buyout of Merrill Lynch by Bank of America. Ken Lewis of B of A told us that Hank Paulson made him do it – “or be crushed.” What about all those great bank earnings – well Goldman posted it's largest loss in December – but cut off its fiscal year in November and restarted recording in January. Where did December go? Morgan Stanley just did the same thing à who as a result of changing ‘fiscal year ends’ from November 30th to December 31st – reported a $1.3B net loss – presented on page 19 of their ‘financial supplement’. So, a $1.3B loss just evaporates from the actual balance sheet – income statement and appears as a footnote on page 19. And all the “average Joe” knows is that things are getting better and Uncle Sam and the FED have pulled off a miracle.
The average “Joe” this week has heard numbers suggesting that the steep decline in housing has ended, and there are "silver linings" in the recent reports. Unfortunately 62% of those home sales were “foreclosures or short sales” AND there are more than 650,000 more homes in foreclosure that banks haven't "taken back" because they don't want the homes to show up on the balance sheet as non performing? At the end of 2008 and into 2009 – most lenders put a moratorium on foreclosing, waiting for Obama's rescue plan, and now that the plan is shown to be of little use, they are foreclosing again. Most banks have allowed people to live in homes "rent free" because the minute the bank actually takes them in, they have to pay property taxes on them, mostly in arrears. ARM resets will hit again this year – and that a record 19 million homes stood empty in the first three months of 2009.
I wonder if the average “Joe” knows that according to Bloomberg, directors, officers and other insiders have sold $353 million worth of stock in this fading month, or 8.3 times the total bought. In fact, insider purchases of $42.5 million are on track to make April the skimpiest month for such buying since July, 1992. Directors, officers and insiders ONLY listen to the ‘front lines’ and are not seeing a whole heck of a lot that they like.
This week in the Market: Please don’t be an average “Joe”. We are racing towards a wicked inflationary depression. You can’t drink yourself softer, and you can’t fis a debt and credit spiral with more debt and more credit. The market is currently at a ‘catch your breath’ place. We are on an economic "landing" now, just catching our breath from the first major wave of the downfall. There's a long flight of downward stairs ahead.
- Continue to own gold and silver. Gold is money, and can't be debased with a printing press.
- Don't overextend yourself – and don’t buy a new ‘boat’ or ‘bit item’ just yet
- Stay away from debt and save your cash.
Currently the market is higher in order to absorb the up-coming news of the ‘stress tests.’ Virtually all the firepower of the institutions, banks, and Federal Reserve is focused on propping up the market. But let’s not lose focus – the market is a constant series of methods of confrontation and confusion. So, at the DOW low of 6600 as tens of thousands were closing their accounts, going short, and stopping contributions to their 401K, the market inflicted "max pain" and ran for 1600 points, and instead of rolling over and dying, it's held up, confounding even more people.
I do expect a major smackdown again, for 2 days – coming shortly – and that should shake out the nervous and the latecomers. So I think the ‘punch’ will come – but it won’t be massive and it will be “buyable.” As most people adopt the old "sell in May and go away", the market will probably confound them and move even higher. Back on 4/17 the DOW hit 8251, and since we're below that right now at 8076, that old high could be short term resistance for a while. I wouldn't be putting much money into the market here, until we put in a good solid close over that 8251. But, if we can do that, we'll see 8500 soon enough.
Tips:
- We’re up over 50% in UYM, and I'm starting to consider taking a bit more off the table.
- FAS we only have ¼ position left (after the 300% increase) – so I won’t hold if it goes below 6
- So, is there anything else I'd like? In the future we're going to short the retailers, the commercial real estate guys, and the market themselves. But, I think that’s several months away. If I'm right, we'll get a punch down this week, but it won't be cataclysmic, just a bit scary, and it will be buyable. And a few names I’d watch are: Amazon (AMZN) and Apple (APPL).
- Finally you may be hearing about a company called ARAY. ARAY owns a medical device called the "cyberknife", which is a very advanced way of shooting cancers with radiation and the results have indeed been stunning. They are calling it the next Intuitive surgical, and for a small company to have such a successful machine is indeed a big deal to the bottom line. It’s currently trading at 5.99 - has already had a decent run and may be tired. In time, ARAY could be worth a double at some point as more and more operating rooms buy Cyberknife for treating prostrate, brain and lung cancers. So, if you take a position, make it small, and sit on it. You might see 5 before seeing 7, but it's possible that given 6 months or so, it could see 9.
Good luck folks, and please don't be an average “Joe” – remember it’s the punch you don’t see that knocks you out. Until next week – Be Careful!
R.F. Culbertson
rfc@getabby.com
Sunday, April 26, 2009
Sunday, April 19, 2009
All – hope this finds you well ...
Someone asked me this week – has society’s insanity increased or is it simply because our ‘information reach’ is so much further, faster? Factually 70% of our information is gained ‘peripherally’ (i.e. things that we’re not directly concentrating). Due to the downturn: the world is consumed in ‘focus’ and ‘getting by’ and not in any type of ‘peripheral’ knowledge gathering. Hence it’s this ‘peripheral’ knowledge that is giving us the illusion of increasing in speed. Now – having said that – it’s actually ‘both’. Because it now takes ‘catastrophic’ news to even ‘dent’ our behavior. We are in a time of information overload – and with much of the information being ‘catastrophic’ in nature. Where this impacts you and I – is that it often prevents us from putting all of the pieces of the puzzle together.
As this economic recession deepens, we will all see that the banks actually run the country, and how those 15 Goldman Sachs alumni (placed in the highest areas of Government and economic policy) are going to influence virtually everything. For example: Goldman Sachs, carrying billions in garbage toxic slime, lent over $13 Billion to AIG (through the back door), SHORTED AIG stock – and then had the gall to produce $1.8 Billion in profits for the first quarter? Why didn’t CNBC (or any major news network) notice this? How can Tim Geithner ask for $2 Trillion more for a banking system that is recording "record" profits – because he knows that a ‘Depression’ is coming!
Factually:
- Another wave of Adjustable Rate Mortgages are set to reset, and that will cripple another 600k familes.
- Last week, General Growth Properties filed the biggest real estate bankruptcy in history. This is Commercial Real Estate and as more retailers and businesses fold – commercial space will be left vacant – and the Real Estate holders can’t roll-over the debt because the banks won't lend to them. This will easily eclipse the private real estate disaster that we’re presently experiencing.
- In the good old days we had $680 billion dollars a year coming to "consumers" via home refinancing – well – we’re on track for 2009 to be $36 Billion = 5%.
- By relaxing the Mark to Market standards so more business can Mark to "Fantasy", companies will post earnings that let them look solvent for a while longer as they try and unload their toxic waste and pray against hope that they can roll over their existing debt with new financing.
- And no one is talking about the other hundreds of Trillions in Credit Default Swaps (CDS's) that were written against anything and everything. That time bomb is still ticking and the fuse gets shorter every day.
This week in the Market:
The market is still clawing out gains, although you can feel the toppiness. Will the market roll over and crash downward – or will it continue to confound to the upside? Look at near-term behavior: In 2007, despite horrible economic news, people piled into the market because they couldn’t stand missing the run-up. Then, like clockwork it pulled the rug and we crashed for 7K points. Then, back around the beginning of March, 2009, everyone was so tired of losing money they stopped participating in their 401K, closed their brokerage accounts, and some even went short. Once again, when the maximum amount of people had crossed-over, "boom" up we went in a tear only equaled once, and that was in the midst of the great depression.
We’ve run up hard – and by some accounts over 30% in just 6 weeks. About two weeks ago we started hearing the “sell” and “overbought” cries and this was just a bear market bounce and we'd be retesting the lows soon. Now the mindset has changed to more and more people are beginning to get the urge to "get back in" and make back their losses. This is a crucial time for the market, probably the most important time of the last 6 months. This coming week will bring us hundreds of earnings reports. If the market simply pauses and backfills a little, but holds it's uptrend, there will be a stampede to "get back in". We could rock higher for another 2K DOW points in a matter of just a few months.
You see, the FED knows that with $13.2 trillion in hand outs and pledges, if the market were to roll over and crash again, it would show that people have lost all faith, the programs weren't working, and they'd have no more ammunition left. So, it's to the FED’s best interest to have their "Plunge Patrol Team" directly buy equities under the blanket of "unusual methods" to keep this market moving higher. The FED has already given out: TARPS, Mark to market changes, Geithner’s PPIP plan, and $Billions to 9 banks so they can lower mortgage payments on defaulting homeowners. The FED can’t let that firepower slip away. On the other hand, the data still stinks. General Growth is bankrupt. Foreclosures are up 24%, and China’s growth rate came in below estimates.
Tips:
My view is that the odds still favor a move higher. Granted we need a pause (a quick slapdown), but it’s my guess that any pause gets bought right up and we soar even higher. Remember when we talked about seeing people sell Treasury Bonds – well the Treasury Bond ETF (TLT) is now at 101 and soon to dip below 100 – as investors are selling bonds they’re investing in stocks and in gold!
Speaking of gold: As you all known the physical price of gold is set by the "paper" price of trading on the Comex. Well, gold has gone lower during this run-up however, more and more investors have been demanding delivery instead of cash settlement, and they don't appear to have the gold on hand to fill the deliveries.
It's my guess there will be a short squeeze in the next month that sends gold soaring again because frankly I don't believe the dealers have the gold that Comex declares they have. I think they've been borrowing to cover, and that cannot last forever.
Here are a couple trades for you to consider:
- FSYS over 15
- ORA and other ‘GeoThermal’ Companies
- UYG, XLF, UYM have made a 50% gain for us – and we may sell and buy in if there’s a pause
- FAS – we cashed in most of our 300% gain
- SLW – has backed off to 7.41 – over 100% gain – under 7 we’re gone – but of all the silver miner/aggregators – SLW is positioned the best
- GSI – a Chinese Steel Holding Company because the Chinese are desperately getting rid of ‘dollars’ buying up real resources, like copper, steel etc. GSI has the ability to make good on that.
Be safe – and until next week, be careful.
R.F. Culbertson
rfc@getabby.com
Www.getabby.com
Someone asked me this week – has society’s insanity increased or is it simply because our ‘information reach’ is so much further, faster? Factually 70% of our information is gained ‘peripherally’ (i.e. things that we’re not directly concentrating). Due to the downturn: the world is consumed in ‘focus’ and ‘getting by’ and not in any type of ‘peripheral’ knowledge gathering. Hence it’s this ‘peripheral’ knowledge that is giving us the illusion of increasing in speed. Now – having said that – it’s actually ‘both’. Because it now takes ‘catastrophic’ news to even ‘dent’ our behavior. We are in a time of information overload – and with much of the information being ‘catastrophic’ in nature. Where this impacts you and I – is that it often prevents us from putting all of the pieces of the puzzle together.
As this economic recession deepens, we will all see that the banks actually run the country, and how those 15 Goldman Sachs alumni (placed in the highest areas of Government and economic policy) are going to influence virtually everything. For example: Goldman Sachs, carrying billions in garbage toxic slime, lent over $13 Billion to AIG (through the back door), SHORTED AIG stock – and then had the gall to produce $1.8 Billion in profits for the first quarter? Why didn’t CNBC (or any major news network) notice this? How can Tim Geithner ask for $2 Trillion more for a banking system that is recording "record" profits – because he knows that a ‘Depression’ is coming!
Factually:
- Another wave of Adjustable Rate Mortgages are set to reset, and that will cripple another 600k familes.
- Last week, General Growth Properties filed the biggest real estate bankruptcy in history. This is Commercial Real Estate and as more retailers and businesses fold – commercial space will be left vacant – and the Real Estate holders can’t roll-over the debt because the banks won't lend to them. This will easily eclipse the private real estate disaster that we’re presently experiencing.
- In the good old days we had $680 billion dollars a year coming to "consumers" via home refinancing – well – we’re on track for 2009 to be $36 Billion = 5%.
- By relaxing the Mark to Market standards so more business can Mark to "Fantasy", companies will post earnings that let them look solvent for a while longer as they try and unload their toxic waste and pray against hope that they can roll over their existing debt with new financing.
- And no one is talking about the other hundreds of Trillions in Credit Default Swaps (CDS's) that were written against anything and everything. That time bomb is still ticking and the fuse gets shorter every day.
This week in the Market:
The market is still clawing out gains, although you can feel the toppiness. Will the market roll over and crash downward – or will it continue to confound to the upside? Look at near-term behavior: In 2007, despite horrible economic news, people piled into the market because they couldn’t stand missing the run-up. Then, like clockwork it pulled the rug and we crashed for 7K points. Then, back around the beginning of March, 2009, everyone was so tired of losing money they stopped participating in their 401K, closed their brokerage accounts, and some even went short. Once again, when the maximum amount of people had crossed-over, "boom" up we went in a tear only equaled once, and that was in the midst of the great depression.
We’ve run up hard – and by some accounts over 30% in just 6 weeks. About two weeks ago we started hearing the “sell” and “overbought” cries and this was just a bear market bounce and we'd be retesting the lows soon. Now the mindset has changed to more and more people are beginning to get the urge to "get back in" and make back their losses. This is a crucial time for the market, probably the most important time of the last 6 months. This coming week will bring us hundreds of earnings reports. If the market simply pauses and backfills a little, but holds it's uptrend, there will be a stampede to "get back in". We could rock higher for another 2K DOW points in a matter of just a few months.
You see, the FED knows that with $13.2 trillion in hand outs and pledges, if the market were to roll over and crash again, it would show that people have lost all faith, the programs weren't working, and they'd have no more ammunition left. So, it's to the FED’s best interest to have their "Plunge Patrol Team" directly buy equities under the blanket of "unusual methods" to keep this market moving higher. The FED has already given out: TARPS, Mark to market changes, Geithner’s PPIP plan, and $Billions to 9 banks so they can lower mortgage payments on defaulting homeowners. The FED can’t let that firepower slip away. On the other hand, the data still stinks. General Growth is bankrupt. Foreclosures are up 24%, and China’s growth rate came in below estimates.
Tips:
My view is that the odds still favor a move higher. Granted we need a pause (a quick slapdown), but it’s my guess that any pause gets bought right up and we soar even higher. Remember when we talked about seeing people sell Treasury Bonds – well the Treasury Bond ETF (TLT) is now at 101 and soon to dip below 100 – as investors are selling bonds they’re investing in stocks and in gold!
Speaking of gold: As you all known the physical price of gold is set by the "paper" price of trading on the Comex. Well, gold has gone lower during this run-up however, more and more investors have been demanding delivery instead of cash settlement, and they don't appear to have the gold on hand to fill the deliveries.
It's my guess there will be a short squeeze in the next month that sends gold soaring again because frankly I don't believe the dealers have the gold that Comex declares they have. I think they've been borrowing to cover, and that cannot last forever.
Here are a couple trades for you to consider:
- FSYS over 15
- ORA and other ‘GeoThermal’ Companies
- UYG, XLF, UYM have made a 50% gain for us – and we may sell and buy in if there’s a pause
- FAS – we cashed in most of our 300% gain
- SLW – has backed off to 7.41 – over 100% gain – under 7 we’re gone – but of all the silver miner/aggregators – SLW is positioned the best
- GSI – a Chinese Steel Holding Company because the Chinese are desperately getting rid of ‘dollars’ buying up real resources, like copper, steel etc. GSI has the ability to make good on that.
Be safe – and until next week, be careful.
R.F. Culbertson
rfc@getabby.com
Www.getabby.com
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