RF's Financial News

RF's Financial News

Sunday, May 31, 2009

This week in Barrons - 5.31.2009

This Week in Barrons – 05_31_09:

Without people buying things they don't need with money they don't have, the true economic activity of this country is going to be considerably less than almost anyone imagines

Isn't this something - just two days after Obama came out and said America has "no more money" and that the country was swimming in debt, the average Joe tells the confidence board he's feeling pretty good despite:
- 36 banks have going bankrupt already this year
- Bank stress tests suggesting 10 of 19 banks need 87 billion more dollars
- Obama revising his budget higher by 90 billion, creating a deficit that's 400% HIGHER than anything we've ever seen
- The national Case-Shiller home price index reported that U.S. home prices fell a record 19.1% (year over year) – and continue to fall.
- GM and Chrysler have gone / are going bankrupt
- AND in a speech at the Kennedy School of Government, Richard Risher – President of the Dallas Fed said “the very deep hole [our political leaders] have dug in incurring unfunded liabilities of retirement and health-care obligations, we at the Dallas Fed believe total over $99 trillion”!!!

Let us not forget:
- when America changed (about 40 years ago) from the manufacturing capital of the world, to the “consumer” capital – and without ‘the Average Joe’ buying stuff à we're doomed.
- The Average Joe’s credit card balance is over $10,000, his house fell in value (AGAIN) and he may not have a job - tomorrow.
- After years of having our Armed Forces pay giant bonuses, give college grants, and beg young folks to come into the service, they are now bulging with people, so many that they are closing recruiting stations. It seems that so many young folks are struggling to find a job that they figure a 2 or 4 year stint with Uncle Sam is a better option, they're getting paid and probably learning a skill.
- ALSO older folks are signing up for Social Security earlier, instead of working into their golden years. The Social Security system is reporting a major surge in early retirement claims that could have implications for the financial security of millions of baby boomers. Currently claims have been running 25% ahead of last year. Why would this be? As people saw their homes implode and their 401K's implode, with little prospect of getting a good job, they decided that they'd sign up at 62 instead of 66. Fully knowing that by signing up early, they are getting a full 25% less than if they waited till 66. So why do it? Because people NEED THE MONEY NOW!

The consumer confidence numbers are propaganda – so don’t drink the kool-aid and don’t get lazy about your money. This is your typical ‘dead cat bounce’ – it could last month – but let’s be prepared for the next shoe to fall.

The Market:
So now that we're back to DOW 8500, a key level and the S&P is above 900 – it’s our view that except for sharp fast pull downs, the market is probably destined to go higher. Not because it wants to, but because it has become Job #2 at the FED to buy futures at key moments. So, for now we feel it's safe to "lean long" and buy the dips. Just know that one day the music will stop and there's simply not enough chairs. Anyone not buying gold, silver and specific mining stocks is going to regret it terribly one day.

Consider the following:
- 12.2% of ALL mortgages are delinquent.
- HALF of all the delinquent homes are EMPTY.
- PRIME mortgages are failing faster than subprime
- ALT -A and Pick a pay loans are going to reset this year and next at higher rates.
- Federal revenue from taxes fell 34% year over year (So Obama’s deficit projections are going to be far worse than previously anticipated)
- 48 out of 50 of our states are in serious budget shortfalls as they too are getting less revenues.
- Continuing unemployment claims have hit an all time high for 18 consecutive weeks – each week adding 650K+ people to the roles
- Inflation – for every new dollar the FED prints - it lowers the value of all the other dollars in circulation. As the deficits rise, as the States go "bankrupt", as more and more bailouts are requested, the FED will need to print more dollars. The consequences are: (a) commodities will indeed continue higher, (b) people will continue to dump bonds, and when bonds are ‘dumped’ – (c ) interest rates start to rise – which will (d) eliminate future home buyers from entering the market.
- Inflation – as interest rates rise that will cause more foreclosures from the Alt-A and Pick-A-Pay mortgages that will reset in late 2009 thru 2010.
- Printing more dollars – causes inflation – will causes the dollar to fall – oil is priced in dollars – which causes gasoline prices will rise – which will hurt the economy yet again.
- The Chinese have modified their investing – from buying longer term treasuries to shorter term treasuries – and also to buying gold – lots and lots of gold.

But again – fair warning – this is a Bear Market (“suckers”) Rally. It is designed to suck in the most amount of people before it rolls back over, and the next time it does there will be no stopping it. We will have a date with DOW 4500 in the next two years. Gold will be higher, much higher. Silver will be higher. Interest rates will be higher. I like:
- IPI for commodities and growing crops
- MOO for commodities and growing crops
- SLW / PAAS for silver (the metal)
- NGD for gold mining
- GDX the basket of gold miners
- GLD for gold (the metal)
- XLK the basket of technology excluding health-care

Remember the Blog http://rfcfinancialnews.blogspot.com/

Until next week – be safe.

R.F. Culbertson

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