RF's Financial News

RF's Financial News

Sunday, July 5, 2009

This Week in Barrons – 07_05_09:

Over the past 8 years of putting out these letters, we've talked about so many issues that have changed over the years that it's impossible to count them. But what is somewhat bothersome is that right now in 2009, each day is bringing us more laws, regulations, and policies that make most of the last 8 years worth of them look small in comparison. Healthcare reform, Cap and Trade, the Government's take over of the auto business, the bail outs, the stimulus packages, come to mind. But frankly it's the "little things" that continue to change on a day by day basis that often goes by without as much as a whimper that bothers me the most.

There's an old question: "How do you boil a frog?" The answer is that you put the little guy in a pot and slowly bring the temperature up a little at a time. The frog doesn't jump out of the pot and "change" his environment, he just keeps adapting to the higher temps until one moment when the poor guy's "cooked". Then it's too late. This is what's happening to all of us – “a little here and a little there”. No one seems to notice, until one day, when they look around and discover that they've been cooked. As we speak, people all around are waking up to being "economically cooked". Americans are starting to ask questions:
- “What do you mean the Federal Reserve isn't Federal? Isn't it a part of our Government?" No.
- "What do you mean our Constitution says only the Treasury should be in charge of our money, does it really?" Yes.
- "Are you telling me that a small group of PRIVATE bankers actually run our money and policy??" Yes.

We celebrate "Independence Day" because incredible men took incredible chances and decided they needed to break away from the Bankers and Government of the old world. This small group – turned the tide on what was arguably the most powerful military on earth at that time. Now (after 233 years), 1 out of every 6 dollars of income in the U.S. is a Government handout. The Government owns 72% of General Motors. The Government owns banks and wants to own the Healthcare Industry. I hope that Americans will get very tired of Government running their lives, and of the words “me, me, me” and “it wasn’t my fault”, but rather adopt the stance and thinking of the original “Independence Day’ers” that fought against immeasurable odds – and won!

The Market:
WASHINGTON (Reuters) - U.S. bank regulators closed seven institutions on Thursday, including six banks in Illinois controlled by one family and a small bank in Dallas, bringing the total number of U.S. bank failures to 52 so far this year.

But worse than failing banks, (however equally on the shoulders of the American taxpayer) comes the Cap and Trade Bill. Welcome to the new bubble – the “Green Bubble.” This bill REQUIRES the EPA to establish environmental standards for residences. To enforce this ‘code’ they are going to hire an army of people to go door to door and do energy audits. They have the right to demand you produce your energy bills. They have the right to demand access to your house and inspect your appliances, number of rooms, carpets, foundation, etc. You cannot refuse this. Then they will tell you what improvements will be made to bring you up to code. Oh, where does the money come from to make the changes to your homes and to those of commercial properties? O’bama hasn’t answered that question, it goes hand in hand with ‘fiscal responsibility’ and we’re clearly not in that chapter of the book yet! The bill instructs the EPA to regulate greenhouse-gas emissions from mobile sources such as cars, trucks, buses, dirt bikes, snowmobiles, boats, planes, lawn equipment, etc. The secretary of energy is required to establish a large-scale vehicle electrification program and to provide "such sums as may be necessary" for the manufacture of plug-in electric-drive vehicles, including another $25 billion for "advanced technology vehicle" loans. The bill creates: a new United States Global Change Research Program, a National Climate Change Adaptation Program, a National Climate Service, Natural Resources Climate Change Adaptation Strategy office at the White House, and an International Climate Change Adaptation Program at the State Department.

It’s estimated that our energy costs will rise between $1,200 and $2,000 dollars a year, and the costs for the set-up and infrastructure are unimaginable.

The interesting issue now (as the bill goes to the Senate) is that Obama's popularity is falling like a stone, and a politician’s main job is to remain a politician (get re-elected). So if they feel that voting ‘for’ this bill would cost them their job, well it’s interesting to think about.

Bottom Line: GREEN is the next bubble!

Last week in the Market: We saw the TLT (which is a bond ETF (exchange traded fund)) rally from 89 to 95 as the investors that were scared to death of the market, sought the safety of bonds. The mechanics of how all this plays out is really quite interesting. We've just come through one of the most powerful bear market bounces in 70 years, taking us from 6,443 in March to 8,900 in June on the DOW. Now we've backfilled a bit. However, it’s undeniable that a large percentage of people are upset that they missed that massive 2,400-point jump. They are desperate to not miss any more upside, so they'll view pullbacks as a buying opportunity. In other words, despite the fact we “should” fall for another 1,000 points, the chances of that are pretty slim. In other words, any downdraft here should be cut shorter than it would have otherwise run.

I still believe that "overall" we have a date with a higher market. The administration wants it, the Bankers want it and Wall Street wants it. But if the TLT bond fund busts up and over 95 and continues higher, it's showing me that in the near term there are enough people trying to hide that we could indeed take a hit to the downside that takes us under DOW 8K for a period of time. Then they’ll rush in to buy that "dip" and send us hurtling back to 9K+ in short order.

So in the immediate term, we're in no mans land that could go either way. However, in the longer term, I think they'll manipulate, hype and stimulus us to where the market runs for a new high for the year.

Use the boundaries of 8K and 8.5K on the DOW as an indicator. Right now we're smack in the middle at 8280. I wouldn’t get insanely long until 8500 is taken out, and I wouldn't get short until 8K really fails.

- we’re holding the GDX (a basket of gold mining stocks) with No Stop
- we’re holding NGD (a gold miner) from $2.59
- we’re holding MOO (agricultural business ETF) – from $32
- we’re hold XLK (a technology (minus healthcare) ETF) – from $17
- we’re holding IPI (a potash hold – again in the agricultural theme – we’re underwater here) – from $32
- we’re thinking about: ADTN – but this market is tough to commit to right now – so we’re just looking ☺

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

Until next week – be safe.

R.F. Culbertson

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