This week in Barrons - 10-25-09

This Week in Barrons – 10-25-09:

Thoughts:
Let’s talk about precious metals for an instant. A week ago 2 US banks, held 38 contracts long silver and 38,375 contracts short silver for a total net short position of 38,337 short contracts. These are 5,000 ounce contracts – with just two reporting entities able to amass a net short position in silver of 38,000-plus contracts – (COMEX has a 6,000 contract accountability limit (for two traders) – so they’re outside that – and is that unusual - (unfortunately) it’s not.) For example: as of July 1, 2008, two U.S. banks were short 6,199 contracts of COMEX silver (30,995,000 ounces). As of August 5, 2008, two U.S. banks were short 33,805 contracts of COMEX silver (169,025,000 ounces), an increase of more than five-fold. Now - between July 14 and August 15th, the price of COMEX silver declined from a high of $19.55 to a low of $12.22 for a decline of 38%. This was almost a record fall – and was this coincidence? The SEC, the CFTC, and virtually every governing body has looked the other way, while 4 or possibly 5 major US banks have grouped together to ‘naked short’ silver into oblivion time and time again. The U.S. prosecuted the Hunt Brothers for attempting to ‘corner the silver market’ – and their entire holding of silver (even with millions of ounces on margin) was ONE FIFTH of the size of these two banks short positions. What’s interesting is that no one is ‘screaming’ about these banks.

The reason that this is important is that the end game could be ending. People all over the world are tired of the currency melt-downs, and are flocking to gold and silver to preserve their wealth. Can two or three banks naked short the market enough to offset millions of people clamoring for the metal? At some point the answer is no, and I think we're getting very close to that point. I have good reason to believe that during last months naked shorting binge on Gold, the COMEX had a fail to deliver problem with all that gold, and made deals to pay off in dollars instead of metal, simply because there was no metal left. Could this happen in silver - absolutely. Some sharp observers of the reported holdings in the GLD "vaults" noticed some incredible disconnects lately.

The bullion banks, along with the Fed Cartel, and Wall St, have been playing in the Gold and Silver markets for years. Now that the enormous demand for the metals (from all over the world) has hit, what we appear to think is a huge "short covering rush" – it’s causing everyone to scramble to secure enough metal to meet requirements. This is quite spectacular to watch and if the buying pressure continues, gold will roar higher, possibly taking out 1250 in a relatively short period.

Shifting gears a bit - our good friend Steve Forbes wrote us with the following: “(a) September year over year home sales were higher by 9.2 percent – with a corresponding median price decline of 8.5%, (b) Inventory levels were 7.8 months which are the lowest since March, 2007, (c ) The activity is largely at the bottom end of the market, in part to the 8k 1st time buyers (45 percent of all buyers) package offered, expiring at the end of November. And (d) In September, 70% of transacted homes were priced under $250,000 – with 29% of those being short or foreclosed sales. Now couple this with: (a) Industrial output is at 70% of capacity, lowest level in 2 decades, (b) Consumer credit is off 6.5% from Sept 2008, (c ) Unemployment continues to increase, (d) The stimulus packages have been "spent" with the biggest impact resulting in 49 of 50 states with higher unemployment then prior to TARP. It will be interesting to see if they extend the home-buyer tax credit – because without it – the housing market is potentially facing a double-dip recession. Unless we establish a firm foundation for middle-class wealth recovery, this post-recession economic growth will not be sustainable and shall be one of the weakest in U.S. history.”

Now the FHA is by far the largest mortgage lender out there. They simply require 3.5% down. 21% of the homes sold were between $0 and $100k. To be considered a first time home buyer, all it means is that you have not owned a home for 3 years. Okay, for example - take a foreclosed house that sold for $169K in the bubble, got foreclosed and the bank offloads it for $95K. That first time tax credit is almost 10% of the price of the house. In an interesting way, Uncle Sam is floating the banks loans - that are eating those types of losses, and then giving people on the lower end almost 10% of the price of the house. The bottom line, is that the taxpayer is putting up the down payments for these houses, AND (at the same time) insuring these homes via the FHA, AND on top of that, covering the spread via bail outs, to the banks that let those houses soar in the first place! My – we are a generous population!

And I do wish that I was in banking about now. As a connected bank – I can borrow from the Fed, at virtually zero interest. I can lend that right back to the "country" by buying short term treasuries, picking up say 2%. Then on top of that, I could use a type of leverage by simply "pledging" the notes I already have, as collateral to borrow even more. That creates many-many billions that I can use to do what ever they want with it. Since the money is FREE, my appetite for risk is fairly broad – so I use the bulk of the money to trade the markets. This is why banks are racking up hundreds of billions in profits, and it certainly explains a lot of the market movement over the past 6 months – yes? Unfortunately – our national debts are soaring, our deficits are out control – this makes Al Copone did look like Sunday school play.

The Market:
Last week I was sitting here in almost stunned silence as CNBC was going absolutely gaga over Caterpillars earnings report – but alas – their year over year revenues FELL 44%. They did enjoy tax breaks, and due to currency differentials (selling in foreign currency's and repatriating into cheaper dollars) CAT did beat some very low estimates. Reuters (on Tuesday) said that earnings were lower by 22% for those companies reporting thus far which compares to 24% lower for the previous period. OK – now if earnings are coming in 22% lower (yet still beating analyst’s expectations), are we in growth mode, or are we in "make Wall Street look good" mode? Unless basic business is wrong – if my revenues keep falling by 44% - fairly quickly I’ll need to close up shop – yes?

Now our guess was that we would jockey around DOW 10k, struggle a bit, then move even higher, possibly to 10,300 or 400, pulling in all the "naysayers" and then once they were all back in the game, pull the rug out and we fall hard and fast for a while. And yes – I read a lot of the other newsletter editors out there - Ken Fisher for one – calling for the proverbial “V-shaped pattern – IF history repeats itself, expect another 25% upside gain by January.” But I must tell you – the market action recently just doesn’t feel right. Are we seeing a market moving up because of this dollar devaluing already – absolutely – but throw in interest rates at virtually zero, cost cutting via layoffs at half a million a month, direct stimulus payments, and never underestimate the power of fraud.

Currently we’re just under 10K again, and I wouldn't be surprised if they once again circle the wagons and try and drive us higher once again. If we cannot clear those intra day highs this week, I'm going to become incredibly defensive. We have very few trading positions open – and we’re in a no mans land of chop. I don’t think you can go legitimately short until we lose 9,800, nor long till we clear 10,157. If they clear 10,157 – then we should see 10,400, but at that point I'd think our smackdown would appear, seemingly out of nowhere. If we can't clear 10,157 and we lose 9,800, it could snowball us down to 9,400 quickly. Trade fast, use small positions and don't marry anything. This is a VERY dangerous market.

TIPS:
- we’re still holding MOO – agricultural space ETF)
- we’re still holding IPI – agricultural – potash arena

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

Until next week – be safe.

R.F. Culbertson
rfc@getabby.com
http://rfcfinancialnews.blogspot.com/

This week in Barrons - 10-18-09

This Week in Barrons – 10-18-09:

Thoughts:
This week the NABE (National Association of Business Economics) came out and declared that the recession is over. Forty-four (44) of the "best" economists told the NABE that we have weathered the storm and things are moving along quite well. Now I tend to think that things are getting worse – not better. The most recent Business Roundtable Survey showed that 49% of all CEO's expect their sales to be flat or down in the coming 6 months – 79% of all CEO's surveyed expect their capital spending to be flat or down in the coming 6 months – and 87% of all CEO's expect to do no hiring in the coming 6 months. Delinquencies among U.S. commercial mortgage-backed securities surged to a record amount of 3.64% in September, vs. just 0.54% one year ago. Every 13 seconds, there's another new foreclosure filing somewhere in America – more than 6,600 foreclosure filings a day. Yep – there have been roughly 2 million foreclosures so far and our Assistant Secretary of Treasury, Michael Barr, saying that another 6 million families will face foreclosure over the next three years. Hummm – sounds like the recession is over to me!

Even the Government’s own doctored and painted non-farm payroll reports show that we are still losing 250,000 to 400K jobs a month. In the past, employment was a lagging indicator – people would get laid off – they would cut back spending, and as the number of unemployed rose, they would simply hunker down. Uncle Sam would then push a stimulus in the form of tax cuts and/or lower interest rates. Businesses would start to recover and even people that were still unemployed would "feel better" about things – and they would begin to whip out the credit card and start spending again. Even the unemployed felt safe doing it because the businesses were returning to growth, they'd be hiring and felt good about being re-employed soon. What most people don't understand is that because of that "feel good about the future" emotion, the unemployed were using credit to continue spending, which ultimately led to the businesses actually doing better. As the business did better, they hired more people and "bingo" the recovery was in. So, it was always the fact that consumer buying, based on credit, is what ultimately got the businesses expanding, and then ultimately hiring again. In this case - that option is gone. There is no longer a house to refinance – because the home equity lines of credit have been shut down. The credit card agencies have reduced the public's outstanding credit available. Lending standards have risen – so the jobless are NOT going to increase spending. So this time there is NO credit, and businesses have cut back so hard for the past 2 years, capacity utilization is at record low levels. That means that business can increase output many times over, just by expanding the workweek of the people already there. Without the consumer going into hock on credit to buy products and services, business cannot expand. Therefore, without credit, joblessness is a current indicator – and without hiring there is no recovery.

Okay, so where is the NABE getting the idea that the recession is “over"? Please understand – these are the same economists that didn’t see any problems in the first place. Consider that these same 44 economists didn't see the single largest financial disaster of the last 80 years coming, and when the recession hit – they said it wasn't going to be a problem, it was nothing to worry about – and now they say that it's over. It scares me to think that “they” pushed this entire economy down just so they could get their own agenda's pushed forward, and that's why America is reeling in it's second ever “depression".

Yet this week, amid much fanfare, we busted over DOW 10,000. Was it because of a robust economy? Was it because Intel's revenues fell 8% on top of last year’s fall? Nope – it was because Uncle Sam is keeping the market up – and the marketing being up is the only thing keeping the “commoners” from revolting. So enjoy the game while it lasts. Just know that without the $ Trillions in funny money, without interest rates at virtually zero, without "mark to fantasy" accounting, without cost cutting, the market would be at 5,000, not 10,000 – and yes – we will get there.

The Market:
This week they managed to squeak us up and over 10K – for a bit. Yes they missed on Friday, but only by 5 points. We said last week that they'd pull out the stops and try and keep the market moving higher and they have. It really doesn't matter if it's a house built of cards or not, up is up, and we like tagging along with it. But, how long can they keep this going?
Just try and get your arms around the fact that the market doesn't belong "way up here" and that it's being pushed there. If you understand that, you've won half the battle. Now there are a handful of ways this can play out. We could see the market move up, pause, move up, pause and keep on going to January. Or, we could see the market put in a big "last ditch push" and then after half the earnings are out, see us roll over for a good pull down. One thing is certain, 2008 wasn't friendly to a lot of hedge funds and mutual funds – and they didn’t get their yearend bonuses. These same hedge funds want that bonus, and they'll probably let it all hang out in hopes of achieving it.

Unfortunately, the market does not exist to make you fat dumb and happy into your golden years. The market exists just like a casino exists, so the owners of the market, and the main contributors to it - make money. Since we are talking big money here, billions upon billions of dollars per day, the market has evolved to the point where it is impeccable at confusing, confounding and taking the money from the most people at any one time. Years ago we worked on corporate balance sheets, P/E's, price to book and all the standard fundamentals that one might think actually count for something. Then we learned an important lesson. We make our money by trying to figure out how the market would make the most amount of money at any one time. If it's by going higher, and pulling in more people and burning those that went short, up it will indeed go. If the market will rake in more money by rolling over and burning the longs, and punishing the latest people into any rally, then down it will go. Unfortunately – that doesn’t do much for fundamentals – but that’s the way we’ve been trading for a while now. However, if they let the market roll over right now, all the people that were going to sell out if the DOW ever reached 10K again, would be smart. If it just continues to pause, move up, pause, move up, then every "dip" buyer would continue to be rewarded, and the market rarely likes to show it's patterns so easily. So, I'm thinking it inches up a bit more here – because those who say they'd sell at 10K will watch and decide to stay in. Those that didn't think it could ever surpass 10K will say "wow this must be real, we just passed 10K, I gotta get in". And all of those that sold short over the last two weeks would have to cover or lose big time. Then, just about when everyone is totally on board that the market is destined for 11K, they pull the plug and ALL those people get spanked.

But wait it gets even better. Let's suppose we do hit 10,400ish or so. Let's say then they do pull the plug and we lose 700 points or so, causing everyone to scramble, sell out, go short, etc. What would be better than once again reversing and pushing straight up into year end, frying all those that just "got out?" It's almost too perfect - yet I wouldn't be a bit surprised if this is the way it pans out.

Just remain nimble and let’s see how this plays out. We're going to continue to "lean long" but keep our hands near the sell button.

TIPS:
- we’re still holding MOO – agricultural space ETF)
- we’re still holding IPI – agricultural – potash arena
- we’re holding PTEN – with a hard stop 26.06

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

Until next week – be safe.

R.F. Culbertson
rfc@getabby.com
http://rfcfinancialnews.blogspot.com/

This week in Barrons - 10-11-09

This Week in Barrons – 10-11-09:

Thoughts:
Not a day has ever gone down in history where it wasn't "different" than before.
Yet despite the fact that things are always different, history does tend to play little tricks on us by mimicking things that have taken place in the past and running them again, almost like a product that's been out for 50 years, and gets a new box saying "new and improved". Steve Forbes wrote me last week – with this little gem: “Over the years - there have been 28 episodes of hyperinflation of national economies in the 20th century, with 20 occurring after 1980. Professor Peter Bernholz (Professor Emeritus of Economics - University of Basel, Switzerland) analyzed the 12 largest episodes of hyperinflation - all of which were caused by financing huge public budget deficits through money creation. His conclusion: the tipping point for hyperinflation occurs when the government's deficit exceed 40% of its expenditures. According to the current Office of Management and Budget (OMB) projections, the US will run deficits equal to 43.3% and 39.9% of expenditures in 2009 and 2010, respectively. To put it simply, roughly 40% of what our government is spending has to be borrowed.
Has the US reached the critical tipping point. The qualitative perceptions of fiscal and monetary policies are impossible to control once confidence is lost. In fact, recent price action in metals, the dollar and commodities suggests that the market is already anticipating the future."

All we’re hearing now is that Ben Bernake was a student of the Great Depression, and knows how to avert another one. To which I say "hogwash". We’ve handed out billions: (a) for cash for clunkers, (b) to save the very banks that drove us into our current situation, (c ) in unemployment benefits, (d) in the form of first time homebuyers tax credits, and (e) for more war. Yet reality is telling us: (a) 49% of all CEO's expect their sales to be flat or down in the coming 6 months, (b) 79% of all CEO's surveyed expect their capital spending to be flat or down in the coming 6 months, and (c ) 87% of all CEO's expect to do no hiring in the coming 6 months. We just saw 550K more initial jobless claims last week, and 263K people lost their jobs in September, and here are the CEO's saying that they will NOT be hiring anyone for 6 months? Is THIS what a recovery looks like?

U.S. apartment vacancies rose to 7.8%, a 23-year high, and if they can't rent apartments, are they really going to be selling more houses? Office rents fell 8.5% year over year in Q3, the biggest drop since 1995. The decline came as renters ‘gave back’ 19,600,000 square feet to landlords; YTD they've given back 64 Million square feet - the highest negative absorption rate on record. The office vacancy rate of 16.5% is a five-year high. With more job losses still predicted, don’t you think we’re going to shed more office space. Who called a bottom in housing – and is THIS what a recovery looks like?

Internet advertising in the United States slipped 5 percent in the second quarter as the recession extended the first slump in online marketing since 2002.

But let’s look at our buddy Goldman Sachs – and what happens if CIT goes bankrupt. And remember Jim Cramer told you to dive into CIT when it was still over $2 (it’s a lot less now!) A CIT failure would benefit Goldman to the tune of $1B in cash. A CIT failure would hurt small business, hurt the taxpayer, certainly hurt the shareholders – but who would win – ahh Goldman Sachs – and potentially someone who has a lot of Goldman Sachs shares (Jim Cramer!)

GOLD – well the other day "rumors" spread that Saudi Arabia was in talks with Japan, Russia, China, France and several other countries to try and sell oil in a different currency than dollars. That smacked the dollar hard and sent gold on a huge run, ending around 1050 an ounce. Now, are the Saudi's and OPEC trying to get out of dollars? Of course, the entire WORLD wants out of dollars because dollars are being de-valued. But if they stampede the gates, everyone will try and get out at the same time and crash the whole financial system. Once again Gold proved that it’s true purpose is ‘money’. As the dollar falls – gold will continue to rise over the next several years. Now realize that the major cartels, the Central Banks and money centers are short a ton of gold and right now they're in panic mode. If they can't beat gold back down, there's going to be major fireworks. The COMEX could actually fall as "fails to deliver" take over the floor. In other words we're about to witness a street fight over the value of the metal. I predict that gold still wins – but it won't be a straight shot, and we could see gold under 1K again.

The Market:
Monday went as we figured it would, although it did close higher than we thought. We called for a gap open, a fade to red and a push back to green which we got. But I was thinking something like a gain of maybe 50 points, not the 100+ we got. Tuesday the market absolutely roared out of the gate and in no time at all was up 160. Then during the afternoon session, it looked like they might lose control as we were up only 75. But the "powers that be" came in and bought up everything, and we closed up very strongly. Wednesday was a grind that ended essentially flat. And then Alcoa hit - sales in North America fell 25%, sales in Europe fell 25%, BUT sales in China rose 15% - which according to Alcoa solves all their problems. Yes – they "beat the estimates" but they had to do it on revenues that fell 34%. Once again we see currency exchanges, and finely tuned accounting being the reason for such "BTE" (better than expected) results.

The rest of the week was a reaction to Alcoa – and was grand and we’re beginning to flirt the DOW busting over 10K. With the flood of earnings really starting next week, there's a pretty good chance that a lot of the darlings will really run into their release. We seeing that with IBM, and AMZN, we saw it in the material sector and the coals. As much as it doesn't make a lot of "fundamental" sense, leaning long is probably going to be the right way to go.

TIPS:
- we’re still holding MOO – agricultural space ETF)
- we’re still holding IPI – agricultural – potash arena
- we’re looking at a lot à AEM over 72, GG over 43, RGLD over 50, MFN as it crossed the 10.20 area, NAK it crosses the 7.75/8.00 area, SLW which I loved over 13.13, SSRI over 24 should run nicely, PAAS over 25.50 could be a very nice breakout move, OIH gets over 120.00 all hell could break loose, watch RIG for a move over 87.00, DO over 98.00 would put it in an interesting area, PTEN crossing over 16.00 makes an interesting trade
- I grabbed some ANR @ 36.14
- I also bought some MEE @ 29.11

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

Until next week – be safe.

R.F. Culbertson
rfc@getabby.com
http://rfcfinancialnews.blogspot.com/

This week in Barrons - 10-04-09

This Week in Barrons – 10-04-09:

Thoughts:
I hope that I'm smart enough to know that when a ship is sinking, I want to be real close to the life raft. We are beginning to look more and more like a ship in trouble – while the captains are telling the passengers that everything is fine. I’m worried that we’re evolving into a Nanny State - where people have given up virtually all their true freedoms in return for a false sense of security. And how are we doing: (a) our Nation is bankrupt, (b) we are the worlds single biggest debtor nation that's ever existed, (c ) our manufacturing base has been completely dismantled, (d) we import more than we export, (e) and by most accounts our population is broke. Now is that because of, or in spite of all our social engineering, laws, rules, restrictions, and political correctness?

We have relied on the Government for so much, we are now relying on Government to plug the hole and get us back on course – and I don’t believe that this is possible. The real Titanic simply made a fatal mistake and slammed into an iceberg – by accident. America (the Titanic) has been sunk on purpose. All that’s left now is to keep convincing everyone that ‘things are fine and will be fixed in a jiffy’ – and then loot every person of their personal wealth before the ship settles to the bottom. Ask yourself what kind of recovery is this where: credit still contracts, housing still falls, defaults soar, sales plunge, revenues drop, banks still fail, the FDIC goes broke, and jobs are still lost?
- Oct. 2 (Bloomberg) -- The number of U.S. lenders that can't collect on at least 20 percent of their loans hit an 18-year high, signaling that more bank failures and losses could slow an economic recovery
- Consumer loan delinquencies struck record highs in Q2, ABA says, citing the "cumulative effect of the longest recession since the Depression."
- Foreclosures jumped 16% in Q2, while hit 8.5% of all mortgages.

Now despite 550,000 people signing up for first time initial jobless claims on Thursday, and knowing that 263,000 more people lost their jobs in September, CNBC along with Obama and his administration continue to tell us the recovery is "in" and it's all blue sky from here. What about the fact that the "hours worked" fell to the lowest number EVER recorded? What about the fact that capacity utilization is at the lowest levels ever recorded? What about the fact that employers "could" take their part time crews and turn them on full time, and we'd really have no reason to hire another real full time employee for approximately 3 years?

My bottom line is that we are going to see spectacular changes. The economy will limp along on life support as they toss trillions of made out of thin air dollars at it – which won’t work. Eventually it all fails and we get the true depression we should have had already and worked out of. They can't stop the stimulus or the economy grinds to a halt instantly. We are destined to a world of dollar devaluing, corporate bail outs, less and less jobs, more foreclosures, more falling home values.

So, what do you do – I always get back to gold and silver. I'm here to say that MILLIONS of foreclosures are still coming at us, and as unemployment continues to rise, housing will continue to fall. I expect housing to fall another 30%. We’re already devaluing the dollar – and at some point it will no longer be the world’s reserve currency.

The Market:
Last Wednesday the market hit an intra day high of about 9937 - since then we've fallen back a bit, hitting an intra day low of 9378 – a loss of about 560 points in 8 trading days. The charts are telling us that the NDX, or the technology heavyweights, is forming a pattern that historically has seen a massive smackdown following it – so let’s put that into the "we're heading much lower camp". Then we have another influence: quite a few traders didn't catch much of this whole March thru September move and are rabid to get in. All they wanted was a pull back so they could get cheaper entries and some of them are on the move already. The third prong on this fork is that: "Consumer confidence will rise with the gradual rise of the equity markets" - is a quote from Ben Bernanke himself months ago. How did he know the equity markets would rise? Simple – hs’s allowed the banks to take TARP money, and stimulus money and ramp the markets higher. So, we have the 800 lb gorilla - with limitless funds, to buy futures, and stocks, at any time - knowing that housing is in the toilet, knowing jobs are nowhere and going nowhere fast, they are manipulating the last "thing" they can manipulate that keeps the masses from bearing down on them.

We've all been looking for a big pulldown. Once we got up and over my first DOW target of 9600, we entered a surreal time. We know the stimulus will be there for as far as the eye can see. We also know that the Chinese don't like us much any more, and most of the major economies are looking for a way "out" of dollar denominated assets.

Well, we've already lost 560 points – with some of that being post window dressing selling. We have people desperate to make money, especially if they were in the market during the 2008 crash and missed this run up. We have the FED willing and ready to push more money into the Goldmans, and JPM's of the investing world – and all of that would seem to add up to another run higher coming - yes?

I think we have a bit more work to do on the flat line first. The beginning of the week will be lumpy, bumpy, murky and cloudy. We should open green and then erase that and go red, and then go green as they all jockey for position. Tuesday into Wednesday might be just as jerky. But, by Wed night, into Thursday if they want the market to run up, that's when I'd suspect the firepower would start. We are currently "out" of the market in our trading accounts, just waiting for confirmation of going long or short.


TIPS:
- we’re still holding MOO – agricultural space ETF)
- we’re still holding IPI – agricultural – potash arena


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

Until next week – be safe.

R.F. Culbertson
rfc@getabby.com
http://rfcfinancialnews.blogspot.com/