This Week in Barrons – 12-13-09:
Thoughts – Young Frankenstein – “It’s Alive”
While in Chicago, picking up my son from Northwestern Univ – we were fortunate enough to get tickets to see “Young Frankenstein” starring a friend of ours – Mr. Roger Bart. Great show – Roger’s amazing – but there’s a running gag in the show on how Dr. Frankenstein’s last name is being mispronounced that rings true to our economy: “Not Frankenstein – but Fronk-en-stine.” It reminded me of the Obama administration telling us that we only lost 11k jobs in November – and then finding that the TrimTabs’ employment analysis, which uses daily income tax deposits to compute employment growth, estimated that the US economy shed 255,000 jobs in November. How are we to reconcile both of these elements? And then there are the national chain store sales - which fell 5.2% in the first week of December. And then the government reported that only 474K applied for first time unemployment benefits - unfortunately this number was closer to 665,000 – but which do you think plays better to the Christmas audience?
I used to believe in only two certainties in life – death and taxes. Let’s add a third one to that – you can turn on CNBC and guaranteed you will always hear how great the economy is, and that it's a great time to buy stocks, no matter how horrid the global economy is doing. It’s just like Dr. Frankenstein saying “It’s Alive”. Does our President and our Secretary of Treasury really believe we can SPEND our way out of a recession? That’s a lot like drinking your way out of alcoholism – yes? Then we find that Tim Geithner is going to extend the TARP program right up through October of 2010 – now if we were truly “Alive” would we really need to do that? Then the FDIC released figures showing that the amount of loans outstanding in the nation's banks fell $210.4 billion in the third quarter of 2009. That is the largest quarterly decline since the FDIC began tracking loans in 1984.” If the banks and executives really believed that our economy was “Alive” they would be granting and asking for more loans, not less.
A couple hundred nations met in Copenhagen this week – to talk about regulating CO2 emissions, and increasing energy efficiency. Now what didn't get much airplay was a paper that was circulated that moved the bulk of the program from the U.N. to the World Bank! Now who would have guessed that something as sweeping as carbon footprints, monitoring of your energy use, and forcing 3rd world countries to shoulder more of the cost than the big boys, would now be in the hands of Bankers! Well – remember when we told you so ☺. Allow me to make this very clear, bringing the control of the world’s CO2 emissions under the World Bank are moving us one step closer to a centralized economy controlled by a single group of people. Factually back in the 70’s – during the oil embargos – we only imported about 14% of our energy – today we import over 60%. We have enough coal, oil and natural gas to be completely energy independent. Just this week the EPA declared "greenhouse gasses" as being dangerous to humans – so just in case Obama can't get his ‘Cap and Trade’ bill through Congress, the EPA now has the ability shut you down. It's because of things like this, I am so able to make long range predictions about our economy. And there are very few things that survive well during a long drawn out soft depression – those elements are gold, silver and food.
Many of our long-term readers have made fortunes investing in the metals and commodities. In 2001 – we wrote that the US Dollar’s days were numbered – and that shorting the dollar, and purchasing gold were excellent long-term investments. I still think that the gold and silver trend have a long way to go, the short dollar trade also has a way to go – however the dollar is going to bounce at times. I don’t think that the final leg of gold or silver will mature for approximately 18 more months or so. But you should begin to purchase a few ten ounce bars of silver for $200 bucks each, you'll be doing "something" to help preserve your wealth.
In the short term, we all know that the market is only where it's at because it's being "supported". The only question is, how long will they support it – tomorrow, Christmas or March? This isn't about fundamentals, earnings, the economy – it’s simply about deception. Things are NOT “Alive” and even in the play you find that it doesn’t much matter HOW you pronounce “Frankenstein” – the government needs this market up to convince everyone that things are getting better. With Obama's approval rating plummeting day-by-day, with layoffs continuing, he actually “Needs” Wall Street to help his image with people.
What seems most likely is that they hold the market up into year-end and beyond. But given the market’s main job is to take as much money from people as possible – it would be like Mr. Market to roll over and dash all those hopes. So we have a war between Obama and his henchman Bernake, versus the market. The market would love to take a plunge and beat up the end of the year bulls, while Benanke is using Fed money to feed TARP money to banks to speculate and keep things up. For the short term it "appears" like the tag team of Bernanke and Obama will be able to go the distance. But just know that the plunge is lurking, warming up, building pressure.
We've been trying to lean long into the market, but this late in the game we also keep our finger near the sell button. We take profits quickly and if necessary we stop out quickly. I just don't believe you can let it all hang out, not after the magnitude of the run we've had. Our "advise" is that you too should lean long, but be very cautious. Pick your spots, and take your profits.
We have SPY from 109.30 Stop at 110.39
We have CY at 10.0 Stop at 10.30
We have ANR at 40.04 Stop at 39.70
We will be buying the GDXJ’s / and SGOL’s – but wait until gold settles a bit here – also we’ll be looking at the Silvers … PAAS / SLW – etc.
And we have about 70% of our money at work in the 401k’s – the rest in cash.
Remember the Blog http://rfcfinancialnews.blogspot.com/
Until next week – be safe.