Thoughts – “If You Can’t Say Something Nice About Someone…”
I assume at this point – “If you can’t say something nice about someone – don’t say Anything At All” must be what all the talking heads are practicing right before the holidays. On Tuesday morning, James Paulson, of Wells Management. (a $3B fund) was convinced that by April, 2010 the consumer was going to be swinging for the fences and this recovery will be much stronger than anyone believes. And Mr. Paulson tells us that the weak dollar is going to be good for our manufacturers because we can export more goods. Now Factually: (a) Capital One's credit-card debt that the company doesn't believe it will be able to collect - rose to 9.6% in November from 9.04% in October, while 30-day delinquencies rose to 5.87% from 5.72%. Mr. Paulson – if the consumer is so strong – why can’t he pay off his credit cards? (b) Only 24% of companies are giving holiday bonuses this year, down from 42% a year ago. Mr. Paulson – if everyone is going to be rolling in it in 4 months – why not celebrate a little early? (c ) Well the Empire State manufacturing index fell back substantially, and the orders component also showed a slowing declining to 16.6 from November’s 34.57. Could it be Mr. Paulson that the only real activity we saw was the rebuilding of inventory for the Holiday shopping season and without that stimulus, they wouldn't need to produce anything?
Honestly, when you push trillions of anything into one side of a pipe, "something" has to come out the other side. When you push trillions of dollars into the economy, two things come out the other side. One is a jump in economic activity, and this produces a ripple effect. The people that receive the money first, rush to spend it, which creates a ripple around the immediate area of commerce. Then those people spend their new-found money in their local economy creating a second ripple. But somewhere along the third ring of ripples, people see the money coming and ‘increase their prices' a bit to take advantage of the wave of money coming. That is the second part of what always happens when fiat money is printed and pushed into the system. Unfortunately by the time the money reaches the outer rings of ripples, the money has no effect, increased prices at all levels ‘eat up’ the advantage of having more of it. Now Factually: the Producer Price Index rose 1.8 percent in November. The index less food and energy rose 0.5 percent in November. So, taken annually, that’s 6% inflation at the core. Isn't 6% inflation a bit of a problem considering our T bills are paying eseential 0%? It means that for every dollar you put in the bank, you're losing 5.5% a year – wow – so save enough like that and you'll be bankrupt in no time.
That is why you always need more and more and more stimulus to have the same desired level of economic increase, and that is why it’s ultimately doomed. So I truly understand Mr. Paulson not telling you the truth. He can’t tell you the truth or you'd take your money out of his fund and go buy gold and silver and the poor man would have no job. There's not much work for a fund manager with no fund, so it's in HIS best interest to keep telling you that the promised land is just around the next corner. Heck, just this week the Financial Accounting Standard Board (FASB = the group that sets the rules on our accounting guidelines) declared that banks should be able to "decouple" from those ‘Generally Accepted Accounting Principals’ and be allowed to use more flexibility in reporting their worth. So Banks should be allowed to have 2 sets of books – one set for investors and another to tell the truth. Shouldn't the guy who's going to buy 10K shares of a banking institution really know what things are really worth? The Chairman of FASB doesn't think so – he finds it too annoying. And finally – this week we learned that the IRS was going to let Citibank off the hook for some $38 Billion in taxes, so that it would be easier for them to repay the TARP and therefore keep their stock price high. Frankly the way things are shaping up, it looks to me like they will throw the kitchen sink at this market in order to keep it at least flat through the end of the year.
The Market:
As we come to the end of 2009, it's been a VERY good year for us. There's little doubt that some of the biggest gains of all next year will be in shorting stocks. I'm already half through a list of stocks and ETF's I am going to be shorting ( and buying puts against) and I truly believe that if you've never done any shorting or buying of put options, you better learn quick, or you're going to miss a tremendous opportunity. In the meantime, we've witnessed a market that is trying to "hold up" while slowly the big funds (that did well this year) have been pulling back, locking in their gains. The market appears tired – and just wants to survive the balance of the year. The chart guys will tell you that the market has developed some very ugly patterns in the past few months, patterns that suggest a massive downward movement. I'm not a "chart slave" but I think it’s indeed coming and just a matter of when.
Will there be a "January effect" this year? If so how long will it go? If not, when does the real selling start? These are all great questions, and of course no one but Bernanke knows the answer. Our guess is that we remain fairly flat till year end, experience some form of New years run up, and then the wheels start coming off – my guess is around March, 2010.
In the meantime, Let me wish you all the Happiest of Holidays.
TIPS:
We have SPY from 109.30 Stop at 111.11
We have CY at 10.0 Stop at 10.35
We have ANR at 40.04 Stop at 41.75
We have CLR at 40.56 Stop at 40.60
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.
R.F. Culbertson
rfc@getabby.com
http://rfcfinancialnews.blogspot.com/
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