RF's Financial News

RF's Financial News

Sunday, May 16, 2010

This week in Barrons - 5-16-10

This Week in Barrons – 5-16-10:

Kick the Can on Down the Road...
I've never been one to run with crowds – but President Obama’s latest Supreme Court pick is fascinating. It’s not her lack of experience on the bench, or even her lack of deeply thought out papers, but rather that she’s a 2005 member of the Research Advisory Council of the Goldman Sachs Global Markets Institute – yes – she worked for Goldman Sachs – the very Goldman that’s on the hot seat for fraud and manipulation. Now, the ONLY way to really begin to rescue the U.S. from its economic fate is to Audit the Fed, expose it and transform it – how do you think she will vote on that?

After years of telling you how Gold and silver are so very manipulated, we find that J.P. Morgan is finally a target of a silver probe. Federal officials have launched dual criminal and civil investigations into whether JPMorgan (JPM) acted improperly to depress the price of silver. Sources say the CFTC is handling the civil charges and the Justice Department's Antitrust Division is overseeing the criminal probe.

But surely things have changed in investment banking – yes? Well, the 14 largest investment banks posted a combined $78.8B in Q1 revenues, marking the best numbers in three years and falling just 1% short of the record. Goldman itself made money EVERY DAY the market was open – EVERY DAY – I dare say that no one is that good!

Meanwhile – back at the ranch – applications to purchase a home fell 9.5% since the U.S. stopped giving out the $8,000 dollar tax bonuses for people to buy a home. And, according to Fitch ratings, the default rate for commercial real estate loans packaged within mortgage-backed securities hit 8% in Q1 of this year, up from 6.6% in December. There have now been $31 billion of commercial mortgage-backed securities (CMBS) defaults over the last 39 months. And finally, Moody’s – the rating agency for many assets - may face SEC action. In its quarterly report, released late Friday, Moody's disclosed it received a notice from the SEC in March, and may face enforcement action for misleading regulators in a 2007 license application to remain an officially recognized credit-rating firm. The SEC's allegations that Moody's failed to adhere to the policies listed in its application is just the latest setback for Moody's, which has dealt with heavy criticism over its failure to properly rate mortgage-related securities. But the most interesting part of this is: the DAY the notice arrived (before public disclosure) – Moody’s CEO sold 100,000 shares of Moody’s stock and Berkshire Hathaway (Warren Buffet) sold 678,000 shares and another 300,000 shares of Moody’s stock shortly after – naturally both transactions were ‘BEFORE’ the stock tanked.

Right Now – in the U.S.:
- Right Now - 40 Million people are on Food Stamps (1 out of every 8 – back in the 30’s when there no food stamps – this meant that 1 out of every8 people would have been in a bread line!).
- Right Now – we’ve had the biggest April budget deficit – EVER.
- Right Now – approximately 8 Million people are receiving some form of unemployment benefit.
- Right Now – 7 Million homes are in foreclosure (with many more to come)
- Right Now – 40 states are technically “insolvent”
- Right Now – we’re in a DEPRESSION.
- Right Now – as you watch the events in Greece – realize that’s the U.S. – except that we have the monetary printing press to the world (for a little while longer).

Now, if you’re in Europe – because you just gave the OK to print more money to bail out Greece – chances are pretty good that you’re going to see the Euro come under some pressure. And if you live in the European Union – you know that since the ECB doesn’t have an income stream to produce loans, then all you can figure is: 1) your European currency (Euro) is going to be worth less, 2) you’re going to need to implement a new tax so that individual members of the EU can pay for all of this, and 3) ‘honestly’ I’d better get out of the Euro! Now, the smart money knows this, and as all the currencies race each other to the "bottom" before the full swap into a global currency takes place, Gold and Silver (along with other commodities) will continue higher and higher in price – because it’s the only thing that’s REAL. Given that gold and silver have been doing very well lately - the media will tell you that it’s a ‘flight to quality’, when in reality it’s investors around the world realizing that the U.S. and Europe will now be printing themselves to hyperinflation. Meaning – if you hold Dollars or Euros - and they need to print more of them to survive, well – that means what you are currently holding will be losing value and will be worth less.

Okay, so we're in a depression, our dollars worth crap, the Euro's going to get crushed, and they’re lying to us about the economic recovery – so onto:

The Market.
Triple digit moves dominate the market: up 150, down 160, up 170, down 120 – pure technicians will tell you that major periods of major volatility are “marking periods” – these “marking periods” mark times when the market is often ready to make dramatic course changes. About a month ago all the fund managers were basically "out of cash" – meaning they were all fully invested and, and therefore didn't have much more ammo in order to move the market higher. Yet instead of falling (which is the normal course of events when funds are maxed out), we continued higher – until “the powers that be” pulled the rug. Greece was the EXCUSE the market fell – NOT the reason the market fell. Everyone knew Greece was broke - Goldman Sachs even helped them go broke! The goal here was to ‘suck in’ as many ‘amateur’ investors as possible until it was time to ‘fleece the sheep.’ Whether we call it run away computer systems or Greece – understand – we ‘fleeced the sheep’ – again! And last week, investors withdrew (approx) $4 billion from equity mutual funds in the week ending Wednesday – which would make it the largest drawdown since the rally began last March of 2009. Now the "Flash Crash" may have been an impetus – but with equity fund’s ‘cash supplies’ at, or near, an all time low – our bet is that these same funds will have to sell stocks in order to pay clients for further draw-downs?

My guess is that the bear market bounce of March ‘09 to April ‘10 is OVER. And, it won't fall gracefully, it's going to be a real mess...falling 600, bouncing 700, falling 900 and so on. The end result will be a stair step downward that lasts a long, long time. There will be periods where we just trade sideways – others when we bounce and still others when we plunge. But the overall "net-net" will be a lower market.

I do think that if we don't get any bad news out of Europe this weekend - they will stage one of their classic "the world is wonderful" bounces on Monday that might go as far as into Wed morning, but I think that if it happens, it's time to really load the short boat. In the mean time we're sitting with some shorts and some gold and silver stocks that are doing very nicely. Be careful out there folks, it's going to be a very rocky ride for a long time.

Let’s assess where we are - we dove back into some metals – commodities and we are currently:
- Long: GG at $43
- IAG at $17
- SLW at $18
- SSRI at $20
- GDXJ at $27
- VXX is up over $10 per share
- DIA short is up over $6 per share

If you’d like to view my actual stock trades - feel free to sign up as a twitter follower – “taylorpamm” is my nickname on Twitter – fyi.

Remember the Blog http://rfcfinancialnews.blogspot.com/
Until next week – be safe.

R.F. Culbertson

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