RF's Financial News

RF's Financial News

Saturday, June 19, 2010

This week in Barrons - 6-20-10

This Week in Barons – 6-20-10:

How to make a Million Dollars over the next 5 to 10 years?
Great Question – well – I think you might be able to do it with silver. We know that the silver market is manipulated by the big institutions, the SEC, the Comex, etc. The commodities commission and everyone else has been put on notice that it's happening AND they have acknowledged that they are looking into it. Consider that for a moment - silver should be trading at $50 per ounce – in fact using history and gold as our guide – then the figure is closer to $100/ounce. But due to big institutions such as J.P. Morgan given free license to naked short 40% of the world’s silver product – you could easily argue that silver is artificially cheap right now. As the worlds fiat currencies and economies continue to sink, people are scrambling to buy value – which is why gold hit an all time high last week. There will come a time when physical demand for silver is going to overcome the ability to keep it down. Currently an ounce of silver costs $18 – and I always advise investing in the physical metal whenever possible.

Let’s suppose that I’m truly not some conspiracy nut – but if silver could find it’s way to end the manipulation – it would immediately be trading for over $30 per ounce. As people around the globe saw the break out – the buyers would enter and silver would end up north of $100 – potentially closer to $125 per ounce – as it coincides with it’s historic ratio to gold. But wait the other piece of this is the investment in the miners – the companies that pull the metal from the ground. As silver increases in value – the miners of silver also increase dramatically. We have historical proof of $5 miners going to $50 a share – and imagine having a few thousand shares of a couple junior miners when silver makes it's sprint?

I do believe that silver is one of the best investments for the next 5 years. I could be wrong and potentially the manipulation can go on forever. But it is currently so undervalued to gold that it’s my bet that they can’t keep it under lock and key all that much longer.

Now – on to some news:
- On Tuesday morning, TV analysts were telling us how well the consumer was doing – and then Best Buy completely missed their numbers and made references to the consumer ‘hunkering down’ – hum?
- Then on Tuesday – 8:37AM – came the news blurb that Fed officials have quietly begun to discuss their next steps in the event that the recovery fizzles or inflation keeps falling. Well the good news is that we NEVER recovered. Let’s talk recovery to the 8 million unemployed! But honestly, $12 Trillion buys a lot, 99 weeks of unemployment buys/costs a lot, and expanding the food stamp program to cover 50 Million people costs a lot!
- Since June 1st, 340K people have lost their unemployment benefits. Estimates say by the end of June - 1.25 Million people will be OFF the benefit roles. Now what happens when over a million people (end of June) stop spending? Now – is it just ‘coincidence’ that Best Buy missed their numbers?
- At 11:48 AM on Tuesday – we learned that 91 banks and thrifts skipped their May TARP payments - 23 of them for the first time. That's up from 74 banks deferring in February, and 55 in November. Twenty banks have missed four or more payments, and eight have missed five. Maybe these are all ‘strategic defaults’ just like the people who have decided to just be squatters in their own homes?
- Single family housing starts fell 17% last month.
- A couple contributions from Steve Forbes:
- Fannie Mae and Freddie Mac (institutions that hold over $6 Trillion in American mortgages = ½ of an entire years GDP) were delisted from the stock exchange this week – with stock share values less than $1 – causing shares in each of them to plummet over 40%
- Lumber futures – a leading indicator of housing activity – have fallen 40% since April.
- Finally – with Fannie an Freddie out of the way – will banks be forced to foreclose on properties and recognize losses – or are the Feds going to start/continue buying up all the toxic assets?

Is it any wonder that (without being a day trader) I recommend Silver and Gold!

Now onto the market
The goal of the market is to take the most money that it can – from the most number of people that it can. This week was options expiration week – and look at the action on Thursday. All day long the market was slightly red, and then in the last forty minutes the day ended green across the board. Friday was the same thing. Our guess was that to continue to roast the shorts (basically make option contracts null and void), the market would move sideways for the day or two, ending with a very small plus or minus. When the final bell rang, the DOW gained 16, the S&P 1.5 – yawn – but they put the market where the most amount of shorts via put options would get burned, without pushing it far enough that any of the call buyers made a fortune.

Now that we have options expiration out of the way – the market is paying attention to the 1120 level on the S&P – and if it gets above that – it could pop higher quickly. But if it can't put in a close for a day or two above that, chances are pretty good we fade back away from that level. Now there’s no question the "desire" is there to make this happen. But considering the latest economic reports, thinking that Russia is considering moving away from the dollar as the world reserve, and considering the "run up in gold" lately – do they have the fire power to make it happen?

Right now we're in no mans land. Earnings will start to trickle out next week, but the real "season" won't start until the second week of July. In normal historical terms, the market does tend to move higher into earnings season as optimism builds surrounding the releases... but it's a bit too early for that. So, one logical outcome is that the market gets trapped here in a trading range, trying to build a base so it can push higher into earnings. And, my bet is that we're going to see a pretty volatile week, without a lot of overall direction.

Although I am still completely convinced we'll see DOW 9K sometime this summer, it would probably make the most sense to see it happen "after" earnings as we start heading into the historically weakest month of the year - September. Between now and then almost nothing will surprise me.

For all of you DAD’s out there – Happy Father’s Day!

We’re still almost totally in metals:

- GG at $43, IAG at $17, SLW at $18, SSRI at $20, GDXJ at $27, GLD at $115.86, NG at $6.64 and PHYS at $11.65
- We dabble during the week – taking advantage of day trades here and there – but until we feel comfortable about shorting this market – we’ll stick with the metals for longer term holds, potentially looking again at the VXX, and seeing which way the wind takes us during these next several weeks.

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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