RF's Financial News

RF's Financial News

Saturday, July 10, 2010

This week in Barrons - 7-11-10

This Week in Barons – 7-11-10:

Would you like “Two Dips or One”?
Is there a double dip coming – absolutely not! To enter a double dip, means that we first must have recovered from the recession – which we never did. We simply had a party with trillions of dollars of stimulus. DOW 8,000 will simply be a stepping-stone toward DOW 5000.

Now – allow me to be simply ‘logical’ about the economy for an instant and ask you to consider the Demographics. As the "Baby Boomers" reach retirement age (the single biggest spending body the world has ever seen, and correspondingly the single biggest "investing" body the world has ever seen) they will FLIP from putting money INTO the market - to taking money OUT OF the market in order to live. That demographic hasn’t changed, and each year (from here on out) will accelerate the withdrawals. So the market will have "pressure" coming at it for years as people tap their investments to get them through their golden years. But not only are aging baby boomers taking money out of the market to retire on, we are seeing wave after wave of unemployed looking at their 401K's from their old job and cashing them in – penalty and all. And where is that 401K typically invested – stocks. For example: the week of July 1st saw $11 Billion come out of stocks. If people can’t refi their homes and take cash out of the refi – if they have no job – and maybe they just ran out of unemployment benefits – the panic begins to set in – and that leads to 401K’s looking like a tool for survival in the near-term rather than a retirement plan for the future. Now toss in more housing foreclosures, falling retail sales, states going bankrupt, pension plans getting reworked, and commercial real estate beginning their plunge to zero – the pressure on equities is huge. And EVEN IF the economy recovered – you will still have the “Baby Boomers” pulling out of the market naturally – which will be huge in and of itself. Also - don’t forget the tax increases that are coming next year (regular as well as capital gains increases) – add to that the tremendous cost of Healthcare – and again – YES - DOW 5K is in our future.

Believe me when I tell you – I WANT to be WRONG. But I also believe in free market Capitalism – and Ben Bernanke is caught between a rock and a hard place: 1) he can let the economy fall into depression, clean itself out, break the people that made stupid choices, reward those that did right, and come out the other side leaner, meaner and ready to roar, or 2) continue to print trillions and trillions of dollars, spread it around, hope it ignites some real organic growth and then tax everyone for the rest of their lives to pay it back. I think ‘they’ are choosing Door Number 2! Does that mean long-term doom and gloom? Absolutely not – if you prepare for it!

The Market:
Historically the market moves higher into earnings season and last week was no exception. This market was desperately in trouble during the last week of June as the market fell and fell, and it was no surprise to me that the Fed (in concert with the member banks) drove the futures up and the market went with it – with or without proper bidding. I don't know how many of you watch the mini futures but I am constantly amazed when one of these "pushes" takes place – the prices blast right past stacked bids and establish new prices. Why and How? The reason is the bids ‘really’ don't exist. But the problem with Fed induced market romps is that (like musical chairs) you don't know when they turn off the music and when you’ll be left without a chair to sit in – so we used smaller positions and pulled the trigger faster during this past week.

So – What’s Next? Although there is reason to think Monday could be a reversal down day, my guess is that they'll do their best to keep the market "up" for the first part of the week – because as earnings come out, some of them will be great but the guidance might be soft, and they'll need the "room" of a higher market to absorb the news. However, we are still going to be playing small positions and moving quickly. It's our guess that whether we've seen this run-up top out, or we have a bit more to go, this earnings period will mark the market top for a while and we can get to sliding back down. And even if they held us up all the way through reporting season, what would the market have to look forward to – August and September – which are traditionally not great months. We have elections coming in November – they could be ugly – and the market naturally hates uncertainty. All in all, I think the hoopla over this earnings season will post an intermediate top.

We are strongly considering taking on some longer dated put options in the near future – you may want to follow us on Twitter or if that strategy fits your portfolio.

We’re in metals and ‘short’ ETF’s: This week we purchased TZA, DXD and SDOW (all 3 inverse market ETF’s (that is to say these ‘Exchange Traded Funds’ increase in value when the market goes down):
- After a natural down-draft - GLD is heading back toward it’s resistance at 122 – so keep an eye on that as it gets close to it to see if it can break thru it.
- We had tight stops on DXD, SDOW, and TZA – and with the market run-up we were quickly stopped out of these – loosing a little money – but we’ll be back to play in the near turn I guarantee it!

Think about long dated PUTS – and please be careful out there.

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.

If you’d like to see me in action – teaching people about investing – please feel free to view the TED talk that I gave a month or so ago now:

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

R.F. Culbertson

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