RF's Financial News

RF's Financial News

Saturday, July 17, 2010

This Week in Barrons - 7-18-10

This Week in Barons – 7-18-10:

Waiting for the Shoe to Fall:
Factually this week:
- the Federal Reserve suggested that a full recovery might take 5 - 6 yrs
- FinReg passed (a disaster waiting to happen)
- BP capped the leaking riser (maybe)
- Goldman Sachs was fined $550 Million (chump change)
- Bank Repossessions rose 38% in the second quarter
- the Philly Fed report on economic activity fell from 8 to 5 (almost in half)
- the NY Empire state report crash from 19 to 5 (fell by almost 75%)
- TIC data showed China dumping $33B worth of U.S. treasuries in May
- Consumer confidence crashed from 76 to 66, the lowest level in a year
- the ICI report showed a domestic equity mutual fund outflow of $4.1B (the third largeset weekly redemption in 2010 – the 10th sequential outflow – totaling $34B in total outflows YTD)
- the Baltic Dry index hit another low
- the Mortgage Bankers Association say that both purchase applications and ref's fell again, to levels not seen in 15 years.

When I hear the outcry for “JOBS” – I look at a lot of the Fortune 500 businesses – and realize that many were tiny businesses started in homes. You know the story, Mrs. Applegate bakes cakes in her kitchen – neighbors love them – she goes door to door selling them – and in no time there’s Entenmanns or Swanson foods. Today Mrs. Applegate would be in jail – because she couldn’t afford a health inspector, permits, $25,000 in kitchen upgrades for fire emergencies. We have regulated ourselves out of prosperity. The simple act of putting a shed in your own back yard is fraught with permits, building inspectors and other worthless ridiculous money-grabbing bureaucrats. How many wonderful businesses will never see the light of day, because they don’t have the money or time to go through the hassle of trying to get all the "okay's" necessary to start a business. Yeah – I know – it’s for our own safety - but somehow “America the Brave” turned into "America the we can't do anything because one day something bad may happen to someone, somehow, somewhere". And then there’s the fear of the lawsuit. Remember the lady in Philadelphia that would feed the homeless on Thanksgiving – she was shut down because she had no health license, insurance and permits.

I guess you wonder what brought this up? Well in the past few weeks I've talked to a couple people that wanted to "give entrepreneurship a shot". They had lost their jobs and wanted to do something on their own. By the time they got done talking to the insurance people, the town people, the inspector people, the environmentalists, the lawyers – they both gave up. "No thanks. I'll try and find another job". How disgusting that America (at her roots) does more to dissuade someone from trying to open their own shop, than nurture them? Either one of these guys, had their business been successful would have led to expansion, hiring, and good pay. Now they just sit home cutting the grass, and living on unemployment checks. Remember - Henry Ford was a little guy once. There's no way in heck old Mr. Ford could have created the enormous empire he built if he was to start today. And that goes for tens of thousands of now established businesses that couldn't possibly have been created in today's atmosphere. So, again – if the number one issue in our economy is JOBS – and the number one growth engine for JOBS is small business – How do we create JOBS?

Goldman Sachs was hit with a $550 Million dollar fine. That number is so enormously tiny, it's almost like a sick joke. Goldman makes that in 14 days! That number is LESS than the Goldman CEO makes in bonuses. In fact, it was a fraction of the $8 Billion in market cap GS gained in the hour after the news hit. We regulate small business out of existence – and yet NO ONE goes to jail for some of the biggest frauds ever created. And Dell announced this week that it’s right behind GS in settling with the SEC – as it set aside $100M to cover the cost of settling charges that employees misled auditors and manipulated results.

Factually – we’re really in trouble ... one in four American consumers - more than 43M people - now have credit scores below 600 (according to new FICO figures) marking them as poor risks for lenders – reaching a new high.

And By the Way:
- Nothing "Just Happens"
- We didn't fall from the single strongest manufacturing nation on earth because of a slip "Oops".
- We didn't see our high-school kids go from the highest scholastic scores on earth to number 41, because of a few "Mistakes".
- We didn't go from the world’s biggest creditor nation to the world’s single most indebted country ever seen because of a few "Mis-steps".
- But notice the SPEED at which America is being ‘Dismantled.’

The market..
OK – well I’m still in the camp that says the market needs to pause and pull back SLIGHTLY so all the chart slaves looking at the lower highs and lower lows charts feel confident to go short. On Friday we ended red. Frankly even I was a bit surprised at the size of the drop, I was figuring more along the lines of about 150 to 160 points and we lost 260. Now, if I'm right, what "should' happen is that Monday we fall some more, and then, almost out of the blue we start a bounce higher. It could be a very powerful bounce that takes back all the points we just lost. Then, it's time for the market to roll back over and plunge too much lower levels. Why – well in times when the ICI report shows the largest monetary outflows / 10th sequential outflow / totaling $34B à we’ve had a blistering run “UP” of almost 900 points! How does that happen?

If you believe that the market exists to 'take as much money from the most people as possible’ - you can often figure out what the market is going to do, simply by figuring out which way it would have to go, to inflict the most pain.
As we were on that rip roaring tear last week which topped out at 10,406 – we were at some interesting technical levels that always bring out the chartists telling us that it was time to ‘go short’. So, Wednesday we paused, Thursday we were weak, and Friday we plunged. Well there's no better way for Mr. Market to lure in the chartists then to fade some. This way the chartists look like geniuses, and they pile in with the shorts. But, more times than not, Mr. Market is right behind the curtain ready to smack the winners down. I think what happens from here is that we'll fall a bit more and then see a big ‘powerful’ bounce – and once the shorts are all toasted and everyone's trying to get long – then it rolls over again, only this time for a much longer period.

So again, our guess is a bit more downside early on, and then the start of a pretty good bounce, just so they all have to cover. Then the market can resume it's roll downhill.

We’re in metals and ‘short’ ETF’s: We’re back in 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)

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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