RF's Financial News

RF's Financial News

Sunday, July 25, 2010

This week in Barrons - 7-25-10

This Week in Barons – 7-25-10:

I’m just a Normal Capitalist:
I’m just a normal capitalist – but let’s talk for a minute about Silver and Gold. I’ve gotten quite a few panicked e-mails about the metals – since they have come off their highs. First off – determine why you’re buying Gold and Silver. I’m recommending and buying them as the ‘ultimate insurance’ against the FED’s policies. Now, it's true that in the short term, you may buy Silver one day and the next two weeks it's "down" – that’s happened over 1,000 times since 2001.

What Ben Bernanke told us this week was: the economy sucks, jobs won't recover for years, and he's going to get even more "unconventional" in his approach to halting this depression. Do I believe him – maybe. Do I think what he will do will work – in the short term – No! Hence the need for Gold and Silver.

I think if you bought the GLD when gold was 1250 – and you thought it was going to 1500 the next week – you lose. If you bought gold at 1250 thinking that as our economy continues to slow - gold going to 1500 and higher – I think you'll win.

Now I don't usually do this, but as I said before – I treat these metal holdings as long term holds. Many times we've had the opportunity to take profit, but didn't. That wasn't by accident. Let's look at what happened:
- GG we got on 4/28 at 42.04 - 5/12 it was 47.41 - and as late as 6/28 it was 46.00 - profit was there for the taking.
- SSRI we got at 20.02 on 4/28. But on 5/12 it was 21.00 – profitable.
- SLW at 18.31 on 4/28. Was 21.58 on 5/12, and on 6/28 it was 21.89.
- IAG at 16.81 on 5/12 20.24
- NG at 6.82 - a month later it hit's 7.80.
- GLD at 116, has been as high as 124 – profit to take.

I’m not in these trades for the $2 or $3 winners – I’m in them for when all ‘heck’ breaks loose – but having said that – there’s nothing wrong with you “buying the dips and selling the rips.”

The Market:
The older I get, the more "life gets in the way" of the people I am fond of. If you have kids – from where I sit – the world that we’re leaving them … STINKS.
Last week I suggested that the market had one more pop in it, one more surge that defied gravity and lured in some more participants. Of course the main reason that the market is moving higher is to completely confound and defeat the short-sellers, that had seen a technical pattern setting up in the market and went short. If the maximum amount of people are long the market, you can rest assured that a massive pull down is about to take place, and vice versa. The only question is the timing. Hence the phrase: “the market can remain irrational longer than you can remain solvent!” And as further proof of irrationality: if supply and demand dictate price movements, how can the market go up, if more money is going out than coming in? Factually: "ICI reports that the week ended July 14 saw another massive outflow from domestic equity mutual funds of $3.2 billion, bringing the July total to $7.3 billion, and year-to-date equity outflows to a stunning $37.5 billion.” Just as ICI tells us - usually when the funds are redeeming like that, a large percentage of people are also starting to go short. So it was easy to know that a massive reversal was imminent. Now, how does the market continue to lure some of those billions back in – the market needs to continue to rise, even in the face of absurd economic reports. Eventually people can't take the fact that they're sitting in cash while the market is roaring and they rush to get back in. When Mr. Market is satisfied that he's got all he's reasonably going to get, he pulls the rug and takes their money. For right now it still seems to me that this move is "crush the shorts" action - because of the speed of the ascent. Usually if the market is going to lure in the sheep, it moves sideways and up slowly. It wants people to look at the news and see that "yep the market was up again today" day after day, week after week. Finally after months, they can't sit on the sideline any more and they capitulate, buying stocks with a frenzy. When the market just wants to bury the shorts and the chart slaves, it does it ferociously – gaining 400 points in 3 days – just like did. Often then – it just rolls over and falls hard – so we need to be really careful. If I'm right, this run will end between now and 10,600. If I'm wrong and they're pulling one of their "lure in the sheep" moves, we could see 10.8.

We’re in metals and in and out of a couple small positions in ‘short’ ETF’s: We’re back in (and out) of 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)

As you see above – the metals we like for a while – unless something dramatic occurs. And with (what we think to be) this final surge - 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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