RF's Financial News

RF's Financial News

Sunday, August 22, 2010

This week in Barrons - 8-22-10

This Week in Barons – 8-22-10:

If you own 10 stocks – 9 may got down … but not Gold
I’m writing from Chicago – picking up my oldest son from his summer internship – so this letter will be slightly abbreviated.

I caught a headline yesterday: “Fidelity Investment says 62,000 people tapped their 401K’s for "hardship withdrawals". And here I thought we were ‘recovering.’ At just Fidelity – 62,000 people are pulling cash out of their 401K’s (at a penalty) because they have absolutely no choice if they want to survive.

And how about this headline on Saturday morning: “'JERSEY SHORE' ratings beat most broadcast shows. Have you ever seen it – it’s an MTV show about some young people who go to the Jersey shore to party, date, get wild, chase girls and guys, get drunk, etc. That is what is beating out broadcast journalism?

I then found the following:
- Nearly half of the 1.3 million homeowners who enrolled in the Obama administration's flagship mortgage-relief program have fallen out of the program
- ShoreBank of Chicago to Be Closed by FDIC
- USA DEBT = $13,310,379,000,000
- California faces issuing IOU’s again
- Experts say that the U.S. can no longer afford tax breaks for Housing
- Philly Fed reading plunges to -7.1
- Initial jobless claims exceed 500K for first time in months
- Personal bankruptcy ties the 2005 record
- Food stamp usage up, now 41 million need help

What’s really going on in America is that the ‘Jersey Shore’ ostrich is sticking his head in the sand. What can you do? First à I tend to think you better get some gold, silver and some related stocks. Second à In November you better “Vote the Bums Out!”

An old colleague sent me these thoughts this week: There are 535 people in Congress – each state has 2 Senators and 435 Representatives. How can those 535 say they hate inflation - yet vote for inflationary programs. The 535 say they hate debt - yet we're the most indebted nation the planet has ever seen. The 535 say they want what's fair for America – but THEY won't be using Obama's healthcare plan, they get unlimited pensions, and YOU get the bill. The 535 say they want jobs in America - then sign bills that favor elements exiting our shores. So job #1 is to not sleep thru the elections, and Job #2 is the gold silver lining.

Just this week we found out another 500,000 NEW people registered for unemployment. The only thing that keeps us from outright social meltdown are the social programs like food stamps, unemployment, etc. - but those programs are all being funded with debt – and you just can’t borrow yourself out of debt.

The Market:
Well, this week Wall Street said “the fight is on.” CNBC tells us that the weakness we saw this week was because of sagging economic numbers. Honestly, we’ve had sagging number for months on end. What's really happening is that Wall Street is telling the Fed that they weren't completely happy with Ben’s last statements about how much "re-inflating" Ben's going to do. Wall Street wants more – and the Fed held their ground. So, Wall Street decided to show the Fed what happens to the markets when they don't get what they want. Factually: there are certain levels the market has to maintain at options expiration where it will extract the most amount of money from the most people. The market (the casino) knows how many Puts and Call options have been purchased – and as their expiration draws near – it’s relatively easy to compute where to place the market in order to extract as much money as possible. That level for the S&P was 1090 – and on Tuesday we ended at 1092 and on Wednesday at 1094.

In a nutshell - I think that the market will continue to go lower until the Fed cries ‘Uncle’. And in more ‘normal’ times I’d say that the Fed would cry ‘Uncle’ fairly soon; however, this time we have the November Elections coming, and it's pretty certain that most people have had enough of Obama's Democrats (the incumbents). That means we could see a Republican take over – and that is gaining Bernanke's ear. In the past the party in power would simply pull Mr. Bernanke aside and explain to him that in order to keep his job – he’d better do the ‘right thing’ to keep John Q. Public’s 401K above water. But now the Republicans are saying – if the 401K’s go further ‘underwater’ - that may guarantee us the November Election! So between The Street’s actions and Ben being caught like a ‘deer in headlights’ (not doing anything) - this fight could get interesting.

I think we’re going lower and I'm leaning short. Until the Fed comes out and tells the world of some new stimulus programs – I don't see how they keep the market up – and between the technical patterns – the “death cross” and the "head and shoulders" pattern - it's my guess that if the Fed doesn't open it's mouth, all of these omens are about to come true and we're going down and potentially down hard.

We’re in metals and beginning to strengthen our positions in ‘short’ ETF’s: We’re back in TZA, DXD and SDOW (all 3 inverse market ETF’s. We’re also in the VXX because we see increased volatility coming. The metals we like for a long time – unless something dramatic occurs.

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 4 months or so ago now:

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

R.F. Culbertson

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