RF's Financial News

RF's Financial News

Saturday, November 6, 2010

This week in Barrons - 11-06-10

This Week in Barons – 11–07-10:

2012 Could Bring a Very Different Day of Reckoning:
Ben Bernanke once said: "consumer confidence will rise with the gradual rise of stock prices". Ben could only say that – because he had the ability to MAKE the stocks go up. When Ben said this - the DOW was at 7k – and sure enough – as strange as it sounded – as home sales hit historic lows – as retail sales went down – as foreclosures hit record highs – as joblessness continued to rise – the market just kept going up! And yes – "the market can stay irrational, longer than you can stay solvent". But we’re talking thousands of points within the biggest recession since the Great Depression. It’s not so impressive to me that he knew what to do – after all he’s a student of the ‘depression’ scenario – but how did he set up the system to ‘quickly’ to make this happen? And Ben’s last weeks quote in the Washington Post hit it on the head: "Lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion." So 2 years AFTER he muttered those previous words – he comes out and says almost the same thing again - but this time credits his manipulations for making it work.

OK – so this week Bernanke un-leased yet another $600 Billion of fantasy money that we don't have – and what happened - Gold went up $41, Silver hit a new recent high – and other countries - Germany, China, Brazil, Russia and a host of other nations lashed out against Bernanke’s policies. Hey – who can blame them? If I held a ton of US dollars I’d be upset as well if (in an instant) they became worth less! Here’s an excerpt from the German finance minister: "With all due respect, U.S. policy is clueless." Wolfgang Schaeuble believes there is no shortage of liquidity: "To say let's pump more into the market is not going to solve their problems.” China in turn said: “The unbridled printing of dollars is the biggest risk to the global economy. As long as the world exercises no restraint in issuing global currencies such as the dollar, then the occurrence of another crisis is inevitable, as quite a few wise Westerners lament.”

Did you catch the word ‘inevitable’? As Bernanke continues on his College day thesis that pushing money out of helicopters is the solution to all problems – more and more of our moral friends are turning into our financial enemies. And what about this little gem that Obama and Bernanke were not going to tell us: “The cost of Fannie, Freddie bailout might hit $685B. Initially projected two years ago to cost taxpayers $200B, the tab so far is $134B, but a slowdown in the housing market might lift that total to $280B. Creating the companies to take the place of the two fallen mortgage giants will likely cost taxpayers another $400B in capital.” - an expensive repair job for U.S. taxpayers.

The jobs report came on out Friday – and on the surface it told us that 151K jobs were created. I couldn’t believe it so I did some digging. 61K of those jobs were created from the ‘birth/death’ model – so those are not real. 7K more manufacturing jobs were lost - but wait it gets worse. The labor participation rate is at its lowest point since 1984, at 64.5%. If we were to assume a ‘normal’ participation rate of 66% - that means 3.5 Million people have dropped off the employment rolls – and have quit looking for work. Adding this number back into even ‘their unemployment number’ would increase the unemployment rate to 11.6%.

Where the heck did 3.5M people go? One day they were out there looking for work and the next day, "poof" they're gone. With a sweep of the mighty pen, people active in the job market fell to a 26 year low, with 3.5M are unaccounted for.

So there you have it - Bernanke’s going to continue to print money, the rest of the world hates our guts and will embark on their own form of protectionism – to think that this ends well is naïve! I’m trading the market gains and investing in gold and silver like crazy – but frankly – I think that a major league disruption is lurking and it's going to hit by 2012 – maybe those ‘old Mayans’ were onto something!

The Market:
It’ Up! That's all you need to know. If someone asks you: "What's the market doing lately?" just say: “It’s UP!” On Thursday we learned that 450,000 people had to apply for first time unemployment benefits – but the market went up! For two years we've averaged 450K initial jobless claims per week – and there has been NO private sector job growth.

We went long FCX on Thursday morning – by noon on Friday (one day later) it was up $7 per share (7% in one day). We also bought SVM on Thursday morning at $10.58 – and on Friday it was $12.35 (16% in a day)!

My ‘gut’ has screamed for two weeks that we are topping out – but the market marches higher. We are in a momentum driven, Fed induced dream, and it is no longer going to use regular methods to tell us when it ends. In any event here's the deal: If someone says "stay long this market, it's going up-up-up" - and it does, it's not because he's a genius, it's because the Fed and Wall Street want it up more. Likewise if a well-respected trader/investor says "be cautious this market is very over-extended" and yet it goes up - don't give him grief. There is not ONE SOUL that really knows when this will end except Ben Bernanke and the boys of international banking. Only the clan of elites (doing their behind the scenes magic) knows when the rug pull will come.

We have to keep leaning into this market, because it keeps going up despite any semblance of reality, but I refuse to swing for the fences. I am buying smaller positions and keeping my stops tight. Watch the dollar - when it weakens load the boat with stock. When the dollar bounces - sell out. Nothing could be easier actually, it's really that simple – and completely insane.

Let’s review our holdings:
GDXJ – a basket of gold miners
GG – IAG – NG – AAU – NGD – ABX – FCX individual gold miners
GLD – PHYS – pegged to the price of Gold itself
SLW – SSRI – SLV - silver miners and indexes
AUY – specific miner – heading into earnings season
VXX – volatility index (for the long haul)
CBOE at 24.02
JCI at 33.00
MDT at 34.05

We still like the metals and are buying on the dips – and looking at buying some SIVR, SIL, and SGOL. Jim Cramer now wants 20% of your portfolio in metals – wow pretty insightful!

We’re still in and out (mostly out these days) of TZA, DXD and SDOW on a daily basis (these are ETF’s that allow you to invest directly in the market going ‘down’ – for those that do not like to ‘short’).

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:
Until next week – be safe.

R.F. Culbertson

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