RF's Financial News

RF's Financial News

Sunday, December 5, 2010

This week in Barrons - 12-05-10

This Week in Barons – 12–05-10:

It’s a Wonderful Life

Personal thanks for all of you (especially Jacob) that wrote in hi-liting the following website – which ‘in cartoon form’ really makes fun of what Ben Bernanke and J.P. Morgan have been doing with silver these past years – if you have a minute – please give it a look!

What's going on out there? Well in the economic world, it just doesn't ever fail to amaze me. Bernanke caught holy hell from the rest of the world when he announced QE2, because everyone who owns dollars are now upset that the value of those dollars is falling daily. So, what's he saying now - in a taping for an upcoming 60 minutes show, he says the $600 Billion he announced is just a guideline and substantially more QE (money printing) could be coming. He says jobs are still a real mess and the economy faces a stall out – DUH! Well Ben – when you pump $14 Trillion into a $14 Trillion economy, "something" has to happen. So absolutely we see areas of economic activity. But what happened to the jobs report on Friday? Everyone was expecting a jobs gain of about 150,000 and we got a measly 39K. That took a lot of wind out of a lot of people’s sails!

But What If: What if the jobs report actually was better than that and they jiggered with it to be poor? I know a lot of you are thinking that I lost my marbles, but follow me here. We did have anecdotal evidence that the jobs report would be "pretty good" – and here in lies the problem. Jobs are supposedly the last component we need to see the economy finally mend itself. If the jobs report was good, how could Bernanke justify more and more QE? For months on end he's justified printing money like a mad man because it will eventually help the jobs situation. Foreign nations went along with it to some extent, waiting for the jobs to show up. Now if they did - wouldn't it stand to reason he'd have to stop his QE (printing of money) and all of the POMO operations?

I am really starting to believe that they pulled the jobs number down on purpose, because it’s the only acceptable reason Ben has for printing money – the lack of jobs. And if jobs recover to the point where at least we're treading water – Ben’s only excuse for QE is gone. But he can't stop QE, because his member banks are BROKE. He knows that with huge amount of foreclosed homes hitting the market – and more and more of them becoming ‘non-performing assets’ – this will destroy his member Banks – and they all need more reserves. He knows that the only way to keep the money flowing to save his banking buddies is ever more QE.

So I think they jiggered the jobs report – and I even have "some" proof. Looking at the Birth/Death model – the BLS actually "took jobs OUT" of the overall number this month. That hasn't happened in years – normally the B/D model injects anywhere from 10K to 200K jobs per month into the number, to make things look better. But this month they subtracted 8K jobs out of the total. Was that a coincidence? I'm not saying the number would have been tremendous, but it I suspect it would have been pretty darned good, considering the Holiday hiring. But the bottom line is still the same – continue printing – inflation is roaring. This week, cotton was up, Gold went over $1400, Silver hit $30, and Oil is over $87. There is no way to hide it - inflation at the raw material level, is soaring and it is either going to squeeze margins, or get passed on – and in time it will all get passed on.

Over in Europe, after trying to hold off the ECB has joined into the buying of toxic bonds to keep Ireland afloat. This will indeed continue, as Germany is more than tired of supporting the whole Club Med show, and if continued to be pressed, will back out of the Euro. So, now the whole of Europe is engaged in printing money out of thin air. Meanwhile, China, India, Russia and a handful of other "bright" countries are buying gold in ever-increasing amounts – because they see the writing on the wall – we have entered the age of Latin American style monetization. At what point does the entire fiat currency experiment give up the ghost in one last earth trembling gasp? I don't know - but it's evident that a lot of bright people are taking the steps to protect themselves with precious metals – and I can think of no better place to be.

The Market:
The market fought off the lousy jobs report, and ended the day Friday with a 19-point gain. The momentum is so strong, the printing of free money so large, and the greed on Wall Street so enormous - they cannot help themselves. So here we have a conundrum. The market is and has been moving higher on the enormous printing and distribution of dollars from the Federal Reserve - into the member banks via the POMO operations. This is no longer a secret and just about everyone from Bernanke to Obama has admitted that they've been "getting the stock market higher". Naturally the question we all have to ask is this - How long can it go? I really don't know. Never in the last 40 years have officials come out and basically admitted they are behind getting stocks higher, because they want people to feel better about not having jobs, and getting some "wealth effect". It's a Ponzi scheme of epic proportions. We simply don’t know when it will end – but for now all we can do is lean long, buy stocks in areas that the market adores, or in tangible item type stuff like materials and metals.

One of the big question marks is still - what about the tax thing? Once again this weekend the talks in the Senate have bogged down as the politicians try and play out their version of "Let's Make a Deal!". The Republicans are holding firm on tax cuts, the Dem's are holding firm on having the "rich" pay more - and each is trying to get something for giving in a little. Now, if they extend the tax cuts the market will go higher into the year-end. If they don't, people will sell stocks in December, so they pay the lesser tax rates, and how much effect this tax selling will have in the face of Bernanke injecting money into the market is undetermined.

One thing for sure, we are very close to the 11,450 high we hit in early November. If we get past that in a meaningful way, there's not much to stop this market until about 11,650 - 11,700. So if they get us past those recent highs, we're going to make some quick gains. As we approach that 11,450 level, I do expect some volatility, some chop – but once past – there’s no clearer buy signal than a few hundred points coming our way. Remember, extend the cuts = we soar higher - cuts expire = we'll pout for sure.

Let’s review our holdings:

In our short term holds (holding for a few days to a few weeks – all bought within the last week) we have:
CAT at 85.15, is now 89.38 – 5% in four days.
GRS at 7.08 is now 7.79 – 10.3% in two days.
NVLS at 31.32 is now 32.21 – 3% in two days.
SLV at 27.31 is now 28.59 – 5% in 3 days.
SU at 36.01, is now 36.09 – let’s call it even.

Those of you who have been following us for a while – know that our Long term Holds are:
SSRI at 20.02 is now 27.99 – up 39%
GG at 42.04 is now 47.07 – up 12%
SLW at 18.31 is now 39.31 – up 114%
NG at 6.825 is now 14.92 – up 118%
AAU at 3.02 is now 4.43 – up 47%
DNN at 2.71 is now 3.33 – up 23%
FCX at 105.30 is now 108.95 – up 3%
SLV at 25.81 is now 28.6 – up 11%

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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