RF's Financial News

RF's Financial News

Sunday, February 13, 2011

This week in Barrons - 2-13-11

This Week in Barons – 2–13-11:

Did ‘The Grand Plan’ Include Egypt?

People will put up with many things but not being able to eat or feed their children is usually the tipping point. We have seen exponential increases in food prices over the past 6 to 9 months – and in a true global ‘food fight’ it’s hard to tell who (if anyone) will win. Currently, you can certainly point to the weather as having been uncooperative – with droughts in Australia, Ukraine, Europe and Russia as well as floods in Australia, Brazil and the U.S. With corn (in particular) trading over $6.75 a bushel (almost double the $3.60/bushel rate in June), it’s a strong possibility that we will continue to hear and read about continued food riots in parts of the world throughout the globe until the 2011 harvest time. With the U.S. being a major supplier – we not only need to look at the U.S. supply situation (E.G. our diverting corn production to Ethanol) – but also QE1 and QE2 aiding in the devaluation of the U.S. dollar – helping to cause a ‘power keg’ of food price inflation – not witnessed in decades. What we all need to ask ourselves is – “Was this planned?”

Well this week’s “Plan” included:
- Federal Reserve Governor Kevin Warsh, who was one of Chairman Ben Bernanke's closest financial-crisis advisers before becoming the only governor to question the expansion of record monetary stimulus in November, resigned after five years at the central bank. According to sources – it isn’t because he disagrees with Bernanke. You’re kidding right? Several times Mr. Warsh has openly written OpEd's about how QE could have serious ramifications – including commodity price inflation. And NOW he’s quitting. I think he understands what's coming and wants out before it hits.
- CBO Director claims that the Obama Health Care Law Will Cost 800,000 Jobs.
- Steve Forbes and Richard Gonzalez point out that the ‘rumblings are back’ (as if they were ever gone) in the EU – much to the disdain of the ECB. Take a look at a graph of the Portuguese Bond – as it reaches a 10 Year High this week – and remember what Greece did to the market a little bit ago. The PIIGS are clearly in trouble and food prices are not helping one bit.
- U.S. Home Foreclosures jumped 12 percent last month, but the sharp divide between states suggests the industry remains backlogged by investigations into the foreclosure process. According to a report from real estate data firm RealtyTrac, lenders foreclosed on 78,133 properties in January, up 12 percent from the month before. We are 3 years after the banking collapse, 4 years after the housing bubble and foreclosures are still rising.

Forgotten in the price of corn ‘doubling over the past six months’ is a ‘trickle-down’ effect leading to higher prices in everything from animal feed, to breakfast cereals, and even soft drink sweeteners. “U.S. shoppers will see higher grocery bills as early as three months from now, though most of the impact won't be felt for another six months”, said Scott Irwin, an agricultural economics professor at the University of Illinois.

Of course The Ben Bernanke doesn't include food or energy in his calculations for inflation. In fact, through substitution he consistently tells the world we’re running under 2% inflation – when in reality we’re closer to 7 or 8%. And as you look back over weeks and weeks of headlines – do they square up with Obama’s view of the economy? Now, is it any wonder that people around the world want out of dollars?

Bottom line – I DO think food inflation (in particular) was part of ‘The Plan.’ We have a Fed head quitting because he sees The Ben Bernanke basically becoming a despot and proving to everyone that “absolute power - corrupts absolutely!” We have all the ills we had two years ago, and more. And as you look at the accelerated pace of our dollar depreciation – you have to ask yourself – is all of this coincidental? I think not!

The Market:

I have to say that this week was one of the weirdest I've seen in a while. I was calling for a weak market and we got it – but each day – as if by a miracle – the market in ‘pre-open’ and at 3:30 pm would go from ‘red to green.’ President Mubarak’s leaving then triggered a rally on Friday. Now we’ve all heard wonderful things about Egypt being a newborn baby democracy, and how it will be so much kinder and gentler. Now, I’d love for their people not to be repressed, but to think that there won't be infighting from the hard liners seems a bit of a stretch.

Last week, I said that I thought we were in the danger zone for a pullback. I said that I figured the rally would continue Monday and into Tuesday, but by Wednesday we should see the first cracks appear. Sure enough, Monday and Tuesday were pretty good days, and on Wednesday the market got soggy. It was down 77 points early on – and I thought that this could be the day that it was going to finally take a breather, pull back 8+ percent and shake out some excess. The downside volume said yes, the RSI said yes, many indicators said yes – BUT The Ben Bernanke said NO. Out of the clear blue the futures programs fired off and they brought us up to close the day "flat". Thursday we were flat at the open and then again plunged 77 points – but guess what showed up like clockwork – out of the blue came multiple futures buys and soon we were moving up. Then of course on Friday, President Mubarak did resign and we pushed back up.

So, did my pullback call fail and did I look stupid? Considering the market was higher on Friday, than it was on Wednesday – YES. But one would have to agree that watching the market fall for over 70 points, two days in a row, only to be "brought back up" – well – even a CNBC analyst came on camera and came right out and said that the FED is supporting any dips.

So one thing we can draw from this is that the Fed still has the firepower to push the market, despite a market showing many signs of fatigue. Does that mean it's over, and we can buy again? I don't think so. The market is at an interesting inflection point, and I think that it may try one more time this week to roll over. I would not be surprised in the least if we move up Monday, see fatigue set in on Tuesday, and we go back to grinding sideways. They saved us last week – will they save us again if we soften up? With that in mind, we're mostly sitting on our hands, 'leaning long’ and very quick to take profits.

We still have a couple positions in our gold and silver stocks – with our long term holds looking like: SLV at 25.81, NG at 6.825, AAU at 3.02, DNN at 2.71, AVL at 4.00 and USSIF at 0.61

In our short-term holds we have:
N up 18%, SLW = flat, SLV up 13%, NGD = flat. And we purchased some PAL, AUGT, and AGRO.

If you’d like to view my actual stock trades – and see more of my thoughts – please 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 4 months or so ago now:

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

No comments:

Post a Comment