RF's Financial News

RF's Financial News

Sunday, June 26, 2011

This Week in Barrons - 6-26-11

This Week in Barons – 6–26-11:

Is this ALL just a “Control Issue”?
President Obama visited Carnegie Mellon on Friday and gave a talk on jobs and manufacturing, reinforcing his words – with (well) more words. The same day - I saw two headlines concerning our Nanny state, and our desperation to create zombies.

Headline #1: Obama's food police are launching a crackdown on foods sold to "children", under the theory that Uncle Same can truly regulate obesity. He is ordering manufacturers and restaurants to “either retool the recipes to contain regulated levels of sugar, sodium and fats – or no more advertising and marketing to tots and teenagers.” Now, although the intent of the guidelines is to combat childhood obesity, foods that are low in calories, fat, and some considered healthy foods, are also targets, including: hot breakfast cereals such as oatmeal, pretzels, popcorn, nuts, yogurt, wheat bread, bagels, diet drinks, fruit juice, tea, bottled water, milk and sherbet. Estimated impact if in-acted as written: $5.8 Trillion and 20 million U.S. jobs lost.

Headline #2: The Federal Government has introduced legislation to make marijuana no longer a crime at the Federal level, but rather to let the states decide. Factually - marijuana is the single largest cash crop in the US. However, the issue could be Headline #1 above. Marijuana consumption creates a sense of hunger – often for ‘junk food’ – and if you regulate junk food out of existence – you may find that marijuana consumption decreases and so would revenues from both sources.

Betsy C reminded us of the stages of a nation’s progress: from bondage to spiritual faith; then to periods of great courage; followed by liberty – then abundance – then complacency – then apathy – then dependence – and finally from dependence back into bondage. Factually – the majority of the people that voted for President Obama (vs John McCain) were: (a) from areas that had a 600% higher murder rate (than John McCain’s constituents), (b) from areas best described as low income housing, and (c) often living off various forms of government subsidy. With 40% of all Americans being dependent upon the government for some sort of support – I think we’re ripe for the ‘Dependancy’ stage – and I’m wondering if ‘Bondage’ isn’t right around the corner. Which begs the question – is this ALL about Control?

Higher prices – are by themselves – an excellent form of Control. The Fed pretends that it had nothing to do with them and The Ben Bernanke routinely says that prices are formed by supply and demand — which is true enough in a free market, but money creation complicates the picture. It’s also very clear that The Ben Bernanke doesn’t care about inflation as much as he cares about the solvency of the banking and financial systems. Savers living on pensions just don't have the political clout to stop the money machine. And contrary to The Ben Bernanke's promises, he does not have the ability to turn off the monetary spigot once prices start zooming. The economy is too globalized for that. History is littered with monetary managers who believed they were in total control — until the disaster hit. Continuing to purchase treasuries – whether you call it QE3 or an extension of QE2 – is like a third dose of meth, or another bottle of Jack. Choose your metaphor – but it’s all built on the insane view / hope that if you stimulate a zombie enough with fiat money, it will start to live and breath on its own.

There is a concept out there termed the Misery Index. The Misery Index is the unemployment rate added to the inflation rate. Well, if you listen to the politicians – you’re adding 9% unemployment with 2% inflation and you get an 11% misery index. In reality you’re adding close to 18% to 9% - totaling a 27% Misery Index. That is getting awfully close to the +30% of the Great Depression. I’m seeing more and more of us becoming increasingly ‘self-sufficient’ – more chicken coops in affluent areas, along with more ‘victory’ gardens. As the Misery Index gets worse over the next 2 years, gold and silver will continue to be the "go to" safety gauge, with physical demand triumphing over paper shorts.

The Market...
The words “Roller Coaster” come to mind, although that really doesn't depict the insanity we've seen this past week. After falling for 6 weeks in a row they dug in their heels and rallied the market up into the FOMC meeting which we told you last Sunday they would. But then something "bad" happened. It seemed that Wall Street was sure The Ben Bernanke would tell them of the great QE3 program he had hiding in the wings if the economy soured, but nope – The Ben Bernanke said nothing. In fact when questioned about more stimulus, he said "We're in a different time than last year when I rolled out QE2. Now deflation is off the radar and employment is growing...."

Well Wall Street hated that, and an hour after he said that the market was down 80 points. Then on Thursday it was lower (at one point by 240 points), but a series of news releases made specifically to hike the markets hit. First: “Obama allows tapping of the Strategic Oil Reserves.” Factually: we use that amount of oil in 9 hours. But it worked and got the market up. Then when the market rolled back down and was in danger of losing 200 points, the news hit: "Greece is saved." We were told that Greece had agreed to an "austerity" plan with the IMF, and the market gained 150 points in about 7 minutes. Factually: that agreement has to be ratified, the Greek people screamed "hell no" and the real "money" meeting” doesn't take place until Tuesday. The news blasts were strictly to calm the market. On Friday the weakness crept in again. Shortly after the open we were down 100 DOW points, but they dug in their heels and for most of the day hovered down around 70 points. Finally in the last hour, we slid a bit more, ending the day down 115 points at 11,934.

I remember wrongly predicting the market’s direction in the past – using technical indicators such as the “Death Cross” – which surely signaled the market rolling over – and the market simply powered higher. In early May, we had about 8 long side positions on – we felt the market was finally ready for a decent drop and took our profits. Since then, we have fallen a thousand DOW points. Most are blaming it on the fact that Bernanke won't release a QE3. Oh The Ben Bernanke will most certainly release a form of QE3 – it’s simply a matter of time. And with that in mind – it’s very tough to go short – knowing that the day he announces the next asset purchase / stimulus plan – the market will probably gain 300 points.

Tuesday is going to bring us news out of Europe over what they're going to supposedly do concerning money and Greece. It could end up being the catalyst that creates a massive bounce. But every bounce we get (until The Ben Bernanke announces his new plan), is going to be a short sale opportunity. They can kick the can down the road on Greece, it makes no difference, Greece is doomed. Depending upon what kind of news that hits us this weekend, we could see a market bounce Monday, or more sliding lower. I think that Tuesday is the day that the short term will be decided. Some "Great News" could light a 3 or 4 day rally. But again, it will be a Selling Opportunity. Without additional stimulus, the market is destined to sink.

On the other hand, if there is no "Great News" we're going to be in striking distance of the next major milepost lower, which is losing the June DOW low at 11,862, which would set us up for landing on the 200 day moving average down at 11,776. And if we lost that - we'd be looking at the March low at 11,555. On the S&P we're already just 5 points above the 200 day moving average, and if it looses that, it would then visit the March low of 1,249.

The only way the market moves higher for an extended period, is when the worlds biggest Central Banker, The Ben Bernanke comes out with more free money. Until then, "Buy the Dips, and Short the Rips".

Our long term holds still look like: SLV, NG, AAU, DNN, AVL, SLW, SQM and USSIF.

In fact – with Gold being pushed down to the $1,500 level on Friday - the GLD and SLV are long-term buying opportunities. I’m still watching:
- SCO is an inverse ETF that looks at oil. If it were to run to the 200-day moving average at 53.18, count me in.
- DUG is also involved in energy, focusing on oil and gas but more along the lines of suppliers – a move over 32.00 is attractive.
- DOG is the inverse DOW index and it looks good at 42, then especially at 44.

We continue buying physical gold and silver and will actively lean on the short side going forward with double and in some cases triple EFT’s such as DXD and TZA. Please be safe out there!

Expressed thoughts proffered within the BARRONS REPORT, a Private and free weekly economic newsletter, are those of noted entrepreneur, professor and author, RF Culbertson, contributing sources and those he interviews. You can learn more and get your free subscription by visiting: .

Please write to to inform me of any reproductions, including when and where copy will be reproduced. You may use in complete form or, if quoting in brief, reference .

If you'd like to view RF's actual stock trades - and see more of my thoughts - please feel free to sign up as a Twitter follower - "taylorpamm" is my handle.

If you'd like to see RF in action - teaching people about investing - please feel free to view the TED talk that he gave a little bit ago on “Fearless Investing”:

To unsubscribe please refer to the bottom of the email.

Views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest and is not in any way a testimony of, or associated with Mr. Culbertson's other firms or associations. Mr. Culbertson and related parties are not registered and licensed brokers. This message may contain information that is confidential or privileged and is intended only for the individual or entity named above and does not constitute an offer for or advice about any alternative investment product. Such advice can only be made when accompanied by a prospectus or similar offering document. Past performance is not indicative of future performance. Please make sure to review important disclosures at the end of each article.

Note: Joining BARRONS REPORT is not an offering for any investment. It represents only the opinions of RF Culbertson and Associates.


Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop.

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Opinions expressed in these reports may change without prior notice. Culbertson and/or the staff may or may not have investments in any funds cited above.

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

No comments:

Post a Comment