RF's Financial News

RF's Financial News

Sunday, August 14, 2011

This Week in Barrons - 8-14-11

This Week in Barons –8–14-11:

TW3 – That Was the Week that Was!

Remember the old TV show – “That Was the Week that Was!” – code named TW3? Well, what a week we just lived through! When we woke up Monday morning, we wondered if the futures were going to be as ugly as they were late Sunday night given the S&P downgrade of the US debt. All last weekend people were talking about the debt downgrade and what it might do to their 401K's. I'm still standing on my premise that most of the reasons you're being given for the market volatility and collapse are just smokescreens. Europe – nah that’s been discounted for months. The debt ceiling – nah that’s just political bickering at it's finest. And then of course the S&P debt downgrade. First off, they told everyone for a month it was coming. And this is the same agency that during the ‘04-‘06 housing bubble had no problem taking 100% of those mortgages and creating a tranche labeled AAA. Now do you really think that they did not know they were selling junk securities as AAA investments? Of course they knew. They were TOLD to do it. Now everyone thinks they got religion by downgrading the U.S. debt. Nope – they were TOLD to do it. The whole game plan is to devalue the dollar to the point of it being worthless. This downgrade simply opened the door for Obama to create a "Super Congress" of 12 people who will be almost dictator like.

Now remember – there are about 50M 401k’s out there with a couple trillion dollars in them. The general public has more exposure to the stock market than at any time in history. This is exactly why the debt ceiling talks and the S&P downgrade got so much airplay. With the economy in the pits, with housing falling and jobs scarce, people are very concerned with what might hit their 401K. Now, there’s no question that the economic news of late has been horrid. From durable goods to ISM's the economy is sputtering, and therefore, for 12 days we’ve sold hard – from 12,7000 to 11,269. There’s also no question that Wall Street wants QE3 and will accept it in any form, but The Ben Bernanke knows that if he announces more stimulus, the dollar will fall, inflation will soar, gold will move higher, and China (who's already been very vocal about what we're doing to our currency) will move to get out of even more dollar denominated assets. But the bottom line is: if we don’t pump money into the system – we’re going to fall into a soft depression.

What's it all mean now? First off: Gold – my forecast for the entire year was that gold would see $1,800 and we did that this week. FYI – my gold goal for 2012 is $2,400 – and no it won’t get there this year! But then when QE3 is announced, gold could indeed break over $2,000 by the end of the year. Secondly: Silver – the issue is still JPM being allowed to naked short 75% of the world’s production of silver, high frequency trade it lower, and then step back out. One day they will lose control of that manipulation, and silver should see $75 or more. Thirdly: Stocks – I thought we would lose 1,000 to 1,500 points over 2 to 3 months – not 2,000 points in 12 days – so that caught me off guard – absolutely!

Is the bottom in? That’s tough to say. There are so many “Firsts” here that anything you say could be wrong the second you say it. We're making history here. If you look at the technical picture, you could have made an argument that 1140 on the S&P would hold, but it didn't. The ONLY reason I think that this drop will stop and counter trend higher is that the stock market is the single biggest business on earth, and when it looses value, companies get even tighter with layoffs, cost savings, expansion plans, and cutting work forces. If The Ben Bernanke, the Plunge Protection Team, and Wall Street don't put an end to the selling – the economy will roll over into a soft depression directly in front of an election year. And it’s tough to think that will happen! So I’m betting that there's an "emergency" meeting of Politicians, the Ben Bernanke, and Wall Street to announce another stimulus scheme relatively soon. That’s the only thing that will prevent us from reaching such lows this year – instead of late next year!

The good news is that: "We're living through history". We’re seeing the end game of 40 years of fiat currency. We're seeing the accumulation of Wall Street and banks taking over American Politics. We are also seeing a first hand look at what happens when it all unravels. I’m thinking that very few of us have ever been invited to:
- a Bilderberger meeting – where 500 of the worlds biggest elite meet to "chat" about things;
- Or invited to the Trilateral Commission just to sit in on what they're deciding about the world;
- Or invited to an exploratory committee at the United Nations, or the Council on foreign relations.

In 1935, Major General Smedley Butler wrote a book called "War is a Racket." General Butler was a career military man with 2 Congressional Medals of Honor who wrote: "I spent 33 years and four months in active military service and during that period I spent most of my time as a high class muscle man for Big Business, for Wall Street and the bankers. In short, I was a racketeer, a gangster for capitalism. Looking back on it, I might have given Al Capone a few hints. The best he could do was to operate his racket in three districts. I operated on three continents." Honestly we’re not in Iraq, Iran, Afghanistan and a half a dozen other places because of threats to us. We're there because currently, there is not enough of a middle class to pay enough taxes to keep ‘the military’ in a “lifestyle to which they’ve become accustomed!” So we’re fighting wars – on at least 3 fronts – to fund our global banking efforts.

The Market:
Right now most "smart people" think that QE3 won't be coming because it won't pass Congress. The other side of the coin knows that QE3 is coming because:
- Consumer Confidence just hit a 30 year low
- Shipping rates have fallen again, showing weakness in trade.
- Millions are hanging onto their homes by fingernails, hoping for a housing return (that will not return) and will eventually let go, adding millions more foreclosure properties to the already beaten down housing market.
- The Baby Boomers (who created this wealth) are downsizing very quickly and dramatically, and prices decline in a market place where there are more sellers than buyers!

The bottom line is that there’s no money to pay the credit bill. This is why things are going to get so ugly that they will be forced to pull off a global meeting and do a global economic "reset" on the debts and currency. Now here’s the interesting part: Each time The Ben Bernanke comes rushing in with money, inflation will surge – until one day the surge stops. That is what we have to monitor closely, because that's when we'll need to DUMP gold and silver. Right now we're in the inflationary period. Right now we’re creating money out of thin air to try and stuff all the holes in the dam. But there comes a tipping point where things become so bleak, everything contracts. Credit contracts, confidence contracts, and no one will risk anything. Instead of buying, people will begin to save. So with less demand, prices will start to fall. Eventually even "printed dollars" become more valuable than "stuff" because everyone fears the stuff will keep falling in price. When we get to that tipping point, if we haven't already had the global monetary reset, that's when it will be time to back out of gold and silver. I’m thinking that the worst hits in 2013.

In the coming weeks and months, (in order to sucker in the most investors), I think that they are going to bounce this market. As long as nothing really "meaty" hits the headlines, like a major bank going bust, or a default out of Europe, I tend to think we bounce upward for a few hundred points here. People have been trained to "buy the dip" and they probably will. But if Wall Street doesn't see enough dip buyers, it will twist The Ben Bernanke's arm for more stimulus by sending the market lower, much lower. The market isn't down because of the S&P downgrade, the debt talks, or French banks. It's down because OUR banks and Wall Street haven't heard the magic words out of The Ben Bernanke about QE3. When we get those words, we're going higher in a big way.

So, I think we’ll get a run up and potentially close to the 12,000 level. But if Wall Street doesn’t like the participation rate, you can bet we'll fall again, this time back to the 8200 level. Don't throw caution to the wind, but I think you can scale in with some positions and catch this next bounce.

Nothing makes you more popular than winning. With the rise of Gold – it appears that I’m back on many people’s ‘Most Wanted’ list! For that I say: Thank You for all your correspondence – and please keep it coming!

David S caught the break-out in gold miner AUY last week – going from 13.5 to 15 – and if you were part of that – congrats.

In the short term account – last week – we picked up some:
- SPY at 115.28 – currently @ 118.24
- FCX at 45.03 – currently @ 45.50
- BTU at 47.24 – currently @ 48.45

Gold is now around $1,740 per ounce, and Silver’s dropped back to just over $39 per ounce. The miners have picked up as of late – now that people are realizing that with the price of gold – they can’t help but make money. I think you can buy this dip in gold and silver here, but buy in slowly – and if you don’t get into the ‘physical’ metal try the ETF’s (Gold = GLD, Silver = SLV).

The theme continues to be simple – take profits and buy more gold, silver and energy.

Please be safe out there!

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