RF's Financial News

RF's Financial News

Sunday, August 28, 2011

This Week in Barrons - 8-28-11

This Week in Barons –8–28-11:

More gold has been mined from the thoughts of men than has been taken from the earth” … Napoleon Hill

- Steve Jobs resigned this week as the CEO of Apple Computer. He is staying on the board, but my hopes and prayers for his good health continue.
- Gold ‘margin’ rates were hiked this week – which sent a lot of gold traders packing. I personally had stopped buying at 1600, because it was being stretched too thin.
- The August Richmond Fed Manufacturing Survey fell to a -10 index, from a -1 in July (anything above 0 = growth). Shipments are now -17, and new orders are -11, so basically we’re falling much quicker than expected.
- The August Philadelphia Fed Manufacturing Survey fell to a -30 index, from a +1 index in July (again, anything above 0 = growth).
- New home sales fell to their lowest levels in 15 years!
- 49% of all babies born in the U.S. are now born to families receiving food supplements from government programs.
- The SEC destroyed thousands of investigation documents – that would have helped to put Wall Street executives in jail!

Wait – let’s stop here for a minute. It never ceases to amaze me how the SEC will do virtually anything to shield their Big Banker Buddies from being put in jail for selling toxic crap as AAA investments. Most recently the SEC destroyed documents relating to at least 9,000 preliminary investigations into banks and hedge funds, erasing valuable information that would have assisted other inquiries. Despite the SEC saying the destruction of documents relating to thousands of preliminary investigations was “Not Illegal”, the National Archives & Records Administration said yesterday that the agency "did not have authority to dispose of the records.”

Remember Paulson (the supposed "genius' that made billions shorting the housing debacle) – that we later found out was instrumental in hand picking the toxic crap – so he basically made billions SHORTING the same crap he created. Well – how’s his hedge fund doing without that insider knowledge – it’s DOWN 34% this year already!

This week we also learned of low inflation rates. Unfortunately I get the fact that our inflation indices are heavily weighted toward housing, and as long as housing continues to tumble our inflation indices will continue to decrease – but can someone other than The Ben Bernanke explain the following to me regarding ‘real’ inflation? “The big back-to-school fashion is higher prices, and retailers are trying hard to keep customers from noticing by using less fabric and adding cheap stitching – calling it a redesign. Stores are raising prices an average of 10% across the board to offset rising costs for materials and labor, which are expected to jump as much as 20% in the second half of the year. More than half of retailers and restaurants with annual sales of $10M-$500M have raised prices during the past year, and 61% say they plan more price increases during the next 12 months.”

Okay, so we have inflation, more failing banks, fund managers down 35 % on the year, the SEC hiding and shredding evidence – surely this means that the economy is doing better – yes? Well, The Ben Bernanke has kept interest rates at basically 0, and just recently announced they'll keep them there until mid 2013. So, banks borrow for 0, and then lend right back to the Fed, taking in the interest rate spread. But the issue now is that our tax base is so small, Uncle Sam can't continue to operate without printing money. So, print they will. But they also hate the idea that there's trillions sitting in retirement funds and also dislike paying Social Security. So, they've created their 12-member panel to by-pass Congress. My short advice – please be very cautious of where you put your retirement funds!

On Friday, The Ben Bernanke (in his speech from Jackson Hole, Wyoming) refused to acknowledge more stimulus. He mentioned that he has unconventional tools in his arsenal, and could deploy them if necessary, but he sat on the idea that the economy is slowly mending. He then said that the next FOMC meeting would be 2-day affair – rather than the traditional 1-day event! Well, enter President Obama - who desperately wants to remain President and throw in a ‘dash’ of Joe Biden on Friday who released the following statement: “The U.S. economy is in need of more stimulus to get it moving, and we will be unveiling our new proposals to boost job growth shortly.” Obama has said he's going to unveil some form of economic stimulus and jobs plan after Labor Day. Considering that Obama can't do anything without money, and the money has to come from the Fed, do you think it's coincidence that the next Federal Open Market Committee meeting has been changed from a one-a-day, to a two-a-day?

So, it's my guess that the reason Bernanke stood firm on not mentioning additional stimulus is that Obama wants to save it for himself. Being that he's getting killed in the polls, and even his long time supporters are fleeing him, Obama would rather ‘rescue the country’ than let The Ben Bernanke do it. So, The Ben Bernanke was told to sit tight, and Obama will announce his grand plan and try and look like a hero.

The Market:
The market ended the day Friday with a decent sized gain. When The Ben Bernanke’s original statement was read, Wall Street dropped 212 points. But then it inched its way back to green, and then went up strongly later in the session.

Consider this, with Joe Biden coming out saying "we need more stimulus", is it possible that Wall Street knows more free money is coming in September, and the market is going to move up ahead of it? I think Obama is going to announce some form of monetary stimulus program and then in classic “Pass The Buck Fashion” say: "I've instructed the Federal Reserve to come up with a comprehensive plan that puts more money in the system and gets our people to work". That's why the FOMC meeting is two days instead of one.

Now with this development on the plate, how do you play this? The original plan was that if Bernanke didn't hint strongly of more stimulus the market would fall. It did, but came back up, bolstered by the Vice President’s call for "more stimulus". That was NOT an accident. He was told to start laying the foundation, softening up the people, so that when it comes, it's not a shock.

I can make a case that the market moves higher into this Obama plan and the FOMC meeting on the 20th. But one question still remains: Where does the stimulus money come from? Did you see gold's response? After all the geniuses sold it, it rallied $60. Certainly gold didn't like what happened Friday. If they do more stimulus, it's more debt, which means more dollar devaluation, which means gold goes higher!

I know most people want to know what stocks to buy, hold and sell. My single best idea is to continue to buy gold and silver, because in the next 2 years, they'll continue to be the best deal. But, what about working the market in the near term? I'm thinking sideways chop. Wall Street wants the stimulus and will feel good about that, but doesn't have the details of it, and therefore won't go "all in". I think we are going to bounce in a range between 1125 and 1200 on the S&P, until they get the news. Then it will all be about the size, the shape and the deployment of Obama's new stimulus game. For the person wanting to place long term money, I'm not sure I'd do it until the S&P is clearly over 1210 and it stays there for a while. But until we hear from Obama, and the FOMC, I'm thinking: “buy the dips” that take us to 1125, and “sell the rips” when we near 1200.

For all of you on the East Coast, my thoughts are with you. Irene is not as ugly as she was, but she's still a monster. Good luck folks.

First a bit of housekeeping, we bought some GDX ahead of the close a couple days ago. We saw gold beginning to bottom, and the bigger miners were finally showing technical signs of moving higher. When gold pulled back almost $200 per ounce) we then doubled-up on the GDX on Friday and were nicely rewarded. So we’re currently holding a small basket of both gold and silver mining stocks – along with the GDX.

With Gold being around $1,800 an ounce, Silver around $41 per ounce, and the miners awakening and participating in the small rally on Friday – life is good! We did (as we told you) buy the dip in Gold and Silver. As I told some of you, my touch point for buying Gold was $1,750 – and well, it got to $1,751 so we purchased more anyway (missed the turn by $1 – I’ll do better next time)!

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

Please be safe out there!

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