RF's Financial News

RF's Financial News

Sunday, February 26, 2012

This week in Barrons - 2-26-12

This Week in Barons: 2-26-12:

All the Gold is not enough to give, in exchange for Virtue… Plato

After decades of not allowing citizens to own gold, China is openly promoting the private ownership of gold. Can you blame them? They see what funny money is doing to world economies and they want to own real gold again. And as a slap in the face to NY and London, in June, China is going to launch PAGE (the Pan Asian Gold Exchange). For the first time in a hundred years, there's going to be an exchange that challenges NY and London. The exchange is going to allow payment in Yuan (Chinese Dollars instead of U.S. Dollars). WHY? The short answer is that China is in a terrible box and wants out. They hold more US debt in the form of dollars than anyone else, and The Ben Bernanke (and Geithner) are steadily dropping the value of those dollars. China wants it's currency to be backed by gold, and respected as a an equal to the other world reserve currencies. We will see in June just what happens when NY and London are threatened by the first competition ever.

In terms of my thoughts on gold, John A directed me to Mr. Sinclair’s thoughts on Gold and I second his emotion:
- Shortly, China will be called upon to help provide funds to the IMF for bailout purposes. For this backstop, China will extract significant benefits.
- Greek gold will be held hostage to their debt, and this will accelerate both the trend of gold repatriation, and the utilization of other currencies (other than the US dollar) for payment of international goods and services.
- The volatility in gold, silver and equities is simply foreshadowing what is coming.
- The last man standing will be gold and gold alone.

In terms of exchanging Gold for Virtue, this week we were all witness to a blatant lie by President Obama when he said: "Anybody who tells you we can drill our way out of this problem doesn't know what they're talking about, or just isn't telling you the truth." Oh really? Well, we would need the EPA to approve additional refineries, and Obama would have to approve the Keystone pipeline – but putting those two together would give us $2 gas for decades. Why? Well, currently both US coasts are seeing $5 gas because they are purchasing (more expensive) imported oil due to the lack of refining capacity and a pipeline. While in ‘middle America’ we are seeing $3 gas because they’re using less expensive Texas crude and the excess refinery capacity. Imagine if we could process more oil, and we were allowed to bring it (via pipeline) from Canada – bingo - $2 gas.

But it’s easier (and politically more beneficial) to blame it on Iran. Now, there is a risk premium when a substantial portion of the world’s oil goes through a small channel that just happens to border Iran. However, the real question isn’t about Obama’s sanctions, but rather WHEN Israel will go in and blow up the reactor sites. Thus far, Obama has held them off, saying that sanctions will work. Iran has effectively countered that by initiating trade with China and India in a currency OTHER than U.S. dollars. And Iran has told Europe that Iran will not sell them any more oil! Honestly, Europe's in no shape to have to pay more for oil. The question is: why continue to push for sanctions versus letting Israel go in and do its thing? Well, I think we will see an invasion by Israel right about October. Obama knows that sitting Presidents do well in times of "war". So, if he lets Israel move in late September (early October), and we have to provide back up (since we're the ally); his chances of staying in the White House improve dramatically.

Understand, Israel will not allow a nuclear Iran, and the Federal Reserve will not allow a country to operate without U.S. petro dollars. Iran's invasion is a foregone conclusion and simply a matter of timing. My guess is that it will be Obama's "October Surprise".

So this year is indeed shaping up to be every bit as exciting as the Mayans had suggested. In just a few short months we're going to see China threaten the London and New York gold and silver manipulators via their own exchange. By November, I believe we'll have seen Israel attack Iran, and a small war break out over the Straights of Hormuz, thus bringing the U.S. into play. I'd suggest that buying gold and silver are still the two ways to stay safe in this mess.

The Market
DOW 13,000 has proven to be a formidable resistance, but the issue is really the S&P. While the DOW is the tourist stop (the single most watched and quoted index in the entire world), it’s comprised of JUST 30 stocks. The S&P however is 500 stocks, and represents a wider swath of industry than the DOW. When push comes to shove, the S&P is much more powerful than the DOW. So, as the S&P reached the 1350 level (placing it just below the big resistance area of 1360 to 1371) it became important to watch. Would they trade us sideways, build a base at that level and then push us higher? That makes sense because that's how markets advance. But the big negative is that the markets are ONLY moving because of the trillions of dollars that The Ben Bernanke printed, and will continue to print so Obama can point to and (like he did yesterday) say: “Our stock market is continuing to improve."

Some companies – like Apple (AAPL) would be "up" even if the market were not. It's a great company that makes money. But in the overall, there are very few instances of any real growth, just activity pockets because of the stimulus. This leaves most stocks being priced not on fundamentals, but on funny money, hence the danger.

The S&P is stuck in a resistance zone between 1360 to 1371 level, and the DOW can't soar unless the S&P breaks free. Now, the market is very, very overdue for a correction. You can smell it. The market wants to correct, but it keeps getting "saved" in the nick of time. In our short term trading account we have 9 positions and 8 of them are positive for us. But I hold them all nervously. At any moment we could pull down 8%, or 10%. My guess is that they're going to make one more attempt at pushing us through resistance and if we don't make it by mid-week, I'd expect some real selling to hit. I think it's a fine time to be overly cautious here. If the S&P loses 1350, look out below. If the S&P gets over 1371 for more than two days, we're going higher. In between 1350 and 1371, we’re walking in a minefield where one could blow up any minute.


Jim T sent me a great chart this week – showing that the US per capita debt (under President Obama) would more than DOUBLE what exists currently in Greece. So if you think the U.S. Economy is NOT in trouble – think again!

We continued to lean long into this week – and keep our stops tight.

We’re currently holding:
- SNDK SanDisk – in at 49.17 (currently 48.83) – stop at 48.60,
- KOG Kodiak Oil and Gas – in at 10.55 (currently 10.80) – stop at 10.15,
- CPNO Copano Energy – in at 35.5 (currently 37.68) – stop at entry
- SWN Southwestern Energy – in at 34.36 (currently 35.40) – stop at entry
- DOV Dover Corp – in at 64.15 (currently 65.61) – stop at 65.15,
- ADBE Adobe Corp – in at 30.00 (currently 33.40) – stop at 32.80,
- SPY (ETF for S&P) – in at 131.16 (currently 136.94) – stop at 135.50,
- GLD (ETF for Gold) – in at 159.49, (currently 172.54) – no stop, AND
- SLV (ETF for Silver) – in at 28 (currently 34.41) – no stop.
- SOLD = FNSR Finisar Corp – $1.50 profit

To follow me on Twitter and get my daily thoughts and trades – my handle is: taylorpamm.

Please be safe out there!

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