Happy - April Fools Day?
The week started off with a prepared speech by The Ben Bernanke. In that speech he made it clear that there would be low rates forever, and when "Operation Twist" expires in June, there will be another ‘free money’ scheme to follow it. Well, the market loved it. But the funny part is – none of this is about the economy because Monday brought us:
- The Dallas Fed #: estimates were = 17, reality = 10 (the higher the better),
- Richmond Fed #: estimates were = 18, reality = 7,
- New home sales fell 1.6%,
- Future home sales: estimates were = +1, reality = -0.5,
- Home prices fell for the 5th month in a row (their lowest levels since 2003),
- And the individual investor keeps pulling money OUT of mutual funds as consumer confidence continues to fall!
We are seeing more and more stock buy backs by corporations. Well, with interest rates so low, most of the companies doing buy backs "borrow" the money from the bank. Then the insiders grant themselves "X" amount (millions) of shares – at the pre-buy back price. Then a company does the buy back, and with the buy back comes a natural up-tick in the stock price. When the stock price increases, those very same insiders cash in their stock option grants and make themselves a fortune. Oh, and the corporation is now saddled with the debt of borrowing all the money to do the buy back in the first place!
To go along with stock buy backs, insider selling is rampant right now as well. As an example: This week Green Mountain Coffee (GMCR -1.7%) founder and chairman Robert Stiller sold $66.3M of his stock before it plunged on news that Starbucks had developed a single-cup coffee machine to rival the Green Mountain K-Cup brewer. Stiller's sales were his largest in a single month since 2003. Was this good timing or trading on insider information?
We are truly in a very wild place as the global economy continues to tell us it's weakening. From China to Europe to the US, the numbers are just not good. Durable goods orders are down. Regional Fed reports are down. Housing sales are still down. Yet because Bernanke is willing to yap about printing dollars out of thin air, the market has been holding up. There's an old adage about the market and it says: "Don't fight the Fed". When The Fed prints money, pushes interest rates to 0, and does all manner of odd "accommodations" - a lot of money ends up sloshing around in the market. Just last week Lawrence Goodman, a former Treasury official and current president of the Center for Financial Stability, wrote in a Wall Street Journal opinion article: "Last year the Fed purchased a stunning 61 percent of the total net Treasury issuance, up from negligible amounts prior to the 2008 financial crisis." Goodman went on to warn that the U.S. economy and markets are "at risk for a sharp correction" if conditions are not "normalized." "This not only creates the false appearance of limitless demand for U.S. debt, but also blunts any sense of urgency to reduce supersized budget deficits."
The Market:
The market continues to work its way higher despite Friday being the 3rd lowest volume day of the year. Why is it still inching higher? Is it $4 gasoline – of course not. It’s all about when The Ben Bernanke’s new QE3 is coming! The Ben Bernanke told us in his remarks: "I'm not happy with the recovery and will do what's necessary to make it happen.”
This week Jim Grant read the Fed the riot act, and blasted them for doing basically everything wrong. He even did a piece about President Harding, who saved us from a horrid recession in just a little over a year. Back in 1920, long before the "great depression" we came into a horrid economic nightmare. The excesses built up during the First World War, specifically in credit and debt had come back to bite us hard. Unemployment was soaring, production was crashing and the people were broke. Like Obama today, Warren Harding started his Presidency in the face of a massive economic collapse. Yet Warren didn't open the floodgates. He didn't demand we print trillions. He didn't come up with all manner of bizarre spending policies. No, old Warren did something quite brilliant. He told the people that basically "Folks, we're screwed. We lived like drunken sailors from too much credit and too much debt. We face horrid inflation, job losses and tough times. We're going to have to buckle down, tough it out, and pay for the mistakes of the past. It won't be pleasant, and you're all going to have to sacrifice. We have to man up to the problems, face them down, charge them off and start fresh. We don't need any wild new concepts, no untried policies. What we need to do is take our medicine and work through it." President Harding let bloated businesses fail. He cut back social program spending and infrastructure spending. He reigned in credit, and stood on principles of living within your means. Well guess what happened? In less than a single year, the economy had flushed itself, the free market rewarded the strong, and disbanded the weak and after a brief period of pain, the economy was on the road to recovery. In fact, it was one of the shortest-lived economic downturns of its type ever seen.
I've been on record for a few weeks awaiting a correction; however, every time one starts – it has been cut short by a big banker (including The Ben Bernanke) talking of more stimulus and up we go. Maybe there won’t be a correction because the bankers are afraid that if one starts – they won’t be able to stop it? Honestly, in regular markets we get normal corrections of 8%, but not in this market. This market pauses, and dips slightly, but then “boom” it runs up again.
Mr. Charles Biderman from Trim Tabs said on CNBC: “The market is rigged. There is no money coming into stocks, and yet the stock market keeps going up. The law of supply and demand still exists and for stock prices to go up, there has to be more money buying those shares.” Mr Biderman couldn't say how long this would go on - pushing the market higher. He figures at least until the election. I was however figuring we'd get a correction now and then; however, it appears that corrections are illegal now too. So, until it stops working, we have to "buy the dips" and lean into this.
Finally, some of you have written me about giving up on gold and silver. I think that's going to be a very big mistake. In the long run, nothing the Fed is doing is going to work, and at some point, people will tire of their currently (and other) holdings constantly being worth less. We've seen most of the world Governments selling dollars and buying other currencies, gold, etc. This will continue. They have to do this slowly however, or their buying will push things too quickly. I’m from a time when 12% moves take a year – not a weekend. So patience is a virtue with gold and silver – and a rewarding one in my opinion.
Tips:
I’m anxiously awaiting a correction – but we’re also quietly leaning long.
We’re currently holding:
- ANR – sold at entry
- DIA 130 PUTS at $1.80 (because I keep sensing a pullback coming)
- GLD (ETF for Gold) – in at 159.49, (currently 161.99) – no stop, AND
- SLV (ETF for Silver) – in at 28 (currently 31.33) – no stop.
To follow me on Twitter and get my daily thoughts and trades – my handle is: taylorpamm.
Please be safe out there!
Disclaimer:
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
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 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.
PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS (INCLUDING HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS AND OTHER SPECULATIVE INVESTMENT PRACTICES MAY INCREASE RISK OF INVESTMENT LOSS; MAY NOT BE SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
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