RF's Financial News

This Week in Barrons – 5-13-2012 What Out for the Banks! First off – Happy Mother’s Day to all – gosh knows they certainly deserve the day. It’s by far the toughest job going out there – congratulations to all the moms! Secondly - take a peek at the following chart (attached):

Last week we heard about the dismal jobs picture, but the concept of ‘participation rate’ is a difficult one to understand. The line on the above graph (produced by the St. Louis Fed) is literally off the charts. Their chart only goes to 88 million, and we now have 88 million 400 thousand people that are NOT in the labor pool. That is why the unemployment rate ticked down. Every time someone leaves the labor pool (gives up looking for work) – they are no longer counted in the unemployment rate! Amazing accounting wouldn’t cha say? I’ve been telling you for years that the banks are insolvent. Not only do they hold toxic "assets" that are not worth the paper they're printed on, but there are so many derivatives cross swapped between the 27 major banks that no one really has a clue what they're all worth. The top bank in the US with exposure to derivatives is JP Morgan Chase (JPM). JPM has over $1.8 Trillion in assets and $70 Trillion dollars exposed in derivative plays! The top 25 banks have $230 Trillion in derivative exposure, but only have $11 Trillion in assets. Now – are these quality assets – of course not. Many of these assets are priced at ‘mark to model’, not mark to market – so who really knows what they’re worth. But it's even worse than that. A lot of these assets are collateral that has been pledged multiple times from smaller dealers to the larger banks. Therefore, no one truly knows exactly who's got what, at what price, or how many times it's been pledged. When you do the math, whether its fractional lending, assets to exposure, or whatever your measurement – the banks are insolvent. Yet The Ben Bernanke cannot let them fail, thus the printing presses continue to run. Remember The Ben Bernanke’s main job is NOT employment, but it IS to save his member banks at ALL COST. Factually we’re seeing: - the worst retail sales since 2009, - factory orders posting their largest decline in 3 years, - housing prices continuing to fall, and - Challenger layoffs increasing 7% in April! Unfortunately, stimulus is like a drug to a junkie – after very short periods of time, you need bigger hits to get the same high. For example: - QE 1 took us from DOW 6600 to DOW 10K. - QE 2 took us from DOW 10K to DOW 12K. - “Operation twist" (basically QE3) took us to DOW 13,300. Notice that each additional stimulus move bought us lower results. That's the way it always works. So we've got an issue, the economy is rolling over again. The effects of QE 1, 2 and 3 are wearing off and all this is taking place smack dab in the middle of what will be a nasty, grueling Presidential race. If the banks roll over again, it’s going to make Obama look really bad because he's been out telling folks he rescued us from collapse – not to mention the stock market will simply implode on itself. Thus, we wonder: "What happens now?" If you listen to CNBC most of them will tell you that any additional stimulus is "off the table". I find this ludicrous, as The Ben Bernanke has NO choice but to open the floodgates, expand the balance sheet, and do more "non-conventional" means of stimulating our economy. Unfortunately it’s mathematically impossible for us to get out of this mess. When you see the Fed’s charts, view the Bank statements, hear the accountants spell it out – then you realize the frustration as CNBC trots out their cheerleaders to tell us that all is fine. Wouldn't it be nice to approach the American people with the real facts, and discuss the disaster we're in the middle of? For all of you asking about gold and silver. The reason that I don't really get too concerned over the daily prices of gold and silver are that they are being manipulated by the likes of our central banks (JPM included). The reason I feel confident is because The Ben Bernanke and the ECB in Europe have absolutely no choice but to print more money and try and reduce their respective debts with devalued dollars. And just like it sounded crazy in 2001 when I said Gold would hit $1,000 in ten years, it sounds equally as crazy when I say that Gold still has $2,400 written all over it and silver will see $70. But I'm a very patient guy, and The Ben Bernanke isn't. The Market The Market is showing lots of down. Ever since the ugly jobs report, the initial jobless claims, and the Challenger report we’ve been down. Isn’t it funny that just last week we were at "four year highs" and now we're desperate to hang on to the lower range of the channel we've been in for months. We all know that the present "operation twist" is scheduled to end in June; therefore, the 20th of June is the latest The Ben Bernanke could come out with something. Yet that would be a bit rash to just say nothing for two months and then surprise us. I believe that the market will continue to trade sideways and down until the next announcement of stimulus. Sure it won't go down every day. It will bounce and backfill, bounce and sink; however, when The Ben Bernanke does announce something, we'll rally. We might not get the same pop out of it as we have in the past, but we will see them rejoice. Be careful out there folks. it's very hard to find stocks that can go up for more than a day, without sector rotation pulling money away from the very stock you just bought and the next day it's down. Take profits on the lion’s share of the position quickly and try and let the smaller balance ride. If the market goes up again and you're stock does, you're still in the game, but if it rolls on you - you've already made your profit so step out. Tips: We started picking up mining shares last week as the sector has been beaten bloody and there's no reason they're so low. We also picked up some physical silver. When we get something out of The Ben Bernanke, gold and silver should start inching higher. I’m holding: - GDXJ at 20.20 (currently 20.20) – stop at 19.00 - GDX at 42.02 (currently 42.43) – stop at entry - CNX at 34.02 (currently 34.44) – stop at entry - ECA at 21.29 (currently 21.25) – stop at 20.50 - GLD (ETF for Gold) – in at 158.28, (currently 153.38) – no stop, AND - SLV (ETF for Silver) – in at 28.3 (currently 28.10) – 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 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 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