Sunday, May 6, 2012
This Week in Barrons – 5-6-2012 Is This the Big One? Take a peek at the following names (Google them if you wish), some of them guilty of outright crimes, while others just ethical deceit (none with jail time or even outrage): Angelo Mozilla, Aubrey McClendon, John Corzine, Franklin Raines, Hank Paulson, Larry Summers, Timothy Geithner, The Ben Bernanke, Dick Fuld, Ken Lewis and John Thain. The list could go on and on, but my point is that hundreds of slime balls (that have done really bad things), are still out there, thriving very nicely, and simple morality has been sucked down a black hole, never to be seen again. For the past couple years, we've been watching a gradual decline in stock market volumes. Some of the biggest up days we've had are on volumes that we used to see in 1994. Now we see that the trading robots are responsible for about 85% of all the volume. According to an analysis by Morgan Stanley’s Quantitative and Derivative Strategies group, trading by "real" investors is taking up the smallest share of US stock market volumes in over a decade. The proportion of US trading activity represented by buy and sell orders from mutual funds, hedge funds, pensions and brokerages, referred to as "real money" or institutional investors, accounted for just 16% of total market volume in the form of buying, and 13% via selling in the final quarter of last year. I’m old enough to remember the ‘gold rush’ associated with the Internet Boom of 1999 and 2000. I remember when people ignored others who told them to ‘get out of the market’. Why – because the truth was too hard for them to take. They wanted to believe that companies with nothing more than a business plan and no way to take in revenues were worth $200 per share. They wanted to believe the good times could go on forever. Many people got crushed and lost it all. It happened again in 2007 and 2008. Everyone likes the rah-rah news, the hype, but it’s the very twisted good news that ultimately ends up catching everyone off guard. On Friday I heard on my car radio’s local news: "News about the economy got better today as the labor department says the unemployment rate ticked down for yet another month in a row, now at just 8.1% as another 115K people were added to payrolls." I wonder how many millions heard that very same sort of broadcast that was pure horse hockey? Factually: - The "Household Survey" showed a LOSS of 165,000 jobs. The Bureau of Labor and Statistics (in a panic and not wanting to disappoint Obama) ADDED 206K jobs via the birth/death model. These 206K jobs Do Not Exist! The real number was negative not positive! In so far as the unemployment rate dropping, some 342K more people stopped looking for work and dropped out of the labor force. In fact, the labor participation rate has plunged to lows not seen in 30 years! In this twisted statistic, if you simply give up trying to get a job – you are not unemployed. So the unemployment rate fell (wink-wink) while another 342K people gave up trying to find work. - Since no one can find a job and unemployment is running out on folks, there has been a rush to try and qualify for disability from Social Security. Applications for disability are up 53% with 539K people going on the plan in the last 9 months. People need to live, so they're storming the gates for disability payments. That Social Security system, broke and ambulatory as it is, can't afford to have another million folks on it. - Over in Europe you can buy a Volkswagen Passat Diesel TDI that gets 72 MPG. Yes – 72 miles to the gallon! But you can't buy it here because if VW and Ford (who also makes a mega mileage car) were to flood the US with cars that got 70 MPG, the gasoline taxes that states take in would fall like a brick. We are coming into an election that is the single most significant one in my history. The non-economic reasons include: - Ron Paul still drawing thousands at every event he speaks. - Ruger having to put off accepting more orders for guns, because they can't keep up with the one million orders they already have. - Military folks training in cities with the police departments. - The Head of the EPA’s Oil Division saying that they would CRUCIFY all oil companies. - And our complete inability to open even a lemonade stand without a telephone book worth of permits given out by bureaucrats is beyond me. So, I think that this IS the big one! The Market... Famed investor Jimmy Rogers – this past week – came out and said: “We have inflation in the U.S., and it’s going to get worse. The Fed won’t be able to do anything about it. They’ve printed staggering amounts of money. They’ve taken staggering amounts of debt on their balance sheet. Much of it is garbage. I’m maintaining my commodity positions. Inflation will come whether the economy strengthens or it doesn’t, leading the Fed to ease further. Throughout history, when governments debase their currencies, you protect yourself by owning real assets. I remain bullish on gold and oil. I’m not selling my gold by any stretch. The surprise with oil is going to be how high it goes.” Now although we look perfectly situated for another 4 - 6% pull down, this isn't a ‘crash’ market. There is no way that Obama and Bernanke would let a ‘crash’ happen ahead of his election. The jobs report is being used to twist The Ben Bernanke's arm. "We want more free money" said Wall Street. And if you don't give it to us we will drop the market another 168 points! I expect some more selling to come, and eventually The Ben Bernanke will give in and give us more stimulus. The common thinking on Friday is that The Ben Bernanke will not offer up more QE due to the jobs report. Understand that The Ben Bernanke cannot let interest rates rise. The BANKS (not the people) need to have rates so low. The low rates are NOT so housing can recover. The rates are at 0% so banks can borrow at 0% and lend back at 5%, pocket the difference and lock in guaranteed money. This money is being used to offset the toxic Mortgage Backed Securities and Derivatives they all carry. If rates rise, the banks stop making money. So, in June Operation Twist ends. That means that we’re all ok with crappy employment, and ok with housing falling to all new lows AGAIN, during the most heated-nasty election race ever? "Helicopter Ben" made his whole thesis on the fact that the great depressions can be thwarted by massive injections of money. He's convinced if he prints enough, eventually things will heal. But in the meantime, there's no doubt whatsoever that he's going to unleash massive amounts of stimulus money. And the second it hits, the market will start on a rally that probably takes us to all time historic highs. But it will be the single most fake rally since the NASDAQ bubble, and when it collapses in mid 2013, you'd better be running for the hills. So, in the short term, I expect some more pouting. I think they'll whine and cry loudly. But sometime before June 11, The Ben Bernanke is going to have to tell us what he's going to do about the Twist expiring, and when he does, we will be off to the races. Now, if I'm wrong, and The Ben Bernanke has found religion and does not announce more stimulus to keep this market up for Obama - I suspect you'll find that he inconveniently has a heart attack. If you are not comfortable holding through a decline here, there's no shame in taking your profits and going to cash. Just be sure you're nimble enough to get back in the game when the next QE is announced. In terms of the metals, just recently Russian diplomats have tossed their hat in the "maybe we should have a gold backed global reserve" arena – something we’ve said for 2 years. People are tired of the dollar losing value, being stuck with them, and tired of seeing their currencies get pulled down because of them. It's my guess that sometime in mid 2013, corresponding with a crashing US market; we see some major commotion over the US Dollar. The COMEX had planned on hiking margin rates on Silver and Gold again on Monday, but they got so much heat from small dealers that they've pushed the hike off for 90 days. I imagine they are getting so much heat about the daily manipulation of the metals that another blatant push to keep the stuff down is too obvious right now. The bottom line is (as ugly as it sounds) if you woke up tomorrow and found the dollar had crashed, banks were closed, and your dollars wouldn't buy you a stick of gum – you may need a nice shiny one-ounce silver coin that would buy you dinner, or a gold coin that would feed your family for 3 months. One day the dollar will be replaced, and in the meantime, Gold and Silver feel like a tremendous insurance policy as well as an investment. Tips: A big shout out to BL for shorting names like: AH, DECK, CTCT last week. We have a very thin tape – and the losers are already showing signs of starting a bear market. This sounds like a broken record – but I’m really sitting in very little other than my old stand-buys of Gold and Silver: - TJX at 42.01 (currently = 41.74) stop at 41.40 - AXP at 59.09 (currently = 60.10) stop at entry - HD in at 50 (currently = 51.96) – stop at 51 - GLD (ETF for Gold) – in at 158.28, (currently 159.60) – no stop, AND - SLV (ETF for Silver) – in at 28.3 (currently 29.48) – 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:
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