This Week in Barrons - 8-26-12

This Week in Barrons – 8-26-2012

What’s Ours is Ours – and What’s YOURS is Ours ... U.S. Government’s 7^th Circuit Court of Appeal.

Don’t you ever wonder why any of the Wall Street ‘crooks’ are NOT in jail?  I do – so I began to dig into the most recent ones – John Corzine of MF Global.  MF Global went bankrupt some time ago (loosing all of their customer’s money) – but it was money that John promised he would ‘keep separate’ from his investments and ‘hold for safe keeping’.  So I wondered – how then did he lose the money – if it was just ‘parked’ in a savings account somewhere?  Well the following is John’s defense – and subsequently what we ALL need to be worried about.

Back before the Lehman Brothers implosion and the financial collapse of 2008, a story was circulating about Sentinel Management Group (SMG) who had gone bankrupt – loosing over $500 million worth of customer funds.  It didn't get a lot of publicity because SMG’s business was a ‘Futures Commissions Merchant’ (FCM).  FCM’s are regulated institutions whose sole focus is to give other institutions a place to park some cash now and then and make a decent return.  SMG usually made their money with short-term loans, buying and selling paper assets, etc.  When SMG applied for their license – they represented that all customer funds would be segregated from the company’s investment funds.  Therefore, no customer money would be "lost" due to a bad bet or loan.  Well, what ended up happening was that SMG pledged customer money as collateral to secure a loan for Mellon Bank.  As the economy began to implode (and no one was buying up their assets), SMG got squeezed and was forced to declare bankruptcy.  When the bankruptcy process began to hand out money to the investors, the customers (who were told that they money was safe – because it was SEPARATE from other monies) were forced to the back of the line.  The big banks were standing in line first, and when all was said and done, all of the customer money was gone.

Questions were immediately asked of the regulators who said they had audited SMG and didn't find anything out of the ordinary.  But upon further questioning, the auditors were forced to admit that they had no idea how SMG actually operated, didn't understand the books, and basically signed off on audits to make it look like they had a clue as to what they were doing.  In a nutshell – they lied.  They didn't really audit SMG, because they didn't understand it.  

As you might imagine there were lawsuits.  The customers demanded to be made whole – because SMG had told them that customer funds were segregated and therefore ‘safe’.  But SMG didn't keep them segregated, and pledged those monies as collateral on a loan.  When all the dust had settled, the court decided SMG had done nothing wrong.  So, an appeal was set, and the 7^th Circuit reviewed the case, and announced their decision on Aug 9^th – basically telling the world that your money is NOT SAFE in virtually ANY financial institution.

According to Reuters:  “A federal appeals court on Thursday upheld a ruling that puts Bank of New York Mellon ahead of former customers of SMG in the line of those seeking the return of money lost in the 2007 failure of the futures broker SMG.  SMG allegedly pledged hundreds of millions of dollars in customer assets to secure an overnight loan at Bank of New York Mellon, leaving the bank in a secured position but SMG's customers out millions.  That SMG failed to keep client funds properly segregated is NOT (on its own) sufficient to rule as a matter of law that SMG acted ‘with actual intent to hinder, delay or defraud’ its customers,” said U.S. Circuit Judge John D. Tinder.

Now it gets a lot better.  During the trial, some of the banking testimony was so ‘over the top’ and not even making sense that in the judges opinion: “Instead of finding that the banker testimony justified a finding of egregious banking behavior, the District Court finds that the bank officials were such artless liars that they could not have been concealing deliberate wrong doing.”

So SMG (aka John Corzine and MF Global) told everyone that customer funds were segregated and safe.  They then took customer funds and pledged them as collateral.  The loan went belly-up and the bank wants the millions of dollars cash collateral.  The court gives it to them.  The appeals court ruled that SMG was so ‘stupid’ that it couldn’t have committed fraud – so the collateral went to cover the loan and screw the customers.

This opens the door for virtually ANY investing institution to take your 401K (or brokerage) money, and use it as collateral for their gain.  If things go badly – well – your money is gone and there is nothing you can do about it.  According to the court, what SMG did was exactly what MF Global did – taking a billion dollars in customer money to cover their own bet and loosing it all.  At least I now know why John Corzine is not in jail.  The courts will rule that this is ‘bad business judgment’ and not fraud or stealing. 

The door has been opened for an outright "mad dash for your cash", and you can bet that the bankers are looking at this ruling as their ship that finally came in.  I can't say it any clearer, if you have significant 401K holdings, you need to make a decision.  Do you keep it where it is (in some fund’s pool) – where one day it could be ‘mingled’ with the firm’s proprietary trading money and lost?  Or do you cash out – pay the penalty – and buy up gold and silver?  You know my choice. 

The Market:

On Thursday one of the non-voting Federal Reserve members appeared on CNBC to tell the world that in his opinion the economy is doing well enough that more QE is NOT necessary and in fact could hurt things – correspondingly the market plunged 80 points.  On Friday The Ben Bernanke himself said words to the effect that the Fed very well could be ready to do more accommodations, and the market soared for 100 points.  This market is not moving based upon fundamentals. In fact if it were, we'd be down 4,000 DOW points because very few companies are beating earnings with rising revenues.  Companies are beating earnings on cost cutting and ‘aggressive’ accounting.  This market is only moving on the hopium of more fiat money out of the Fed.

Each day we tick a bit closer to finding out if the Fed is going to do anything after their Jackson Hole (‘Bankers Gone Wild’) meeting on 8/31 and 9/1.  It is expected that if we are going to hear anything, that is when it will come.  I would agree with that except for one little twist.  The German vote on the constitutionality of Germany going along with the ESM plot to save the Eurozone comes on Sept 12.  Could it be that The Ben Bernanke is going to wait to see what comes out of that meeting, before making a statement here?  It's possible.  The ‘catch’ is that there is so much expectation that he is going to announce QE3 at Jackson Hole – if he doesn’t – the market could easily put in a 300+ point down day.  I think he knows this and with the world slowing down, he will announce ‘something’ – and potentially ‘something big.’  No more of this $600 Billion over 9 months stuff.  I’m talking $1 Trillion.  And if we get something big out of him, AND the Germans lose their mind and go along with the insanity that is Mario Draghi – we’re going to see the world markets explode to the upside.

So this next week is the set-up week.  Everyone will be jockeying for position to try and take advantage of what might be coming.  The issue of course is if he double crosses everyone and does nothing, or if he decides to wait on the Germans – going terribly long in the market will be a painful mistake.

I think this week the market will walk back up towards the 13,300 level that has been a concrete ceiling for months.  But you can bet by Friday afternoon, I will have taken profits in the trading accounts, and be down to some bare minimums ahead of the Jackson Hole meeting.  Yes, I do think he will announce something, but if it's not big enough, it might be a "sell the news" event.  If it is big enough, the market will run so much that we will have a lot of time to get in and pick up the right stocks.

So the bottom line is: On Sept 2^nd, and then again on Sept 12^th we are going to see the markets move.  Which way – the jury is still out.  But, knowing that The Ben Bernanke's getting the squeeze from Obama's camp to "do something", and Romney has repeatedly said this week that he's going to replace The Ben Bernanke if he wins the Election, Bernanke's only hope of remaining the Fed head is to go full guns and hope it carries Obama to a victory.

Tips:

We made some nice gains and cashed out this week on:  PBR, WRES, LSCC, WYNN, IBM, ATI, OVTI and MMM.  I’m currently watching: SSRI over 14.15, GDXJ over 22, and NTAP over 34. 

Currently I’m holding:

-       SPY – in at 135.75 (currently 141.66) – stop at 141.00

-       GDX – in at 42.50 (currently 47.55) – stop at 46.50

-       SNDK in at 42.51 (currently 43.12) – stop at 42.75

-       TTWO in at 10.13 (currently 10.10) – stop at 9.90

-       GLD (ETF for Gold) – in at 158.28, (currently 162.20) – no stop ($1,669.80 per physical ounce), AND

-       SLV (ETF for Silver) – in at 28.3 (currently 29.86) – no stop ($30.61 per physical ounce).

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: <http://rfcfinancialnews.blogspot.com> .

Please write to <rfc@getabby.com> 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: http://www.youtube.com/watch?v=K2Z9I_6ciH0

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: <http://rfcfinancialnews.blogspot.com/>
Until next week – be safe.

R.F. Culbertson

<mailto:rfc@getabby.com>

<http://rfcfinancialnews.blogspot.com>

This Week in Barrons - 8-19-2012

This Week in Barrons – 8-19-2012

“Something’s Coming – Something ?” … West Side Story

This is a line from the musical West Side Story that announces a big change coming.  There is a certain uneasiness in the air, where people know “something” is coming and no one knows what.  There’s something just not right going on out there:

-       - In the past week the U.S. Treasury (via U.S. regulators) has directed five of the country's biggest banks (including Bank of America and Goldman Sachs) to develop plans for staving off collapse if they faced serious problems, emphasizing that the banks could not count on government help.

-       - In an attempt to push stocks higher, we are seeing our Fed send dollars to Europe to support the Euro and weaken the dollar.  These currency flows rose to $9.3 billion in the current week, the highest since December 9, 2009.

-       - In the past week John Corzine - previously of MF Gobal (a company that literally stole hundreds of millions of dollars from customer’s accounts – a criminal offense) – instead of going to jail, pseudo-announced that he would like to launch a new hedge fund!

-       - The unemployment rate in New Jersey rose to 9.8% - highest since 1977 – all the while unemployment claims in 44 of the 50 states are reaching new highs.

-       - The price of ground beef hit a record high.

-       - The Philadelphia Fed report came in negative (for growth) for the 5^th month in a row, and the Empire State Fed report came in with a 13 point plunge to go negative.

-       - Companies are beating earnings estimates by a penny on falling revenues.

-       - Anxiety about stocks is running so deep that net deposits to bond funds thru July are already 50% greater than for all of last year!

-       - And one of Joe Biden’s good friends received a $20M Federal Loan to open a luxury car dealership in the Ukraine!

Here are a couple headlines that fall into the: “You just can’t make this s__t up” category:

1.    1.  The U.S. Department of Labor announced on Monday that it will be awarding almost $100 million in grant funding to states to prevent layoffs by allowing businesses to pay employees as part-time workers and the federal government will pick up the tab for the cost of a full-time paycheck.

2.    2.  Finland is preparing to ‘batten down the hatches’ for a full-blown currency crisis as tensions in the Eurozone mount and has said it will not tolerate further bailout creep, or fiscal union by stealth.

3.    3.  And finally – the world is warning us about ‘food inflation.’  Between the drought in the mid west, the possible closing of the Mississippi river for barges, and the way oil is rising again – when The Ben Bernanke does his next round of stimulus – food prices will soar with ground beef being just the tip of the iceberg.   

While we see the stock market rise almost every day as they look forward to The Ben Bernanke's gifts of fiat dollars, I’m hoping the money we all see in gains will be enough to offset the inflation that we’re all going to feel.  If you have the room, buy some food for storage.  Not because the world will end today, but because food is going to cost more over the next several months.  When the Government is telling banks to make survival plans, and when seemingly mellow Government agencies are buying untold millions of rounds of body damaging ammunitions – there’s something "up" and it's NOT GOOD.  

The Market...

The high S&P and DOW closes back in April, were 1419 and 13,279 respectively.  On Friday the S&P closed at 1418, and the DOW closed at 13,275.  They have pushed the market right to the 4-year highs – so what’s next?

The technical pattern that was developing suggested that the market would trade sideways and then inch itself higher, and that has indeed happened.  Now all that is left is to see if we can close a couple days above the intra day highs at 1422 and 13,338 – which will get us into "breakout" mode.  Can they pull that off?  I think they can, but it won’t be easy.  Retail investors have been pulling money out of the market, and the only reason we're inching higher is the destruction of the US dollar.  The Ben Bernanke continues to prop up the Euro (so our dollar falls), and all of our hopes rest on The Ben Bernanke and Draghi pulling off a coordinated, gigantic round of "QE".

We are in overbought territory again – but as long as there's no bad news out of Europe, and as long as The Ben Bernanke's henchmen continue to tell us that something's coming, they will continue to inch us higher.  But we are getting down to the nitty-gritty!  The Jackson Hole Wyoming meeting is in two weeks.  If (after the meeting) The Ben Bernanke doesn't announce something – the market will be sorely upset.  Then on September 12, we have the German vote considering whether they can even join in on the ESM and the ECB bailout maneuver.  So there are two inflection dates – the Jackson Hole meeting, and the German ruling. 

What happens if we get positives out of both dates?  Will the market "sell the news" having already run up on the rumor?  In the case of QE, the market has made substantial gains after any announcement, and I would suspect that this would be no different.  If The Ben Bernanke does some form of Mortgage Backed Securities (MBS) buying, and the Germans go along with Draghi, I suspect we pile on a lot of points.  As long as Bernanke's willing to devalue the dollar, and help the Euro, we should see them try and threaten the old, all-time highs of DOW 14K. 

We've been leaning long into this and so far it's the right thing to do, but it’s like walking on eggs.  On any day someone in Europe could come out and say the whole plan is shot, and that would indeed knock 400 points off the DOW.

I believe that The Ben Bernanke will come out with something, and I believe the Germans are going to go along with Draghi.  NOT because it's right, but because they have no choice – without the punchbowl, everything falls.  It’s not about fixing anything; it’s all about living another day. 

In terms of developing a strategy to protect yourself and profit from all of this, you might consider an option straddle.  Also consider adding some VIXX to your portfolio, as volatility should increase if things don't unfold just right.  This is one of those times when making the right decisions can indeed line your pockets.

Currently I have 22 stocks that are on my radar for possible purchase.  I am not buying 22 stocks, but have 22 that are set up nicely and are worthy of a swing trade if indeed the market holds up.  Some are cheap – like LSCC, which I just purchased.  It had been struggling with the $4 level for months and I thought that if it crossed it again, it might go.  Some are more expensive – like IBM, which I also purchased.  It had been banging its head against $200, and when it made it through I took it.  And some are mid-range like MMM.  I liked the sideways shuffle it had done at the $92 level, and told my twitter followers that when it crossed $92.50 I’d buy it – and now it’s sitting at 94.24.

This is an exciting time. In the next couple weeks we will know a whole lot more, and I will probably be making changes to my asset allocation and cash positions along the way.

Tips:

Currently I’m holding:

-       SPY – in at 135.75 (currently 142.13) – stop at 141.00

-       GDX – in at 42.50 (currently 45.32) – stop at 43.50

-       PBR – in at 21.80 (currently 22.28) – stop at 22.00

-       WRES in at 2.63 (currently 3.04) – stop at 2.80

-       LSCC in at 3.80 (currently 4.10) – stop at 3.80

-       WYNN in at 102.03 (currently 105.03) – stop at 104.09

-       IBM in at 199.99 (currently 201.18) – stop at 200.60

-       SNDK in at 42.51 (currently 42.53) – stop at 41.80

-       MMM in at 92.53 (currently 94.12) – stop at 93.00

-       GLD (ETF for Gold) – in at 158.28, (currently 156.66) – no stop ($1,616.30 per physical ounce), AND

-       SLV (ETF for Silver) – in at 28.3 (currently 27.23) – no stop ($27.99 per physical ounce).

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: <http://rfcfinancialnews.blogspot.com> .

Please write to <rfc@getabby.com> 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: http://www.youtube.com/watch?v=K2Z9I_6ciH0

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: <http://rfcfinancialnews.blogspot.com/>
Until next week – be safe.

R.F. Culbertson

<mailto:rfc@getabby.com>

<http://rfcfinancialnews.blogspot.com>

This Week in Barrons - 8-12-2012

This Week in Barrons – 8-12-2012

“Gold and Silver were mixed with dirt, until Avarice parted them” … proverb

Anyone that has read us for any length of time knows that I am a big fan of physical gold and silver.  I began our gold buying in 2001 and added to our holdings right up into the $1500 per ounce range.  I began silver accumulation in 2007, at around the $13 level, and bought it into the high $30's.  All along the way we've talked about how prices do not reflect reality, because gold and silver aren't priced by physical supply and demand.  Their prices are set by paper trading futures, derivatives, forward leases, swaps, and government interventions.  These prices have been manipulated for decades.  In Gold there was the "London Gold Pool" of the 60's that set the price at $35 an ounce, and bought and leased gold daily to keep that price locked.  Silver started being manipulated by the Coinage Act of 1965, and President Johnson himself stated, “Investors should not try and look for gains in silver because the US would dis-hoard their stockpile.”  It doesn't get much clearer than that.

J.P. Morgan Chase (JPM) is usually the target of silver manipulation – because on any given day they might be short one-third of the ENTIRE silver production for a full year!  In fact, Andrew McGuire (a silver trader) went to the CFTC and told them that a manipulation would occur on a specific day, and "bingo" – on that exact day and time – the price moved to the levels he suggested.  At one time I believe there were more than 14 separate lawsuits about silver manipulation.  Recently a Financial Times article said that they are close to shutting down the CFTC investigation into silver manipulation due to lack of evidence.  So are all the silver traders just nuts – or is the CFTC covering up for JPM?  Is this an example of the foxes guarding the hen house?  Well, ‘Yes’ everyone sees the manipulation, but it’s difficult to prosecute the perpetrator when the perpetrator is the U.S. Government.

The gigantic shorting that you see at JPM isn’t because JPM has some issue with silver.  It’s a clear case of “Don’t shoot the messenger.”  JPM is simply one of the vehicles the Government uses when they're executing their monetary policies under the cloak of the ESF (Exchange Stabilization Fund).  This is a fund our government uses to “push metals around” in order to extract the highest advantage for them in their banking/currency contracts.  Big banks – like JPM – become the trading platform to do their dirty work.  JPM is not doing the manipulation – it’s just carrying out the trades for the true manipulators – the U.S. Government.

Some feel that because Uncle Sam himself is doing the manipulation, there's no hope that silver will ever really break free.  I do not believe that.  While the government does it’s best to keep gold in line (because it's viewed as a competing currency to the dollar), silver is a different animal.  Along with being a currency, silver (unlike gold) is also used in industry.  Except for all the gold that's been lost to shipwrecks, most of the gold (ever mined) is still here.  Silver however gets depleted as it's used in technology, aerospace, and medical.  There is less and less silver available each and every year, and at some point the shortage of the physical metal itself, will push the price higher.  Yes the manipulations will continue, but they will continue at a much higher price level.

This past week, silver went into ‘backwardation’.  That is when the physical price at the present is higher than the futures price in months to come.  That suggests that investors do NOT want to give up their bullion.  With the possibility of the ECB and our own Federal Reserve going crazy next month (carpet bombing the planet with fiat dollars), it is no wonder that people are holding onto their metal.  We are about to enter a period of severe inflation.

So ‘Yes’ the price is manipulated, and ‘Yes’ the price doesn't reflect true supply and demand.  And ‘Yes’ I am still accumulating the metal because I feel that the situation will be changing.  I have predicted a silver price of $70 to $80 an ounce, and still believe it will get there.  Considering that's about 3 times more than its current price, it's our opinion that Silver is still one of the best investments one could make.  Besides, as they debase our currency into oblivion, silver and gold just continue to make sense.  And, if the Central Bankers want it, I feel comfortable wanting it too!

The Market – The Plot Thickens…

We saw the market roar higher on the hopium that Mario Draghi is going to get Angela Merkel to go along with his plan to have the European Central Bank (ECB) act like our Federal Reserve, and buy up all the toxic debt, thus relieving Spain, Italy, Portugal, etc. of their debt burdens.  Currently the market is trading sideways – not wanting to give back the gains it's made, but it has NO volume to bust over the resistance zone.  The volumes on even the biggest ETF's like the SPY are trading on levels like we’re used to seeing on Christmas eve.  Yet, the markets continue to inch and claw their way higher.

In a technical sense, we are looking at the market try and work off an overbought situation by doing the ‘Pause and Shuffle’.  That's fine, and very well may work.  Everyone knows that the Fed is cooking up something in the background, and nobody wants to miss it.  In the past several days a Boston Fed Head was out saying it's time the Fed did something about the economy.  Now this particular gentleman doesn’t vote – but he’s out there talking because it's the wink and nod to investors that ‘something’ is in the works.  It’s coming – it’s just a matter of when – and that’s why the market is holding up here.

Judging by the way the market has held up (with no volume, and large overhead resistance at the 13,300 level), my guess is that they are going to continue crabbing sideways and just barely "up".  I can't see them letting a meaningful pullback hit when we're just a couple weeks from the Jackson Hole meeting, and then the German vote on the constitutionality of participating in the ESM.  I could see a couple hundred points peel off on some weak trading days, but right now I'm comfortable saying we've got a 70 to 75% chance of going higher.

I took some money off the table this past week – but I’m still leaning long into this market, and so far it's working well.  If the Europeans do what Draghi wants at the same time our “Fed Goes Wild”, we are going to see a rally of epic proportions.  Now we still have the German vote on September 12^th, and if they declare that they cannot participate in the scheme, all bets are off.  I believe that the German courts will do an "about face" and go with the program.

So, I think we're going slightly up.  I also think we're going to get the "accommodations" both here and overseas that will lead to a really sharp rally into year end.  Now, the only reason we're not 100% invested is the German vote. If they don't go with the plan, then all of this could implode.  So we’re leaning long – but not over-exposed. 

Tips:

Currently I’m holding:

-    -  SYNC – in at 11.15 (currently 9.96) – held over earnings – my error!

-    -  SPY – in at 135.75 (currently 140.87) – stop at 139.00

-    -  MRO – in at 26 (currently 27.74) – stop at 27.00

-    -  GDX – in at 42.50 (currently 44.85) – stop at 43.50

-    -  MLNX – in at 107.50 (currently 112.17) – stop at 110.00

-    -  CLF – in at 45 (currently 44.85) – stop at 44.00

-    -  PBR – in at 21.80 (currently 21.95) – stop at 21.30

-    -  X in at 22.24 (currently 23.31) – stop at 22.80

-    -  TEX in at 20.17 (currently 21.96) – stop at 21.10

-    -  WRES in at 2.63 (currently 2.95) – stop at 2.80

-    -  GLD (ETF for Gold) – in at 158.28, (currently 157.16) – no stop ($1,619.70 per physical ounce), AND

-    -  SLV (ETF for Silver) – in at 28.3 (currently 27.20) – no stop ($28.06 per physical ounce).

A couple stocks I’m watching are IBM over 200, and Intel (INTC) over 27.50.

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: <http://rfcfinancialnews.blogspot.com> .

Please write to <rfc@getabby.com> 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: http://www.youtube.com/watch?v=K2Z9I_6ciH0

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: <http://rfcfinancialnews.blogspot.com/>
Until next week – be safe.

R.F. Culbertson

<mailto:rfc@getabby.com>

<http://rfcfinancialnews.blogspot.com>

This Week in Barrons – 8-5-2012

The Bottom Line



With all of the anagrams floating around Europe (each one kicking the can down the road a little bit further than the last), have we come to the end of the road?   The next kick sends Europe spiraling into a huge crevasse, too deep to ever be recovered.  The bottom line:  Will Germany allow the European Central Bank (ECB) to print trillions of Euro's and buy up all the sovereign debt loads from Spain, Greece, Italy… OR will they say “NO?”  That is the culmination of 2 years of kicking the can, creating rumors, and playing “Weekend at Bernie’s” with these countries.  Either the ECB goes nuclear and sops up all of that debt, OR the Eurozone implodes.  Therefore the future of the Eurozone lies squarely at the feet of the German people.

On Friday the market went nuts and gained 217 DOW points.  The mainstream media told folks that it was because of a great jobs report.  The problem with that statement is that the jobs report really stunk.

-       - The ‘Household Survey’ showed a LOSS of 195K jobs.

-       - The BLS (birth-death model) added 52,000 jobs to the report, and none of those exist.

-       - The hours worked were dismal.

-       - The reported unemployment percentage increased!

-      -  Our only hope was that the report was so bad that The Ben Bernanke will be forced to move sooner rather than later.

The market really moved up on Germany’s (Angela Merkel’s) “trusted coalition” hinting strongly that they were in agreement with Mario Draghi (the architect behind the ECB plan) to change the basic "charter" of the ECB so that they can indeed join Ben Bernanke in "Bankers Gone Wild" and print money at will. 
The second the news hit that Angela Merkel’s own coalition group was ‘on board’ with this plan, the futures popped from slightly negative, to up over 100.  No lousy jobs report was going to stand in the way of Europe receiving trillions in bogus Euros, in order that Italy and Spain could then start borrowing money at incredibly low rates, instead of the 6 - 7.5% that they’re paying now. 



In a nutshell, Mario Draghi wants the ECB to do what Bernanke did in 2008 – open the faucet and pour trillions of freshly minted dollars into the system.  But Germany has ‘seen’ that easy fix before.  Germany knows that printing money creates inflation.  The Germans experienced one of the worst hyper inflationary periods the world has ever seen. 
The Germans know that when the price of goods rises rapidly due to inflation, the government cannot raise taxes fast enough to counteract the effect.  And when people realize that their money is rapidly losing value, they spend it quickly – which further increases prices and the vicious cycle itself.  In 1923, German employers would pay their employees 3 times per DAY, civil unrest became common, farmers and cattlemen stopped delivering goods because they didn't want worthless paper for their edible assets, and rioting and looting started fraying the seams of what was once a stable society. 

So, here we are with Mario Draghi making plans for the ECB to become a true Central bank and flood the Eurozone with freshly printed money.  But what if Germany does NOT go along with the plan?  If Germany refuses, the Eurozone will change forever.  Italy, Spain, Greece, and probably half a dozen others will spiral out of control and crash.  The Germans with their strong economy will survive, but their currency will RISE so quickly in value, that their main income source (exported goods) will come to a halt.  And if Germany cannot export, then unemployment will rise, and their economy will tailspin.  It seems as though Germany is caught between the proverbial rock and a hard place. 


On September 12, they will vote over this whole notion.  If they go along with it, I wouldn't be a bit surprised to see a wicked market run up here in the US.  As a form of ‘double whammy’, I also believe that our own Federal Reserve will chip in with some form of accommodation here as well, which would trigger a rally of really epic proportions.  If they don't approve it, we're going to see some real dislocations and everything the market has built up will come crashing down. 



From where I sit, I think that they must go along – not because they really want to – simply because the immediate fall out of ‘not going along’ will set in motion the disintegration of the Eurozone, and it could have unforeseen consequences.  Germany realizes that by letting the ECB print money – they will trigger inflation.  But unlike in previous years, they don't have the burden of trying to make war reparations and paying down their gold reserves.  I think they will reason with themselves that inflation will occur, but it shouldn't spiral out of control.  After all, they have seen the US print for ages and although we have inflation, it's not out of control (yet).  Combine that with letting all those Euro Countries simply crash and burn, could affect Germany in ways no one's quite aware of yet.

-       - Think of the ‘counter party exposure’ for their nation’s banks, and the derivative contracts. 

-      -  How badly would their exports be affected if their currency rose above all the others in the zone?  

-       - With China slowing and the US below stall speed, can they be reckless and flippant with the idea of not going along with the bailouts?

I think Germany will go along with Draghi. 
But, if Germany does NOT go along, then it’s going to be time to get out the popcorn and watch a truly epic situation unfold. 



The Market

There isn’t much left to say after surviving last week.  Four days of selling were reversed in one orgy of buying on Friday.  Once again the market was "saved" from crashing through all manners of technical levels, just like it was saved back on July 24^th.  Back on July 24^th, the market again wasn't saved due to wonderful fundamentals or glowing earnings, but rather because someone in Angela Merkel’s coalition suggested that they would go along with the ECB carpet-bombing the Eurozone with freshly printed dollars – sound familiar?

Now we enter a very interesting time.  Factually – we won't know until 9/12 if Germany's court will rule that they can indeed participate in the European Stability Mechanism.  If they vote yes, and Merkel goes "all in" for Draghi's plan, we should see a very large market move higher. 
But 9/12 is a long way off:

-       - Will we just keep going up in anticipation?

-       - Will some of the Northern Countries in the Union complain that they aren't much interested in supporting the Club-Med guys and the market backs off?

-       - Will the market backfill just because it needs to.

-       - Or will they continue to support it on "hopium?" 



My guess is that 9/12 is too far off for them to punch through the triple top at DOW 13,300.  I tend to think that we will fade back some this week, but it will not be a hard sell off, and maybe just a fade down to near the bottom of the channel where we have been trading.  Three times since June, the market has slid down to DOW 12,500, and has used that to springboard us back up – and potentially we drift down to 12,650’ish this time. 
What we want to look for (over the next several days), is whether we can remain above DOW 13,000.  If we can get a volume push over Friday's high, then we're going higher – probably to 13,300 before we stumble.

Tips:

Shout out to DS for recommending MLNX – it’s been on a tear lately – congrats on catching that one. 

Currently I’m holding:

-       - SYNC – in at 11.15 (currently 10.09) – held over earnings – my error!

-       - SPY – in at 135.75 (currently 139.57) – stop at 138.00

-      -  MRO – in at 26 (currently 26.84) – stop at entry

-      -  GDX – in at 42.50 (currently 42.82) – stop at entry

-       - GLD (ETF for Gold) – in at 158.28, (currently 155.55) – no stop ($1,606.00 per physical ounce), AND, SLV (ETF for Silver) – in at 28.3 (currently 26.99) – no stop ($27.79 per physical ounce).

Some of the stocks that’s I’m watching for this additional push are:

-       - IBM > 198.20,

-       - LRCX > 35.10,

-       - CHKP > 50.30,

-       - TJX > 45.50,

-       - COP > 56.00,

-       - MLNX > 107.50, and

-       - CAB > 47.30.

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: <http://rfcfinancialnews.blogspot.com> .

Please write to <rfc@getabby.com> 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: http://www.youtube.com/watch?v=K2Z9I_6ciH0

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: <http://rfcfinancialnews.blogspot.com/>
Until next week – be safe.

R.F. Culbertson

<mailto:rfc@getabby.com>

<http://rfcfinancialnews.blogspot.com>