RF's Financial News

RF's Financial News

Sunday, September 2, 2012

This Week in Barrons - 9-1-2012


This Week in Barrons – 9-1-2012

7 Trillion Dollars – Yum – Yum…

Last week I made waves when I suggested that the recent Sentinel court ruling is the door opener for financial institutions to co-mingle customer funds with their proprietary trading desks – play cowboy with your money – and if they lose it – “Too Bad” – they are not on the hook.  All they have to say is that they used your money to make you even more money, it went bad, and it was lost.  No fraud, no foul, no illegality.  Last week people asked me:
1.    – If I was serious?
2.    – If I believed it?
3.    – And why would the court open the floodgates for institutions to co-mingle funds?

My answers are:
1.  - Yes, I’m serious.
2.  - Yes, I do believe it.
3.  - It’s all about the money.  With over $7 Trillion (about 50% of our total deficit) sitting in pension funds and 401K's – if they can get their hands on it, they will. 

Right now Obama is locked in a fight for his job, and he's beginning to sweat.  Anyone that's not on the Governments payroll is tired of the rhetoric, and is not better off than 4 years ago.  The Anti-Obama movie "2016" has been selling out across the country.  Currently most people figure that "it must be really rich people that lost their money, so it's not my problem".  Well my prediction is that at some point we’re going to hear about "everyday folks" losing their retirement to co-mingled funds.  Then Uncle Sam is going to say: “It’s time to stop playing in the Wall Street Casino and come over to the USA Retirement Program.  All employer/employee retirement money will now become part of our program."

This concept was initiated between 2007 and 2010.  The Government was broke, the banksters had taken down the financial system, and they were looking everywhere for money.  Everyday the Unions would come to Obama and tell them that their pensions were underfunded.  The market crash had taken a lot of people from ‘Hero to Zero’ in a very short time.  So the calls went out to find cash.  What they found was $6 Trillion in 401K's and Roth IRA's – mostly sitting there almost forgotten.  And it was Vice President Joe Biden that floated the idea of a "Guaranteed Retirement Account" (GRA), in the February 2010 "Middle Class Report".  The report outlines how the government was going to force our retirement funds into a Government-Run Mandatory Plan. 

Even before that, Teresa Ghilarducci (an economist) wrote a paper in 2007 called “Agenda for Shared Prosperity”, that she presented to the Economic Policy Institute in Washington.  In that paper she outlined her ideal plan for these "Guaranteed Retirement Accounts".  She proposed that our current system is failing, too few people are in 401K’s and taxes are straining the elderly.  Therefore, a "Guaranteed Retirement Account" (run by Uncle Sam) that forces you to donate to the program is a way of solving things. To quote:  "Contributions equal to 5% of earnings are deducted along with payroll taxes and credited to individual accounts administered by the Social Security Administration. The cost of contributions is split equally between employer and employee. Mandatory contributions are deducted on earnings up to the Social Security earnings cap".
 
The problem with the Biden proposal (as you might expect) was that the Republicans fought back – telling the government to “keep your hands off our people's retirement money".   Well, when the front door is locked – find the back door.  I believe that this is why the Sentinel Court case was not some ‘off the wall’, one time mistake.  Ever since February of 2010 (when the idea of a Government sponsored retirement account first surfaced), our government has been fixated on getting that pool of money.

So if the Republicans won't let them just take it without a fight, and the population doesn't really trust Uncle Sam (but doesn't trust Wall Street either), you can see what they've decided to do.  Let Wall Street rape J.Q. Public enough that J.Q. Public will come to Uncle Sam begging for safety.
-       This is why the court found nothing wrong with Sentinel.
-       This is why John Corzine was allowed to take a billion customer dollars and roll the dice.
-       This is why Bernie Madoff’s billions are still unfound. 

They've allowed the market go crazy, so they can come out and declare that the average person should not have their money in a 401K (where bad things can happen to it), but rather let Uncle Sam take care of it for you.  Once we get this next round of QE/Stimulus, and we see the coordinated global push and take advantage of it – my remaining 401K’s and IRA’s will be liquidated and converted to physical assets.  As far the trading accounts go – there’s always been a risk to them.  They aren't FDIC protected, and all we’re hoping there is to be one step ahead.

I know that what I just wrote is scary, and could be written off as the musings of a madman, but before you go there – remember this same government just FORCED you to buy health insurance or be taxed by the 16,000 new IRS agents that were recently hired.

The Market...
Once again some jawboning from The Ben Bernanke saved the market from really melting down this week.  He stated (from Jackson Hole, Wyoming) that indeed he is poised to "do more" if the economy doesn't show any signs of perking up.  I feel that the ‘more’ is coming on September 13th.  The FOMC has a two-day meeting on the 12th and the 13th, and that allows them to see a handful of important things.  First, we will have seen the most recent non-farm payroll report.  Secondly, we will then know about the ECB bank meeting.  And third, the German vote on the constitutionality of going along with the ESM program will be announced on the 12th.

There are many ways that this can play out:
-       If the Germans agree to the ESM plan, AND The Ben Bernanke announces something big on the 13th with QE3, we're going to get a big time rally that could easily test the all time highs by year-end.
-       If the Germans hold tight and vote against the ESM, but The Ben Bernanke still lets loose with QE3, we will still rally – we just won’t get as far.
-       BUT, if we don't get anything out of either – we’re going to see a drop of 20% or more in a big hurry. 

Honestly, it’s not really all that often when we know (in advance) that a big move is on the table.  We all should take advantage of this by playing both sides of the coin.  The market IS going to move up or down significantly.  I'm leaning towards up, but I'm not willing to take a one side trade on that, no thanks.  Let’s discuss next time the ‘straddles’ and ‘strangles’ required to best position our portfolios ahead of the move.

Tips:
We made some nice gains and cashed out this week on:  SPY, SNDK, and TTWO.  I’m currently watching VRSN over 48, NTAP over 35.12, CLF on a double bottom bounce over 37.50, and AUY over 17 – all seem interesting to me.    

Currently I’m holding:
-       GDX – in at 42.50 (currently 47.96) – stop at 47.00
-       LOW in at 28.02 (currently 28.48) – stop at entry
-       SBUX in at 48.88 (currently 49.61) – stop at 49.10
-       GLD (ETF for Gold) – in at 158.28, (currently 164.22) – no stop ($1,684.60 per physical ounce), AND
-       SLV (ETF for Silver) – in at 28.3 (currently 30.84) – no stop ($31.37 per physical ounce).

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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Until next week – be safe.

R.F. Culbertson



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