This Week in Barrons - 3-31-13

This Week in Barrons – 3-31-2013

“He that has ears to hear, let him hear” … Matthew 11:16

By now, many of us are all too familiar with Cyprus.  Because of all the bad debts, the Cyprus banking system has folded up like a ‘cheap suit’.  They needed ‘bail out’ funds, in order to pay their ‘criminal banksters’ that made the mistake(s) in the first place.  As a result, any and all accounts at the Bank of Cyprus with deposits of more than the insured 100,000 euros ($128,225) will lose 37.5% of their value after they are converted into a class of bank shares.  The Bank of Cyprus will freeze another 22.5% in each of these same accounts until the Cyprus’s bailout terms have been met. The money will be placed in a fund that won't earn interest, and it could see an even larger write-off.  The remaining 40% will earn interest but the money will be temporarily frozen for liquidity purposes.  Cyprus’s Finance Minister Michalis Sarris this week estimated that 40% of the deposits would be converted to bank shares.

This is truly a shock to the system.  We TRUST all of our systems.  Our systems have become so much a part of our lives that we don't even give them a second thought.  When you turn on a faucet you believe that water will come out of it 100% of the time.  When you flick the switch or push the ‘on’ button you expect electricity.  When you turn the knob on your gas range, you expect fire.  If any one of those systems misfires, your day is going to drastically change course.  We’ve built that same trust in our banking system.  We don’t think twice about it, but unfortunately it hasn’t worked properly for the past 35 years.  In the last 10 years our own ‘banksters’ have broken every law and have virtually bankrupt the world.  Our ‘banksters’ approved mortgages for dead people, and mortgages for people that couldn't pay.  They then bundled those same mortgages, called them "prime" investments, and sold them to companies, pension funds, and other countries.  Meanwhile those same banks (because they knew they weren't worth anything) shorted those very investments.  Can you imagine the audacity?  You’re sitting with a client who runs a pension fund for firemen, and you sell him millions of dollars worth of trash, telling him that it’s a safe and sound investment.  All the while your boss is writing up short sale contracts on those same investments, knowing that they’re not worth the paper that they’re printed on.

In the case of Cyprus, their ‘banksters’ placed huge bets on Greek debt, and the bets went sour.  The Cyprus banks became insolvent.  The EU rushed in with funds, ideas, and more ways to kick the can down the road.  Cyprus is a tiny island country of 1,000 people that produces less than the state of Vermont, but is a banking HUB because it is willing to accept money from all corners of the globe – taxing it a little, and using it a lot.  But the Cyprus banksters have run out of ways to get others to pay for their crimes.  Well, it took a while but they did what I said every bank would ultimately do – ‘Raid the Depositors.’  But we built this system based upon TRUST.  The EU has just thrown TRUST out the window, and replaced it with the words: “Contribute to our own Liquidity.”  The EU is calling the act of raiding depositor’s money – a "contribution" to the welfare of Cyprus.

Now, if you're John Q. Public in Spain, and you just saw the EU approve Cyprus’s raiding of depositor’s money, what would you do?  Here in the US we have the FDIC (which is bankrupt) supporting our deposits up to $250,000 (in any one bank).  Is everything over $250k fair game now?  Are we sure that Citi or Goldman won't raid our accounts like Cyprus has done?  

In my class at CMU on Thursday someone asked me: “How can it be that half of our graduating seniors don’t have jobs yet, but our stock market is reaching all time highs?”  During this past week we saw consumer confidence fall, the Purchasing Manager’s Index fall, housing sales fall, and more than 6 economic reports miss expectations.  We can’t make a real housing recovery, can't create jobs, can't spur economic growth, but we can push the market higher and create the wealth effect.

Recently the BRICS (Brazil, Russia, India, China, and South Africa) just created a $100B infrastructure bank that will be used to help developing countries that run into trouble.  They also decided that trade between their nations would be conducted in their native currency, NOT in the US dollar.

In the past two weeks my best friends and I have attended two ‘hack-n-slash’ movies about destroying the U.S. White House and our economy.  I’m desperately hoping that life does NOT imitate art.  I wish you all a Happy Easter and to quote Matthew 11:16 -  “He that has ears to hear, let him hear.”

The Market:

Like the “Little Engine that Could", this week The Ben Bernanke chugged, snorted and pulled this market to all time highs.  Now what?  While Europe melts, and our Central banks amass huge quantities of Gold (while keeping a lid on the price) – what happens now?  As long as the printing presses keep printing, we have no other choice but to see higher markets.  Combined with what is going on in the rest of the world, the US market looks good to foreigners; therefore, any dips will be bought.  

But let’s do a reality check and examine the company - Caterpillar.  CAT is the epitome of global construction. They're bigger (by market cap) than all of their competitors combined.  If someone is going to build something of any consequence, Caterpillar products will be involved.  Yet while the S&P and DOW push their way to all time highs, CAT is dropping in price.  That says volumes about the reality of the global economic picture.

But given they’re printing so much money, how does the FED prevent the market gaining 1,000 points in one day?  The answer is that the FED sends out mixed messages as to when the money printing will stop.  On the same day as one FED member says: “The economy can use more monetary assistance from the FED, we need to be more aggressive,” you have another FED member saying: “I would regard a slowing in the pace of asset purchases to be a welcome direction for monetary policy, if it resulted from a significant improvement in the outlook for labor market conditions.”  The goal here is to tell everyone not to worry, the punch bowl will be full for years to come, and then temper it with another message saying they might pull the punch sooner than later.  That keeps the market moving up while he's printing, but keeps the really big players from putting in tens of billions at one time, and driving the market up too far too fast.

We have no choice but to hold our nose, lean long and hope for the best.  Yes, watching CAT tumble makes me think that maybe we're about to see a correction, a profit-taking binge, but (in my opinion) it will be short-circuited and this dip is buyable.  The "new monthly money" will be applied early this coming week, and if we're going to get a pull back, it will be over the next few weeks as earnings disappoint.  Be careful out there – and celebrate the holiday! 

Tips:

Last week I sold SNDK for a $2/share profit, and am sitting with three (non metal) positions.  For next week, I’m liking RF Micro Devices (RFMD) over $5.45, Vale S.A. (VALE) over $17.35, and Intuit (INTU) over $66. 

My current short-term holds are performing nicely (with gold and silver still lagging):

-       COST – in at 104.10 (currently 106.08) – stop at 105.10,

-       NUAN – in 19.10 (currently 20.12) – stop at entry,

-       SNDK – in at 52.19 (currently 54.99) – stop at 54.50,

-       SIL – in at 24.51 (currently 18.15) – no stop yet

-       GLD (ETF for Gold) – in at 158.28, (currently 154.50) – no stop ($1,594.80 per physical ounce), AND

-       SLV (ETF for Silver) – in at 28.3 (currently 27.26) – no stop ($28.29 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 - 3-24-13

This Week in Barrons – 3-24-2013

“We are NOT Cyprus.  We are NOT some 3^rd World Country!”

Last week’s report produced a lot of mail telling me that the U.S. would never confiscate our money – this is America, not some 3^rd world country – we’re too big to fail and have too many rules.  Not to ‘beat a dead horse’ – but the U.S. DID exactly that in 1933.  President Franklin D. Roosevelt saw the economy grinding to a halt, and needed a way to kick start it out of the “Great Depression.”  His cabinet decided the best way to expand the economy was to expand the money supply.  But in 1933 the money supply (unlike today) was backed by gold.  So to expand the money supply we needed to have more gold on hand, and the only way to obtain more gold quickly was to demand it from the American citizens.  On April 5^th, 1933 Executive Order #6102 required all persons to deliver on or before May 1, 1933, all but a small amount of gold coin, gold bullion, and gold certificates owned by them to the Federal Reserve, in exchange for $20.67 per troy ounce.  Under the Trading With the Enemy Act of 1917, as amended by the recently passed Emergency Banking Act of March 9, 1933, violation of the order was punishable by a fine up to $10,000 or up to ten years in prison, or both.  This prompted hundreds of thousands of citizens to turn in their gold at their local Federal Reserve Bank – in exchange for $20.67 – the accepted, general price for gold at that time.

But wait a minute. If Gold was $20/ounce, and the U.S. had already printed all the money that it could based upon the amount of gold that they had in storage, what good is buying gold from the public and paying $20 an ounce for it?  Isn’t that a wash?  Absolutely.  But once they obtained all the gold, and refined it into US bullion, the government then declared the NEW PRICE for gold to be $35/ounce.  You see by declaring that gold is NOW worth $35/ounce instead of $20 – they could print more money in order to bridge that 70% gap that they had just created.  And the American citizens just ended up eating a 70% currency devaluation as well as the corresponding inflation.  So to all that say: “The U.S. would NEVER do what Cyprus is trying to do” – well, they already did. 

Having said that, I know that owning gold and silver isn’t perfect.  But just last week, a glitch at Chase Bank had tens of thousands of depositors showing an online balance of $0.00.  This caused an immediate run on the bank’s ATM’s – and Chase was quick to apologize and update their balances.  But it begs the question: If you had to absolutely PROVE (on paper – without any help of electronic records) how much money you had in any given bank at any one time – could you?

I was reminded (by a reader) of the Stanley Druckenmiller article a couple weeks back, where Mr. Druckenmiller blasted the current administration and our current seniors for passing along an insurmountable debt burden onto our youth.  The title of the article was: “Don’t let your Grandparents Steal your Money.” 

Mr. Druckenmiller is one of the best-performing hedge fund managers of the past 30 years.  He points out that the mushrooming costs of Social Security, Medicare and Medicaid, with unfunded liabilities as high as $211 trillion, will bankrupt our nation’s youth and pose a much greater danger than the country’s $16 trillion of debt currently being debated in Congress. “I am not against seniors,” said Mr. Druckenmiller.  “What I am against is current seniors stealing from future seniors.  Unsustainable spending will eventually result in a crisis worse than the financial meltdown of 2008.  What is particularly troubling is that government expenditures related to programs for the elderly rocketed in the past two decades, even before the first baby boomers started turning 65.  In 2011, Social Security, Medicaid and Medicare accounted for 44 percent of the government’s $3.7 trillion in expenditures, up from 34 percent in 1990.  The seniors have a very, very powerful lobby.  They keep getting more and more transfer payments from younger generations through what’s essentially a pay-as-you-go system.  As the elderly population rises, the number of workers who pay into Social Security is dropping.  By 2030, there will be about two workers per retiree, down from 3.4 workers in 2000.”

Mr. Druckenmiller thinks:

-       Stocks may continue to rise due to buy-backs and the new retail investor, but those gains probably won’t last due to too much leverage and too much debt.

-       We should change the eligibility ages for Social Security and benefit structure for wealthy retirees.

-       We need to remove the disincentives for those who would rather work in their later years.

-       We need to add a federal consumption tax because seniors consume about the same amount as people in their 20s or 30s, yet pay less in income taxes.

-       We need to tax dividends and capital gains so as to shift the tax burden as the population ages

-       To avoid double taxation, the government could abolish corporate taxes, which would also eliminate some incentives for companies to move business abroad.

We built a system of dependency and trust, and the system is breaking down.  I’m finding better places for my money than cash, and I figure those who live in Cyprus (about now) are finding the same. 

The Market:

This week, The Ben Bernanke held a Q&A session on the economy and the Fed’s actions.  After reading a prepared statement, he started talking about the thresholds that the Fed has established.  For example, they have stated that “the Fed will keep buying until the unemployment is under 6.5%".   The Ben Bernanke told us that these thresholds are just "signposts", not absolutes.  He then said that this very easy money policy could go on for a long time past those signposts.  Basically what he's telling us is that they're looking at everything, and there is no real way that he can stop printing.  The Ben Bernanke also admitted: "the stock market may be hitting new highs in nominal terms, but is still far away in real terms."  This is due to inflation, but it’s nice to hear our Central banker saying that while the DOW is hitting new highs, the returns are (in fact) lower.   

When I look at the market, the image that appears is one of a market that is desperately tired, in need of a rest, but that is consistently being jammed higher.  And then we have the issue of the "late comer".  A “late comer” is someone that has missed the entire 2009 to 2013 run up, and is NOW asking if it's time to jump back into the market.  On one of the technology bulletin boards I frequent, I noticed a post last week by a gent asking if the members thought it was a great time to finally get back in the market because the market had just put in its all time high.  I desperately wanted to ask him where he had been for the past 5 years, but I thought the better of it.  But then the responses that he got were even more interesting.  Many of the site's members pitched in to say that they had just recently jumped back into the market themselves.

In any bubblemania I’m reminded of a quote: “the market can remain irrational, longer than you can remain solvent."  In other words, the market can keep doing (whatever it is doing), longer than any reasonable mind would think.  And secondly, as the mania begins to get ‘long in the tooth’, it invariably pulls in those that resisted all along the way.  I tend to think that some of the starts and fits that we’re seeing is a market that wants to rest, but the late comers detect any red as a pull back and jump in.

I’m positive for this coming week because we have just put in a tremendous quarter, and with the quarter ending next Friday, Wall Street would like nothing better than to be able to send out quarterly statements showing tremendous gains.  Between that and the folks jumping in late, I now know why there was no real correction in the last few weeks.

Let’s assume we reach an all-time high on the S&P this week, the quarter ends, and the new monthly money comes in.  Does the market just continue higher?  It could, simply because the underlying strength of the market is coming from a man with a printing press.  But here's a small question for you – what if you looked at the Fed's balance sheet, and it showed a figure that could only correspond to The Ben Bernanke printing $115 Billion last month, instead of the $85 billion that he told us about.  How would we figure out where the excess $30 Billion went?  Is it possible that when the market looks tired, and he knows something like Cyprus is coming down the pike, that he ramps up the digital press a little higher and spreads it around so that the market doesn’t go down?   

My point is that the market is beyond artificial at this point, and is bordering on absolute fiction.  Companies like Fedex, Caterpillar, Deere, UPS, Oracle and a dozen others have come out saying things are weak out there.  They are missing earnings, but the market still holds solid or goes up.  This is all because of Benji Bucks, and until they stop printing, there isn’t any real reason that the market can't keep going up.

While I'm still under the delusion that at some point we're going to get a 4 or 5 % pull back, the fact is that between Benji Bucks and latecomers to the party, we could easily just push higher.  My only problem with this is that the higher this market goes on a fake premise, the harder it is going to fall.  The people that jump in at 14,500 are going to look good if we get to DOW 16K.  But when the wheels come off, will they be smart enough to get out?  History says no, and that there will be much pain and suffering - again.  If we're going to get a pull back, it makes the most sense for it to start late in the first week of April - after they print up their quarterly statements, and all the managers can look like real geniuses.  Then the market could put in a correction.

I am playing this rally with caution.  I lean long, pick up a few stocks and do my best not to get blindsided.  As long as the DOW closes above 14,383 we should be able to keep the illusion alive.  A close under that would signal increased danger.  A close over 14,540 probably signals more gains to come.  But be wary of sector rotation.  One-day materials are bid-up in a big way, and the next two days are spent crushing the same sector that was bid-up.  It’s vicious out there, so be careful. 

Tips:

Last week I sold National Oilwell Varco (NOV) for no gain, WPX Energy (WPX) for no gain, and Iron Mountain (IRM) for $0.20.  I liked COST over $104 and bought it on Friday.  I currently like DECK, and would dive in around $50.80, or after it breaks over its Wednesday high of $51.16.  A couple miners like AUY have started to move, and are bringing NEM and AEM along with it.  We purchased some GDXJ (the ETF of junior miners) a while ago for our ‘long term’ account.  I’m seeing that the GDX (ETF of senior miners) is starting to move.  A move over $38.60 would put it on the radar – and the GDX getting over $39.30 would make it a buying opportunity.

My current short-term holds are performing nicely (with gold and silver still lagging):

-       COST – in at 104.10 (currently 105.20) – stop at entry,

-       NUAN – in 19.10 (currently 19.86) – stop at entry,

-       SNDK – in at 52.19 (currently 55.19) – stop at 54.50,

-       SIL – in at 24.51 (currently 18.15) – no stop yet

-       GLD (ETF for Gold) – in at 158.28, (currently 155.68) – no stop ($1,606.20 per physical ounce), AND

-       SLV (ETF for Silver) – in at 28.3 (currently 27.80) – no stop ($28.67 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 - 3-17-13

This Week in Barrons – 3-17-2013

History continues to repeat itself … again, and again, and again!

Allow me to explore two elements this week: energy and housing. 

The key to our success in the US (for so long) was cheap energy.  Through new technology, the US now holds more oil and gas than almost any other nation.  If we were allowed to drill and refine it (in the amounts we "could" produce), we could easily get gasoline down to $1 a gallon.  We could take 40% right off the top of your electricity bill.  This power position could allow us to return to the good old days.  China and Vietnam would continue to have lower wages, but our new cost of power could serve to lower production costs enough that once again – we could compete.  We have so much natural gas that we could export it to Europe and Japan and reap tremendous profits.  Imagine if:

-       We were (really) allowed to drill for oil and gas,

-       We were allowed to build a new refinery,

-       We transformed the existing liquid natural gas (LNG) terminals to export instead of just import natural gas, and

-       We transformed the closed military bases (many of which are near coasts) into LNG ports that could ship around the world.

In terms of a recovery, I think our economy has another choice.  (1) We can print money forever, but we will eventually implode.  (2) We can stop printing money, and we will quickly implode.  (3) Or we can harvest our natural resources (correctly), solve our debt problems, put Americans back to work, and enjoy the economic success we had years ago.  My only question is – will ‘the powers that be’ allow this to occur?  We are sitting on 200 years worth of natural resources that could deliver us complete energy independence within 8 - 10 years.  Bottom line:  I do not believe The Ben Bernanke and his band of Central bankers can manage a true recovery, any more than he could avoid the 2008 melt down.  But cheap energy does offer us a solution to all of our political issues, if we can get out of our own way.

Consider the jobs report last Friday.  Everyone screamed and cheered because we created 236K jobs.  Unfortunately, (according to the Household Survey) the number of full-time jobs actually declined, but part-time workers rose by 102,000.  [Part-time jobs are those where the employee works less than a 40-hour workweek, and for which the employer does not have to pay health care.]  But the most surprising development was that the number of multiple jobholders rose by a record 340,000.  So if more people got ANOTHER job, how many actual people got new jobs?

Also it was reported that retail sales increased dramatically.  Unfortunately the largest component of the retail sales report was the enormous rise in gasoline sales.  Gasoline sales are measured in dollars spent, and not on units sold.  So all the report really told us was that the cost of gasoline went up in February by a lot.  Imagine – we can solve the problems in the economy, put people back to work, pay our debts and finance our Social programs, simply by harvesting the fuel that’s beneath our feet.

Secondly, as some of you know, I enjoy following the real estate market – particularly in the Sarasota, Florida area.  It’s become clear that someone is purchasing houses.  I know, I'm the guy that says – with 48 million people on food stamps, and unemployment much higher than what we’re being told – there is no housing recovery going on.  So, how are these houses being sold?  Enter round two of the fleecing of America.  On Thursday I saw this news blurb: “Blackstone has invested $3.5 billion to buy 20,000 single-family rental homes since last year, making the New York-based company the largest investor of its type in the U.S.  The firm is rushing to acquire properties as housing prices recover and as demand for rentals increases among people who can't qualify for a mortgage or don't want to own.”

That’s a lot of homes, and if Blackstone is involved, dozens of other investment firms are also scooping up mid-sized homes and instantly renting them out.  But financial institutions make lousy landlords.   Ah-hah, but they are taking the rental payments and packaging them into "rental backed securities" that they are selling as investments.  This appeared in Reuters: “Blackstone is preparing a first-of-its-kind securitization of REO-to-rental properties.  This comes a week after the private equity giant got an increased bank loan from Deutsche Bank and others to expand its significant holdings of single-family homes.  At least 20 banks and investors looked at participating in the loan, and some passed because their charters would not allow them to participate.  Blackstone is the largest asset manager in the sector, and demand for a securitization is thought to be so strong that any deal could go forward without needing credit ratings.”

Oh my, did you catch the last line – ‘without needing credit ratings.’  Didn't we see this movie 5 years ago?  Didn't we see financial institutions bundle supposedly AAA rated securities and sell them around the globe, knowing full well they were full of folks that had no sustainable means of paying their mortgages?  Now they’re going to repeat the entire cycle with rental backed securities?  But it gets worse, with packaged mortgages they at least needed ratings.  With these rental securities, there is so much demand that they won't need ratings.  So we’re going to see ‘round two’ where we sell securities based on someone's ability or willingness to pay their rent?  What if we see more job losses, or the economy, stalls, or people just stop paying?  Won't the securities become worthless like the mortgaged backed ones did?  This can’t be new – can it?

It’s not.  One of the first entrants in the REO-To-Rental space, Och Ziff (a $31 billion hedge fund) after a year is now looking to cash out.  They purchased 300 foreclosed homes in northern California (at less than $100,000 apiece).  After pouring tens of thousands of dollars into each home for renovations before renting, they are seeing returns less than expected and wish to exit the business.  I wonder what happens when that entire rental inventory comes back into the market as home sales?  What happens when they convert these rental payments into "securities" but the renters turn squatter after being laid off, or take a pay cut?  Did we learn our lesson?  I suspect we're seeing another learning experience coming here shortly.

The Market:

The last two weeks of run up has been one of the stranger things that I've seen in a long time.  Even the staunchest bears – Richard Russell of DOW Theory fame, has thrown in the towel and decided to take a chance on the market because it was going up despite all the negatives.

We were up 10 days in a row, made an all time DOW high, and are within an inch of the all time S&P high.  But in a perverse sort of way, it has done so despite everyone with a working brain cell realizing it's doing it for the wrong reason.  I've been leaning long but keeping our finger near the sell button.  I've taken profits on things as they've risen, often selling half the position and allowing the other half to ride higher.  But make no mistake, I've seen movies like this before and although the plots aren't all the same, the ending is.  This will end badly.  But until it does, I will make hay while the sun is shining.

Friday they couldn't pull off the 11th up day in a row.  But to call a 25-point DOW drop the start of something other than a pause is a bit of a stretch.  Time will tell if they'll finally use it as an excuse to do some profit taking.  The fun part of trying to guess the market's next move is when you get a situation like we have right now - do the ‘market movers’ continue the move higher, or have they sucked enough late comers to the party that they're willing to shear some of those sheep now?

I tend to think we might be in pause mode for a few days now.  On Wednesday the Feds will have their FOMC meeting, and then at 2:30 The Ben Bernanke will do his live presentation with Q&A about the economy.  Everyone will worry over whether he mentions the stronger economic numbers, and removing the punch bowl.  But The Ben Bernanke knows full well that the employment numbers were massaged.  He knows that the Government through all the FHA programs, and the REO-to own programs is subsidizing housing.  He knows that if rates really rise, things will get ugly quickly.  He might talk about tightening, but that day is a long way off.

So a likely scenario is a pause here for Monday and Tuesday and then Wednesday (right ahead of the close) we soar higher and resume the "all-time" attack on the S&P highs.  That's my 2 cents.

Tips:

Last week I sold Starbucks (SBUX) for $1.

On Friday (via Twitter) I said that I liked National Oilwell Varco (NOV) over 70, and Coach (COH) over 52 on a rebound.

My current short-term holds are recovering nicely:

-       DE – in at 89.39 (currently 92.26) – stop at 91.00,

-       NOV – in at 70.05 (currently 70.57) – stop at entry,

-       WPX – in at 16.45 (currently 16.82) – stop at entry,

-       SNDK – in at 52.19 (currently 55.14) – stop at 54.50,

-       IRM – in at 35.32 (currently 36.39) – stop at 35.80,

-       SIL – in at 24.51 (currently 18.11) – no stop yet

-       GLD (ETF for Gold) – in at 158.28, (currently 154.01) – no stop ($1,592.50 per physical ounce), AND

-       SLV (ETF for Silver) – in at 28.3 (currently 27.82) – no stop ($28.81 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:

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