This Week in Barrons - 6-16-13

This Week in Barrons – 6-16-2013

America Waking Up…

First - Happy Father’s Day.  In my view, being a ‘dad’ is the second toughest job – runner-up to being a ‘mom.’

What I’ve seen over the years, is that often one person’s ‘conspiracy’ is tomorrow’s ‘news.’  On Thursday the CNBC anchor personnel were ‘shocked’ to find out that some of the high frequency trading desks receive economic information before that same information is released to the public – for a special fee.  So the ‘big money folks’ are hyper trading on information that we ‘common folk’ are not able to see at the same time – this comes as a shock to who?

The public is also finding it a bit scary that the NSA is privy to every single thing that they have ever done electronically.  The IRS has shown that it has the ability to fight anyone that says things that go against ‘The State.’  And given the IRS budget is virtually limitless, if they target you or your organization – you (most likely) will be out of money before you ever get your day in court.

But (the other day) I did see a ray of hope.  While shopping, the cashier asked the lady standing in line in front of me: "Can I have your phone number please?"  The woman replied: "No!  I see what you’re doing now.  You guys can track my purchases by matching my phone number with these items.  Then you can share that information with everyone else to see if it all makes sense.  No thanks, I'm not doing any of that any more."  She had seen the light.  Will she stick to it?  Who knows, but at least one light bulb turned on.

Another light bulb turned on this week when the national media declared: “Yes, the stock market is all about the Fed policy, not the economy".  The media this week finally had to admit that after 6 years of stimulus and bailing out banks, it’s not the economy leading the stock market, but rather the stock market attempting to lead the economy.  I personally can't imagine how people actually believed that the economy was recovering.  No matter how hard I would try and explain what was truly taking place, every week I would get mail telling me that I was wrong.  But now, it seems a light bulb has turned on with our national media.

I’m glad the light bulb turned on, but I fear that the media has only done its mea culpa because it ran out of excuses and ways to explain the dichotomy.  The media saw overwhelming unemployment, falling corporate profits, manipulations and frauds on one hand, and on the other hand a stock market that continued to climb higher.  Last week seemed to be a ‘coming together’ on the fact that ‘the recovery’ is nothing more than Central banks around the world printing money like madmen.  What interests me however, is that people are beginning to wake up to the idea that this entire rally could be fake.

Here is where the deep confusion will set in.  Everyone is finally starting to believe that this is a rally manufactured by the Fed, and it will end at some point, and when it does – it probably won't be pretty.  However, nobody knows what to do about it.  Believe me, I understand the frustration.  Just when people started believing that maybe gold and silver were the right things to buy, the Central Banks attacked the metals, sending them down hard, and scaring people away.  It is going to take a strong leap of faith for those who are just waking up to the world’s economic disaster to believe in gold and silver.  The good news is that these attacks were NOT by accident.  Central bankers have done everything in their power to keep people away from saving, and to keep people buying everything except precious metals.

Factually:

-       The metals are down in the paper futures markets; however, the demand for the metals is still rising.

-       All around the globe people are paying fantastic premiums over the stated price for gold and silver.  For example:  if the daily quote for gold is $1,375 / ounce – a normal premium for physical gold would be between 2 and 4%.  Currently, physical gold premiums have risen to between 7 and 9.5%.  So what is the real price of gold?  In Asia, the minimum price of physical gold is $1,475 (a 7% premium over the spot price of $1,375).

-       With prices being down, demand for the physical metals is strong.  However, at this rate Gold stores will be ‘out of (reasonably priced) deliverable gold’ in the not too distant future.  What happens then?

-       Gold is still flowing from West to East – with China increasing it’s holdings.  As it continues to become difficult to deliver the physical metal – the paper prices will become irrelevant and at that point I believe a new Index of Gold will appear.  This new Gold Index will reflect the ‘real physical price’ not a Central Banker driven nightmare.

The Market:

This week we put in the classic bounce off of the 50-day moving averages.  We were down three days in a row, touched the 50-day moving averages, the trading bots kicked in, and boom up we went.  Unfortunately Friday could not hold the gains, and here we sit at 15,070 on the DOW and 1,627 on the S&P.

I’m nervous about the DOW closing below 15,130.  If we would have cleared and held 15,250 – we could have talked about a classic ‘W’ shaped rebound.  A classic ‘W’ is where a stock or index comes down, then bounces, then comes down again and finally bounces back up.  When the right side of the ‘W’ surpasses the high of the middle of the ‘W’ (in this case 15,250) – it is often a strong buy signal.  Unfortunately we were down triple digits on Friday, and therefore, need to defend the 50-day moving averages – again on Monday.

I need ‘trends’ in order to play – and right now – until we break under the 50-day moving average (around 14,950) or over 15,250 – we’re in no man’s land.  I’m sitting tight.  You can try day-trading the market, taking some SPY or DIA's, but I would keep incredibly tight stops on any trades – as this market could easily move in any direction.

If we fail the 50-day moving average and plunge under 14,950, then all bets are off and we'll probably be looking at a quick pull-down – taking the S&P down to the 1,600 level which is the intermediate trend line of support.

So, I'll be a buyer of the DIA's and the SPY if the DOW moves over 15,250, and/or the S&P moves over 1,650. 

Tips:

This week we sold out of ABX flat – otherwise we did very little except tread water.

My current short-term holds are:

-       MUX at 2.68 (currently 2.10) – stop at 1.60

-       SIL – in at 24.51 (currently 13.60) – no stop yet

-       GLD (ETF for Gold) – in at 158.28, (currently 134.55) – no stop ($1,387.30 per physical ounce), AND

-       SLV (ETF for Silver) – in at 28.3 (currently 21.30) – no stop ($21.95 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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