This week in Barrons - 3-27-11

This Week in Barons – 3–27-11:

Didn’t Housing get us into this Mess?
Today’s the day my older son ends his spring break and goes back to attending Northwestern University – a day that always brings new meaning to the phrase: “Do you love them enough to say goodbye?”

In terms of the business at hand, today's 10 Year Treasury Bonds are trading at 3.33. In spite of inflation – that’s very good news for the bond and housing markets for the near term. Silver hit 30-year highs, Gold hit all time highs (in the $1,400’s), Oil is north of $105; therefore, one has to believe the market is getting ready to see bonds respond to the pressure and move north of 4.00. The sticking point here is housing! Housing accounts for approximately 7% of GDS – and is currently at near record lows for “New Home Starts.” New data just out from the Commerce Department indicate national home sales declined the third month in a row (Feb), the slowest pace on record, with sales down 16.9% to a 250,000 annual pace (from a reading of 1,400 in July of ‘05 to a reading just above 200 last month!) The new median price of a new home also fell 13.9%, (over the previous month) moving the market back to 2003 levels. And to add insult to injury – existing home sales fell 9.6% over the previous month. As Steve Forbes writes: “Depreciating home values and a declining pace of home-buying continue as critical factors to economic recovery. Couple that with global markets continuing to drive pricing in many sectors such as commodities and energy – and this not a ‘recovery friendly’ environment.” One point of note out of California in January is that 31% of closings were "cash.” It’s doubtful that the average ‘first time home buyer’ has the ability to purchase a home with cash. Therefore, one could conclude that the housing market in California is not currently supported by homeowners, but rather by investors flocking to the market. Until U6 under-employment numbers are halved to roughly 9%, US housing is going to remain “soft.”

Now think in terms of in 30 years we’ve gone from being #1 in the world to:
- An Underemployment (U6) reading of over 17%
- Over 50% of all US citizens survive on some form of Government subsidy
- Due to inflation (roaring @ 8 - 9%), wages have been stagnant for 14 yrs
- No energy policy (although we use more than anyone else on the planet)
- A million plus homes are in foreclosure
- We are engaged in 3 wars, none of which are winnable
- The FED has kept rates at 0% for years, and is the sole buyer of 50% of our treasuries
- Banks are insolvent, able to survive because they run two sets of books

Now my question is and the CFO of Best Buy asked the same question: “What happens when consumers buckle under the increasing pressures from unemployment and higher gas prices?”

The elephant in the room is ‘global currency’ devaluation. With so many central bankers printing money like it's going out of style, the whole system is simply too rotten to save. Everybody is going to have to get together and collectively agree to simultaneous devaluation. If you think not – let me remind you that George Soros – on April 8 of this year, is holding a major economic conference with the goals being to establish new international currency rules, and to reform the currency system. The event is bringing together more than 200 academic, business and government policy thought leaders to repeat the famed 1944 Bretton Woods gathering that helped create the World Bank and International Monetary Fund. Mr. Soros believes that central bankers printing money is causing the world to starve its population to death – and there’s certainly some truth to that rumor!

Two weeks ago I suggested that we should be hearing from the FED heads about ending QE2. As of Friday - 3 separate FED Heads have come out to tell us that QE2 is no longer necessary. So will quantitative easing end – of course not – it will just not be called Quantitative Easing. The FED will print until the crash – they have no choice. The point being that if enough FED heads continue to talk about stopping QE2 – some may sell their silver and gold – and that may cause a pull back and a buying opportunity in those two metals.

The Market:
Remember when people were biting their nails watching the market dive below DOW 12K and falling fast. But then (like a "miracle") it reversed and soared right back up, ending in the 12,200 area where the dip started. That’s just your usual fleecing! In case you missed it – the FED makes a regular policy of walking the market up in overnight futures trading and also in the late afternoon buying binges. ALL of the up moves come on very thin volume, but the selling comes with massive volume. I.E. Wall Street allows the FED money to walk the market higher, and then when it's rug pull time they liquidate massive amounts of stock. Then it gets walked higher again – rinse and repeat! But now the plot thickens. With the DOW smack in the middle of the "range" between 12K and the Feb highs at 12,400 - What happens now? One theory has us inching higher to the 12,400 level, and finally pushing up and through during earnings reporting season, and then it exhausting itself in a multi month long slide that drops us 10% or more. The other theory is that we inch higher and higher, but fail to break out and we experience a multi month long slide. Either way, as May - June gets nearer we feel the market will have topped and be in decline.

Mark P wrote me something that I found interesting about the element Iodine – boosted in popularity because of what’s going on radiation-wise in Japan right now. The company is called SQM. “SQM is the worlds leading producer of elemental Iodine. Chile is the largest exporter of iodine with almost 70% of the world’s capacity, followed by Japan with less than 30%. Annual world production for iodine is around 29,500 metric tons and Japan produces around 6,800 annually. Currently, due to the power outages in Japan their capacity for iodine is at 60%, and their appetite for iodine chemicals is extremely high. Iodine is used in plasma TVs and as intermediates in many chemicals. Furthermore the demand for use in pharmaceuticals is at all time high with the demand for potassium iodide pills. All of the 2011 iodine capacity has been pre-sold, with normal contract pricing running around $32-35 per kilogram. Currently the European spot price is approximately $50/kg and they expect that price to hit the U.S. very soon. SQM was (at one time) owned by the government of Chile; however, was divested by the government several years ago. Now – granted iodine is not gold or silver – but it is an essential element that is only provided by a small amount of companies.” I actually purchased some this week – so thanks Mark for that tip.

Tips:
Our long holds looking like: SLV, NG, AAU, DNN, AVL, and USSIF. Even with the commodity raid – we held through it – in fact we doubled our holdings in DNN down at the $2.20 level – so that 15% bounce upward was certainly beneficial to us – and I believe that there’s more to run there.

In our short-term holds we have:
N, SLW, FRG, QSURD, NGD, PAL, AUGT, EXK, SVM, and AGRO. Last week we did add SQM per Mark P’s suggestion.

As an example of our day trades over the past week - we currently own:
- SD at 12 – stop @ entry, and (if the market is flat to up – watch this one – could be a quick 20% gain)
- NBR at 28 – stop @ entry as well.

The shale drillers last week - Approach Resources (AREX), GeoResources (GEOI), and Gulfport Energy (GPOR) – have started to move north – but we have not purchased as of yet.

If you’d like to view my actual stock trades – and see more of my thoughts – please feel free to sign up as a twitter follower – “taylorpamm” is my nickname on Twitter – fyi.

If you’d like to see me in action – teaching people about investing – please feel free to view the TED talk that I gave 4 months or so ago now:

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This week in Barrons - 3-20-11

This Week in Barons – 3–20-11:

Should WE be a Buyer of this Market?
Do you remember the market topping on February 18th, and then entering a period of incredible chop with mood swings of over 150 points? This type of action is NOT normal and signals a change in the wind. At virtually any other time the easiest call in ‘investing’ would have been to say: “okay, go short and hold on". Unfortunately we have The Ben Bernanke who likes the "wealth effect" that rising stock prices have on people's attitudes – so at any moment, he may very well do another "injection" of stimulus, and "drive" the markets higher. It’s with this fear that most of my trades in the past 3 weeks have been strictly day-trades. I personally don’t enjoy ‘day trading’ all that much – and therefore I don’t publish my day trades on twitter, but I potentially will start if this market chop continues.

Many people suggest that this down turn was a result of the earthquake, and tsunami in Japan. I think that we were overbought, over extended, had gone months without so much as a hiccup, and had already dropped from 12,380 to 12,000 before the Japan issues started. So, it’s my belief that our market is moving in concert with ‘monetary policy’ more than anything else. In the last two days, we've bounced from 11,589 to 11,860 and let’s examine the news to potentially find a reason for the bounce.
- Even though The Ben Bernanke says inflation does NOT exist - a special index created by the Labor Department to measure the actual cost of living for Americans hit a record high in February! Ouch – now how can the cost of living increase to a record high if there is no inflation? So we know that the market didn’t go up due to a drop in the cost of living – how about the U.S. debt situation?
- A new assessment of President Obama's budget released Friday says the White House underestimates future budget deficits by more than $2 Trillion over the upcoming decade. I remember when our entire debt situation wasn’t $2 Trillion! So we know that the market didn’t go up on our debt situation – maybe good news coming from Japan?
- At 2:52 PM on Friday, breaking down in tears, the managing director of TEPCO concedes the radiation being emitted from the damaged reactors is enough to kill people. The NISA, which earlier raised its severity rating on the disaster, acknowledges the water-spraying operation is "fighting a fire we cannot see.” So we know the Japanese news didn’t send the market higher – so maybe the Middle East has calmed down?
- At 12:24 PM on Friday Syrian security forces kill at least one and wound dozens as they fire on demonstrators. And, "There is no longer any possibility of mutual understanding with this regime and he has no choice but to surrender authority to the people," says the head of Yemen's opposition after a massacre in which 42 were shot dead and hundreds wounded by security forces. So it doesn't look like there is an outbreak of peace across the Middle East – so maybe there was good news on the jobs front?
- Friday the Labor Department said that the unemployment rate rose in 351 metro areas, fell in only 16, and was unchanged in 5. That's worse than December, when the rate fell in 207 areas and increased in 122. So with unemployment rising – Japan melting – the Middle East at war – inflation increasing and the debt increasing – why did the market go on a two day romp higher?

The market bounced because Wall Street and more importantly The Ben Bernanke said it was time to bounce. So are we going to continue up? My guess is we have some more upside to come, but we won't be breaking out to new highs. I think they're going to try to claw back to the 50-day moving average that resides just above the DOW 12K line. In this new era, with Central bankers all around the world flooding the markets with dollars, yen, Euro's, etc. – all fundamentals have vanished. Now it's all about capital flows, which direction they're heading, and we need to understand that there's a very good possibility that the big banks are playing big games behind the scenes via their dark pool platforms. I personally believe that QE-3 thru QE-8 are right around the corner – they just may not be official! The end will either come by Central Banks tightening – which I view as unlikely – or hyper-inflation followed by a massive deflationary roll over. So our guess is that we bump up for a while longer, and then the air comes out again. As we come into the late spring, we should be looking at a much lower market as they anticipate the official end of QE-2.

The Market:
Once again I am hearing people calling a top in gold and silver. Please, the entire world is inflating "fake" dollars to try to plug all the holes. The real issue is that our Governments are bankrupt. We are facing sovereign debt issues that cannot be solved. The interest expense on the debt already borrowed is consuming the ability for productive spending. We have to borrow even more today, in order to re-pay the debts we created yesterday. Thus, global defaults will indeed be coming to a nation near you, and in the not so distant future.

It's not easy suggesting that the Lehman debacle and the economic meltdown were just ‘warm-ups’ for the big show that's coming. But, our economic and financial pains are not over, there is much more to come. Now, you can trust The Ben Bernake and continue to want his dollars; however, I (on the other hand) don’t want his dollars but will gladly exchange them for other currency of gold and silver – especially silver.

I continue to use the stock market to amass dollars, and then use those dollars to buy gold and silver. Maybe my lucky streak is going to run out and I'll look the fool, but every single fiat currency in the history of all time has always ‘gone away’ while gold and silver, simply march on.

Be careful out there. The day-to-day ups and downs will indeed be influenced by major headlines, but, the real danger lurks in the back ground, as each day brings us more and more bogus bucks. One day the banks will make more billions yanking the rug, so do NOT get caught in the rug.

Tips:
Our long holds looking like: SLV, NG, AAU, DNN, AVL, and USSIF. Even with the one day gold and silver raid last week – we held through it.

In our short-term holds we have:
N, SLW, FRG, QSURD, NGD, PAL, AUGT, EXK, SVM, and AGRO.

As an example of our day trades over the past week (which we will attempt to put out on twitter starting next week) - we currently own:
- CAT at 102.30 – closing Friday at 105.06,
- HK at 22.13 – closing at 22.49,
- ANR at 54.04 – closing at 55.28,
- GLNG at 20.52 – now at 22.96,
- BTU at 67.34 – now at 70.21, and
- FCX at 50.45 – now at 51.78.

We mentioned some shale drillers last week - Approach Resources (AREX), GeoResources (GEOI), and Gulfport Energy (GPOR) – however, did not purchase as of yet – but continue to have our eye on these!

If you’d like to view my actual stock trades – and see more of my thoughts – please feel free to sign up as a twitter follower – “taylorpamm” is my nickname on Twitter – fyi.

If you’d like to see me in action – teaching people about investing – please feel free to view the TED talk that I gave 4 months or so ago now:

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This Week in Barrons - 3-13-11

This Week in Barons – 3–13-11:

Japan, and Bill Gross, and QE-3 – Oh My!
The height of the Mayan empire was about 400 AD. They predicted a lot of mind-boggling events – but their calendar (created by Pacal Votan) ends on Dec 21, 2012. On that exact date at 11:11 am, the earth will have finished a 26,000-year journey around the galaxy and end up in the "dead center" of it. Pacal Votan did not say that this date would bring the end of the world; he said it would bring an end to an "age." An age where people have gotten so into material things, and so far away from the natural instincts they once had, that all sorts of distortions were going to happen as we approach that time. Seeing those Japanese tidal surges pick up houses, roads, trains, and just carry them along like Tonka toys certainly looked like something out of those ‘end of an age’ movies. Unfortunately the events in Japan are all too real, and my heart goes out to everyone affected. Japan's going to need steel, copper, oil, natural gas, lumber, and the list continues. Granted they don't have the money to purchase it, but like all fiat currencies and Governments, they will print it and make it happen.

I look at the US, where Democrats, Unions, and Republicans are almost coming to blows over necessary "change." I look at the U.S debt structure that we have created, and for the first time it is mathematically impossible to "fix." And then there was the news this week that Pimco’s Bill Gross, arguably one of the most elite investors and connectors in the world, has liquidated all his Treasuries and is in cash. Why would he do that? The first thing that comes to mind is that he feels there will be no Quantitative Easing (QE-3) and therefore rates will soar higher, causing bonds to fall. But I think there are many ways this could play out. One scenario is triggered because The President isn’t doing so well in the polls, with deficits, with inflation, etc. The Republicans are moving up in the polls by talking about spending cuts, and deficit reduction. What if this is just a political maneuver? What if Bill Gross knows that when QE-2 ends in June, The Ben Bernanke is not going to institute QE-3 right away? What if Obama has said: "The Republicans are blaming all of this on us. They don’t want any more stimulus. Let's give it to them and see what happens?" Now we all know – without QE-3 the economy stops, and at that point Treasuries won't be worth much. I’ll bet that’s the point where Bill Gross starts buying them again. Why - because soon Obama will come back and say: "See, the Republicans said I was doing everything wrong, so we took their approach and the economy is now rolling backwards into a recession. Now, do you see why you need me in the White house?" Immediately yields would crash, bonds would soar and Bill Gross will be a genius.

Let’s dig a little deeper and put some details around their implementation of this. The Ben Bernanke has just 3 more meetings of the FED before the official end of QE-2. Now China, Russia and others have been screaming that they are not happy about what we're doing to the value of the dollar – and if The Ben Bernanke comes out and suggests he's going to keep the QE program in place, they are going to step up their retaliations. It's my guess that Ben will start leaking to us that QE-2 will indeed end – but he’ll change his voice to: "We have various ways to continue a stimulating environment." Remember – Ben didn’t invent Quantitative Easing – he simply took it to a whole new level. When Greenspan took rates so low back in ’02, ’03, and ’04 – that was a form of Quantitative Easing. But now the plot thickens. Remember when I posted the news that the FED was going to change the way they account for their holdings? Up until Dec 24th, if the FED was holding toxic assets it could have gone bankrupt, but, by allowing toxic assets to be offset with "income" from good holdings, they can keep the books steady in "perpetuity." You see, the Fed now has so many mortgage backed securities and notes – that as they mature, and as "some" amount of people continue to pay their mortgages – the Fed is taking in massive amounts of money on a monthly basis. In other words, the Fed can announce that they are not going to expand their balance sheets any further and end QE-2 (sounding marvelous to other countries), but because they’ve changed the accounting rules – sit on the toxic assets, taking in what payments they get, and use those payments to continue to buy 2 and 10-year notes. How much are those payments – you ask? Approximately $600B – which is just about the level of QE-2!

The Market:
Now that puts a question out there, how will the market react when they announce the end of QE-2? Well – again, the devil’s in the details. The next FED meeting is the 15th. I'm pretty sure they will nod to each other that QE-2 must end in June. That "should" be the pill that pulls the market down, and commodities, materials, and stocks should come down on those announcements. But big time bankers know what The Ben Bernanke is going to do – which is to use the interest/payment income to do QE-3 just without announcing it. So, it’s my prediction that the big time bankers would be loading up on market shorts via the dark pool programs, and then do a major market rug pull. The ‘rug pull’ would be easy to justify, and they would tell everyone that due to the end of QE-2, and no subsequent plans for QE-3, we have to be much more cautious. All of the people bidding up commodities and materials may flee too – thinking that inflation will be subdued because of the end of QE-2 (this includes gold and silver.) And being a good banker – once everything pulled down substantially, I'd be actively buying the very commodities, materials and stocks (and gold and silver) that I just sold. Why? Because it would be easy to come out and say "Hey, The Ben Bernanke is still doing just as much as he did during QE-2, but he just didn’t announce it!" Instantly the market would soar and everything that had pulled back would soar along with it. We will know if this is the plan, if we hear everyone talking about the end of QE-2 ‘being official’ with no concrete plans to do QE-3. If my guess is correct - this could be more like a 20% correction, and then sometime in the fall, after buying up everything that fell – The Ben Bernanke comes out with a statement about how they're actually doing QE-3 Lite and we get our final hurrah run up into year end.


The market’s actions lately coincide very well with my theory. After setting that high back on February 18th, the market has done a lot of nothing but chop sideways and down, literally making lower lows and lower highs. We've seen gigantic mood swings as they've dropped us 228 points, rallied us 150 points, etc. – but those types of incredible moves are normally indicative of the market being close to making a big move, or a direction change. Yes – on Friday – the Government’s PPT (Plunge Patrol Team) stepped in to save the day and get us back up over 12K and the 50 day moving average, but where did we end – 12,044. Until we break under DOW 12,000 or over DOW 12,400 we’re still in a “danger zone.” I think we're going to get that correction we've been missing and I think it's getting awfully close. Or they don’t announce anything and continue to push us sideways.

Tips:
Our long holds looking like: SLV, NG, AAU, DNN, AVL, and USSIF. Even with the one day gold and silver raid last week – we held through it.

In our short-term holds we have:
N, SLW, FRG, QSURD, NGD, PAL, AUGT, EXK, SVM, and AGRO.

We haven’t done much other than small day trades over the past several weeks – mostly due to market chop. We mentioned some shale drillers last week - Approach Resources (AREX), GeoResources (GEOI), and Gulfport Energy (GPOR) – however, did not purchase as of yet – and all are between 10 and 15% cheaper now than a week ago!

If you’d like to view my actual stock trades – and see more of my thoughts – please feel free to sign up as a twitter follower – “taylorpamm” is my nickname on Twitter – fyi.

If you’d like to see me in action – teaching people about investing – please feel free to view the TED talk that I gave 4 months or so ago now:

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This week in Barrons - 3.6.2011

This Week in Barons – 3–6-11:

Watching ‘The Ben Bernanke’ Squirm:

I don't know if you've noticed, but Ben Bernanke has been getting more and more smug recently. But the attacks on the Federal Reserve have been coming faster and more furiously. On Tuesday, Ben was getting his dose of "Humphrey Hawkins" questioning from Congress, and you could tell the questions were a bit more "hardball" than usual. There was one period where he was getting questioned about Federal Reserve "legality." The Charter clearly says the Federal Reserve can NOT buy Treasuries straight from the Government. So, out of the clear blue, Congressman Schumer says: “Mr. Bernanke, you're prohibited by law from buying government debt, so it is our understanding that you have others buy government debt and then you buy it from them - yes?"
Bernanke: "Yes"

Now this is called a Ponzi scheme and just because you can print money – doesn’t make it any less criminal. The Fed has two mandates: (a) to keep full employment, and (b) to keep inflation contained. Well they have failed miserably on both items. Discounting the 42% weighting that the CPI gives our housing index – consumer inflation is running between 6 and 7%. To add insult to injury, The Goldman Sachs are the ones helping Ben out in terms of buying government debt – and ‘coincidentally’ The Goldman Sachs went an entire quarter without a losing trading day. In the last two years Goldman lost money a total of 25 days. The odds of that happening without insider trading, and illegal knowledge are 0 - completely impossible. One thing I do know is, and I stand firm – as they are arranging the chairs on this Titanic - gold and silver will continue higher.

As we speak, we are still beholden to foreign oil. Out of curiosity – did you know that the US went off the gold standard the same year the EPA was created? Richard Nixon removed us from the gold standard in 1971, the same year that deals were made that all oil, and ultimately most trade would be conducted in dollars. But there were objections raised concerning America having oil that it could produce – and luckily for President Nixon – the EPA was there to regulate its production (or non-production).

But things – they are a changin’. The dollar is very quickly becoming un-installed as the world’s sole reserve currency. Just this week China said again: “China hopes to allow all exporters and importers to settle their cross-border trades in the yuan by this year, the central bank said on Wednesday, as part of plans to grow the currency's international role. The central bank said it would respond to overseas demand for the yuan to be used as a reserve currency. It added it would also allow the yuan to flow back into China more easily."

James Taylor wrote me about the three pillars of the dollar’s fall from grace. First, changes in technology are undermining the dollar's monopoly. Nearly everyone carries a hand-held device that can be used to compare prices in different currencies in real time – so there is room in the global economic and financial system for more than one international currency. Second, the dollar is about to have real rivals in the international sphere for the first time in 50 years. There will soon be two viable alternatives, in the form of the euro and China's yuan. Finally, there is the danger that the dollar's safe-haven status will be lost. Foreign investors (private and official) hold dollars not simply because they are liquid but because they are secure. The U.S. government has a history of honoring its obligations, and it has always had the fiscal capacity to do so. But now, mainly as a result of the financial crisis, federal debt is approaching 75% of U.S. gross domestic product. Trillion-dollar deficits stretch as far as the eye can see. And as the burden of debt service grows heavier, questions will be asked about whether the U.S. intends to maintain the value of its debts or whether it resorts to inflating them away. Foreign investors will be reluctant to put all their eggs in the dollar basket. At a minimum, the dollar will have to share its safe-haven status with other currencies.

Now, when the dollar drops from Global reserve status, no one will want dollars and certainly no one will want treasuries. We will then be forced into developing our own energy sources again – and enter shale gas deposits. With shale gas technology we can run every power plant at a cost basis that is less than half of oil or a third of coal. Once the dollar is removed – the deals to purchase foreign oil are relaxed – and internal, domestic production comes to life. If this peaks your interest – look at the charts of Approach Resources (AREX), GeoResources (GEOI), or Gulfport Energy (GPOR) – great looking charts – better looking futures!

The Market:
So what happened this week – well – we got the non-farm payroll report on Friday – which said we created 192K jobs and the unemployment rate fell to 8.9%. On the surface that was right – and after 3 years of stimulus spending, bail outs, mortgage rewrites, quantitative easing part 1 and 2, and literally hundreds of spending programs designed to get the US out of the recession/depression we entered when the housing market blew up and the banking sector failed – gaining 192k jobs is a far cry from wonderful – but it’s at least moving in the right direction – yes?
- Well - of the 192,000 jobs – 112,000 of them were ‘fake’ jobs statistically created by the government’s very own ‘birth/death’ model – those jobs don’t really exist – so we’re down to 80,000 new jobs (that’s not good).
- And the falling unemployment rate to 8.9% was due to the job participation pool falling to it’s lowest level in 26 years. In other words, many more people simply stopped looking for work, and when you do that, you fall off the report (that’s not good).
- Wages of the workers were flat to down (that’s not good).
- The Challenger report on Wednesday said that more layoff announcements hit in February of 2011 than in February of 2010 (that’s not good).

I think we’re still in a ‘danger zone’. After setting hitting a high of 12,398 back on February 18th, we've pulled back to 11,998, and bounced up and down between 12K and Thursday's high of 12,283. In “normal terms" when the market gets choppy, some form of big move is brewing. I think we're putting in some form of short-term top and we have some lower numbers coming, but that’s a tough call considering that Bernanke has made it clear he wants the market higher. Overall, Ben is going to have to really push to keep this market up. I think we should roll over and at minimum test the 12K level again. If we lose that, the next stop is the 50-day moving average at 11,944. However, lately my track record of picking highs and lows has been questionable at best, but to my defense - we’ve never been in a situation before where it's common knowledge that the FED is behind this run, so things are decidedly "different" right now. For me to consider that they're going to ramp us upward, we'd need to see a close or two over that spike high of 12,283 on Thursday. If they do that, then they'll probably get us back to challenging the Feb 18 high, but if they fail, we should then be seeing lower numbers.

Tips:
Our long holds looking like: SLV at +34%, NG at +87%, AAU at +26%, DNN at +42%, AVL at +85%, and USSIF at +16%.

In our short-term holds we have:
N up 13%, SLW up 30%, FRG up 25%, QSURD down 2%, NGD up 15%, PAL up 6%, AUGT up 14%, EXK up 26%, SVM up 10%, and AGRO off 3%

We bought more SLW last week – potentially will load up more on Silver side (especially if there’s a pull-back this week at all) – and look at the shale gas drillers that I mentioned – good lookin’ charts.

If you’d like to view my actual stock trades – and see more of my thoughts – please feel free to sign up as a twitter follower – “taylorpamm” is my nickname on Twitter – fyi.

If you’d like to see me in action – teaching people about investing – please feel free to view the TED talk that I gave 4 months or so ago now:

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This week in Barrons - 2-27-11

This Week in Barons – 2–27-11:

What Happens in the Middle East – Stays in Vegas!
I've had many people ask me about my thoughts on the Middle East, and unlike many of you I am not an expert concerning the inner workings of the Middle Eastern nations. As these regimes are toppled, will people band together to create some form of democracy, or will roving bands of armed thugs cut their countries into their own little fiefdoms? I don't know. But what I do know is that what happens there, affects each and every one of us here via the price of energy – which makes the price we pay weekly to "fill up" dependent upon tribes of rioting dissidents in far away places. Honestly – they won't let you and I on an airplane with nail clippers yet we leave our most vital energy needs in the hands of lunatic fringes on foreign soil. Between our coal, nuclear and shore-side drilling we could be completely energy independent. But for some reason we can’t do something that basic - while we wait for truly acceptable alternative energy. Remember what happened 4 years ago with $4 gasoline - people stop going on business trips and vacations and leave their boats and RV's parked, etc. I don't know the outcome of the unrest in the Middle East – but world history isn't very ripe with overthrows that worked out better than what they had.

The U.S. was built on cheap energy. In Europe if you leave "town" you’re immediately in rolling farmland. In the U.S. when you leave “town” you're in endless fields of subdivisions that stretch on forever. You remove the word ‘cheap’ from the equation and now it's a massive burden just getting to work. So the problems in the Middle East are our problems as well.

However, we may see oil hit $50 a barrel before we see $150 per barrel. (a) The reason the Middle East is in revolt is that their people are sick of being ruled like slaves with little food and education. So these nations are going to need to introduce more social programs – and since the previous ruling parties have taken all the money – they’re going to slash prices to sell oil because $50 oil sells faster than $150 oil! (b) There is ‘slack oil demand’ all around the globe that will decline as the recession worsens in the US, Europe and Japan – so prices need to come down. (c ) And then there’s ‘bio oil’ – Algae biofuel start up companies that are producing a lot of oil in very little space – that can be refined easily for cars and trucks.

Closer to home:
- Housing prices continue to fall, while interest rates are inching higher, which will to continue to drive prices down even further. CNBC announced this week that the median home sale last month was the lowest level since 2002 - with 39% of ALL transactions being foreclosures and short sales. Until all the shadow inventory is gone - prices will continue to fall.
- We’re seeing states go ‘broke’ – and unlike Uncle Sam, they cannot print money out of thin air – so how all the riots will work out remains to be seen, but you can color me skeptical that the outcome is going to be smooth.
- Hyperinflation – are we seeing it? Food prices across the globe have gone up at the "fastest pace ever" according the U.N. Oil is up $20 a barrel. Cotton and wheat are "limit up" day after day. Underlying inflation is roughly running at (at least) 8%.
- So is deflation right around the corner? One of the issues with a monetary expansion move higher on the commodity chain, is that at some point, the facts collide. Honestly at some point people will stop buying because they can’t afford it – and then everyone will reduce prices in order to sell – and then people will hold off on buying knowing that it will be ‘cheaper’ tomorrow. That is the balancing act!

I was giving a talk this weekend and someone asked me whether I thought ‘gold was a bubble?’ Gold and silver are not going up because people are buying jewelry – they’re going up because all fiat currencies are falling apart due to too much debt created from too much fiat currency and credit. The debt is un-payable in the United States, Europe, and in Japan. Here’s the deal – if you’re a fund manager, How do you feel knowing you have your folks in stocks that crashed in 08 - 09, while silly little gold roars to new highs? How do you feel if you told people to sell gold at $500 because it has no "interest payments" and is just speculation, not an investment? Now all of a sudden you 'know/think" that it's time to sell it (again)? Have you ever been right calling a Gold top? Gold isn't going up on speculation, gold is going up because it's MONEY, and the only MONEY that has ever held its value. Well – this week - silver hit another high. In my world, Bernanke doesn't stop printing, Europe doesn't stop printing, and gold and silver continue doing what they've done for ages – becoming money again.

But won’t deflation hit gold and silver as well? Yes and No. Gold is looked upon as money, and Silver as ‘almost money’ with some industrial demand. What ‘should’ happen is that gold and silver will continue higher as the printing presses run full blast and the debts mount, and more countries admit bankruptcy. When the currency buyers switch over to chasing gold and silver – that will be the final "hurrah" for the two metals. And when that hits, you can be sure that in a very short period of time, a "new" currency will be ushered in. But let’s be honest, right now if the U.S. decided it was going to back the dollar with a fractional gold backing, gold would have to be $7,000 an ounce for their holdings to equal the amount of dollars out there.

The Market:
Two weeks ago I called for a pullback. That was suicide, and I was wrong. But I was only wrong by a week. This week, we opened Tuesday and fell 400 points – touching briefly below 12,000 on the DOW. Now, what happens next? I think we ride Monday slightly higher and then begin to pull down again. The bigger question is: How deep is the pull-down? Well, once it's firmly broadcast that we're looking at a 10% pull-down, they won't let us fall that far. Maybe we fall 5 or 6% and they'll rush this back up. That way, the people waiting on the 10% down, will have to buy much higher, and when they "really" yank the rug it will crush more people, at higher prices.

This week GDP came in at 2.8% - lower than the expected 3.2%. Oil also pulled down from it’s high - below $100 per barrel. I think that if nothing blows up over the weekend we will see a big green day Monday, as they try to claw back what we lost this week, but I still think we have some dip work to do later in the week. I don't think it's straight up from here. Potentially they may stay in technology on Monday – thinking that oil doesn't impact the techs like it does the industrials, so if you're looking for a quick play, I'd stay in tech. But continue to watch the volume bars as during the selling, the S&P volume has been huge.

Many are asking me whether this is the time to go short. I personally do not think that this is the "big one" and we can get short. But don’t get me wrong, if you want to day trade some shorts, by all means go for it. But what I'm waiting for is the repeat of 2008, and this pull back is not that one. Just don’t overstay your welcome on the short-side, as when they pour back in – it will be wicked and fast.

Tips:
Our long holds looking like: SLV at 25.81 (+26%), NG at 6.825 (+82%), AAU at 3.02 (+24%), DNN at 2.71 (+43%), AVL at 4.00 (+85%), and USSIF at 0.61 (+2%).

In our short-term holds we have:
N up 17%, SLW up 18%, FRG up 23%, QSURD down 7%, NGD up 3%, PAL flat AUGT off 2%, EXK off 3%, SVM off 4%, and AGRO off 11%

Last week out, silver was $29 dollars, and it just closed at $32. We bought more of our favorite silver stock – SLW last week @ 35.00 and it ended the week @ 40. I still like Silver this week and with the pullback that I see coming we may get more of it.

Mark P. wrote me and pointed out that last year the exports for chemicals and plastics were up 17% and projected to be strong again this year for exporting chemicals because of the low cost of natural gas in the US. Mark recommends Conoco Phillips, Dow, Air Products or Huntsman as a few companies for possible investments and I tend to agree with him – thanks Mark.

If you’d like to view my actual stock trades – and see more of my thoughts – please feel free to sign up as a twitter follower – “taylorpamm” is my nickname on Twitter – fyi.

If you’d like to see me in action – teaching people about investing – please feel free to view the TED talk that I gave 4 months or so ago now:

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This week in Barrons - 2-20-11

This Week in Barons – 2–20-11:

The Ben Bernank’ says: “No Inflation”
The ONLY constant I've ever seen in my life is that every year, things cost more. If the prices of "things" that we need continue to go up, what makes more sense: (a) trying to make more dollars to keep up, or (b) investing in the very things that will indeed be going up? People will get uglier as the economy remains on life support, and as our debts and deficits continue to rise. One of the oldest and best ways to "get rich" has been buying real estate. Right now that seems toxic because the housing bubble pushed prices to insanity, and on average, they're still over priced. But a very bright person once said that the easiest way to get rich was to buy real estate and let someone else pay for it. In the olden days, you would put $25,000 down, rent the house out for 15 years, and you were guaranteed a nice return when you decided to sell it. But right now real estate appreciation may be a long way down the road. Housing prices, the foundation of so much of private citizen debt loads, are destined for stagnation (not inflation) as the supply of homes is far greater than the demand (11% of the nation's homes stand empty today). However, what has been rising is rent – and as more and more people cannot afford to purchase a house – they will be forced to rent.

The point of all this of course is that although I think gold and silver are the single best inflation hedges, they are not the ONLY places to be. The right property will always carry a nice value, but it’s the entry price that is the important variable right now. The right price is NOT a property that was 100K in 2000, ran to 500K in 2006 and is now trying to get 265K. Real estate has traditionally gained between 2 and 5% per year. A quick way to know a bargain is to go back to 1997, ’98, and ‘99 and check comparable sales in the area. Once you get that price, add 2 to 5% per year until you get to 2011, and that will be a realistic price for the property today. If you can find the right property – at the right price – it will maintain it's value better than U.S. dollars.

This week we saw the market once again ignore:
- Riots, as 3 more countries are facing governmental overthrows,
- Insanity ruling Wisconsin as the Democratic leaders left the state so they wouldn't have to vote on the Union proposals,
- Inflation figures soaring, and
- Initial jobless claims bouncing higher.

Last week I warned that everything was setting up for the first significant pull back in months. Well, the pullback never came, and now we’re in the land of the unreal. Right now - it's so blatantly "in your face" that floor traders on the exchanges will tell you that this market is all about the FED pushing it, and how you have to be long because the FED is pushing money at the market until summer.

Now, my issue with that is: it’s pretty rare that the market makes it that easy. So since everyone knows that is the plan, what happens in summer? But as this market goes higher - people are capitulating. John Q. Public is coming back into the market as after 38 months of mutual fund outflows - those same funds are now experiencing major inflows. I do think the one thing that everyone is beginning to believe is that The Ben Bernanke can't stop printing this summer, because if he does the economy crashes.

The Market:
Jim Taylor wrote me a comment this week that I’ll share with you: “My opinion is, given the trillions we are spending propping up the banking system, the cost of the Fed using Futures and Options to quietly prop up the equity markets is probably small. The key to doing that is to create the perception to the consumer that the Economy is OK – and believe in a high correlation between equity market valuation and consumer confidence. Right now I find it hard to justify owning any large diversified equity basket, as the combined valuations may be untenable. Individual equities need to be closely analyzed using the DDM (Dividend Discount Model of the 60’s and 70’s). In a nutshell – No Dividends – No Earnings – No Dice.”

This week silver went ballistic. You could come up with 15 different reasons why, and some will say it's big pops like that, that spell the end of a run – while others will say it's because of the technicals. All I do know is that inflation is now so bad that it’s in every economic report. This week the Empire and the Philadelphia manufacturing reports were released. We found out: hiring was down, sales were down, orders were down – but prices jumped like mad. The CPI and the PPI are now so bloated with inflation, they can't seem to fudge it any more. So, what happens to gold when inflation rises? It goes up.

With all the elements going on in Egypt, Ireland (their credit rating was cut yet again), the PIIG nations rebelling against austerity, the storms in Australia causing coal/mining shortages, the harshness of the US winter, the undersupply of food, the inflation we see, coupled with Bernanke's insane plan to devalue the U.S. dollar – I think silver’s time has arrived – and I resumed buying it last week. Over the past 2 weeks I said I was now ready to buy silver again. I stated that I was to be buying 4 “monster boxes" total, and I would scale into them. By scale I simply mean I wasn't buying all 4 in one day. Since we never really know when a breakout, or a pull-down will be manufactured, I was “averaging in.” Thus far I have only bought ONE out of the four I wish to own – and ‘knock on wood’ we got that right, as silver perked up and then in the last few days "roared" higher. I have 3 more monster boxes to buy. I'll probably buy my next one sometime next week. I'm hoping that yesterday wasn't a clear breakout and it just keeps roaring higher, but if it does, it does.

Tips:
Our long holds looking like: SLV at 25.81 (+22%), NG at 6.825 (+90%), AAU at 3.02 (+34%), DNN at 2.71 (+52%), AVL at 4.00 (+85%), and USSIF at 0.61 (+3%).

In our short-term holds we have:
N up 18%, SLW up 13%, FRG up 22%, QSURD = flat, NGD up 2%, PAL up 10%, AUGT off 3%, EXK off 2%, SVM off 1%, and AGRO off 5%

Last week out, silver was $29 dollars, and it just closed at $32. We bought more of our favorite silver stock – SLW last week @ 35.00 and it ended the week @ 39.20. I may take more of it next week if conditions are right. A couple other places to look:
- NVDA over 26.00 is going to get attention,
- IPI when it finally gets over 40.00 should be interesting, and
- FCX over 55.60 should finally see it rise. They did their split a while back, went through a funk.. but with copper at all time highs, and gold moving back up, it's day is coming.

If you’d like to view my actual stock trades – and see more of my thoughts – please feel free to sign up as a twitter follower – “taylorpamm” is my nickname on Twitter – fyi.

If you’d like to see me in action – teaching people about investing – please feel free to view the TED talk that I gave 4 months or so ago now:

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This week in Barrons - 2-13-11

This Week in Barons – 2–13-11:

Did ‘The Grand Plan’ Include Egypt?

People will put up with many things but not being able to eat or feed their children is usually the tipping point. We have seen exponential increases in food prices over the past 6 to 9 months – and in a true global ‘food fight’ it’s hard to tell who (if anyone) will win. Currently, you can certainly point to the weather as having been uncooperative – with droughts in Australia, Ukraine, Europe and Russia as well as floods in Australia, Brazil and the U.S. With corn (in particular) trading over $6.75 a bushel (almost double the $3.60/bushel rate in June), it’s a strong possibility that we will continue to hear and read about continued food riots in parts of the world throughout the globe until the 2011 harvest time. With the U.S. being a major supplier – we not only need to look at the U.S. supply situation (E.G. our diverting corn production to Ethanol) – but also QE1 and QE2 aiding in the devaluation of the U.S. dollar – helping to cause a ‘power keg’ of food price inflation – not witnessed in decades. What we all need to ask ourselves is – “Was this planned?”

Well this week’s “Plan” included:
- Federal Reserve Governor Kevin Warsh, who was one of Chairman Ben Bernanke's closest financial-crisis advisers before becoming the only governor to question the expansion of record monetary stimulus in November, resigned after five years at the central bank. According to sources – it isn’t because he disagrees with Bernanke. You’re kidding right? Several times Mr. Warsh has openly written OpEd's about how QE could have serious ramifications – including commodity price inflation. And NOW he’s quitting. I think he understands what's coming and wants out before it hits.
- CBO Director claims that the Obama Health Care Law Will Cost 800,000 Jobs.
- Steve Forbes and Richard Gonzalez point out that the ‘rumblings are back’ (as if they were ever gone) in the EU – much to the disdain of the ECB. Take a look at a graph of the Portuguese Bond – as it reaches a 10 Year High this week – and remember what Greece did to the market a little bit ago. The PIIGS are clearly in trouble and food prices are not helping one bit.
- U.S. Home Foreclosures jumped 12 percent last month, but the sharp divide between states suggests the industry remains backlogged by investigations into the foreclosure process. According to a report from real estate data firm RealtyTrac, lenders foreclosed on 78,133 properties in January, up 12 percent from the month before. We are 3 years after the banking collapse, 4 years after the housing bubble and foreclosures are still rising.


Forgotten in the price of corn ‘doubling over the past six months’ is a ‘trickle-down’ effect leading to higher prices in everything from animal feed, to breakfast cereals, and even soft drink sweeteners. “U.S. shoppers will see higher grocery bills as early as three months from now, though most of the impact won't be felt for another six months”, said Scott Irwin, an agricultural economics professor at the University of Illinois.

Of course The Ben Bernanke doesn't include food or energy in his calculations for inflation. In fact, through substitution he consistently tells the world we’re running under 2% inflation – when in reality we’re closer to 7 or 8%. And as you look back over weeks and weeks of headlines – do they square up with Obama’s view of the economy? Now, is it any wonder that people around the world want out of dollars?

Bottom line – I DO think food inflation (in particular) was part of ‘The Plan.’ We have a Fed head quitting because he sees The Ben Bernanke basically becoming a despot and proving to everyone that “absolute power - corrupts absolutely!” We have all the ills we had two years ago, and more. And as you look at the accelerated pace of our dollar depreciation – you have to ask yourself – is all of this coincidental? I think not!

The Market:

I have to say that this week was one of the weirdest I've seen in a while. I was calling for a weak market and we got it – but each day – as if by a miracle – the market in ‘pre-open’ and at 3:30 pm would go from ‘red to green.’ President Mubarak’s leaving then triggered a rally on Friday. Now we’ve all heard wonderful things about Egypt being a newborn baby democracy, and how it will be so much kinder and gentler. Now, I’d love for their people not to be repressed, but to think that there won't be infighting from the hard liners seems a bit of a stretch.

Last week, I said that I thought we were in the danger zone for a pullback. I said that I figured the rally would continue Monday and into Tuesday, but by Wednesday we should see the first cracks appear. Sure enough, Monday and Tuesday were pretty good days, and on Wednesday the market got soggy. It was down 77 points early on – and I thought that this could be the day that it was going to finally take a breather, pull back 8+ percent and shake out some excess. The downside volume said yes, the RSI said yes, many indicators said yes – BUT The Ben Bernanke said NO. Out of the clear blue the futures programs fired off and they brought us up to close the day "flat". Thursday we were flat at the open and then again plunged 77 points – but guess what showed up like clockwork – out of the blue came multiple futures buys and soon we were moving up. Then of course on Friday, President Mubarak did resign and we pushed back up.

So, did my pullback call fail and did I look stupid? Considering the market was higher on Friday, than it was on Wednesday – YES. But one would have to agree that watching the market fall for over 70 points, two days in a row, only to be "brought back up" – well – even a CNBC analyst came on camera and came right out and said that the FED is supporting any dips.

So one thing we can draw from this is that the Fed still has the firepower to push the market, despite a market showing many signs of fatigue. Does that mean it's over, and we can buy again? I don't think so. The market is at an interesting inflection point, and I think that it may try one more time this week to roll over. I would not be surprised in the least if we move up Monday, see fatigue set in on Tuesday, and we go back to grinding sideways. They saved us last week – will they save us again if we soften up? With that in mind, we're mostly sitting on our hands, 'leaning long’ and very quick to take profits.

Tips:
We still have a couple positions in our gold and silver stocks – with our long term holds looking like: SLV at 25.81, NG at 6.825, AAU at 3.02, DNN at 2.71, AVL at 4.00 and USSIF at 0.61

In our short-term holds we have:
N up 18%, SLW = flat, SLV up 13%, NGD = flat. And we purchased some PAL, AUGT, and AGRO.

If you’d like to view my actual stock trades – and see more of my thoughts – please feel free to sign up as a twitter follower – “taylorpamm” is my nickname on Twitter – fyi.

If you’d like to see me in action – teaching people about investing – please feel free to view the TED talk that I gave 4 months or so ago now:

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This week in Barrons - 2-6-11

This Week in Barons – 2–6-11:

Liar, Liar Pants on Fire:

Ben Bernanke, the head of the Federal Reserve is a ‘bold faced’ liar. There, I said it! I listened to him give a speech and the corresponding Q/A session – and to say I was puzzled would be an extreme understatement. Ben said that his monetary policy is NOT responsible for commodities soaring higher. According to him it’s due to “demand from emerging markets.” And then Ben goes on to say that his policies have: "strengthened the stock market as it pushed investors out of one class of assets and into another.” Now how is it remotely possible that his money printing has caused the stock market to rise, BUT has had NO effect on the prices of commodities? (1) This is Economics 101 – when X dollars are going after Y product – increasing X dollars increases the prices demanded for Y product. (2) If indeed the emerging markets had so much pent up demand for "commodities" that it was causing commodity prices to soar higher, then the Baltic Dry Index (BDI) – the index used to track the shipping of goods around the globe – would be noticeably higher – yes? So it stands to reason that if all this demand, such as in copper (which just hit an ALL TIME HIGH this week) - would be backlogged on ships for months. Well – not exactly – in fact the BDI has crashed – literally cut in half in the past 18 months – and it’s not because of the new shipping capacity that was added – the shipping business is just lousy!

Ben also said: “inflation is low and getting lower.” Now everyone out there knows that medicine, education, food, energy – are all up over 6%. Ah – but what is lower – housing (the average person’s #1 investment)! Oh and what did the CEO of Whirlpool say the other day: “10:36 AM - Rising commodity prices are blamed for declining revenue at Whirlpool's North American segment. Raw material inflation is driving costs higher," CEO Jeff Fettig says, "and we expect to mitigate these costs with recently announced price increases.” Well Ben maybe that’s just Whirlpool – let’s ask the CEO of General Mills: “11:31 AM - We are seeing a fundamental level of price inflation, higher than the 1980s and 1990s," says General Mills CEO Ken Powell. Oh Ben – I suppose the U.N. announcing global food prices up – 3.4% in January alone – really threw you for a loop! Now I do realize that Ben has been TOLD to lie to us – I get that. But where do the lies stop?

Consider the Jobs Report we got on Friday. Everyone was looking for an addition of 144,000 jobs – and all we got was 38,000. But everyone was giddy about the unemployment rate going from 9.4% to 9.0%. The reality is: (1) the rate number is full of ‘seasonal adjustments’, and (2) 504,000 people (the single largest body of folks ever) fell OFF the roles and out of the pool – taking us down to employment levels not seen in 26 years. Well, what about the gain of 38,000 jobs you say – well that’s less than Wal-Mart employs in one state!


At some point in the future (between now and the beginning of 2013) I think we're going to see the proverbial black swan. At that point China and Russia will decide that the game is over, they will sell their US-denominated assets, and the dollar will be completely removed from its global reserve currency status. Once it is abundantly clear to everyone that the US consumer is NEVER going to be able to binge spend like they did during the housing bubble years, all these countries will turn inward, looking toward their own consumption to sustain themselves, shunning the Dollar, and what's left of our exports.

So what do you buy – well gold and silver – that’s nothing new from me – aye? But you don't buy GOLD to get rich. You buy gold to preserve your purchasing power. As the value of the dollar continues to fall the price of gold continues to hedge against that loss of buying power. Silver (however) is totally different. While it too occupies space as ‘money’ in people's minds, unlike gold, silver has so many other uses that it's a very high demand commodity. And in fact – we are running out of silver – as each year demand outstrips new supply, with the bulk of the shortage made up from simple above ground inventory. As the dollar loses its place as a world reserve currency – I think gold will be a very good place to be. But silver tends to have better income abilities to me. But what about timing? About a month ago we cashed out of about 10 positions we had in the metal space – all of them for very good gains – NG for over 100%, SLW for over 100%, and the list goes on. We then sat on our hands, knowing that the bear raid would take us down – knocking gold from 1450 to 1320, and Silver from 30 to 27 (both about 10%). However, traditionally silver would take a 40% hit on one of these raids – why only 10% this time? I think they’re losing the ability to manipulate the price of silver as they once did. I think the ‘naked short banks’ are buying up their naked shorts even at these prices. Now, many out there think that silver could see $22. So watch out there – maybe we go to $26 – but if it can’t pull down to $22 – silver could explode upward.

With all the Egyptian issues, Ireland’s credit rating being cut yet again, PIIG nations rebelling against austerity, the storms in Australia causing coal/mining shortages, the harshness of the US winter, the undersupply of food, the inflation we see, and Bernanke's insane plan to devalue the dollar - I think silver’s day has arrived and I am going to resume buying as of today. If it fades, I will ladder down into it, and if it rises, I'll add more to it.

The Market:
This past week was a “marvel of modern science” – watching the buyers rotate from tech to commodities, to materials, back to tech and all the while the averages ticking higher. Even Friday on the heels of a horrendous jobs report, Bernanke and POMO saved the day! Now allow me to do something ‘stupid’ and call for a pull-back – that should start this week. I’ve always criticized people for ‘calling a bottom’; however, that’s not what I’m doing.

We are overbought in every sense, and I think that it’s about time Wall Street fleeces the latecomers to the party. I think we’re in for a 10% correction in the near future that will be quickly be ‘bought back up’ and we’ll hit a high after May. I think we can have an ‘up day’ on Monday and possibly have it last through Tuesday, but by Wednesday I think we get our first decent pull down. If I'm right, it won’t last long as those people who missed the whole run up will be buying on any significant dip. For me – I’m going to lean long but start scaling out early in the week. If I'm wrong, we'll simply have to buy back in, but I feel pretty good about this… so we’ll see.

Tips:
We still have a couple positions in our gold and silver stocks – with our long term holds looking like: SLV at 25.81, NG at 6.825, AAU at 3.02, DNN at 2.71, AVARF at 4.00 and USSIF at 0.61

In our short term holds we have:
N is still flat to slightly lower for us, and on Friday we purchased: SLW at 31.50, SLV at 27.45, NGD at 8.40

I’m still looking at: IAU over 13.20, NAK, AG, UXG, and more NG.

If you’d like to view my actual stock trades – and see more of my thoughts – please feel free to sign up as a twitter follower – “taylorpamm” is my nickname on Twitter – fyi.

If you’d like to see me in action – teaching people about investing – please feel free to view the TED talk that I gave 4 months or so ago now:

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This week in Barrons - 1-30-11

This Week in Barons – 1–30-11:

I’m Melting … I’m Melting (says the World):

Let me start off by saying – I’m not a scholar on Middle Eastern policy – and although Egypt and it’s surrounding nations don't necessarily import or export enough to even be a blip on the fundamentals of our (or the Chinese) economy, but political change causes instability everywhere. Right now the world is looking at the oil shipping lanes and wondering if they'll become choked. Will similar upheavals in countries around Egypt threaten the Saudi Arabian oil fields? Egypt was often Israel’s only friend in the region, and will a change in regime make Israel move to expand its military first strike options?

Currently – we have food riots popping up all over as three things have impacted the corn/wheat complex. 1) Weather (droughts and floods), 2) Bernanke's printing press mentality is pushing the price of everything higher, and 3) our U.S. policies are allowing the farm states to make ethanol mandatory. Former Vice President Al Gore has admitted that he made a mistake promoting corn ethanol during his presidential campaign in 2000. Al Gore says he was more concerned with garnering votes from farmers in Tennessee and Iowa than with what was best for the environment. Corn ethanol received US$7.7 billion in subsidies from the U.S. government last year. These subsidies are up for renewal soon, and the debate is becoming heated. And for each country that faces something of a similar upheaval in their Government situation, oil will remain stubbornly high. Which means higher oil and gasoline prices, which instantly and negatively affect general wealth.

Now – combine this for a minute with FASB’s most recent ‘mark-to-market’ ruling that reversed a proposal that would have required banks to use mark-to-market accounting standards. Banks have lobbied fiercely against fair-value accounting, contending it introduces added volatility and could have made the financial crisis worse. Supporters of the mark-to-market standard argue it would improve transparency and highlight potential weakness at banks. The point appears to be moot now, as the FASB's preliminary vote on the matter would allow banks to continue valuing many of their loans at amortized cost as they do now. Taking a step back, the idea behind accounting is that if you have an asset, you "mark" that asset to what it would be worth TODAY if you sold it. That's gives it, it's "market value". Well, because the banks are holding so many assets that they ‘for example’ paid a dollar for, that are now worth 15 cents – if they marked them to ‘market’ they would instantly have to declare themselves insolvent. So, they all got together and the FASB (Financial Accounting Standards Board) granted them the ability to 'mark to model’. That is where you simply mark the asset to the value it WOULD have – if it were a performing asset. Is that value real? Could you sell it for that? No. It just makes the banks look like they're swimming in money; they can announce ‘great earnings’ and their CEO's get millions in bonus money.

Now – combine this with last week’s piece: http://www.cnbc.com/id/41198789. Where it showed that because the Federal Reserve could suffer losses on its massive bond holdings – it adopted a little-noticed accounting change with huge implications: it makes insolvency much less likely. Could the Fed have gone broke? The answer to this question was 'Yes,' but is now 'No.' "Any future losses the Fed may incur will now show up as a negative liability as opposed to a reduction in Fed capital, thereby making a negative capital situation technically impossible," said Brian Smedley, a rates strategist at Bank of America-Merrill Lynch and a former New York Fed staffer.

Now – combine those with the fact that banks are allowed to accrue interest on non-performing mortgages until the actual foreclosure takes place, which on average takes about 16 months. That is to say, all the phantom interest that is not actually collected is booked as income until the actual act of foreclosure. As a result, many bank financial statements actually look much better than they actually are. “This means that Bank of America, Citigroup, JP Morgan and Wells Fargo, among hundreds of other smaller institutions, can report interest due them, but not paid, on an estimated $1.4 trillion of face value mortgages on the 7 million homes that are in the process of being foreclosed.” - Forbes.com

In 2005’ish our unemployment rate was hovering around 5%. People were taking out "cash out" refi's and enjoying themselves - buying cars, boats, pools and vacations. We were BOOMING. Now, we just finished up 2010:
- the unemployment rate according to Obama is 9.6% - under-employment is over 18%,
- 7 to 8 million jobs have been lost,
- Home values have fallen by 30 - 50%,
- The market crash of 2008 wiped out trillions in wealth,
- Yet somehow corporations are posting RECORD profits. How can they be posting profits during a recession that are better than the wild giddy boom times of 2005 – 2006? Ah, I love creative accounting!

Remember – this charade will end when China and Russia say it will end. They are in control now. They have money - we have debt and accounting fraud. When they are tired of the U.S. playing these games – and when they have systems in place to absorb the blow – that’s when this all ends.

The Market:
I don’t know whether my prediction will come true? Last week we asked the question: “Is it time to go to cash?" – and I thought we were within 2 weeks of diving into our first significant dip. So, on Friday the market took it's first legitimate dip. Was this the start of the "big dip?" I honestly don't know – because often a new month brings in new money. My feeling was that they'd run us up through through the first 2 days of February or so, and THEN dump us. But of course with all the tension we saw in the Middle East, no one wanted a big long position going into the weekend – so we sold off on Friday.

Now if nothing happens this weekend, we could pop up nicely on Monday. Many will think it's just a one day dip and rush back in. If that happens, I'll stick to my prediction that sometime late in the week, or next week, we see the next plunge - and it should be a fast sharp one that catches many by surprise. But if there are too many unanswered questions coming into Monday, it's not unreasonable to think the big dip is upon us now.

Many have asked us when we think the gold/silver bear raid will end. I’m presently looking at 9 different silver/gold related investments that I feel will pay off in the near future. What we just witnessed in the metals market was a deluxe bear raid, so they could drop the price of metals, cover more of their shorts, and even buy long at a cheaper price.

Tips:
We still have some of our gold and silver stocks – with our long term holds looking like: SLV at 25.81, NG at 6.825, AAU at 3.02, DNN at 2.71, AVARF at 4.00 and USSIF at 0.61

We are still nursing N – which is flat for us.

A couple miners that I’m looking at right now are: IAU over 13.20, SLW over 31.50, NAK, AG, SLV over 27.45, NGD over 8.40, UXG, and more NG. If they all look attractive – I’ll potentially start with IAU, SLW, NGD and SLV.

If you’d like to view my actual stock trades – and see more of my thoughts – please feel free to sign up as a twitter follower – “taylorpamm” is my nickname on Twitter – fyi.

If you’d like to see me in action – teaching people about investing – please feel free to view the TED talk that I gave a 4 months or so ago now:

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This week in Barrons 1-23-11

This Week in Barons – 1–23-11:

When do we go to cash?

This week I received a question about buying December, 2012 SPY Put Options. So let’s examine the global events that are falling into place.
1. A while ago I suggested that a there were technical developments that simply lined up with historic patterns, and the overall reading was that we are in the later stages of a bull-run since March, 2009. The problem is that we are witness to something that has NEVER occurred – our Central Bank (Ben Bernanke) told us flat out, he's supporting the market to create the "wealth effect" – a psychology (if you will) that when people see their 401K's and their stock values rise - they feel "better" and go out and spend more money.
2. But the question remains – if the Central Bank is buying up all the toxic assets around the globe – what if the Central Bank does NOT get the return that they require – could they actually go bust – or would they just create more money with nothing backing it? Well until now the charter of the FED stated that they would go broke and could not create money without something backing it. THEN just LAST WEEK they changed the law – http://www.cnbc.com/id/41198789. Law week the Central Bank adopted a little noticed accounting change that was tucked quietly into the Fed's weekly report on its balance sheet and phrased in such technical terms that it was not even reported by financial media when announced on Jan 6. “Any future losses the Fed may incur will now show up as a negative liability as opposed to a reduction in Fed capital, thereby making a negative capital situation technically impossible," said Brian Smedley, a rates strategist at Bank of America-Merrill Lynch and a former New York Fed staffer. Wow – they just changed the rules to make sure that no matter how absurd their policies are - they win.
3. But the question still remains - as the market forces continue to build up pressures that need to be resolved to the downside, can Bernanke's insane policies offset all of that enough to keep the market going up, or (at minimum) moving sideways? My personal view is that the decision will be removed from Ben Bernanke – as the other governments will decide when this party comes to an end, starting of course with China, Russia, Brazil, India etc.
4. Back in December, China and Russia signed a pact to trade in their own currencies. What this signaled to me was the death of the dollar, and I’m on record as saying we will lose our global reserve status. You see while China holds $2 Trillion in reserves with about $1 Trillion of that being U.S. dollar denominated "stuff", China made all that money selling “stuff” to the U.S. and Europe. With Europe falling apart daily, and the U.S. on life support they haven't had the inflows of cash that they were used over the past 5 years. Now that's a real issue with China, because it was the enormous expansion of their manufacturing base to supply the world, which employed all of their people. And currently – due to their massive work program - China has about 15 cities that they have constructed where no one is living. And what comes with that – is lack of manufacturing. You see the Chinese that left the rice fields to come to towns and work in the factories are being laid off, just like here. So, this is why they are so very upset about our economic policies. If China isn’t making big profits selling goods to the world (because the world is basically in recession), it’s important to them that the reserves they have keep their value. But (as you know), with Bernanke devaluing the dollar, China is getting the proverbial double whammy. Unemployment is roaring, inflation is soaring, and their holdings are losing value.
5. Now how long will China allow that to remain before they cut all ties to the dollar – not long I'd say? Some speculate that the real fireworks will start in May – the largest Communist holiday of the year – and close to when Ben Bernanke said that QE2 would stop. Now combine this with the technical signals that signal a pullback of 10 to 15%, the "rising bear wedge" we've been seeing, and the divergences between the DOW, S&P, NASDAQ, and Russell means that behind the scenes we are now OVERDUE for a correction.

The Market:
So I 'think" we're looking at sometime soon getting our first real correction. How soon? Well judging by the options roll outs they bought on Friday, it would seem they can keep this going for about another two weeks. Figure sometime around the 2nd or 3rd week of February – but honestly the near term indicators suggest that it might happen as soon as this week. Thus far we’ve been leaning long and selling fast – but we expect to see this trend reverse and then we will begin to snap up shorts. But I don't think this first wave down will be the "Big One". I think we will get our 10% correction and then people will rush into buy it back up. And then sometime from May on we will begin the danger zone for China to pull our plug and the real nasty pull down takes place.

Now what about buying those December 2012 SPY Put Options? I actually like just slightly out of the money puts – because buying at the money puts today, could see them underwater over the next few months, so I wouldn’t make any moves just yet. I want to go short soon, and catch that first significant dip, then when people buy it back up – THAT is when I will start loading my long term put account.

This week we took profits – bailed out of anything we had in the short-term account – and that was fine. Let us assume that Bernanke simply wanted the DOW to shine bright for the weekend and he got his wish. The market is signaling it wants a rest, with Bernanke trying to offset that rest. In the grand scheme of things, China will dictate when we crash, but I do think we're within 2 weeks or so of our first really big dip – so play cautiously. I tend to think that when the dip hits, it's going to be wicked – dipping from 10 to 12 percent or more – and then we will ‘snap back’ very quickly.

Tips:
We still have some of our gold and silver stocks – with our long term holds looking like: SLV at 25.81, NG at 6.825, AAU at 3.02, DNN at 2.71, AVARF at 4.00 and USSIF at 0.61

We sold our BIDU for about a $7 profit – and are still nursing the N – which is still slightly positive for us.

In terms of what’s looking attractive, we will be diving back into silver soon (and in fact are still buying the physical metal) – and will put out a short on the metal itself over the next couple of days.

If you’d like to view my actual stock trades - feel free to sign up as a twitter follower – “taylorpamm” is my nickname on Twitter – fyi.

If you’d like to see me in action – teaching people about investing – please feel free to view the TED talk that I gave a 4 months or so ago now:

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This week in Barrons - 1-16-11

This Week in Barons – 1–16-11:

“To Dream – the Impossible Dream”

Has the Federal Reserve, under Ben Bernanke, used their considerable knowledge to save the nation from depression? Every day more and more people are beginning to say “Yes” to that – and I can't blame them. You turn on the TV and hear: “The Dow has hit another multi year high as outstanding profits in the banking sector led a broad rally today...."

I wonder if John Q. Public knows:
- The banks are allowed to keep two sets of books. One set is loaded with enormous losses, debts, derivatives with no value, and the stark realization that "you’re bankrupt" while the other set is loaded with profits – mostly due to ‘loosy-goosy’ accounting allowed by regulators. Banks have been allowed to claim interest on non-performing mortgages until the actual foreclosure takes place (which – on average – takes about 16 months). Per Steve Forbes: “All the phantom interest that is not actually collected is booked as income until the actual act of foreclosure. As a result, many bank financial statements actually look much better than they actually are. At foreclosure all the phantom income comes off the books of the banks. This means that Bank of America, Citigroup, JP Morgan and Wells Fargo, among hundreds of other smaller institutions, can report interest due them, but not paid, on an estimated $1.4 Trillion of face value mortgages on the 7 Million homes that are in the process of being foreclosed.” Now that’s one sweet deal. I get to book profits on payments that I will NEVER receive – AND I get to tell you what a magnificent quarter I had – AND I get to borrow from the FED at 0% - lending back to them at 3%, - AND I get to sell Treasuries to the Fed almost daily for billions – AND I get to sell toxic derivatives to the FED at face value, while they are worth ten cents on the dollar!

On Friday Ben again admitted: “Our policies (QE2) have contributed to a stronger stock market just as they did in March 2009 when we did the first iteration of this program." Contributed is a loose word - because the S&P has gone 10 days without falling below it’s 10 day moving average, and that has NEVER been accomplished in the history of the stock market! So it appears Ben’s main objective is NOT to keep the economy in balance or to keep inflation in check, but rather to push the market higher in the face of every negative influence.
- After spending over $14 trillion dollars in bail-out's, auto takeovers, stimulus programs, toxic asset purchases – we’ve gotten 2.5% growth – the lowest in ‘post recession’ history ⇒ Fed Charter 0, Stock Market 1.
- After 4 separate Government programs to help people keep their homes – according to Reuters – “Banks last year (for the first time) seized more than a million U.S. homes, despite a slowdown in the last few months given questions about foreclosure processing.” ⇒ Fed Charter 0, Stock Market 2.
- What about inflation? Again according to Reuters – “A year end surge in gasoline prices ratcheted up consumer inflation to the highest level in more than two years. The U.N. index of food prices reached the highest level it has ever been, producing food riots around the world. And clothing makers plan to raise prices in 2011 as they struggle to absorb the impact of soaring cotton costs.” ⇒ Fed Charter 0, Stock Market 3.
- What’s the rest of the world think about Bernanke’s plans? A Chinese Rating agency reported that: “The new round of quantitative easing adopted by the Federal Reserve has brought about an obvious trend of depreciation of the U.S. dollar, and the continuation and deepening of the credit crisis in the U.S. The continuation will result in a much larger crisis triggered by the U.S. government's policy to continuously depreciate the U.S. dollar against the will of creditors.” OK the U.S. dollar is doomed and the ultimate bank – China – is going to tell us when the entire loan will be due. ⇒ Fed Charter 0, Stock Market 4.
- And remember, the U.S. Consumer is: (1) upside down on his house (if he has one), (2) getting killed by unemployment, (3) getting crushed by gas prices, food prices, medical costs, education costs – I’ll stop here. ⇒ Fed Charter 0, Stock Market 5.

In fact, the only thing that's working is that they are boosting the stock market. Can it last for ever? No - our bankers (China) will make sure of that.


The Market:

So it's sideways and up and pause then sideways then up then pause – wash, rinse and repeat ☺. Bernanke is making the market go up, so consumers feel better and spend money. Unfortunately, Goldman’s own studies show that 49% of Americans have "no visible way to retire". Unfortunately, Americans did their big spending, and now the trend is lower spending. Is Ben planning on the stock market being the substitute for ‘welfare’ – where Ben puts each Americans allotment of money into the stock market each month, and we can take it out when we need to use it? Rest assured, the moment the Federal Reserve money stops flowing to Wall Street, the market is going to fall – and not by a little – but fall by a lot. My prediction is fairly simple, at some point in the not too distant future, we're going to be able to go short, and like in the year 2008, make a small fortune. Unfortunately we simply don't know the date.

So, what’s the strategy? Use this ‘sideways and up’ time to learn how to go short via buying put options, using direct inverse ETF's, and doing straight short sales. Be patient, because you'll be holding a tool in your investing toolbox that will reward you as much (or even more) than any "long side” investment you've ever made.

Tips:
We still have some of our gold and silver stocks – with our long term holds looking like: SLV at 25.81, NG at 6.825, AAU at 3.02, DNN at 2.71, AVARF at 4.00 and USSIF at 0.61

Lately we continued to lean long but with small positions. We bought some BIDU last week at 101.50, and it’s now 107.7. We also bought some N at 24, which hit 27.7 on Friday.

In terms of what’s looking attractive, the miners are going to begin to look attractive again soon – let’s make sure the selling settles for 3 days before diving back in.

If you’d like to view my actual stock trades - feel free to sign up as a twitter follower – “taylorpamm” is my nickname on Twitter – fyi.

If you’d like to see me in action – teaching people about investing – please feel free to view the TED talk that I gave a 4 months or so ago now:

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This week in Barrons - 1-09-11

This Week in Barons – 1–09-11:

I Swear to Tell the Truth, and Nothing but the Truth, so Help Me ____

I listened intently to the news last week – and it's wonderful thing that a homeless man with the great voice is going to get a second chance at life – but I also heard: "Today, the DOW was up 28 points and the increase in the ADP report showed a marked increase in jobs and the economy is on the recovery path."
1st Correction: The ADP report makes no distinction between someone that worked part time for one hour (during the Christmas holiday) or someone that worked a complete shift. Now what about the un-biased Gallup report that had the percentage of part-time workers wanting full-time work combined to raise the under-employment rate from 18.5% to 19.0% in December. Gallop’s measure of unemployment also rose to 9.6% - up from 9.3%.

Then I heard about the ‘increase in factory orders’ - where new orders for manufactured durable goods decreased – however new order for non-durable goods increased.
2nd Correction: Durable goods are 53% of factory orders and they declined 0.3%. Non-durable goods, mostly the stuff we need every day like food, oil, drugs, are 47% of Factory Orders, and they increased by 1.7%. BUT wait a minute – their sales increased in dollars – but sales volume actually decreased! Yes – that inflation that Ben Bernanke says doesn’t exist – well – it caused the increase in non-durable goods all by itself!

Then I heard Ben Bernanke tell congress that the Fed was not responsible for the rise in oil prices.
3rd Correction: The dollar is crumbling around the globe and causing the price of commodities to rise – including oil. The dollar devaluing actually prompted Guido Mantega, the Brazilian finance minister to say: "We're not going to allow our American friends to melt the dollar," who views the US government's move to pump $600bn into its economy as an unfair attempt to help U.S. exports.

Then Obama told people that his policies are creating jobs and creating wealth.
4th Correction: Consumer bankruptcies are climbing and have reached a 5-year high - rising 9% (to 1.53M filings) over 2009. And under a new census formula overall poverty is at 15.7% level (47.8M people) up from 14.3% in 2009. OOOPS, looks like we’re going in the wrong direction.

Then Ben Bernanke told Congress to not worry too much about municipal bonds – because “We’re not seeing extraordinary stress. And we have no expectation or intention to get involved in state and local finance."
5th Correction: Excuse me – states, cities and municipalities across the nation are cutting fire and police services. New York, New Jersey, Illinois, California are all broke – what does ‘stress mean’ to you Ben? To me – stress = bankruptcy.

And finally Ben Bernanke told Congress that “inflation is contained (including food and fuel) to less than 1%.”
6th Correction: I really don't know whether to laugh or cry. The United Nations itself told us last week that the price of food has hit historic highs (meaning most expensive ever). Oil is up from $50 to $90 (80%) in a year. Cotton, copper, metals, and virtually every commodity is at an all time high. What isn’t at an all time high – HOUSING! This week the World Bank issued its first bonds denominated in China’s yuan – and global companies and institutions such as the Asian Development Bank, McDonald's Corp and Caterpillar have all issued yuan bonds recently. Ben – the world is telling you that the US Dollar is doomed, and when the Euro dies, people will flee to the dollar, for a while, then ultimately back to gold and silver.

The rest of the world, most of whom have "stuff" that Americans and Europeans want, are getting awfully tired of the Dollar being devalued and are frankly very angry as we continue to ‘melt the dollar’. There is absolutely no way out of this. No politician is going to make the necessary cuts to reduce our debt. Bernanke won't quit until his precious banking cartel is completely whole again, and all of the losses are on the taxpayers back.

So: “I do swear to tell the truth – and nothing but the truth!”

The Market:
The market has been ‘saved by the Fed’ - time after time. For example on Friday, on the heels of that absolute trash jobs report, we were down 97 DOW points and looking at increasing volume on the downside – but then “like magic” - someone decided it was a grand time to place a focused, very large bet on futures and soon we were down just 20 points. Now, I don’t believe for an instant that the collective wisdom of millions of investors decided instantly that they needed stocks?

The question really is - Can Bernanke continue to save the day forever? I don’t think so. Right now all of the Government’s guns are pointed at the stock market, and are keeping it ‘up’ at all cost. The reason is – that way they can make believe they've fixed things and the gullible Americans will buy into it. Yet the pressure builds, like a pressure cooker with a bad relief valve. At some point this market blows up – I just don't know the time yet, because we've never had a period in time where the Federal Reserve admitted it's trying to keep the stock market up.

So, I lean long with smaller positions and stay agile. But there will come a day in the near future where our biggest returns will come from being short the market. So you will need to learn how to short or use options. In the near future we will be publishing some of our trading scenarios – thoughts and skills. I’m working on it – just making sure that my thoughts aren’t too big and bulky that the important issues get lost.

Tips:
We still have most of our gold and silver stocks – with our long term holds look like: SLV at 25.81, NG at 6.825, AAU at 3.02, DNN at 2.71, AVARF at 4.00 and USSIF at 0.61

Lately we continued to lean long but with small positions. We bought some BIDU last week at 101.50, and it’s now 107. We also bought some N at 24, which hit 28 on Friday.

In terms of what’s looking attractive:
AKS – I might take it it moves over 17.30
ADI is still attractive on a move up and over that 38.6 level
And FWLT is back on our radar – and a move over 36.00 breaks a 2 year high – and that would be a good entry point.

If you’d like to view my actual stock trades - feel free to sign up as a twitter follower – “taylorpamm” is my nickname on Twitter – fyi.

If you’d like to see me in action – teaching people about investing – please feel free to view the TED talk that I gave a 4 months or so ago now:

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This week in Barrons - 1-3-11

This Week in Barons – 1–3-11:

Into the Looking Glass:
No one knows what the future holds – but this is the time to ‘stick your neck’ out there – risk whatever ‘street cred’ you’ve built up over the previous decade and predict what will happen – so this letter will be no different. But where have we come from in 2010:
- We saw the first major eruptions in Europe as Greece and the other "PIIGS" nations had to admit to bankruptcy.
- Ben Bernanke did QE1, QE2 and the continued buying of toxic MBA's.
- Ben Bernanke admitted he was supporting assets so people would feel the wealth effect.
- 157 banks went under in 2010 (more than the 140 failures in 2009).
- Hundreds of lawsuits were filed against financial institutions as pension funds, cities, and insurance companies decided to fight back after Wall Street sold them toxic assets, and described them as AAA rated.
- Unemployment continued to be a major problem, despite the Government’s attempts via "seasonal adjustments" and the "birth/death" model. Even now they are changing how they calculate the unemployed. “Citing ‘an unprecedented rise’ in long-term unemployment, the Federal Bureau of Labor Statistics (beginning Saturday) will raise from 2 years to 5 years the upper limit on how long someone can be listed as having been jobless.”
- In terms of ‘inflation’ – “Consumer prices in Germany rose by more in December of 2010, than in the previous eight months combined” - Federal Statistics Office, Destatis.
- In terms of ‘deft’ – the U.S. Treasury reported that the U.S. Government has accumulated more new debt ($3.22 trillion ($3,220,103,625,307.29)) – during the tenure of the 111th Congress than it did during the first 100 Congresses combined.
- Since it is mathematically impossible for the US to pay its debts, we simply need to look ‘south’ in terms of next steps: “CARACAS – Venezuela will devalue its ‘strong bolívar’ currency on New Year's Day. News of the devaluation came just after the central bank said the oil-rich Venezuelan economy contracted 1.9% in 2010.”
- On the housing front: prices continue to fall and foreclosure motions continue across the nation – increasing 34% in the 4th Quarter if 2010. Foreclosures in process increased to $1.2 Trillion, up 10.1% year-on-year. Housing is not bottoming, and the bottom will not occur for another couple of years – and when it does – do not expect rapid price increases.

Looking Forward:
- On the municipal front: Meredith Whitney exposed how the next big problem is going to be bankrupt townships and municipalities. As municipalities struggle to keep the roads cleared, they'll continue to reduce their employee counts, effectively offsetting what little hiring there is in the private sector. Services will be cut, and more towns will try and work out deals with neighboring townships to "share" expenses.
- Ben Bernanke has no choice but to continue to inflate. If he stops – the economy crashes. Therefore the dollar will continue to fall in 2011.
- Food and energy inflation will continue, and I think we'll see $3.50 regular gasoline this summer. On the food side, it's not just the printing of fiat dollars but also the increase in the global population.
- China will continue to grow between 8 and 11% in 2011 – with most of the Chinese still living below the poverty line. ‘Yes’ - there are half a dozen Chinese cities built, where no one lives. ‘Yes’ - banks are being ‘propped-up’ by the Government. BUT – China builds everything and pays for everything in ‘cash’ / ‘real money’ – vs the US where ‘debt’ is the currency.

The Market:
- Gold and especially silver will continue to go "up" in 2011 because they are being looked at as money. I believe silver will hit $50 and possibly $70 per ounce (currently $30) while gold will threaten the $1,850 to $1,950 an ounce (currently $1,420).
- Because of worthless dollars flooding the market – hard commodities will continue to rise.
- But WHAT ABOUT STOCKS?

Ah the real question and by far the hardest to predict because of the government’s policies. If not for Bernanke's POMO money, his buying of toxic MBA's and all the associated programs – we would be sub-7K on the DOW - instead of 11,500. The big question is: Can the buying by the Central Bank offset the normal actions of the market?

Currently we are overbought. All of the technical indicators are screaming “we're overpriced” and we’ve had 2 Hindenburg Omens this year, the last one still "working" until about the April time frame. The problem is – these indicators have been in place for 2 months and we’ve continued to go up. We’ve gone up because Bernanke funnels money into the market via the primary dealers selling Treasuries for profit. Can this continue? Frankly I don't know, but I don't think so. I think we're looking at a massive plunge coming, one that takes most people by surprise.

Consider for a minute – back on Dec 15th many corporate CEO’s tried to convince Obama to offer up a tax amnesty period where Uncle Sam would allow them to bring in ‘off-shore profits’ at a 5% tax rate – rather than the current 35% tax rate – in exchange for job creation. Now, what I think will happen with the $2 Trillion corporate wind-fall (if Obama agrees) is that a little bit of hiring will occur, but a LOT of stock buy-backs of executive’s stock – and the beginning of the ‘fleecing’ of John Q. Public.

Now, a likely scenario is that we come into the New Year and see a sell off. It will look bad at first, but it won't be, and we'll recover most of the dip, as everyone trained to "buy the dip" rushes for the big bargains. Then, sometime around the Aril/May area the real rug pull comes and we plunge hard.

So, for 2011:
- Municipal bonds are an absolute No-No as municipalities go bankrupt.
- Gold and silver assets will continue to move higher.
- Interest rates very well could continue higher, and thus the 25-year run in treasury bonds is done.
- I am looking for a dramatic pull down in 2011. If you don't know how to utilize put options, or go "short" I think you'd be quite wise to learn. Some of the biggest returns we've ever personally had were being short in 2008.

So that's what we're seeing. Remember, no matter what happens to the economy, there is always a way to make money, and if you've got your health, you can do wonders. Most don't know this, but the largest expansion of millionaires EVER, took place during and after the Great Depression.

Tips:
We come into 2011 with some gold/silver stocks, and not much else – honestly. One stock that I’ve played numerous times over the past two years, ANR we got into last week at and gained $5 in just 4 days – go figure. I think the first couple of days of trading may be okay this week – as they try and keep us up a bit, but as the week goes on, I think we're going to see those folks that wanted to sell (but held off because they didn't want to pay taxes) will put some pressure on the market.

Our Long Term Holds look like:
SLV at 25.81, NG at 6.825, AAU at 3.02, DNN at 2.71, AVARF at 4.00 and USSIF at 0.61

If you’d like to view my actual stock trades - feel free to sign up as a twitter follower – “taylorpamm” is my nickname on Twitter – fyi.

If you’d like to see me in action – teaching people about investing – please feel free to view the TED talk that I gave a 4 months or so ago now:

Remember the Blog:
Until next week – be safe.

R.F. Culbertson