This week in Barrons - 5-9-10

This Week in Barrons – 5-9-10:

How did you think it was going to end?
Remember Thursday – it started at 2:20 pm – DOW down 286 – and in a matter of minutes the DOW was down by 986 points. I actually tried covering my DIA short between down 400 and down 900 – but no luck! Well – here’s my version of what happened: The market was weak, and from noon on the wall of worry kept growing about the contagion in Europe. Greece's population is telling the world "we are NOT paying the world back, we are NOT working any more, and we do NOT care". So, if Greece is ultimately going to default (and it will) the rest of Europe is saying: "Why are we going to give them money – because we'll never get back? What about Spain and Portugal? This isn’t good – let’s rethink things". So the markets were sliding and then the ‘machines’ took over. All those high frequency, dark pool algorithms that didn't know how to deal with market forces that were outside the normal parameters, started going firing off. It was a "black swan" event. And once the first big programs fired, dozens of others fired. Computers at the 40 biggest institutions, which can request one million quotes per second, started making trades on their own, and it spiraled out of control. Some stocks, like ACN (which was at $40), printed "one penny" in the span of ten seconds. Tens of thousands of "stop loss" orders had been taken out. Tens of billions of dollars worth of stock had been sold – at very low values – and thousands of retail investors will (once again) lose their money. Consider all the John Q. Public’s that got into the market at 11K and a week later they're staring at DOW 9,800 only to end at 10,500. They listened to Cramer – and once again they’re underwater - Wall Street raped them – again!

70% of a days volume is traded by dark pools and algorithms. Well – what happens when machines see an event that they weren't programmed for? But the real story here is that the world is waking up to the fact that the WORLD is broke. It's a lot like re-arranging the chairs on the deck of the Titanic – sure it looks better, but you're still going to sink.

What else happened last week – that JOBS report – that said we created 290K jobs for the month of April. Let’s dissect that report. 66,000 of the 290K jobs are Census workers – who’s jobs will leave in August. So, that brings us down to 224k jobs. Then there’s the government’s "Birth/Death" that says for X amount of people laid-off, some of them will go out and start businesses and hire people. So in April the government GUESSED that 188,000 jobs were created via the ‘birth/death’ model. Therefore, removing the 188K ‘make believe’ jobs - what you have left is 36K jobs being created. That is NOT a booming economy? Also the unemployment rate ROSE to 9.9% - the workweek FELL – AND the total number of “under employed” ROSE to over 17.6 million.

How about the headline that Wayne brought to my attention this week: Freddie Mac (FRE) asked for an additional $10.6B from the government yesterday, after reporting a first quarter loss of $8B. New accounting rules led to a decrease in total equity of $11.7B, creating a net worth deficit of $10.5B as of March 31. Freddie warned that it will still need billions of dollars in additional federal aid because the housing market remains fragile. Factually, Freddie Mac has lost $82 billion over the last ten quarters.

And – did you happen to notice what happened to Gold this week – it went up considerably. Gold is the only real stability we have. We can't trust our banks – they fail weekly (4 more failed over the weekend – 68 for the year). We can't trust the Sovereign debts - they're insolvent. We can't trust our money - they simply print more of it. Gold has been the best performing asset for 10 years now and will continue to be - as the world melts down.

Jim Cramer said Thursday evening: “This gives us a chance to get in at a better price than we should be able to - on the Dow 12,000 freeway." I wish we had the economy behind us to support these stock levels, and remarks like these. On May 11th – the IMF along with other ‘big wigs’ is going to sit down and discuss the global currency and debt situation. One of the things they will be talking about is the more widespread use of SDRs (special drawing rights) and Gold. It seems that there is a small faction of people now from other governments that are beginning to think that maybe some monetary link to gold makes a whole lot of sense. If we hear anything from this meeting about SDRs being loosely pegged to gold, watch out - gold could gain $200 in a day.

The Market:
Last week a lot of damage took place – from Monday’s high at 11,177 down to Friday’s close at 10,377. What’s next? Well a few things are going to happen. Someone's going to announce some form of reinforcement bail out for Greece, which just sets up Spain, Italy, Portugal and Ireland.

There are two distinctly different ways this will play out. If The Street really thinks the news is good, they are going to try and rally us big time Monday through Wed – potentially 500+ points. But if they don't come out with something believable, we're going to have a very red Monday, followed by a massive positive bounce Tuesday and Wed.

So whether the bounce comes right at the open, or after we shed another 400 points it is going to come and it will be fast and furious. Are they going to drive us up and onto Jim Cramer's 12K Freeway? I think not – and I would advise selling into this rally. And as soon as I'm convinced the big bounce is over, I'm going to go net-net short all manner of things. The average retail investor should be looking to get out of this market on whatever big bounce we get because I don't think it can stick. It won't take long after they bail out Greece that the next nation blows up. We're going to go through this for a LONG time – so we should start the long enduring "stair step" lower, sometime next week or the following week.

Tips:

Let’s assess where we are - we dove back into some metals – commodities last week and are currently:
- Long: GG at $43
- IAG at $17
- SLW at $18
- SSRI at $20
- VXX is up over $10 per share
- DIA short is up over $6 per share

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.

Remember the Blog http://rfcfinancialnews.blogspot.com/
Until next week – be safe.

R.F. Culbertson
rfc@getabby.com
http://rfcfinancialnews.blogspot.com

This week in Barrons - May 2nd, 2010

This Week in Barrons – 5-2-10:

The Truth Shall Set You Free...
There is an old saying - "there are 3 sides to every story". Well, unfortunately there’s only 1 truth. There are multiple spins, avoidances, exaggerations – but there’s only 1 truth.

Goldman apparently hid the fact that they didn't want billions in toxic sludge on their books when the housing market was destined to blow up, so they tarted it up, and sold it to any investor they could con into believing it was a "good investment". Recently, internal emails have surfaced where in European office members were telling GS top brass that many of their clients were shocked and outraged when they actually figured out how lousy the ingredients of the investment were and they feel “Mis-Represented”.

How about the phrase: "Deficits don't Matter?" If that’s true – then why on earth are people raising a fuss over Greece? And if debt isn’t a problem, who cares about Spain, Portugal, Italy, Ireland, the UK, Japan, the US for that matter? So statements like: "Deficits don't Matter" is not the truth. Let’s look at a couple un-truths that happened just this week:
- Morgan Stanley was fined over metals trading. The Commodity Futures Trading Commission (CFTC) assessed $39M of fines on Morgan Stanley (MS) for breaching rules in the precious metals and oil markets.
- Federal prosecutors have opened a criminal probe into whether Goldman Sachs (GS) or its employees committed securities fraud connected to mortgage trading. Meanwhile, sources said Goldman may soon settle its fraud case with the SEC. The SEC has an "unlimited supply of ammunition" in the form of e-mails and records it could release, and Goldman doesn't want those documents aired in public.
- A Judge ruled this week that Goldman Sachs (GS), Citigroup (C) and several other high-profile banks will have to defend themselves against allegations that they conspired to rig bids for municipal investment contracts and derivatives. Fifteen California cities and counties brought the suit against the banks.

How about the largest un-truth of all: “The Housing Market has bottomed!” According to Morgan Stanley - strategic mortgage defaults have risen to 12% of all mortgage defaults, with borrowers more likely to stop paying their mortgages (and divert spending elsewhere) the higher their credit scores and the larger their loans. So with retail sales are soaring – let’s do a little math here. Last week we learned that 7 million homes are now delinquent. So with about a million of those being “strategic” where people are saying: "to heck with paying $2,000 a month on this house, I'm going to just live here until they kick us out and in the mean time I'm buying an iPad, and a new TV". So that’s billions of dollars that are being diverted from paying mortgages (the single largest living expense) to being spent elsewhere – like clothes and other retail sales items. Well who pays for the house – well eventually we do. The banks will eventually foreclose and be forced out of business - taken over by the FDIC (which is bankrupt now and will need a bail out) – and that bailout money comes from you and me.

Lastly – (Bloomberg, April 29th) - Since the U.S. recession began in December 2007, Congress has extended the length of unemployment benefits for the jobless three times – which is the limit. The line of 99 weeks is the quiet limit – and a mark that hundreds of thousands of Americans have already reached – and in coming months - the number of those who will receive their final government check is projected to top 1 million. Do you think those without unemployment benefits will be able to pay their mortgage?

So we have 18 separate countries in the ‘extended’ Europe that are insolvent for the most part. We have the worlds most "well known" banking institution getting fraud investigations and potentially criminal investigations. We have Morgan Stanley getting fined for "breeching the rules" in the commodity game. We have retail sales being spurred by "strategic" mortgage defaults (fraud). There is no recovery, there is simply "free money" from Uncle Sam.

The Market:
Now if you wondered why gold and silver started to move this week – the truth is that the world is slowly coming to grips with the truth. Friday the market dipped – it should have crashed – and having it end at the DOW 11,008 – tells me that a lot of people wanted to hold this ‘psychological level’ before the weekend. And it appears that the deal with Greece will be approved – so Greece will live on, only to default in the future instead of now.

So the question becomes: If they rescue Greece, does the market just resume its climb looking at DOW 11,700+ or do we see them rush in, push us back up to the recent high of 11,258, only to make a triple top and we roll back down? Obviously the jury's out, but I'm in the camp that we’re going to push the triple top and roll back down – but potentially for a slightly different reason. A few weeks back I talked of shorting the market, buying inverse ETF’s – well one element of notice lately – is the large influx of "amateur" investors starting to flood into the market. History shows that when the "sheep" finally figure it's time to get in, the big boys are more than happy to sell overpriced stocks to them, and get short for the fleecing of the sheep. Honestly – when “Joe Sixpack” is rushing the gates to get in, 99% or the time your best bet is to "get out".

Tips:

Let’s assess where we are - we dove back into some metals – commodities last week and are currently:
- Long: GG at $43
- IAG at $17
- SLW at $18
- And SSRI at $20
- I’m also thinking about diving back into VXX – which is a much longer term play.

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.

Remember the Blog http://rfcfinancialnews.blogspot.com/
Until next week – be safe.

R.F. Culbertson
rfc@getabby.com
http://rfcfinancialnews.blogspot.com

This week in Barrons - 4-25-10

This Week in Barrons – 4-25-10:

Our Thoughts – What is really going on inside those Black Trading Boxes?

A lot has changed in the last 12 years – making this a market controlled not by mass collective wisdom, but by computers, mathematical equations, dark pools, and black ‘trading’ boxes.

In the fourth quarter: total US corporate profits rose 30.6% year-over-year, a huge swing from the -25.1% trend a year ago. But almost the entire story was in the financial sector, where profits have soared an unprecedented 240%. Financial sector profits have accounted for 85% of the overall increase in corporate earnings. Total non-financial earnings are up a grand total of 5.2% year-over-year. Now is 5.2% overall growth, enough to justify where this market is? NO. And how are the banks doing it: (a) they’re keeping two sets of books – one real and one “mark to model”, and (b) the Fed allows them to borrow from the Fed at 0.50% and then loan back to the Government at 4% - and you’ve heard me go on about the rest of this list countless times.

But let’s look at yesterday’s action in the market for an example. The market opened weak – and we had a fairly sharp pull down loosing 105 DOW points quickly. As we got closer and closer to DOW 11K, you could feel the ‘defense’ – and then suddenly program trades / ‘black boxes’ kicked in and we were off to the races. Now, considering that black box trading now accounts for over 70% of all trades made, this is significant. What is Black Box Trading? It is very large computer algorithms - designed to buy up baskets of stocks when any of 10 to 500 parameters are met. The parameters vary from price levels, to interest rates, to volume levels, etc. When the computers sense these parameters, they automatically go out and buy up what ever has been programmed into them – normally very large baskets of stocks. Because many of these algorithms are based upon ‘other activity’ – you can potentially see where a couple dominos falling – could influence the entire group fairly easily. This is why a relatively small amount of cash tossed into the futures, can move stocks so extremely. The black boxes see the futures buying, figure out that they are going to go up, and correspondingly go out and buy their own baskets of stocks, pushing the market even higher. It's literally the tail wagging the dog. Before the widespread use of these incredibly powerful black boxes you could NOT have intra-day pops of 100 points on NO news – but today it controls 70% of the trading volume and therefore is the force behind our every day movement. This is why it doesn’t really matter what the underlying economy is doing – but rather where the major players wish to push the market.

For me, I’ll need to see a couple closes over DOW 11,200 to get me to toss in the towel and say "okay, we’re going to go even higher", or I’ll have to see two closes under DOW 11K, to tell me "okay, reality may have set in".

Factually: Employers took 1,628 mass layoff actions in March that resulted in the separation of 150,864 workers as measured by new filings for unemployment insurance benefits during the month. Each mass layoff action involved at least 50 people from a single employer. The interesting part here is that this number is an INCREASE of 58 (mass layoff actions) over the previous month. So ‘factually’ things are NOT improving in the job market.

Factually: What about GM paying back the TARP? Senator Charles Grassley of Iowa joins a chorus questioning GM's loan repayment, saying it's an "elaborate TARP money shuffle" rather than the sign of health in the company. In a letter to Treasury Secretary - Tim Geithner, Senator Grassley said that the source of the funds for the $4.7 billion repayment is not GM earnings, but rather a Treasury escrow account – and they literally borrowed from “Peter to pay Paul”. Sen. Grassley wrote that GM's early repayment of the federal loan is aimed at diverting attention from another uncomfortable issue – the big break the car company would get on a proposed tax to recoup TARP losses. GM is expected to generate some of the biggest losses in the TARP program, but it won't have to pay any money under the so-called TARP tax the Obama administration wants to impose on large financial institutions. Treasury and GM officials don't dispute these facts. But where was CNBC in telling us the entire story?

Factually: Food Stamp use has risen 22.4% in ONE year.

Factually: Just Friday night, 7 more banks were closed (bringing the total to 57 for the year). These seven banks will cost the FDIC $973.9M.

Factually: Call me old fashioned but I still can’t figure out how borrowing more money gets you out of debt?

Now onto the market:
Always remember: “the market can remain irrational longer than you can remain solvent!” Either I'm about to be made to look silly, or we are in that last hurrah.
On Friday, the market stumbled after the open and went red. Then the black boxes fired off and in a matter of minutes we went from 11,105 to 11,184 – and closed at 11,204 – breaking over their 200 day moving average. One of two things will happen here – either we just continue higher and higher in the face of all the ills and remain "irrational" or we roll over. I am still in the camp that says we're topping. We have seen the market advance for 8 weeks, seeing stocks fully priced and over-valued, and the market (by just about any metric) is overbought.

I’m hearing more and more traders talk about one last hurrah – a ‘blow off top’ kind of day. If that’s the case – we should see them rush in on Monday, and take us up – and that may flow into Tuesday and Wednesday. And then potentially we see the unexpected pull down – a reversal and drop of 100+ points – and that could be the first stair step lower.

Don’t get me wrong – I’ve lived this movie before in 1999 - where the market simply "melted up" on nothing but hot air. It could do it here, especially with the amount of fraud, manipulation and Fed money they are playing with. Everyone knows the scam, everyone knows it's not sustainable. The question is only "when does the music stop?" Then again I could be all wet and next week we could be talking about what stocks to buy when the DOW is at 12,500 and rising.

Tips:

Let’s assess where we are:
- I am long ODP at $8.40 – and will sell it on Monday as they release earnings on Tuesday
- I’m also long NTRI at $18.47.
- I’m short the DIA’s at $110.94 and I'm going to sit with these underwater for a bit here. Yes that's suicide in a manipulated market, but I'm willing to take that gamble and risk a few bucks
- I’m into the VXX at $19.81 – which is a much longer term play.

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.

Remember the Blog http://rfcfinancialnews.blogspot.com/
Until next week – be safe.

R.F. Culbertson
rfc@getabby.com
http://rfcfinancialnews.blogspot.com

This week in Barrons - April 18, 2010

This Week in Barrons – 4-18-10:

Our Thoughts
There just might be a way out…the Invisible Bail-Out!

"The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest we become bankrupt. People must again learn to work, instead of living on public assistance." … Cicero, 55 BC

If small business isn't hiring, and houses are still foreclosing at record numbers, isn't this a time when people are being forced to "hunker down" and “tighten up”? For the large part, yes, but there's an interesting behavior happening. So many people have decided not to pay their mortgages and just wait until they get thrown out of their homes, that they are now flush with cash! Amazing stuff. People are spending more, because they've become squatters in their own homes.

Follow me here – because I don’t think that this has ever been tried before – and this may be the ‘Invisible Bail-Out’! Approximately 7.9 million homes are violently delinquent. With the first “help programs” – it turned out that over 50% of the re-worked mortgages failed anyway. So banks are beginning to get more aggressive with their “forgiveness” of principle programs – and this could be the making of the biggest bailout in history! A gentleman in Florida – recently bought a new vehicle because he stopped paying his mortgage over 12 months ago. The bank doesn't call him – no one has shown up to toss him out – he’s a squatter in a very nice home – WITH an extra $1,500 a month in his bank account. The FED has been secretly buying all those toxic loans from the banks – whether they are home mortgages, credit card debt, etc. It’s being called the: "Don't Pay, Don't Chase-Em" Plan. People are being encouraged to strategically default on their debt – that way they can still have shelter – but also have $10k to $20k more a year to spend on ‘stuff’. Of course it raises the question, "If people aren't paying, who is?" Well the answer of course is the FED at first, and then You and I in collective taxes and more inflation as they print more money to buy up the discarded debt.

I honestly don't know that this approach has ever been tried in the past, I cannot find evidence of it - urging people to strategically "walk away" and "start over", and the government will mop up the losses. It’s pretty common knowledge that at some point the U.S. was going to have to default on it's debt – it’s just getting mathematically impossible to pay it back. But what happens if we don't default on Government debt, and we just let everyone in the country default, then mop it all up, and then via use of a VAT tax, etc, on all the new consumer spending...try and spend down that debt? I don't know that this approach has ever been tried?

This is exactly why the Fed keeps telling us how they are going to keep monetary policy very cheap for an "extended period". This is why they left the door wide open to come back in and buy up more toxic assets. They’ve purchased a large portion of the already foreclosed mortgages, and as more and more people walk away, they'll re-institute the plan and start buying more toxic assets. I think the reason so many people are not being kicked out of their homes is because the banks get paid by the FED, and the FED knows if they force them out – and they have to go and buy another house, they won't have money to spend on goods and services – so temporarily they’re just being left alone.

Considering that just this week we found out foreclosures are up huge, breaking all the records again – 3 banks – Bank of America, J.P. Morgan and Wells Fargo could face up to $30B more in losses on home-equity loans - can you imagine the amount of money ALL of banking is losing over this? Now – expect better retail numbers because of this. But just "know" that this too is unsustainable – and unless the U.S. decides to give everyone a free home - squatters will have to get kicked out – and home inventories will continue to rise and come to market.

Now if you’re thinking of home bargains: Steve Forbes recommends these top cities – that could file for bankruptcy in the coming months:
- #10 Providence, RI (Year over Year - building permits down 83%, unemployment up 123%, median home prices down 17%)
- #9 Las Vegas, NV
- #8 Sacramento, CA
- #7 Orlando, FL
- #6 Los Angeles, CA
- #5 Phoenix, AZ
- #4 Jacksonville, FL
- #3 Riverside, CA
- #2 Tampa, St. Pete, FL
- #1 Miami, FL

The Markets
Friday – save the day – was the day that the SEC launched a civil suit against Goldman Sachs, saying they used fraud during the subprime mortgage disaster. In an instant Goldman fell $24 to $155 – but then the world rushed in – lead by Jim Cramer – to defend and lift Goldman back up. In my opinion was Goldman doing anything fraudulent - of course they were, along with the ratings agencies, and the people that were shorting more silver than what exists, and the SEC itself who passed on prosecuting Bernie Madoff – 4 times. Could this have anything to do with the fact that the CFTC is on the hot seat because of the Silver and Gold manipulations that have been exposed? Could it have to do with the current financial legislation on the hill? All Yes → but does it support the ‘topping theory?’ I'm pretty convinced that this week will see the top of the market, and we roll over. I think Monday we could see a circling of the wagons as they do their best to try and shrug off this GS mess, but by mid week we'll have gotten Apple's earnings and that could spell the "last hurrah". We said weeks ago that 11,150 would be the top – and when the GS news hit and we ended Friday at 11,018 - our estimate may (in fact) hold.

Tips:
The Goldman fraud news somewhat validates all the conspiracy theories that are out there – and immediately caused me to purchase the VXX at 19.81 and shorted the DIA’s at 110.94. This was a very low rish trade – considering the amount of air play this will get over the weekend.

Now we can’t over-react here – as they will spin this as positive as possible. They will make this look like it was just one or two people and NOT all of GS... so be careful here.

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.

Remember the Blog http://rfcfinancialnews.blogspot.com/
Until next week – be safe.

R.F. Culbertson
rfc@getabby.com
http://rfcfinancialnews.blogspot.com

This week in Barrons - 4-11-10

This Week in Barrons – 4-11-10:

Our Thoughts:
I just Don't Trust This Market

Everyday I get asked the same question - "Why are you so glum, the numbers point to recovery". Everyone cites several recessions where in it took a long time before people bought into the idea of a recovery. What’s different this time – JOBS. On Friday the CEO Report told us that 22% of all polled companies plan to lay off more people. The general public may not know how this economy works but they see: foreclosures, inflation, gas approaching $3 bucks, taxes rising, houses on the market for 24 months, a lot of bad things. And what is different this time around – it’s the Internet!

In 1982 (a previous recession):
- The US was still the worlds largest exporter, and the largest creditor.
- People were looking forward to lower taxes.
- Our nation was fiscally sound.

Comparing that to what’s happening presently:
- Greece is doomed - and up to 18 countries could follow in lock step.
- The U.S. is running TRILLION dollar deficits with more to come.
- Wages have been stagnant for 10 years
- All the good paying, blue-collar jobs have gone off-shore.
- Household debt is enormous.
- 49% of all Americans pay NO taxes, leaving the ‘other’ half to pay the bills.
- Baby Boomers are retiring at the rate of 7,000 per day, yet 51% of them have "no visible means to retire". 70% of them have less than $50,000 in savings.
- We are scheduled to see 300+ regional banks go belly up.
- And we're waging wars in 2 locations, eating hundreds of billions per year.
- AND - we’re no longer dependant upon big newspapers for our news!

If that wasn’t enough:
- The U.S. office vacancy rate rose to 17.2 percent
- 149,268 consumer bankruptcies were filed in March – a 34% increase over February - the highest monthly consumer filing total since Congress overhauled the Bankruptcy Code
- California's three largest public-employee pension funds currently face a total shortfall of more than $500B
- The pension plans at General Motors and Chrysler are underfunded by $17 billion and could fail if the automakers do not return to profitability
- The Wall Street Journal reported major U.S. banks temporarily lowered their debt levels just before reporting in the past five quarters, making it appear their balance sheets were less risky
- AND over 212,000 could lose unemployment benefits this week.
The difference this time around – is that we all have access to multiple channels of information – and we can separate reality from fantasy. For example: the American Farm Bureau Federation said that Supermarket prices for 16 basic foods were up 6.2% in the first quarter, led by gains in cheese, vegetable oil and eggs. But the Government said that food prices went up just 0.2% in January and 0.1% in February. Now - Who do you believe?

Yes, right now there is a disconnect between what the economy is really doing, and what the stock market is doing. This disconnect is one of the largest we've seen in many years. Despite the trillions in stimulus, despite the rah-rah of the market, we are economically cooked, and until this recess/depression runs it's course, nothing's going to stop it. The Government can slow it – but they can’t stop it.

The Market:
The Market has wanted DOW 11K for months – but it’s tough when the bulk of the American population doesn't have the means to invest, and most of the foreigners are trying to get money OUT of the US(S) Titanic not put money in. So, for the past 3 weeks we’ve been running in place. Consider this: 8 million people are out of work and 3 times that are "under-employed" – with the remainder being very scared of touching the stove – AGAIN. So, Friday (after an incredibly boring session) they circled the wagons and late in the afternoon, pushed and pushed and broke through DOW 11K - to end the day at 10,997.

Okay - now what? This week is the official start to "earnings season" and yes we're going to hear some tremendous earnings. Uncle Sam has spent trillions to keep things moving and companies have cut employees and expenses to the bone. But my guess however is that we are still in a topping phase. It takes a long time to roll over after a year of the biggest financial stimulus and Wall Street push in our history, but roll over we will.

Was Friday the top? I don't think so. I think we still have a climactic "blow off top" coming. I could easily see us gain 150 - 200 points, and then start a long process of stair stepping downward - lose 300, bounce for 200, lose 400, bounce for 300 and so on. After all, history shows us that "stocks" often rise up into their earnings, but interestingly the "market" doesn't have to follow along.

So we will lean long into the stocks that are going to release earnings - usually taking a position 3 to 5 days before the report will reward you - but we never hold over through a report, we always sell out the day ahead.

Tips:
I would be a lot more optimistic if:
- Uncle Sam wasn't spending the upwards of $24 trillion in stimulus,
- Banks were marking assets to market, instead of to "model" which the FASB has allowed them to do,
- Taxes were about to go down instead of up,
- There were NOT 7 million homes in a "shadow inventory",
- Good paying jobs were abundant, and
- Companies reported GAAP earnings instead of proforma.

Therefore, I’ve traded very little this past week and have only two positions open:
- MS purchased at 30.27 – with a stop in at 30.30
- LTD purchased at 26.02 – with a stop in at 25.99

I’ll be trading stocks (approximately) 5 days prior to their earnings reports – and then selling the day before their earnings release – as these next several weeks unfold.

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.

Remember the Blog http://rfcfinancialnews.blogspot.com/
Until next week – be safe.

R.F. Culbertson
rfc@getabby.com
http://rfcfinancialnews.blogspot.com

This week in Barrons - 4-4-10

This Week in Barrons – 4-4-10:

Our Thoughts:
Forming a Market Top - Understanding the “Put” Option

I have the prestigious honor (of being selected) to give a TED talk at CMU on Easter Sunday. The theme is ‘FearLess’ and my topic is: “Fearless Investing.” The event is being streamed – and for those of you wishing to watch (and I would be indeed honored) – you can turn to: www.TEDxCMU.com/watch … around 1:30 EDT on Sunday – April 4th.

If you believe (as I do) that we’re in the final stages of forming a ‘market top’ – then let’s explore ways to take advantage of a market decline – one of those ways is buying the “PUT” option. An ‘Option’ is the ‘Right’ to do something. Think of it this way: suppose you are driving home and you see a car for sale parked in a yard. It's a real beauty and you know from experience that it should sell for about $25,000. You walk over and the sign reads "One owner, 1,000 miles, perfect condition - $10,000." Thinking this must be a mistake you run up to the house to inquire. The owner says the deal is for real – he just wants it gone. So you say to the owner: "I would love this car, but I'm not sure my wife would approve of me spending $10K without her, so I would like to give you $100 dollars to hold this deal until tomorrow. If my wife says ‘yes’, then I will take the car for the $10K, but if she says no, you can keep my $100 dollars for all the trouble."

That is an option! You have the right, but not the obligation to purchase something within a specific period of time. But why use an option instead of just buying the stock itself – you ask? The answer is that a small amount of money can control a much higher priced issue. In our example, $100 controls a $25,000 car. In stocks - $2 to $10 options will control $10 to $100 stocks – but more importantly ... if you trade that option you can make some incredible profits.

Back to our example – if we purchase the car for $10,000 and let’s assume we can sell the car for $20,000 – that gives us 100% profit on the transaction. But on the other hand, suppose you sold your option? Let's say you went to a car dealer known for selling that brand of car and said ... "I have the option of buying this car which you sell on the lot for $25,000, for $10,000. I don’t want all the hassles associated with buying and re-selling a car - will you give me $1,000 for my option to buy that car?” If he agrees to buy your option – you purchased the option for $100, and sold the option for $1,000 – that’s a 1,000% return on your money – and you never had to take possession of the asset. So for the most part we don't buy options to actually "execute" them (or go through with the underlying purchase) - we buy them to trade them as their value increases.

The above is called a “CALL” option – the ability to purchase something at a pre-determined price. On the other side of the coin is the "PUT" option – the ability to SELL something at a pre-determined price. We buy a PUT if we think the asset is going to fall. So let's say you think the XYZ company is going to sink because their sales are slipping. XYZ is currently trading at $50 dollars per share. You could buy the August $50 dollar PUT option (for $5) and if you are correct and XYZ falls to $44 dollars per share, your PUT option will probably have almost doubled. You would then sell the PUT option and pocket the profit. (Naturally if the stock rises instead of falls, the option you paid $5 for is going to be worth less in a hurry). So with a PUT option – you have the ‘right’ to sell a stock at a pre-determined price – which means the PUT option increases in value if the stock actually falls.

So – if you thought that this market was just way out of whack and should lose a lot of it’s value - you could buy the January 2011 DIA PUTS. That would give you 8 full months for your option to work. In fact, during 90% of the calendar year 2008, we were holding long term PUTS against the market. Some of those PUTS gained almost 500% as the DOW fell from 14K to under 9K. Next week we’ll talk about inverse ETFs.

The Market:
This market action is very indicative of two things. One, by every measurable metric the market is well overdone to the upside. So, there's two ways to work off an overbought situation. The market can fall (a sin according to Bernanke) or tread water "sideways" – which is basically what it’s doing. Secondly, after months of moving higher, the market often gets into a pattern of "sucking in late comers". Many people have watched the market move higher without them, so they finally decide to get in. They send in market orders before they go to work, the market makers open the market higher and fill those orders, then later in the day they let it fall, effectively taking the late comers money. This is also happening.

Now this week we had Friday’s Jobs Report – and in it we found out: Economy adds 162,000 nonfarm payroll jobs - biggest U.S. employment rise since March 2007. Now before we get too excited about the report, thanks to Steve Forbes for writing:
- ADP, a payroll services firm, said the private sector shed 23,000 jobs in March.
- The number of long-term unemployed workers (those out of work for 6 months or longer) - increased by 414,000 during March to 6.5 million.
- 44.1% of unemployed workers have been jobless for 6 months or more.
- A Gallup Daily survey found that the underemployment rate - edged up to 20.3% in March, from 19.8% in February.
- Construction spending in February tumbled 1.3% to a seasonally adjusted rate of $846.2 billion, down from $857.8 billion in January.
- AVERAGE HOURLY WAGES fell – which is further indication that good jobs are leaving but we’re still hiring: “Do you want fries with that?”

We think we are in a market topping action – and give us this week to potentially see the turn.

Tips:
Jacob Hawkinson wrote this week concerning Copper: “With copper at a 2 year high – currently good traders are playing copper from the short side, however the length of their holding periods and success of their trades are inversely correlated’ – excellent comment – don’t marry it – date it!

James Taylor writes about AGI – Alamos Gold – Encouraging Reserve Increase Highlights Exploration Potential. He rates it a ‘Strong Buy’ with a price target of $19 vs the closing price of $13.57 – You know me and GOLD - I’m looking at it for sure.

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.

Remember the Blog http://rfcfinancialnews.blogspot.com/
Until next week – be safe.

R.F. Culbertson
rfc@getabby.com
http://rfcfinancialnews.blogspot.com

This week in Barrons - 03-28-10

This Week in Barrons – 3-28-10:

Our Thoughts:

"We can't expect the American People to jump from Capitalism to Communism, but we can assist their elected leaders in giving them small doses of Socialism, until they awaken one day to find that they have Communism." … Nikita Khrushchev
It only seems fitting that this week we pushed Obama-care on the American people who soundly rejected it.

A question came in from a reader: “When do you think the Fed will STOP supporting the market. Couldn’t they keep supporting it for the next several years until the economy truly picks-up?”

Great question. In my view - the market is trying to take the most money from the most people at any one time. So, with that in mind, the market will usually move in the opposite direction of the bulk of the people. In fact on CNBC on Thursday an NYSE floor-person said: "When the public finally comes in, that's exactly when you should be selling because they always come in at the top. The public normally buys at the very top and sells at the very bottom."

Now the Fed and Government want the market up to give the illusion that the economy is working and things are getting better. Wall Street wants the market up so that it pulls in money that’s on the sidelines and what is currently in Treasuries. The U.S. would also like the market up so that people don't launch even more "tea parties" and demonstrations concerning the way American has been squandered. However, once the entire agenda is in place – both elements are prepared to ‘pull the plug’ because laws will be in place that will make people even more dependant upon the Government’s programs – and playing a ‘short market’ is meant for the pros rather than the amateurs.

The market is being propped up in order to inspire confidence and keep the population from popular revolt while they jam spending, healthcare, bail-outs, etc down our throats. But, there comes a point in every market rally, when the collective "risk aversion" of so many people, stops them from participating in any more buying. Then, there comes another moment when they decide that they should "sell" before the market rolls over and takes their money. Can Wall Street and Uncle Sam, hold off the forces of millions of people trying to take money "out" versus putting it in? Currently money has been coming out of the market, volumes are incredibly low, gains are painfully slow and always on the heels of futures buying via the Fed. I believe the coming market fall could be very interesting, and you could see a massively fast and brutal plunge.

However, do we know WHEN it's not in their interest to continue to keep the market up – NO! When you have ‘floor traders’ saying that the “market isn’t free” – it’s at that point that technicals, VIX readings, moving averages, earnings, foreclosures, and bankruptcies – they all don’t matter any longer. The market has been burning a huge amount of short sellers and put buyers for the better part of several months now; however, the participation rates are low, funds are running on air - having expended their cash, and we are seeing the world back away from American financial assets. If we make it past 11,150, then all bets are off – but I’m still looking for one last feeding frenzy that pushes us up and over 11,000 or so, before the wheels came off.

The Market:

President Obama's fiscal 2011 budget will generate nearly $10 trillion in cumulative budget deficits over the next 10 years, $1.2 trillion more than the administration projected, and raise the federal debt to 90 percent of the nation's economic output by 2020, the Congressional Budget Office reported Thursday.

Did you know there's never been a successful economy on earth with debt levels like this? The market itself has been climbing a wall of worry, spurred on by Fed money – and I tend to think we're near the end of it. Monday the market came back a bit, but was very sluggish and actually red during the day. Tuesday was sluggish. Wednesday just barely got us out of red and into green, same with Thursday. Friday we were up 65 and want all the way down to red on news of a possible North Korea sinking of a South Korean vessel.

This market has ignored: Greece, Italy, Ireland, Latvia, Dubai, earthquakes, foreclosures, bank failures, and healthcare. In short, the market has really started to get choppy – up 117 at noon and closing up 5 – which usually spells a change in the wind and – we could be AT or just a couple of weeks away from the ultimate high. We are still leaning long, but taking profits quickly. At some point we'll list all the shorts, puts and ETF's we'll be using to make a fortune when the market falls.

My guess is that we come into this week and see one last concerted push higher. We have a Holiday week ahead of us, which usually means lower than normal volumes, and low volumes mean easy manipulation. But next week we have the “Non-Farm Payroll Report” – simply termed “The Jobs Report” - that is due out on Friday. So, if it's poor, we potentially come into Monday April 5, looking at a rapidly weakening market. And, if it's strong because of the 160K census workers the government hired, then Monday April 5th could potentially be a big up day, which potentially spells the end. In either event, I think that between today and say April 7th, 8th or 9th we will experience the "top" of the long run since last March. I know that's a bold statement, and I could end up eating crow – but that’s my thinking as of now.

Tips:

We’re left only holding JCI and NETL on the long side. We have JCI at 32.79 with a hard stop at 32.90, and NETL at 30.00 with a hard stop at 29.74. I’m not going to hold JCI into a losing position. GLW almost broke 20, but backed away – because I was gun shy about holding it over the weekend.

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.

Until next week – be safe.

R.F. Culbertson
rfc@getabby.com
http://rfcfinancialnews.blogspot.com