This week in Barons - 6-27-10

This Week in Barons – 6-27-10:

Can we ever CURE what started this mess – Housing?
Last week new home sales fell 32.7%, to a level just about equal to the disaster of 1981 when we had 20% interest rates. And if you discount the ‘seasonality’ slightly – it was the LOWEST amount of new homes EVER SOLD! Now you can certainly equate this to ‘hitting bottom’ – or ‘potentially trending higher’ – but how many of us make our livings catching falling knives? It doesn’t take a rocket scientist to figure out that when Uncle Sam stopped giving people $8,000 to buy a house – they stopped buying houses. Meredith Whitney – the person that went public with the banks impending doom said: “Consumers have stopped paying their mortgages so that they can cover other bills, leaving banks with rotting assets and a mounting foreclosure problem. A double dip is coming in housing, no doubt about it." Couple that with Richard Russell (the gent that spawned the idea of the DOW theory) stating: “We're now in the process of building one of the largest tops in stock market history. The result will be the most disastrous bear market since the '30s, and maybe worse.”

Now on July 2nd, we are going to get the "Non-Farm Payrolls Report" – often termed the “Unemployment Report”. Last month the addition of U.S. Census workers caused this report to show an addition of 431K jobs – with only the ‘fine print’ telling people (a) these were only temporary positions and (b) they would be all gone by September. This months’ report should show the beginning of some of those layoffs. Combine that with this past Thursday, Congress decided NOT to extend unemployment benefits past the existing 99 weeks - means that upwards of one million NEW people are going to have "no" income in July – as their benefits expire.

Now – I think we’re running out of things to hype? If it's not a bottom in housing, and it's not job creation, and it's not an increase in credit, what’s left à Earnings! They are going to do their best (this week) to tell you to ignore all the other ills and just focus on earnings – but understand – corporations don’t have Europe to lean on any longer – there’s still an oil spill in the Gulf to contend with – most of our states are virtually insolvent – we haven’t solved the regional banking crisis and potentially we may not even have world peace (that much longer) as we begin to see some form of hostility in the Iran Theatre.

But let’s talk about earnings – right now the accounting of today doesn't even resemble the accounting of years past. Words like ‘Proforma’ and ‘Intent based’ have all but replaced GAP and FASB as our national standards. At "some" point there are so many out of work, so many making lousy wages, so many in desperation, that a company won’t be able to sell its goods and services any longer – without either (a) a huge increase in economic activity, or (b) economic activity slowing to a pace where products and services have to be priced much lower just to sell – which will cause a company not to make as much profit – and then ‘miss’ or ‘fail to beat’ estimated earnings – and the stock price falls. It's my guess that this next earnings season will mark the "top" of the earnings cycle for quite some time. Combine lower outlooks for earnings with all the other ills we face, and you can make a pretty strong case for the market loosing an awful lot of ground. It's also my guess that sometime during the year 2011 we are going to see an even bigger stimulus package than anything we've seen before. Central Banks around the globe will flood the planet with as much liquidity as possible – trillions of dollars.

In the meantime, there is money to be made. Gold and silver will still rise. People who know how to go short via puts and inverse ETF's will do fine. The key will be active management.

I think we hit DOW 9K this summer (September is my guess) – and my longer-term outlook is DOW 5K – potentially lasting years. The only reason we don't have mile long bread lines right now is because of 40 million people on food stamps. The only reason we don’t have riots in the streets is people deciding to stop paying their mortgages, and 6 million people more on extended unemployment benefits. Municipalities, healthcare, insurance, even education – will all need to trim/cut costs fairly dramatically going forward. Into the fall we should see a bounce of some type, followed by the next round of stimulus that will evoke hope – and it won’t be until that final, enormous, tidal wave of coordinated stimulus wears off that we can finally hit bottom, and finally dig our way out of this mess – which could be 2012 (another election year!) I do think third quarter earnings are going to miss the mark – and that will prompt an interesting run till year end.

Now onto the market:
This week the action in the market was all about Ben Bernanke and the Federal Reserve. After two years of 0 % interest rates, and Bernanke telling us we were in a “V-Shaped” recovery and thinking about exit strategies for all the stimulus programs – which became a "U-Shaped" recovery and keeping interest rates "exceptionally low for an extended period of time" – which became a ‘fragile recovery’ – and NOW, we see from the most recent data that the economy has burned through the stimulus money and everyone wants to know "What’s next?"

I think next week we’ll see a push higher for a couple of days – for two reasons: (a) it's the end of the quarter and (b) it's the end of the "half" year. Both of those are fairly important for the fund manager ‘window dressing’ – so all the funds will be buying the leader stocks like AAPL – trying to get into winners ahead of July.
With that in mind, we "should" have a green Monday – potentially Tuesday – and we’ll start getting edgy around Wednesday – as thoughts drift toward Friday’s Jobs Report. Potentially – worse than the jobs report – is that we are seeing some major index's all around the world approach a nasty "technical pattern". It is not good for the Bulls when the 50-day moving average falls below the 200-day moving average. The London ‘Footsie’ has just done that – our S&P is racing toward it – and all around the globe that pattern is showing up, and that pattern often leads to a very sharp decline.

I think the main theme for the next couple weeks is going to be continued volatility. Let's suppose they sell us lower on the jobs report – in a nano-second they will switch to focusing on the earnings season coming up and try and hype that. So, we could be up for a few days early, then drop out Friday into next week and then see them try and rally us into earnings again. I still believe that sometime between this week and approximately July 20, this market will begin to slide down into the DOW 9K area. However, remember the old adage that the market can remain irrational longer than you can remain solvent. Simply put – we need to be patient and let the market "come to us". Please be careful out there.

AN ASIDE: Since last week’s letter on Silver – I’ve gotten a tremendous number of requests surrounding where to invest and where to purchase. I will be putting out a supplemental letter today on this topic – thanks to all for your interest.

Tips:
We’re still almost totally in metals, and they’re performing nicely – all things considered:
- GG at $43, IAG at $17, SLW at $18, SSRI at $20, GDXJ at $27, GLD at $115.86, NG at $6.64 and PHYS at $11.65
- We dabble during the week – taking advantage of day trades here and there – but until we feel comfortable about shorting this market – we’ll stick with the metals for longer term holds, potentially looking again at the VXX, and seeing which way the wind takes us during these next several weeks.

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 month or so ago now:
http://www.youtube.com/watch?v=K2Z9I_6ciH0&feature=PlayList&p=6F63374ED7A97658&playnext_from=PL&index=5

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 - 6-20-10

This Week in Barons – 6-20-10:

How to make a Million Dollars over the next 5 to 10 years?
Great Question – well – I think you might be able to do it with silver. We know that the silver market is manipulated by the big institutions, the SEC, the Comex, etc. The commodities commission and everyone else has been put on notice that it's happening AND they have acknowledged that they are looking into it. Consider that for a moment - silver should be trading at $50 per ounce – in fact using history and gold as our guide – then the figure is closer to $100/ounce. But due to big institutions such as J.P. Morgan given free license to naked short 40% of the world’s silver product – you could easily argue that silver is artificially cheap right now. As the worlds fiat currencies and economies continue to sink, people are scrambling to buy value – which is why gold hit an all time high last week. There will come a time when physical demand for silver is going to overcome the ability to keep it down. Currently an ounce of silver costs $18 – and I always advise investing in the physical metal whenever possible.

Let’s suppose that I’m truly not some conspiracy nut – but if silver could find it’s way to end the manipulation – it would immediately be trading for over $30 per ounce. As people around the globe saw the break out – the buyers would enter and silver would end up north of $100 – potentially closer to $125 per ounce – as it coincides with it’s historic ratio to gold. But wait the other piece of this is the investment in the miners – the companies that pull the metal from the ground. As silver increases in value – the miners of silver also increase dramatically. We have historical proof of $5 miners going to $50 a share – and imagine having a few thousand shares of a couple junior miners when silver makes it's sprint?

I do believe that silver is one of the best investments for the next 5 years. I could be wrong and potentially the manipulation can go on forever. But it is currently so undervalued to gold that it’s my bet that they can’t keep it under lock and key all that much longer.

Now – on to some news:
- On Tuesday morning, TV analysts were telling us how well the consumer was doing – and then Best Buy completely missed their numbers and made references to the consumer ‘hunkering down’ – hum?
- Then on Tuesday – 8:37AM – came the news blurb that Fed officials have quietly begun to discuss their next steps in the event that the recovery fizzles or inflation keeps falling. Well the good news is that we NEVER recovered. Let’s talk recovery to the 8 million unemployed! But honestly, $12 Trillion buys a lot, 99 weeks of unemployment buys/costs a lot, and expanding the food stamp program to cover 50 Million people costs a lot!
- Since June 1st, 340K people have lost their unemployment benefits. Estimates say by the end of June - 1.25 Million people will be OFF the benefit roles. Now what happens when over a million people (end of June) stop spending? Now – is it just ‘coincidence’ that Best Buy missed their numbers?
- At 11:48 AM on Tuesday – we learned that 91 banks and thrifts skipped their May TARP payments - 23 of them for the first time. That's up from 74 banks deferring in February, and 55 in November. Twenty banks have missed four or more payments, and eight have missed five. Maybe these are all ‘strategic defaults’ just like the people who have decided to just be squatters in their own homes?
- Single family housing starts fell 17% last month.
- A couple contributions from Steve Forbes:
- Fannie Mae and Freddie Mac (institutions that hold over $6 Trillion in American mortgages = ½ of an entire years GDP) were delisted from the stock exchange this week – with stock share values less than $1 – causing shares in each of them to plummet over 40%
- Lumber futures – a leading indicator of housing activity – have fallen 40% since April.
- Finally – with Fannie an Freddie out of the way – will banks be forced to foreclose on properties and recognize losses – or are the Feds going to start/continue buying up all the toxic assets?

Is it any wonder that (without being a day trader) I recommend Silver and Gold!

Now onto the market
The goal of the market is to take the most money that it can – from the most number of people that it can. This week was options expiration week – and look at the action on Thursday. All day long the market was slightly red, and then in the last forty minutes the day ended green across the board. Friday was the same thing. Our guess was that to continue to roast the shorts (basically make option contracts null and void), the market would move sideways for the day or two, ending with a very small plus or minus. When the final bell rang, the DOW gained 16, the S&P 1.5 – yawn – but they put the market where the most amount of shorts via put options would get burned, without pushing it far enough that any of the call buyers made a fortune.

Now that we have options expiration out of the way – the market is paying attention to the 1120 level on the S&P – and if it gets above that – it could pop higher quickly. But if it can't put in a close for a day or two above that, chances are pretty good we fade back away from that level. Now there’s no question the "desire" is there to make this happen. But considering the latest economic reports, thinking that Russia is considering moving away from the dollar as the world reserve, and considering the "run up in gold" lately – do they have the fire power to make it happen?

Right now we're in no mans land. Earnings will start to trickle out next week, but the real "season" won't start until the second week of July. In normal historical terms, the market does tend to move higher into earnings season as optimism builds surrounding the releases... but it's a bit too early for that. So, one logical outcome is that the market gets trapped here in a trading range, trying to build a base so it can push higher into earnings. And, my bet is that we're going to see a pretty volatile week, without a lot of overall direction.

Although I am still completely convinced we'll see DOW 9K sometime this summer, it would probably make the most sense to see it happen "after" earnings as we start heading into the historically weakest month of the year - September. Between now and then almost nothing will surprise me.

For all of you DAD’s out there – Happy Father’s Day!

Tips:
We’re still almost totally in metals:

- GG at $43, IAG at $17, SLW at $18, SSRI at $20, GDXJ at $27, GLD at $115.86, NG at $6.64 and PHYS at $11.65
- We dabble during the week – taking advantage of day trades here and there – but until we feel comfortable about shorting this market – we’ll stick with the metals for longer term holds, potentially looking again at the VXX, and seeing which way the wind takes us during these next several weeks.

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 Barons - 6.13.2010

This Week in Barons – 6-13-10:

“I Love It When a Plan Comes Together!”
After seeing the movie “A-Team” this evening – I was reminded that ‘plans’ and ‘soap operas’ have a way of keeping their audience riveted to the screen. Currently Europe's bursting at the seams, Japan's facing financial melt down, and the US is mired in debt that's mathematically impossible to repay. To get into these positions, bankers broke rules, created "exotic" assets, fudged numbers, kept two sets of books, and incorrectly rated virtually everything. The watchdogs in charge of making sure none of this happened were either complacent, or incompetent, or both. Then of course there's the issue of jail. In the movie the A-Team went to jail (erroneously but they were there) – however in our real-life, well scripted soap opera not one of the power brokers that caused the damage to our system went to jail – not a banker or any of the ratings agencies.

Soap operas keep people coming back because you never really know what's going to happen next. Well in our real world soap, what keeps me coming back is the simple fact that this soap opera plan effects my life. When Nixon decoupled us from the gold standard in 1971, it gave the bankers the green light to virtually do anything that they wanted. It gave our politicians the green light to spend on any entitlement or pork program they desired. I really wish more people would "tune in" and watch the real world soap opera called "our economy" and see just how completely warped things are.

On Thursday the stock market roared higher by almost 300 DOW points – but what changed?
- The news out of China was that their exports gained some incredible 50% - and if they are shipping 50% more goods - that means the world is buying 50% more goods, and therefore the global consumer is back – BUT wait – at 9:36 AM on Friday we learned that the Baltic Dry Index dropped another 3.9% - extending an 11-session losing streak in which it's dropped 21.9% - and a huge 14.5% on the week. This index measures demand for base commodities aboard bulk carriers, and is considered a barometer of economic demand. Well – if China is exporting 50% more goods, how are they getting it around the globe if the Baltic Index is crashing?
- Also on Thursday the initial jobless claims fell "unexpectedly" by 3000 folks. That’s a good thing – yes – BUT wait – it appears that last weeks initial jobless claims number was "revised higher" by 6000 people – so Thursday’s drop wasn’t really a drop at all.
- Then we heard that production in Japan was going along well and their GDP data suggested that they too were looking good – BUT wait – at 7:51 AM - Naoto Kan warned that Japan could face a debt crisis similar to Greece's unless it urgently deals with its growing national debt.
- Then at 7:35 AM we found out that UBS is the target of a preliminary forgery investigation by Luxembourg prosecutors, in relation to how the Swiss bank oversaw funds connected to Bernie Madoff.
- Then at 7:59 AM (timed to coincide with the release of its 2009 mortgage report) the FBI reported planning a nationwide crackdown on mortgage fraud, with hundreds of people likely to be arrested next week on charges such as inflating home appraisals and encouraging document falsification.
- Steve Forbes wrote to tell us à 7.5 million loans are in some stage of delinquency or foreclosure – which means that there is an 8.5 million "shadow inventory" of homes (over a two-year supply) that need to close just to clear the overhang of distressed properties. 25% of all current mortgages are ‘underwater’ – causing more and more homeowners to just walk away. These strategic defaults accounted for 35% of the December 2009 defaults — up from 23% in March of 2009. And the ‘zinger’ - nearly 70% of all of the loans that were modified - re-default within 12 months.
- But with all of this – and a 20% under/unemployment rate – How could the Michigan Consumer Index rise to its highest level in two years last week?
- Then there is a new Single Stock Circuit Breaker Rule that says if an S&P 500 stock rises or falls 10% in a 5-minute time period, a market-wide trading pause will occur in the stock for at least 5 minutes. The pause would give the markets the opportunity to attract new trading interest in an affected stock, establish a reasonable market price and resume trading in a fair and orderly fashion. However – the opening and closing price of a stock will NOT be subject to the 10% move threshold – in that the markets are open between 9:30 AM and 4:00 PM – and this rule will only be in effect between 9:45 AM ET and 3:35 PM – allowing the Goldman’s of the world to profit early and profit late. You potentially wondered why the last 30 minutes of trading lately has been absolutely ‘crazy’?
- And finally – the BP Soap Opera – understand that BP cannot pay for the clean-up and the reparations. No single company can withstand all the health ramifications – the property value loss – and the loss of tourism – especially to the ‘sunshine state.’ BP will either have to be bailed out, or go belly up in it's American unit.

The Market:
Understand that Bull markets do not create 300 point up days; however, Bear market bounces do! The issue however is that you really never know how far one of those bounces will go. So – does the bounce prove to be another one-day wonder, or does it have legs – my feeling says that it has more legs. The Market will not allow all of those ‘put buyers’ to succeed – and it needs to take more people in on the ‘long side’ and then when it's satisfied that it's got as many suckers as it can get, it's going to roll lower. I still think we have a date with DOW 9,000 this summer. The fact that on Friday we pulled out a flat day, proves to me that they are a lot more brave people out there. In past weeks, they would have never held the market up on a Friday fearing some nasty news out of Europe that may cause a nasty gap down on Monday. But Friday everyone was OK holding in there – and therefore, I suspect we have some more upside to come. If we can get past 10,255 there's no reason we can't flirt with 10,500 soon enough. That being said - no matter how far a bounce takes us, even if it's beyond that number, it's still a bounce in a Bear Market – and in due time being “SHORT” will be the right way to be.

Tips:
We’re still almost totally in metals:

- GG at $43, IAG at $17, SLW at $18, SSRI at $20, GDXJ at $27, GLD at $115.86, NG at $6.64 and PHYS at $11.65

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 - 6-6-2010

This Week in Barrons – 6-6-10:

Jobs – Jobs – Jobs … What Jobs?
Remember all the analysts telling us how great the jobs report was going to be – well on Friday we added 430,000 jobs – BUT:
- Not so fast - Uncle Sam admitted that 411K of the 430K were Census workers. Those are Part time jobs that will go away starting in June and will be completely gone in September. That leaves 19k jobs created.
- Not so fast - 31K of those jobs came from "Temporary Services".
- And not so fast (it even gets better) – 215,000 jobs were ‘fictionally’ created with the ‘birth/deal’ model – these are the unemployed that decide to start their own business – they’re really fictional jobs – and year after year when the government ‘must’ do their "estimat” we find out that these ‘birth/death’ jobs never exist – last year they REMOVED a million jobs off the ledger.

So why did the market fall 323 DOW points on Friday – because we LOST 227,000 JOBS! And – if those census workers are going away over the next 4 months – that means we’ll at least be LOSING 103,000 jobs each month due those Census worker hires – just at the start!

BUT Wait a second – it gets better … (thanks to thank Jacob H for this tidbit):
- President Obama last week signed an order halting work on 33 exploratory wells in the deepwater Gulf of Mexico. This means that roughly 33 floating drilling rigs – typically leased for hundreds of thousands of dollars per day – will be idled for six months or longer. These 33 gulf wells were inspected immediately after the Deepwater Horizon blowout (per Interior Secretary Ken Salazar); and in those inspections, “only minor problems were found on a couple of rigs”. But ‘shut em all down’ became the political thing to do – so follow me on this one.
- At $250,000 to $500,000 per day, per rig – this results in roughly $8,250,000 to $16,500,000 per day in costs for idle rigs – and secondarily this also impacts supply boats – 2 boats per rig with day rates of $15,000/day per boat - $30,000/day for 33 rigs – nearly $1 million/day – not counting other impacts to other supplies and related support services (i.e. welders, divers, caterers, transportation, etc.)
- JOBS – each drilling platform averages 90 to 140 employees at any one time (2 shifts per day), and 180 to 280 for 2 2-week shifts. Each exploration job supports 4 other jobs; therefore, 800 to 1400 jobs per idle rig platform a reasonable total of 50,000 JOBS are going to be lost. Wages for those jobs average $1,804/weekly; potential for lost wages is between $165 to $330 million/month for all 33 platforms.
- Secondarily - many offshore workers live in Louisiana. The state is going to see a decrease in income taxes and sales taxes that would normally be paid by those employees.

So, despite TRILLIONS of dollars in stimulus, all the programs designed to spur spending, all the FASB mis-regulations – the U.S. economy cannot produce JOBS. With no JOBS, and with millions on "emergency extended benefits", foreclosures soaring, bankruptcies soaring, commercial real estate crashing - people around the globe are finally getting the view that the U.S. may be a pseudo-safe haven – but it’s the best of a very bad lot.
- 08:20 AM May 26 saw 133,459 U.S. bankruptcy petitions, the second-highest daily level since 2005 and a 10% rise from the year before.
- During the months of March and April stock funds experienced steady inflows - in the week ending May 26, U.S.-focused funds saw outflows of $13.4B (and $3.9B from international funds), the biggest outflows since March 11, 2009

Now what’s important here is the timing. The week ending May 26 saw the market put in it's lowest reading in over a year – now where was the market on April 23rd (one month earlier) – it stood at 11,200. So the market sucked in the amateurs (who were completely brainwashed into thinking – get in or miss the party) – and when the market was convinced that it had pulled in enough suckers, it rolled over and crashed – and people SOLD. Now – the previous largest outflow was March of 2009 – and what happened in March of 2009 – the market hit lows not seen since the 90’s. So doing the math – the masses bought at the highs of ’07 (DOW 14,000) – held thru the plunge ‘08, and into ’09 – and then - when they couldn't take it any more they sold enmasse and stampeded for the exits. Remember when we said – when the amateurs rejoin the market (when Cramer was screaming ‘buy-buy-buy’) – it’s really time to sell – because the majority of people are now going to ‘buy high and sell low’. Because as we wrote in February of 2009 – “the one thing that the market usually does, almost better than anyone and anything, is punish the maximum amount of people.” At the time we suggested to people to take $5,000 – buy 1,000 shares of FAS @ 2.64 per share (it went to $40 per share) – and we ask that you take the remaining funds and purchase Apple (APPL), Google (GOOG), IBM and the DIA’s. Google’s stock doubled, Apple’s went from 84 to 270 – you get the picture.

I bring all of this up for one reason – to show you that the market is designed to take your money, unless of course you know the game and know how to play it. Our economy is crumbling, Europe's a disaster, China's having growing pains, and the entire world is deleveraging (trying it's best not to spiral into the toilet) while paying down debt. Frankly we are IN a depression right now, but all the social programs, the welfare, the food stamps have softened it: the 99+ weeks of unemployment, etc. But I still believe it gets worse – and if you base your investing on what you hear out of the major media - I'm afraid you're going to pay a very dear price.

Now – you can bet going forward – we’re going to hear about WAR more often. These are desperate times in a lot of countries, and if war will keep our/their economies afloat – then war is what we will get. That's probably going to be Iran, if not Iran and North Korea at the same time. Please be prepared.

The Market:
I previously said we were going to see DOW 9,000 this summer – and after Friday’s 300-point plunge we are in the 9000's already. But I am confident we have a lot more downside to come. It won't come smoothly, as the FED will instruct it's member banks to manipulate the market with all it's got, but it certainly will come. Reading the above - it looks like I made myself out to be some form of market genius (and that’s not the case). A few weeks back we shorted the market and went long the VXX – and felt pretty good in covering - taking gains on both – in fear of a snap back rally – where we would reload our ‘short positions’. Well that snapback rally was so herky-jerky, we never got a chance to reload the short wagon. Oh well, we'll have more shots at it for sure going forward, and short side gains come much faster than long side gains.

But what next? I can make the case for a very nasty Monday, and an all out sell fest, or a "bounce" of some magnitude. If we don't get ANY bad news out of Europe this weekend and things are relatively calm, "they" will try and rescue the market early this week from the plunge. We're only 70 points away from DOW 10K, and "they" will use that level as some form of psychological platform to keep the masses content. But that said, ANY more bad news, whether it be a statement out of Hungary about possible default, or some form of contagion to another country and we could easily shed several hundred more points quickly. So, being cautious here makes a whole lot of sense.

In my opinion, the path of least resistance is going to be "down" for a while, then as earnings start coming out, they'll use them as "more proof" that the economy is great (like they used JOBS - which was proven wrong) and we'll get some wicked bounces. If you are a long-term investor, I'd be awfully cautious, and for you short term traders, enjoy the volatility!

Tips:
Let’s assess where we are – mostly in metals:

- GG at $43, IAG at $17, SLW at $18, SSRI at $20, GDXJ at $27, GLD at $115.86, NG at $6.64 and PHYS at $11.65

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 - 5-30-10

This Week in Barrons – 5-30-10:

Whistling Past the GraveYard...
Each day we are confronted with some form of bad news – whether it’s concerning the oil slick in the gulf, the bombing of people in Afghanistan, the increased tensions in Iraq, the sinking of a South Korean ship by a North Korean missile, or the debt problems of Italy, Portugal, Spain, Ireland, the U.K., and yes – the U.S. Yet there is always a large portion of news that simply doesn't make it to the nightly headlines. I find it fascinating that the average person knows quite a bit about the basics of what's going on in Greece yet doesn't know that 777 banks (here in the U.S.) are on the "critical list" and that we seem to see 1 to 5 go bankrupt each week. Just the other day - local ‘news’ guy remarked about the incredible fall in mortgage agreements – and how that coincided with the expiration of the $8,000 tax credit - but experts don't believe it's cause for alarm. Huh? The minute "Uncle Sugar" stops giving out free money, mortgage applications crash...yet that's not reason for alarm? And what about ‘strategic defaults’ – I heard from another friend in Arizona just this week à “because the house is no longer worth what we paid for it, let’s stop paying our mortgage because it will be a while before they kick us out – and when they do – we’ll RENT a better place for less money anyway.”

But understand that the glut of foreclosed homes is getting so large – that banks are allowing ‘squatters’. The rationale goes something like this: “If we kick them out, the house will deteriorate - thieves will take the appliances and the copper pipes – we’ll have to hire a property manager to cut the grass, etc. And if I allow "squatters" to just live there rent free - at least the house should be marketable some day in the future.” Do you hear a lot about this on your nightly news? I didn't think so. Imagine if that got out about ‘squatters’ – and how that would spiral out of control?

Now – if you take anything from this weeks ‘rant’ it’s the following:
A USA TODAY analysis of government data finds: Paychecks from private businesses shrank to their smallest share of personal income in U.S. history during the first quarter of this year. At the same time, government-provided benefits - from Social Security, unemployment insurance, food stamps and other programs - rose to a record high during the first three months of 2010! That means that ‘paychecks’ are being ‘replaced’ by government programs in a very big way! Not only is it a reflection on Obama’s “robust recovery” – but it’s also a reflection on how the government is attempting to win over voters – and continue thru the next election! Couple this with 17.6% unemployment (U6), a $13 Trillion deficit (putting the U.S. in the ranks of Argentina for backwards economies), and unemployment benefits being extended past 99 weeks – ugh à “What Recovery?”

Finally – this weeks’ Jobs Report is going to be crucial to the health of the market. To that end – the government needs to show a dramatic increase in job creation in order to sustain any kind of belief in the system. After all – we’ve lost 8 million jobs in the past few years – only to be replaced by a census work ‘up-tick’. Ah – but more and more news is leaking about these census workers. One census worker – last week – Naomi Cohn – told the Washington Post that
she was hired and fired a number of times by Census. Each time she was fired – she was hired back. It seems by doing this – Census is able to report the creation of a new job to the Labor Department. Here's a note from another Census worker -- this one from Manhattan: "I am on my fourth rehire with the 2010 Census. I have been hired, trained for a week, given a few hours of work, then laid off. So my unemployed self now counts for four new jobs.”

So no matter what the jobs report or any of the other cheerleaders tell you, you cannot square up a sound and growing economy with a fact that paychecks make up less income to the U.S. than any other time in our history, and handouts are at record highs. We’re in a recession – soft depression - but it's not all that evident to people because of food stamps, 99 weeks of unemployment, strategic defaults, banks allowing deadbeats to live in their homes. However, the hard depression still lies ahead.

The Market:
In percentage terms – we just put in the worst May since 1940. We shorted the bulk of the fall, caught some nice dollars on the bounce, and then "got flat". Now of course – where is the market going from here? In the somewhat longer term it's going "down' – I think we will visit DOW 9000 this summer. But in the short-term - they are doing what they can to rally a bounce. We have the jobs report coming up and the bulls will be trying to tell us how great it's going to be. If they get enough momentum, they could bounce us for another 300 - 400 points to the upside. But in the end, somewhere in June or the beginning of July – I think we’ll be looking at DOW 9000.

With that in mind, we are looking to load up on the "dark side" - meaning shorts and inverse ETFs when the time is right. We usually try and time our addition of such trades to coincide with a market bounce, but that's not always possible. So, for the next few days we'll be watching the reaction to the jobs run up, and the ultimate results. Whether we get a big bounce or not, the fact is that we'll be very light on the upside, and heavier on the downside. Why? Because (as you have seen) the market can fall a whole lot faster than it can rise. So, we'll be light on any bounce and heavier on the pullback.

Please let me wish a very Happy Memorial Day Weekend to everyone. I should have talked about Memorial Day and it's meaning, but let's just say I’m old enough to understand and to have been touched by it’s meaning and memory.

Tips:
Let’s assess where we are - selling the DIA Short and the VXX as well we still have:
- GG at $43
- IAG at $17
- SLW at $18
- SSRI at $20
- GDXJ at $27
- GLD at $115.86
- NG at $6.64
- PHYS at $11.65

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 - 5-23-10

This Week in Barrons – 5-23-10:

Oh What a Tangled Web we Weave...
I saw a movie the other evening – The Jones’s – about all of our desires to ‘keep up with the Jones’s – buying stuff we don’t need and only want because someone else has it. This thinking causes a trend in buying, and when the ‘herd mentality’ hits on a national level, the movement can be overwhelming. This is the groundwork for forming "bubbles". The issue with ‘bubbles’ is that they give hope – and when the hope is taken away, the ability to ‘like’ often goes with it. Fast-forward to last week, and even though I have been preaching to get out of the market – go to cash or gold – for months – many still had ‘hope’ that the market would keep rising. Well – reality hit this week. Germany's 'Mrs. Merkel’ declared that the $1 Trillion bail out simply "buys time" – and unless all of the European member countries cut their deficits and spending there are going to be problems – because there is NO money. The US has pledged $23.4 Trillion in stimulus, not a penny of which do we have. The US and now Europe are going to start ‘printing’ their way to glory. This is really going to get interesting, because the printing of money has now lost all manner of credibility – it’s entered the ‘bubble zone’, and before it pops, I suspect we are going to see and hear some incredible things.

But the one thing that is NOT a bubble is gold. And yes gold fell last week by $80 – which beats the DOW falling by $1,200 by a long shot. The reason gold pulled back has little to do with demand. Dealers all across Europe are "out" of gold coins as people try and get out of the Euro before it goes to zero. Gold pulled down, because there was a ton of ‘shorts’ that needed to get gold under $1,200 or face extinction. Now those contracts will expire Tuesday, and the pressure will be off and I suspect gold will come back.

Factually:
- 4 more banks were closed last Friday – bringing the total to 74 – virtually one for every business day of the year.
- Tax collections in states are below last year’s numbers, increasing pressure on budgets – California in particular – tax receipts are 26.4% ($3.6B) less than last year.
- Mortgage applications dropped last week by 27% (week over week) to levels not seen since 1997
- Goldman Sachs: Remember the report that showed Goldman Sachs trading desks not having a losing day in the first quarter of 2010. Well, if you were a client of Goldman – and followed their trading advice – you have been losing money! 7 of the Goldman’s 9 "Recommended Top Trades for 2010" have been losing money for investors who adopted Goldman’s advice, according to data compiled by Bloomberg from a Goldman Sachs research note sent on Tuesday. Clients who used the tips lost 14% buying the Polish zloty versus the Japanese yen, 9.4% buying Chinese stocks in Hong Kong and 9.8% trading the British pound against the New Zealand dollar.
- Finally - be fearful of a war in Iran – more next week.

The Market:
On Friday we sold our position in the VXX and covered our short sale on the DIA’s – so that was a good week! And after falling for 1,200 points we put in a bounce on Friday – slightly larger than I was expecting. The "German Agreement" was used as an excuse for the bounce – and if we don’t get any more bad news out of Europe this weekend, I suspect we should add to our gains early this week.

Now – if you listen to CNBC – the market just served you the perfect buying opportunity and you should buy-buy-buy your way to glory. Remember the heard mentality – is there money to be made on the long side – sure – for a trade – but it’s my guess it's my guess we are on a stair case ride to a lower market – thinking around DOW 9,000 sometime this summer.

If we do get a couple more “up” days in the market – I would suggest people sell into it – and I personally will be looking at some tech and materials to play with for the bounce, but I won't marry them. This is short-term hold stuff, looking to pick up a few quick dollars. And then I think we'll be able to load up some new shorts, and look for the next leg down. If you're a long only player – please be careful as the world is slowly falling apart, and it won't be graceful.

Tips:
Let’s assess where we are - we dove back into some more metals, after selling some, and selling the DIA Short and the VXX as well:
- Sold some GG, IAG, SLW, SSRI, GDWJ, and VXX (up over $16 per share) and Sold the DIA short (up over $10 per share)
- Still have: GG at $43
- IAG at $17
- SLW at $18
- SSRI at $20
- GDXJ at $27
- GLD at $115.86
- NG at $6.64
- PHYS at $11.65

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 - 5-16-10

This Week in Barrons – 5-16-10:

Kick the Can on Down the Road...
I've never been one to run with crowds – but President Obama’s latest Supreme Court pick is fascinating. It’s not her lack of experience on the bench, or even her lack of deeply thought out papers, but rather that she’s a 2005 member of the Research Advisory Council of the Goldman Sachs Global Markets Institute – yes – she worked for Goldman Sachs – the very Goldman that’s on the hot seat for fraud and manipulation. Now, the ONLY way to really begin to rescue the U.S. from its economic fate is to Audit the Fed, expose it and transform it – how do you think she will vote on that?

After years of telling you how Gold and silver are so very manipulated, we find that J.P. Morgan is finally a target of a silver probe. Federal officials have launched dual criminal and civil investigations into whether JPMorgan (JPM) acted improperly to depress the price of silver. Sources say the CFTC is handling the civil charges and the Justice Department's Antitrust Division is overseeing the criminal probe.

But surely things have changed in investment banking – yes? Well, the 14 largest investment banks posted a combined $78.8B in Q1 revenues, marking the best numbers in three years and falling just 1% short of the record. Goldman itself made money EVERY DAY the market was open – EVERY DAY – I dare say that no one is that good!

Meanwhile – back at the ranch – applications to purchase a home fell 9.5% since the U.S. stopped giving out the $8,000 dollar tax bonuses for people to buy a home. And, according to Fitch ratings, the default rate for commercial real estate loans packaged within mortgage-backed securities hit 8% in Q1 of this year, up from 6.6% in December. There have now been $31 billion of commercial mortgage-backed securities (CMBS) defaults over the last 39 months. And finally, Moody’s – the rating agency for many assets - may face SEC action. In its quarterly report, released late Friday, Moody's disclosed it received a notice from the SEC in March, and may face enforcement action for misleading regulators in a 2007 license application to remain an officially recognized credit-rating firm. The SEC's allegations that Moody's failed to adhere to the policies listed in its application is just the latest setback for Moody's, which has dealt with heavy criticism over its failure to properly rate mortgage-related securities. But the most interesting part of this is: the DAY the notice arrived (before public disclosure) – Moody’s CEO sold 100,000 shares of Moody’s stock and Berkshire Hathaway (Warren Buffet) sold 678,000 shares and another 300,000 shares of Moody’s stock shortly after – naturally both transactions were ‘BEFORE’ the stock tanked.

Right Now – in the U.S.:
- Right Now - 40 Million people are on Food Stamps (1 out of every 8 – back in the 30’s when there no food stamps – this meant that 1 out of every8 people would have been in a bread line!).
- Right Now – we’ve had the biggest April budget deficit – EVER.
- Right Now – approximately 8 Million people are receiving some form of unemployment benefit.
- Right Now – 7 Million homes are in foreclosure (with many more to come)
- Right Now – 40 states are technically “insolvent”
- Right Now – we’re in a DEPRESSION.
- Right Now – as you watch the events in Greece – realize that’s the U.S. – except that we have the monetary printing press to the world (for a little while longer).

Now, if you’re in Europe – because you just gave the OK to print more money to bail out Greece – chances are pretty good that you’re going to see the Euro come under some pressure. And if you live in the European Union – you know that since the ECB doesn’t have an income stream to produce loans, then all you can figure is: 1) your European currency (Euro) is going to be worth less, 2) you’re going to need to implement a new tax so that individual members of the EU can pay for all of this, and 3) ‘honestly’ I’d better get out of the Euro! Now, the smart money knows this, and as all the currencies race each other to the "bottom" before the full swap into a global currency takes place, Gold and Silver (along with other commodities) will continue higher and higher in price – because it’s the only thing that’s REAL. Given that gold and silver have been doing very well lately - the media will tell you that it’s a ‘flight to quality’, when in reality it’s investors around the world realizing that the U.S. and Europe will now be printing themselves to hyperinflation. Meaning – if you hold Dollars or Euros - and they need to print more of them to survive, well – that means what you are currently holding will be losing value and will be worth less.

Okay, so we're in a depression, our dollars worth crap, the Euro's going to get crushed, and they’re lying to us about the economic recovery – so onto:

The Market.
Triple digit moves dominate the market: up 150, down 160, up 170, down 120 – pure technicians will tell you that major periods of major volatility are “marking periods” – these “marking periods” mark times when the market is often ready to make dramatic course changes. About a month ago all the fund managers were basically "out of cash" – meaning they were all fully invested and, and therefore didn't have much more ammo in order to move the market higher. Yet instead of falling (which is the normal course of events when funds are maxed out), we continued higher – until “the powers that be” pulled the rug. Greece was the EXCUSE the market fell – NOT the reason the market fell. Everyone knew Greece was broke - Goldman Sachs even helped them go broke! The goal here was to ‘suck in’ as many ‘amateur’ investors as possible until it was time to ‘fleece the sheep.’ Whether we call it run away computer systems or Greece – understand – we ‘fleeced the sheep’ – again! And last week, investors withdrew (approx) $4 billion from equity mutual funds in the week ending Wednesday – which would make it the largest drawdown since the rally began last March of 2009. Now the "Flash Crash" may have been an impetus – but with equity fund’s ‘cash supplies’ at, or near, an all time low – our bet is that these same funds will have to sell stocks in order to pay clients for further draw-downs?

My guess is that the bear market bounce of March ‘09 to April ‘10 is OVER. And, it won't fall gracefully, it's going to be a real mess...falling 600, bouncing 700, falling 900 and so on. The end result will be a stair step downward that lasts a long, long time. There will be periods where we just trade sideways – others when we bounce and still others when we plunge. But the overall "net-net" will be a lower market.

I do think that if we don't get any bad news out of Europe this weekend - they will stage one of their classic "the world is wonderful" bounces on Monday that might go as far as into Wed morning, but I think that if it happens, it's time to really load the short boat. In the mean time we're sitting with some shorts and some gold and silver stocks that are doing very nicely. Be careful out there folks, it's going to be a very rocky ride for a long time.

Tips:
Let’s assess where we are - we dove back into some metals – commodities and we are currently:
- Long: GG at $43
- IAG at $17
- SLW at $18
- SSRI at $20
- GDXJ at $27
- 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