This week in Barrons - 8-15-10

This Week in Barons – 8-15-10:

Flush with ‘Cash’ – well – FLUSH ‘Something’:
CNBC keeps telling us about all the cash that Corporations have on hand and how that proves that they’re in great shape. And how with a $1 Trillion in cash – let’s stimulate growth and jobs? Do you know why the Corporations are sitting on a $1 Trillion in cash? It’s because they've borrowed $7.1 TRILLION dollars in nonfinancial industry debt loads. Quoting from Marketwatch: “Commerce Department data reveal that gross domestic debts of nonfinancial corporations now amount to 50% of GDP. That's a postwar record. The Fed data underline the poor state of the U.S. private sector's balance sheets," reports financial analyst Andrew Smithers. "While this is generally recognized for households, it is often denied with regard to corporations. These denials are without merit and depend on looking at cash assets and ignoring liabilities. Cash assets have risen recently, in response to the fall in inventories, but nonfinancial corporate debt, whether measured gross or after netting off bank deposits and other interest-bearing assets, is at peak levels."

So, these big wonderful cash flush companies - are really broke and in hock up to their ears. They owe $6 Trillion more than they have. My bigger issue is why anyone on CNBC isn’t telling us that? We also had David Rosenberg (chief economist at Gluskin, Sheff and Assoc. say on Friday: “The odds of a double-dip recession in the U.S. are "certainly higher than 50-50, and the economy could contract again by the end of this year – and is unlike anything we’ve seen in the post war period."

Very few of us remember the 1930’s – but in the 30's the US confiscated the nations gold and basically defaulted. The US pulled off the single biggest robbery of all time. It happened by Executive order - the same type of Executive order that President Obama has used 36 times already in his short career. Executive Order 6102 required all U.S. citizens to deliver on or before May 1, 1933 all but a small amount of gold coin, gold bullion, and gold certificates owned by them to the Federal Reserve, in exchange for $20.67 per troy ounce. Most citizens who owned large amounts of gold had it transferred to countries such as Switzerland. Then, once they had everyone's gold, the government crushed the currency. They raised the price of gold from the treasury for international transactions to $35 an ounce. The resulting profit that the government realized funded the Exchange Stabilization Fund in 1934. Yes – they gave you $20.67 per ounce – and then instantly raised it to $35 an ounce. That was the single biggest outright robbery in the history of our nation.

Now we could go on and on about what has happened without a gold standard – the 90’s run up and crash, the housing bubble, soaring inflation, 41 million on Food stamps, cities laying off police and firemen, millions in foreclosure – but the sad part is – that WAS the plan. There's only one way out of this mess and that would be to allow capitalism to run amok. You know - where the market prices everything, there is no ‘too big to fail’, no bailouts, no winks and nods. That system works perfectly, but it keeps the Central bankers on the sidelines (and since they run the world) that's NOT going to happen.

Now James Taylor contributed and Laurence Kotlikoff (a Prof. of Economics from Boston University) wrote - the way out is for the U.S. to cut entitlement programs and DOUBLE taxes. Yep – the International Monetary Fund (IMF) has pronounced the U.S. ‘broke’, and to narrow our fiscal gap - we need to ‘double our taxes.’ Such a tax hike would leave the U.S. running a surplus equal to 5% of GDP this year, rather than a 9% DEFICIT. So the IMF is really saying the U.S. needs to run a huge surplus now and for many years to come to pay for the spending that is scheduled. It’s also saying the longer the country waits to make tough fiscal adjustments, the more painful they will be. This actually coincides with a report the Congressional Budget Office released which says our ‘unofficial’ debt is $202 Trillion - more than 15 TIMES the ‘official debt.’ How can the fiscal gap be so enormous? Simple - we have 78 million baby boomers who, when fully retired, will collect benefits from Social Security, Medicare, and Medicaid that, on average, exceed per-capita GDP. The annual costs of these entitlements will total about $4 trillion in today’s dollars. Yes, our economy will be bigger in 20 years, but not big enough to handle this size load year after year.

This is what happens when you run a massive Ponzi scheme for six decades straight, taking ever larger resources from the young and giving them to the old while promising the young their eventual turn at passing the generational buck.

Unfortunately, this will ‘stop’ in a very nasty manner. The first possibility is massive benefit cuts to the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.

I think we will see a combination of all three responses with dramatic increases in poverty, tax, interest rates and consumer prices. Bond traders will kick us miles down the road once they wake up and realize the U.S. is in worse fiscal shape than Greece. The U.S. is broke and can no longer afford the ‘no-pain, all-gain’ solutions.


The Market:
We had a down week, pretty much as I thought we'd have, and was because the Street was mad at Bernanke for not flooding the system with even more money immediately. But now things get really interesting. The Street has knocked 400 points off the averages in two days. That was the shot across the bow to all the incumbent politicians - that if they would like to see a strong market heading into the elections in November, they better get Obama to tell Bernanke they want the entire Quantitative Easing #2 (QE2) of the highest extreme – NOW! When Ben only announced that he was going to play with some more mortgage paper, The Street wasn’t impressed at all. Now – what The Fed did was monumental in scope – Ben told the whole world that YES we are monetizing debt. That statement alone (in a different age) would have sent the market down by 40%, because that's an absolute decision to basically print unsterilized money. The Federal Reserve is the only major central bank to have specified that it wants to maintain the size of its balance sheet at a certain level, meaning that it is effectively now targeting the money supply. This is quantitative easing in its purest form and marks a significant change of tact. However, The Street wanted more and it didn’t get it!

Now on Friday, Thomas Hoenig (Federal Reserve Bank of Kansas City President) said: “We need to get off of the emergency rate of zero, move rates up slowly and deliberately, which will bring policy in better alignment with the economy's slow, deliberate recovery. While the markets may like the current stance of monetary policy, I wish free money was really free and that there was a painless way to move from severe recession and high leverage to robust and sustainable economic growth, but there is no short cut."

The problem is – the average consumer is ‘spent’ – money has been coming out of mutual funds for months – and The Street needs a gimmick to continue to get their $100 Million dollar paydays. When Ben didn't come thru on Tuesday, The Street pulled the market down 400 points on Wed and Thursday. Now the Fed comes back with something akin to saying "up yours, you'll get what we say you'll get". The real issue here is we have a boatload of Congressional people up for election in 2.5 months – and they’re out promising folks the moon, and here's the Fed telling Wall Street to go pound salt. The folks in Congress clearly want the market to go up, in order to point to it and say "see, we saved the world, re-elect us!" You have to know that in dark room sessions, the Obama people and the Feds are sitting at a table with Goldman trying to hammer out a deal. Now the only certainty is ‘If” the Fed sits tight – then Thomas Hoenig has become the spokesman for what the Fed really wants to do in the near term. If that’s true – The Street is going to press the issue once again by selling the market.

As we come into the new week, I feel that Monday could be an up day. But I think it's a set up. The street played their game on Wednesday and Thursday. Then The Fed came back on Friday and fired back a bit. But The Street knows that Monday is the "middle of the month", where mutual funds usually put their money to work (most funds put cash in on the first days of a new month and then the "middle" of the month) so it seems to me that the Street is going to let them come in – allow the market to go up – and then I think The Street yanks the rug and we go down again.

Maybe I'm wrong and they reach a back door deal this weekend, but Thomas Hoenig was a direct push back to Wally Street, and if they don’t settle their little dispute, I tend to think that by mid week we see another stellar market fall – right AFTER they invite the mutual funds to come in and place their money on Monday – crushing another round of John Q. Publics yet again.

Tips:
We’re in metals and in and out of a couple small positions in ‘short’ ETF’s: We’re back in (and out) of TZA, DXD and SDOW (all 3 inverse market ETF’s (that is to say these ‘Exchange Traded Funds’ increase in value when the market goes down)

We've been leaning short, but not by too much. Some readers have written and have said that they did well. We suggested the inverse DOW on Wed morning at 26.12 and it hit a high of 27.57. We liked the TZA at 35.50 and that hit 38.16. We also took advantage of the VXX mid-last week – and expect that to continue this week as well.

The metals we like for a long time – unless something dramatic occurs. I’m still looking at a fade thru August – the inverse ETF’s are a smart play – and potentially look for the ‘stimulus’ in September for the ‘insanity run’. Please be careful out there.

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.

I’m going to take a trip to Chicago to bring my oldest son home for the remainder of the summer – it’s been too long – so personally I’m looking forward to that!

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 - 8-8-10

This Week in Barons – 8-8-10:

A Clash of the Titans: A Mash-Up of ‘The Expendibles’ v ‘Eat, Pray, Love’
Mark my words à the Economy is souring – and over the next 3 months you will see a clash between the FED and JOB – and we are being buttered up for another $2.5 Trillion worth of stimulus.

Will it work – I don’t think so – because this was no ‘run of the mill’ recession. This was a complete collapse of the banking system. This was a balance sheet recession, not a business cycle recession. And to handle that – we’re doing exactly what they did in Japan – and we’re going to get exactly what they got in Japan. But let’s take a step back – from 2008 into 09 – we had a recession. There was $2.5 Trillion spent that we know of – and about another $1.5 Trillion that we don’t know about – and what did that bring us?
- Unemployment is at 16.5% (U6)
- Foreclosures and Bankruptcies hitting monthly highs.
- Retail sales and housing that stinks.
- Initial jobless claims hovering around half a million every week.
- And now the question – since we’ve spent $3+ Trillion and have obtained NO private sector growth – will another $5 Trillion do the trick?

Japan tried it – for 15 years now Japan has tried ‘quantitative easing’ – and by most people’s accounts are close to declaring bankruptcy. Everyone keeps talking about the "double dip", and YES we're going to have a double dip, and YES they’re going to throw the kitchen sink at it trying to stave it off. Factually:
- (a) the ECRI index has a 100% track record in forecasting recessions – when the index falls below -10. Well – right now we’ve fallen to -10.7.
- (b) Oil – Every time that oil has made a 100% Year over Year increase in price – a recession has hit shortly after. In November of 2009 we got the 100% double – and history tells us that within 12 months of that date – a recession should start.

The issue here is that we’ve NEVER come into a recession with unemployment at 16.5%. If the FED tosses another $2.5 Trillion at stimulus at us – and if Banks stop paying interest on bank reserves (basically forcing Banks to lend to people) will that be enough to stave off a recession. There is no doubt that activity will increase. If they get the stimulus spending into the pipeline soon enough, and they force banks to lend – it could break the mold. Because never before has one government done so many things, with so much money, in so many "unconventional" ways. Ben Bernanke is waging a battle behind the scenes at the Fed for control of monetary policy, in order to prevent a deflationary spiral. Ambrose Evans-Pritchard says: "Key members of the five-man Board are quietly mulling a fresh burst of asset purchases, if necessary by pushing the Fed's balance sheet from $2.4T to uncharted levels of $5T."

Factually: every indicator says a recession is certain. The fact is we should have it and get it over with – one that wipes out the weak, repairs the imbalances – in order that we can emerge leaner and meaner. But that’s NOT what is going to happen. Just Friday, the Obama Administration started hinting that they might let the hundreds of thousands of mortgages at Fannie and Freddie just "blow off" the balances they owe above what the homes are worth. Can you imagine that? In trying to save the November Elections, they want to stick YOUR kids and grandkids with the bills from a million homeowners that "got in too deep".

The issue here is that the indicators are saying that we are facing recession in mere months – but, we've never had a response as unconventional as we are getting in our history. Never before has Trillions of dollars in mortgage debt been "erased". Never before have we spent $2.5 Trillion and gearing up for $2.5 Trillion more. Never before have auto companies, insurance companies and financial companies been deemed too big to fail and put on life support. Can Ben Bernanke's unconventional maneuvers stave off a recession that the indicators prove is coming – maybe! A more interesting question could be, if they do succeed in kicking the recession down the road a little further, will real organic growth finally show up after all that and we live on happily ever after – NO! Not until the FED rebuilds the middle class taxpayer and that won’t happen any time soon.

Bottom line – a recession is coming and the FED is gearing up for the greatest salvo of economic stimulus the world has ever seen. All those "Trillions" are being printed out of thin air, and are instantly "debt". It's mathematically impossible for us to pay our debts now, so adding Trillions more is completely unreasonable? I realize that gold and silver haven’t been soaring – but as you look down the road at the dollar devaluations and potential defaults – would you rather hold a piece of paper that says Federal Reserve on it - or a nice shiny ten dollar gold piece?

The Market.
Well this week the “Plunge Protection Teams" were working overtime. On Friday (for example) we received a horrific jobs report, and we were immediately sold off for over 140 points and then suddenly rescued for the close – are you honestly telling me that millions of investors the world over decided at the same time that US stocks were the only thing they should be buying? Now – please be careful going forward as much as October is "crash month" – September is historically the worst month of the year for stocks. More "lows" are put in during September than any other month. However, this market is going to be something to behold in the next 4 weeks. Earnings are over, and the market is very extended – on NO volume. Regular folks have fled from mutual funds for months on end now, with redemptions of billions hitting each and every month. I'm thinking we are about due for a good pullback. Don't be surprised if we peel off 600 points over the next few weeks. Sure they might try and pop us out of the gate early this week – but I'll be awfully surprised if we end the week higher than we start it.

Good luck and be safe out there. You are soon about to witness the Clash of the Titans – The Expendibles vs Eat, Pray, Love – the Clash of an absolute recession with the largest attempt at stimulus ever recorded.

Tips:
We’re in metals and in and out of a couple small positions in ‘short’ ETF’s: We’re back in (and out) of TZA, DXD and SDOW (all 3 inverse market ETF’s (that is to say these ‘Exchange Traded Funds’ increase in value when the market goes down)

As you see above – the metals we like for a while – unless something dramatic occurs. And if we fade thru August – the inverse ETF’s are a smart play – and potentially look for the ‘stimulus’ in September for the ‘insanity run’. Please be careful out there.

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’re into movie mash-ups à here’s one that my oldest son did à It’s nearly 100,000 views – so good for him!
http://www.youtube.com/watch?v=5M6dYilbRKM

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 - 8-1-10

This Week in Barons – 8-1-10:

With a Wink and a Nod (hint – hint):
Winks, nods, and hidden handshakes – when it comes to the market - they are all codes that stand for something. But beware – something peculiar this way comes:
- "A nation can survive its fools, and even the ambitious. But it cannot survive treason from within. For the traitor appears not a traitor; he speaks in accents familiar to his victims, and he wears their face and their arguments, he appeals to the baseness that lies deep in the hearts of all men. He rots the soul of a nation." --Marcus Tullius Cicero 42B.C
- “The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie."-- Dr. Joseph M. Goebbels
- "Once a government is committed to the principle of silencing the voice of opposition, it has only one way to go, and that is down the path of increasingly repressive measures, until it becomes a source of terror to all its citizens and creates a country where everyone lives in fear." -- Harry S Truman

Why begin like this: (a) for the past year we have had to deal with a healthcare plan that no one knows what it will cost or how it will take place. The signers of the bill said “we have to pass the bill to find out what's in it". The population doesn’t want it – yet you're getting it rammed down your throat. (b) now we have FinReg – another 2,300 page bill that does NOTHING for the middle class American. It gives the Federal Reserve almost dictatorial power. It does nothing to address the problems with Fannie Mae and Freddie Mac, nor does it eliminate "too big to fail". It does nothing to eliminate the horrific bubble in the derivatives market, nor to reform the organization most responsible for the recent financial crisis - the Federal Reserve. AND buried deep in the bill (Section 929l) is the fact that the SEC is exempt from any and all inquisitions via the Freedom Of Information Act, or any other request via the public sector into what they are doing.

Now combine this with the following (many of this stats from Yahoo) :
- 10,000 people make 30% of the TOTAL INCOME IN THE U.S. – leaving 99.99% to fight over the remainder
- 83% of all U.S. stocks are in the hands of 1% of the people
- 61% of Americans "always or usually" live paycheck to paycheck, which was up from 49% from 2008 and 43% from 2007
- 66% of the income growth between 2001 and 2007 went to the top 1% of all Americans
- 43% of Americans have less than $10,000 saved for retirement
- 1.4 million Americans filed for personal bankruptcy in 2009, which represented a 32% increase over 2008.
- For the first time in U.S. history, Banks own a greater share of residential housing net worth in the United States than all individuals combined
- Today the average Federal worker earns 60% MORE than the average private sector worker
- The bottom 80% of Americans hold 7% of the liquid financial assets
- 40% of employed Americans are in service jobs that are near or below the poverty line
- For the first time in U.S. history - over 40 million Americans are on food stamps, and the U.S. Department of Agriculture projects that number will go up to 43 million Americans in 2011.
- 21% of our children are living below the poverty line!

Now as you think across a dramatically shrinking middle class – and how the Government is sooo much a part of our lives – think about the effect that has on elements such as: retail sales, housing, and medical care.

The Market:
A week ago we got another ‘wink and nod’ from Ben Bernake as he suggested that the FED might not want to pay interest on excess banking reserves all that much longer. What that means is that currently Banks can borrow from the FED for 0%, then lend back for an interest rate – and that has been one of the reasons why lending is down 25% (or more), and why small business can't get loans. Honestly - why would you loan money to a business (obviously taking on risk) when you can loan back to the FED and get a guaranteed return? You wouldn't and neither do the bankers. But if Ben’s signal for them to stop paying interest is correct – we are going to see a flood of money hit this economy – which could almost instantly cause a pick-up in all sectors of the economy – even jobs. Why - November Elections!

Now you know that I’ve been preaching DOW 9K – and many of your most recent questions surround – so where does it go from there? Well, if I’m right - where it goes from there will be "up" and up big. If I’m reading the winks, nods and secret handshakes correctly we should see the market fade and fade, and then one day (probably in September) we'll hear news about how banks are lending like mad. We'll see contracts get signed and companies hire people – and the market will roar higher on the news, possibly hitting 12K. This would be the push in advance of the 2011 - 2012 recession/depression. When that last big bundle of cash and lending runs out – the only Ben has is stimulus at that point – and that’s when ‘hyper inflation’ will hit. With hundreds and hundreds of billions let loose from the banks to the economy, interest rates will rise, and economic activity will rise, and prices will rise (maybe even on houses for a brief time). But, beware when that is over (post election) we will be left with higher rates, no more stimulus, banks with no reserves, and a nightmare on our hands.

Back at 11,200 I stuck my neck out and said "that's it, we're going down, and we'll see DOW 9K this summer". We got lucky because in early July we got to 9,600, and then came roaring back. Many you wondered if that's as low as we were going to get and I said that I didn't think so. It was getting to easy for the shorts and put buyers, and they needed to get shaken out – and we ran 1,000 points.

My biggest question lately, is "will they keep pushing us up and up, luring in more people, or would they be satisfied that they knocked out the shorts, and then roll us over for new lows ahead of the fall "insanity run up". Frankly - I still don't know. On Friday we had GDP for Q2 come in below expectations at 2.4%. But the Chicago PMI and Consumer Confidence came in slightly better than last weeks disaster. Therefore ‘they’ could have ‘sold the news’ but didn’t and that implies that they aren’t done pushing this market higher? Granted we're only at 10,464 and we were at 10,600 as the recent high. I'm guessing they have their sights on reclaiming that level, but to think they can get us substantially higher than that is a stretch. As much as I'm sure they'd love to, funds are bleeding redemptions, we have elections coming up rather soon, we're looking at tax increases, and I just don't know that they have the firepower to pull it off.

Tips:
We’re in metals and in and out of a couple small positions in ‘short’ ETF’s: We’re back in (and out) of TZA, DXD and SDOW (all 3 inverse market ETF’s (that is to say these ‘Exchange Traded Funds’ increase in value when the market goes down)

As you see above – the metals we like for a while – unless something dramatic occurs. And if we fade thru August – the inverse ETF’s are a smart play – and potentially look for the ‘wink and nod’ in September for the ‘insanity run’. Please be careful out there.

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’re into movie mash-ups à here’s one that my oldest son did à It’s nearly 100,000 views – so good for him!
http://www.youtube.com/watch?v=5M6dYilbRKM

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 - 7-25-10

This Week in Barons – 7-25-10:

I’m just a Normal Capitalist:
I’m just a normal capitalist – but let’s talk for a minute about Silver and Gold. I’ve gotten quite a few panicked e-mails about the metals – since they have come off their highs. First off – determine why you’re buying Gold and Silver. I’m recommending and buying them as the ‘ultimate insurance’ against the FED’s policies. Now, it's true that in the short term, you may buy Silver one day and the next two weeks it's "down" – that’s happened over 1,000 times since 2001.

What Ben Bernanke told us this week was: the economy sucks, jobs won't recover for years, and he's going to get even more "unconventional" in his approach to halting this depression. Do I believe him – maybe. Do I think what he will do will work – in the short term – No! Hence the need for Gold and Silver.

I think if you bought the GLD when gold was 1250 – and you thought it was going to 1500 the next week – you lose. If you bought gold at 1250 thinking that as our economy continues to slow - gold going to 1500 and higher – I think you'll win.

Now I don't usually do this, but as I said before – I treat these metal holdings as long term holds. Many times we've had the opportunity to take profit, but didn't. That wasn't by accident. Let's look at what happened:
- GG we got on 4/28 at 42.04 - 5/12 it was 47.41 - and as late as 6/28 it was 46.00 - profit was there for the taking.
- SSRI we got at 20.02 on 4/28. But on 5/12 it was 21.00 – profitable.
- SLW at 18.31 on 4/28. Was 21.58 on 5/12, and on 6/28 it was 21.89.
- IAG at 16.81 on 5/12 20.24
- NG at 6.82 - a month later it hit's 7.80.
- GLD at 116, has been as high as 124 – profit to take.

I’m not in these trades for the $2 or $3 winners – I’m in them for when all ‘heck’ breaks loose – but having said that – there’s nothing wrong with you “buying the dips and selling the rips.”

The Market:
The older I get, the more "life gets in the way" of the people I am fond of. If you have kids – from where I sit – the world that we’re leaving them … STINKS.
Last week I suggested that the market had one more pop in it, one more surge that defied gravity and lured in some more participants. Of course the main reason that the market is moving higher is to completely confound and defeat the short-sellers, that had seen a technical pattern setting up in the market and went short. If the maximum amount of people are long the market, you can rest assured that a massive pull down is about to take place, and vice versa. The only question is the timing. Hence the phrase: “the market can remain irrational longer than you can remain solvent!” And as further proof of irrationality: if supply and demand dictate price movements, how can the market go up, if more money is going out than coming in? Factually: "ICI reports that the week ended July 14 saw another massive outflow from domestic equity mutual funds of $3.2 billion, bringing the July total to $7.3 billion, and year-to-date equity outflows to a stunning $37.5 billion.” Just as ICI tells us - usually when the funds are redeeming like that, a large percentage of people are also starting to go short. So it was easy to know that a massive reversal was imminent. Now, how does the market continue to lure some of those billions back in – the market needs to continue to rise, even in the face of absurd economic reports. Eventually people can't take the fact that they're sitting in cash while the market is roaring and they rush to get back in. When Mr. Market is satisfied that he's got all he's reasonably going to get, he pulls the rug and takes their money. For right now it still seems to me that this move is "crush the shorts" action - because of the speed of the ascent. Usually if the market is going to lure in the sheep, it moves sideways and up slowly. It wants people to look at the news and see that "yep the market was up again today" day after day, week after week. Finally after months, they can't sit on the sideline any more and they capitulate, buying stocks with a frenzy. When the market just wants to bury the shorts and the chart slaves, it does it ferociously – gaining 400 points in 3 days – just like did. Often then – it just rolls over and falls hard – so we need to be really careful. If I'm right, this run will end between now and 10,600. If I'm wrong and they're pulling one of their "lure in the sheep" moves, we could see 10.8.

Tips:
We’re in metals and in and out of a couple small positions in ‘short’ ETF’s: We’re back in (and out) of TZA, DXD and SDOW (all 3 inverse market ETF’s (that is to say these ‘Exchange Traded Funds’ increase in value when the market goes down)

As you see above – the metals we like for a while – unless something dramatic occurs. And with (what we think to be) this final surge - think about long dated PUTS – and please be careful out there.

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 - 7-18-10

This Week in Barons – 7-18-10:

Waiting for the Shoe to Fall:
Factually this week:
- the Federal Reserve suggested that a full recovery might take 5 - 6 yrs
- FinReg passed (a disaster waiting to happen)
- BP capped the leaking riser (maybe)
- Goldman Sachs was fined $550 Million (chump change)
- Bank Repossessions rose 38% in the second quarter
- the Philly Fed report on economic activity fell from 8 to 5 (almost in half)
- the NY Empire state report crash from 19 to 5 (fell by almost 75%)
- TIC data showed China dumping $33B worth of U.S. treasuries in May
- Consumer confidence crashed from 76 to 66, the lowest level in a year
- the ICI report showed a domestic equity mutual fund outflow of $4.1B (the third largeset weekly redemption in 2010 – the 10th sequential outflow – totaling $34B in total outflows YTD)
- the Baltic Dry index hit another low
- the Mortgage Bankers Association say that both purchase applications and ref's fell again, to levels not seen in 15 years.

When I hear the outcry for “JOBS” – I look at a lot of the Fortune 500 businesses – and realize that many were tiny businesses started in homes. You know the story, Mrs. Applegate bakes cakes in her kitchen – neighbors love them – she goes door to door selling them – and in no time there’s Entenmanns or Swanson foods. Today Mrs. Applegate would be in jail – because she couldn’t afford a health inspector, permits, $25,000 in kitchen upgrades for fire emergencies. We have regulated ourselves out of prosperity. The simple act of putting a shed in your own back yard is fraught with permits, building inspectors and other worthless ridiculous money-grabbing bureaucrats. How many wonderful businesses will never see the light of day, because they don’t have the money or time to go through the hassle of trying to get all the "okay's" necessary to start a business. Yeah – I know – it’s for our own safety - but somehow “America the Brave” turned into "America the we can't do anything because one day something bad may happen to someone, somehow, somewhere". And then there’s the fear of the lawsuit. Remember the lady in Philadelphia that would feed the homeless on Thanksgiving – she was shut down because she had no health license, insurance and permits.

I guess you wonder what brought this up? Well in the past few weeks I've talked to a couple people that wanted to "give entrepreneurship a shot". They had lost their jobs and wanted to do something on their own. By the time they got done talking to the insurance people, the town people, the inspector people, the environmentalists, the lawyers – they both gave up. "No thanks. I'll try and find another job". How disgusting that America (at her roots) does more to dissuade someone from trying to open their own shop, than nurture them? Either one of these guys, had their business been successful would have led to expansion, hiring, and good pay. Now they just sit home cutting the grass, and living on unemployment checks. Remember - Henry Ford was a little guy once. There's no way in heck old Mr. Ford could have created the enormous empire he built if he was to start today. And that goes for tens of thousands of now established businesses that couldn't possibly have been created in today's atmosphere. So, again – if the number one issue in our economy is JOBS – and the number one growth engine for JOBS is small business – How do we create JOBS?

Goldman Sachs was hit with a $550 Million dollar fine. That number is so enormously tiny, it's almost like a sick joke. Goldman makes that in 14 days! That number is LESS than the Goldman CEO makes in bonuses. In fact, it was a fraction of the $8 Billion in market cap GS gained in the hour after the news hit. We regulate small business out of existence – and yet NO ONE goes to jail for some of the biggest frauds ever created. And Dell announced this week that it’s right behind GS in settling with the SEC – as it set aside $100M to cover the cost of settling charges that employees misled auditors and manipulated results.

Factually – we’re really in trouble ... one in four American consumers - more than 43M people - now have credit scores below 600 (according to new FICO figures) marking them as poor risks for lenders – reaching a new high.

And By the Way:
- Nothing "Just Happens"
- We didn't fall from the single strongest manufacturing nation on earth because of a slip "Oops".
- We didn't see our high-school kids go from the highest scholastic scores on earth to number 41, because of a few "Mistakes".
- We didn't go from the world’s biggest creditor nation to the world’s single most indebted country ever seen because of a few "Mis-steps".
- But notice the SPEED at which America is being ‘Dismantled.’

The market..
OK – well I’m still in the camp that says the market needs to pause and pull back SLIGHTLY so all the chart slaves looking at the lower highs and lower lows charts feel confident to go short. On Friday we ended red. Frankly even I was a bit surprised at the size of the drop, I was figuring more along the lines of about 150 to 160 points and we lost 260. Now, if I'm right, what "should' happen is that Monday we fall some more, and then, almost out of the blue we start a bounce higher. It could be a very powerful bounce that takes back all the points we just lost. Then, it's time for the market to roll back over and plunge too much lower levels. Why – well in times when the ICI report shows the largest monetary outflows / 10th sequential outflow / totaling $34B à we’ve had a blistering run “UP” of almost 900 points! How does that happen?

If you believe that the market exists to 'take as much money from the most people as possible’ - you can often figure out what the market is going to do, simply by figuring out which way it would have to go, to inflict the most pain.
As we were on that rip roaring tear last week which topped out at 10,406 – we were at some interesting technical levels that always bring out the chartists telling us that it was time to ‘go short’. So, Wednesday we paused, Thursday we were weak, and Friday we plunged. Well there's no better way for Mr. Market to lure in the chartists then to fade some. This way the chartists look like geniuses, and they pile in with the shorts. But, more times than not, Mr. Market is right behind the curtain ready to smack the winners down. I think what happens from here is that we'll fall a bit more and then see a big ‘powerful’ bounce – and once the shorts are all toasted and everyone's trying to get long – then it rolls over again, only this time for a much longer period.

So again, our guess is a bit more downside early on, and then the start of a pretty good bounce, just so they all have to cover. Then the market can resume it's roll downhill.

Tips:
We’re in metals and ‘short’ ETF’s: We’re back in TZA, DXD and SDOW (all 3 inverse market ETF’s (that is to say these ‘Exchange Traded Funds’ increase in value when the market goes down)

Think about long dated PUTS – and please be careful out there.

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 - 7-11-10

This Week in Barons – 7-11-10:

Would you like “Two Dips or One”?
Is there a double dip coming – absolutely not! To enter a double dip, means that we first must have recovered from the recession – which we never did. We simply had a party with trillions of dollars of stimulus. DOW 8,000 will simply be a stepping-stone toward DOW 5000.

Now – allow me to be simply ‘logical’ about the economy for an instant and ask you to consider the Demographics. As the "Baby Boomers" reach retirement age (the single biggest spending body the world has ever seen, and correspondingly the single biggest "investing" body the world has ever seen) they will FLIP from putting money INTO the market - to taking money OUT OF the market in order to live. That demographic hasn’t changed, and each year (from here on out) will accelerate the withdrawals. So the market will have "pressure" coming at it for years as people tap their investments to get them through their golden years. But not only are aging baby boomers taking money out of the market to retire on, we are seeing wave after wave of unemployed looking at their 401K's from their old job and cashing them in – penalty and all. And where is that 401K typically invested – stocks. For example: the week of July 1st saw $11 Billion come out of stocks. If people can’t refi their homes and take cash out of the refi – if they have no job – and maybe they just ran out of unemployment benefits – the panic begins to set in – and that leads to 401K’s looking like a tool for survival in the near-term rather than a retirement plan for the future. Now toss in more housing foreclosures, falling retail sales, states going bankrupt, pension plans getting reworked, and commercial real estate beginning their plunge to zero – the pressure on equities is huge. And EVEN IF the economy recovered – you will still have the “Baby Boomers” pulling out of the market naturally – which will be huge in and of itself. Also - don’t forget the tax increases that are coming next year (regular as well as capital gains increases) – add to that the tremendous cost of Healthcare – and again – YES - DOW 5K is in our future.

Believe me when I tell you – I WANT to be WRONG. But I also believe in free market Capitalism – and Ben Bernanke is caught between a rock and a hard place: 1) he can let the economy fall into depression, clean itself out, break the people that made stupid choices, reward those that did right, and come out the other side leaner, meaner and ready to roar, or 2) continue to print trillions and trillions of dollars, spread it around, hope it ignites some real organic growth and then tax everyone for the rest of their lives to pay it back. I think ‘they’ are choosing Door Number 2! Does that mean long-term doom and gloom? Absolutely not – if you prepare for it!

The Market:
Historically the market moves higher into earnings season and last week was no exception. This market was desperately in trouble during the last week of June as the market fell and fell, and it was no surprise to me that the Fed (in concert with the member banks) drove the futures up and the market went with it – with or without proper bidding. I don't know how many of you watch the mini futures but I am constantly amazed when one of these "pushes" takes place – the prices blast right past stacked bids and establish new prices. Why and How? The reason is the bids ‘really’ don't exist. But the problem with Fed induced market romps is that (like musical chairs) you don't know when they turn off the music and when you’ll be left without a chair to sit in – so we used smaller positions and pulled the trigger faster during this past week.

So – What’s Next? Although there is reason to think Monday could be a reversal down day, my guess is that they'll do their best to keep the market "up" for the first part of the week – because as earnings come out, some of them will be great but the guidance might be soft, and they'll need the "room" of a higher market to absorb the news. However, we are still going to be playing small positions and moving quickly. It's our guess that whether we've seen this run-up top out, or we have a bit more to go, this earnings period will mark the market top for a while and we can get to sliding back down. And even if they held us up all the way through reporting season, what would the market have to look forward to – August and September – which are traditionally not great months. We have elections coming in November – they could be ugly – and the market naturally hates uncertainty. All in all, I think the hoopla over this earnings season will post an intermediate top.

We are strongly considering taking on some longer dated put options in the near future – you may want to follow us on Twitter or if that strategy fits your portfolio.

Tips:
We’re in metals and ‘short’ ETF’s: This week we purchased TZA, DXD and SDOW (all 3 inverse market ETF’s (that is to say these ‘Exchange Traded Funds’ increase in value when the market goes down):
- After a natural down-draft - GLD is heading back toward it’s resistance at 122 – so keep an eye on that as it gets close to it to see if it can break thru it.
- We had tight stops on DXD, SDOW, and TZA – and with the market run-up we were quickly stopped out of these – loosing a little money – but we’ll be back to play in the near turn I guarantee it!

Think about long dated PUTS – and please be careful out there.

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 Barons - 7-4-10

This Week in Barons – 7-4-10:

“I Gots to Get Me One of These…” Independence Day (the movie)
Happy 4th of July! Thanks to Steve Forbes and Jim Taylor for input to today’s Barons. What we saw this week was fear – not necessarily fear of our own economy but rather the economy that’s driving global expansion – China! As China’s economy slows (transitioning from exporter to importer) – our hopes for expansion now rest in the hands of someone else. The U.S. Debt to GDP ratio now mirrors Japan where household numbers on personal debt have moved from 68 to 98% over the past 10 years – which is simply too much debt to service both expansion and a robust market.

Currently, we need to worry about a ‘mentality shift’. The mental shift from there being ‘optimism’ and something ‘better’ being just around the corner – to that of resignation and defeat. The impact of this recession extends far beyond the 16.6% who are underemployed:
- 55% of adults in the labor force say that since the economic slump began they have suffered a spell of unemployment, a pay cut, a reduction in hours or have become involuntary part-time workers
- 15% of Americans say the U.S. economy is in good shape
- 62% of Americans have cut back on their spending
- 48% of Americans say they are in worse financial shape now than before the recession. Those with annual household incomes below $50,000, and those between 50 and 64 are being viewed as in the worst shape.
- We are experiencing the biggest financial meltdown in the post-World War II era – as household wealth fell by about 20% from 2007 to 2009.
- 26% of Americans say that when their children reach their age, their children will have a worse standard of living – up from 10% a decade ago.
- 32% of adults now say they are not confident that they will have enough income and assets to finance their retirement – up from 25% a year ago.

Some ‘disturbing’ facts:
- The SEC settled this week with Gary Aquirre for $755,000 – a lawyer that was wrongfully terminated for ‘aggressively’ pursing an insider-trading case involving the hedge fund Pequot Capital Management. WHAT?? → he was fired for "aggressively pursuing an insider trading case" – isn’t that what we pay the SEC to do? OK – then did we fire the FOUR (4) SEC investigators for NOT pursuing Bernie Madoff – NO! OK when Goldman Sachs posts 100% perfect trading histories (NO LOSES) – so can anyone really do that without insider information – NO – but is that being actively pursued – NO!
- Illinois stopped paying it’s bills this week.
- 7.9 million jobs lost – most forever
- Fannie – Freddie bailout could cost taxpayers over $1 Trillion
- Home Sales → Pending home sales plunge a record 30%. Remember that dramatic drop in home sales last month – well - Foreclosures accounted for 31% of those U.S. home sales in Q1 (according to RealtyTrac). And the average price for foreclosed properties was 27% below that of regular sales. In a normal market only 1 to 2 percent of home sales are foreclosures FYI (so this is significant.)
- The June ISM (manufacturing) index fell 20.6 points from 89.9 in May – to 69.3 in June – WOW!
- Congressman Ron Paul sponsored a bill to audit the FED – with 320 co-sponsors – it came back from the Senate – and 114 co-sponsors ‘jumped ship’ and reversed their stance – I wonder why?
- KRUGMAN: 'We are now, I fear, in the early stages of a third depression' – but a push for new Internet sales taxes; Would draw $23B”
- We are IN a depression – that is being covered up by food stamps, unemployment benefits and some 30 other Government programs. The depression will get worse.

JOBS Report: Look at Friday's jobs report – it was a horrifying disaster. After trillions of dollars spent on stimulus – the BEST we can do is lose more jobs? Not only did 600K people just give up looking for work, the workweek itself contracted, as did hourly earnings. On TOP of that – imagine if the birth/death model didn’t say we ‘created’ 147,000 ‘phantom’ jobs – subtract those – and we revised the previous months jobs report lower. To add insult to injury – and to quote Richard Vedder (director of the Center for College Affordability & Productivity in Washington, D.C.) “We have credential inflation in America. A college degree has become mundane and ordinary. We used to send kids to college to become lawyers and doctors. Now we send them to college to work at Walmart."

The Market:
I will have another update on the ‘oil patch’ (some potential ways to play the oil stocks) coming out on Tuesday of this week.

The jobs report stunk as we knew that it would. The market tried to "hold up" in the face of it, but couldn't hang on. We ended the day 46 points lower. So, we just came through a very poor quarter, where the market is down some 10%. Many are telling us that the worst is behind us and we should expect a rising market. My question is why – what’s changed? Hype over earnings season – maybe?

On a short term technical basis the market is "oversold". However, some of the single biggest train wrecks we've ever had came while the market was oversold technically. The 50 day moving average fell under the 200 day in the S&P and that is called a "death cross", meaning it shows that in the short term the market is very weak. Then we had a DOW theory bear market confirmation as the transports and the industrials hit and closed on lower lows. That’s two very powerful signals that "all is not well". If the market was truly free (no plunge patrol team – etc.) we'd fall 2000 points in the next two weeks. But the market is NOT free so it’s very hard to figure out the short-term moves. But the long-term moves are fairly well set in stone – we will be heading lower, much lower. My target is DOW 5000. But to get there we will have to be on a very wicked, volatile ride. My guess is that we shoot a bit lower this week and then they "rush in" and try and hype us higher into earnings season. But then after that's over, I see no reason why we won't fall back pretty substantially seeing DOW 9,000 this summer. And whether that happens in 2 weeks or 2 months – that is the question.

I think you can short the rallies and buy the big dips. I wouldn't be against buying long term put options against the major averages on any big market moves higher.

Oh yes – Gold and Silver. They were both attacked this week by hedge funds selling to raise cash and central banks beating on it. I expect them to sell more and yes - I'll be buying.

Tips:
We’re in metals and ‘short’ ETF’s: This week we purchased TZA, DXD and SDOW (all 3 inverse market ETF’s (that is to say these ‘Exchange Traded Funds’ increase in value when the market goes down):
- 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 → FYI for the second time in two weeks, the Gold ETF (GLD) surged above resistance at 122 and then moved back below with a long red candlestick. The overall uptrend in GLD remains in place, but there is considerable resistance in this area. First support is set at last week’s lows. Second support is set at the May low.
- DXD an inverse DOW fund we bought in at $31.50, SDOW is a 300% short – but please be careful here as things move quickly, and TZA a small cap 300% Bear fund as well we bought in @ $8.60 – again be careful here.

Please enjoy the 4th of July with family and friends – because in the end – that’s what really matters → ‘honestly’ this money stuff is secondary!

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