This week in Barrons - 11-21-10

This Week in Barons – 11–21-10:

Thanksgiving – It’s such an Easy Message
Thanksgiving is my favorite Holiday of the year - partially because it’s my birthday, but mostly because all of us have so much to be thankful for – and to set aside one day to say “Thanks” seems like the least we can do. I had the pleasure yesterday of helping my 15 year old thru a physical therapy work-out, talking to my son at NorthWestern’s football game in Wrigley Field, and helping my wife re-do our dining room – and then it hit me – in over 90% of the world – none of that would be possible. So allow me to wish all of you the best – and hope you get to share some good food, drink and bonding with those who you really love – because that’s the #1 investment in all of our lives.

This week, as Gold was being systematically taken down, so we sold our position in GLD and GDXJ for over a 20% gains. As much as I think Gold and silver are going to go higher in the long run, when you're facing those kinds of profits, on a short term trade, sometimes it's best to just take those dollars home and redeploy them later. In some others the runs have been spectacular – SLW for over 100% and NG up over 139% for us – and for those we also have stops (points where we will sell) and we’ll share those at the end of this letter. Why don’t we just hold these stocks? Well currently there are 4 major lawsuits and a class action suit that have been launched concerning silver manipulation. The Gold manipulation is almost as ugly – yet to this day banks are still piling on illegal naked shorts. This week we found out:
- Mortgage applications fell 14% - along with building permits and new home starts
- 30 year fixed rate mortgages jumped to a 4-month high of 4.34% - higher yields on 10-year treasury bonds are creating ripples in the mortgage markets – the exact opposite of what the Fed expected from QE2
- The rise in cotton prices has been 'terrifying' and could force U.S. retailers like Gap (GPS), J.C. Penney (JCP) and Wal-Mart (WMT) to pay their Chinese suppliers as much as 30% more for clothes. The price hikes will be passed along to consumers.
- The Empire State manufacturing report came in at Minus 11 (saying that manufacturing is shrinking)

Today I was reading a Drudge report on two young kids who had their ‘cupcake’ stand closed down due to an elder (in the town) calling the police because of their failure to have a permit. Does anyone out there really believe that in America we ENCOURAGE entrepreneurship? Every time I hear Obama speak on job growth coming from small business I have to laugh – because who’s going to tell all of those Washington Agencies to ‘call off the dogs?’ Want to get people back to work – eliminate about 90% of the EPA's rules, eliminate the 7 years of "environmental impact" studies they require, eliminate the political correctness and replace it with common sense. Gee – I’m really looking forward to flying to visit relatives this Thanksgiving – but not nearly as much as I’m looking forward to having TSA agents ‘feel my junk’ and oogle people with x-ray specs.

The Market:
I would guess that the single biggest question on people's minds right now is - Are we going to rally into the year-end or not? I think the answer is yes. I think we'll consolidate here a bit (as they have defended the 11K level) and then see one last charge higher into year-end. However and I think we need to remember the “January Effect” – that is to say – if the market does well in January, it does well for the year. Well – I do not think we're going to get a ‘favorable’ January effect. Here’s my thinking: If you sell your stocks now, you'll be paying taxes on them in April, 2011. If you can wait until January, 2011 to sell – you’ll be paying those taxes in April, 2012. I have a feeling a lot of people are going to need cash in January, and so it’s possible we run up higher into year-end, and then sell off fairly substantially in January.

Since Ben Bernanke put himself on record as saying: "higher stock prices will contribute to the wealth effect", there can be no question that the Fed manipulation we talk of so often is not only true, but happening daily. With that in mind there are two consequences: One is that by having the member banks push the market higher, we are seeing valuations start to attain nosebleed levels. The second consequence of QE2 is that materials and "commodities" are going higher and higher - resulting in price inflation. While Bernanke floods the system with more printed money - it has to go somewhere. One place it's going is banking reserves - because frankly a lot of them are still insolvent if they had to actually account for their holdings via any semblance of GAAP. The other place the money is going is into the stock and commodity market. With Government POMO operations continuing right on through December, with people's hesitancy to sell and pay taxes now, with the Fed leaning into the market, and with the momentum leaning higher - I have to think we can lean long into year end. But after that it's got a great chance to be a nasty place, and we'll certainly be looking to go short.

Tips:
Let’s review our holdings – with an eye toward our doubles (over 100% gainers) in the past four months of NG and SLW!
We sold GDXJ and GLD last week
We still have: GG (stop at 43.8) – NG (stop at 12.65) – AAU – FCX
We still have: SLW (stop at 31) – SSRI (stop at 22.9) – SLV - silver miners and indexes
And still have: AUY – DNN – and VXX

We still like the metals and are buying on the dips – and looking at buying some SIVR, SIL, and SGOL.

Here are some we’re watching:
In solids: JOYG over 76.55, ANR over 50, MEE over 50, CLF over 71, BTU over 60
In tech: ATHR over 34, IBM over 145.6, AAPL over 310, CRUS over 14, STC over 15 (may see 16.50 quickly)
In retail: AMZN over 165.7, TJX over 46.5
The rest: GS over 170, and PAAS over 38 would all be interesting to me.

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

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

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This week in Barrons - 11-14-10

This Week in Barons – 11–14-10:

Something Wicked this way Comes?
After 36 hours in Seoul, South Korea - the leaders of the G-20 (talking about whose fault it is that America’s gone broke again) achieved a spectacular breakthrough late in the day, when crazed mediators from Britain, France, and Germany, persuaded the G-2 to call the whole thing off and go home. Presidents Obama and Hu quickly agreed to go home and blamed the whole impasse on the Irish and Greek governments for not living within their means and surrendering to German and French demands to slaughter their bondholders. Naturally no Irish or Greek representatives were present. While everyone bolted for the airport, President Obama remembered just how bad things are at home and headed off to visit Japan instead, one of the few industrialized G-20 nations with an outlook even worse than America’s. Before the next summit the IMF was chartered to study the currency wars and suggest a solution = Stay long precious metals. After this G-20 meeting:
- America is still living far beyond its means and setting out to trash its currency in the expectation this will somehow reduce unemployment,
- Europe is still heading towards a Club Med situation,
- China is still racking up a massive dollar surplus and has a domestic property bubble that could burst at any time,
- And Japan is aging its way towards a domestic crisis.

In other Asian news, China’s latest 5-year plan is intended to convert China from the world’s manufacturer to the world’s consumer. If that were to happen and 1.3 billion people start consuming like Americans (all on credit) we are heading for the boom of all booms, and then a massive credit bust. Happily it’s unlikely to happen. The world would quickly price scarce limited basic resources too high for the transition to occur. Even so, China has served notice that we are in for a decade of change ahead, starting in the next 5 years. Another reason to = Stay long precious metals.

I do tend to believe that there are baseline drawings that we can look at and make presumptions:
- One – it’s no secret that there are more people on this earth every day – all needing food, clothing and shelter. So we must think about the "commodities" as something important to our future.
- Two – the real detective work comes in the form of deciphering what is easily replaceable, and what is not. For instance, wheat - when the weather is good, the world produces more than enough – oil on the other hand can not be easily reproduced.

So are “stocks" at a generational low, and is this the buying opportunity of a lifetime like so many pundits suggest? In the here and now, a lot of the world is in an economic mess of biblical proportions. The US is broke, while Ireland, Spain, Portugal, Italy, and about 14 others from the Euro zone throughout emerging markets are bloated and debt ridden. And as much as I write about the doom and gloom, chances are pretty good that on the other side of what ever it is – we should climb back out and see a more stable economic picture emerge.

But here are some headlines:
- Our Q3 housing report shows accelerating declines in home values and a record 23.2% of mortgages underwater.
- As municipalities across the country pay billions to big banks to get out from under interest-rate swaps – the termination payments are coming at the worst possible time, as the recession has left states and cities facing huge budget gaps.

The number one issue right now is our currency. Bernanke is out to devalue it and the world knows it. I love the classic quote: "It might be OUR currency, but it’s YOUR problem". What do you do if you're China and you have well over a $Trillion in reserves that are related to or directly in dollar assets? Each new dollar Bernanke prints, lowers the value of the dollars in your vault.

I have said over the years that the dollar is doomed, and it will be replaced as the global reserve. I don't think the structure for the replacement is known just yet but it's in the works – and it will eventually need to be tied to a gold standard.

Gold and silver were beat-up this week. It's been long overdue, people became complacent – please use it as a buying opportunity – I am. Until economic sanity comes back and something new hits the stage – I’ll stick with precious metals – they’ve worked for 10 years – and I really can't see why they won't work for at least 4 more.

The Market:
On Friday and this week the market ended “red.” We've peeled off almost 500 DOW points in just a week. The general feeling was that Bernanke would unleash QE2, the market would love every dollar of it, and we'd soar higher. But this week the atmosphere changed - not only are most of the sane people in America upset over this next round of stimulus, but the rest of the world is angry at us too. So in Case #1: since expectations were probably running at 90% that we'd get QE2 and that the market would rally on it – the market decided to simply take everyone's money that hopped aboard for the ride higher. Then after fleecing the sheep it will turn back North and hit fresh new highs. Case #2 is that something more long term has hit. The global pressures, the backlash against QE2, the insiders selling in droves, the record bank closings, and a hundred other things have finally added up to the point where "stocks are expensive and need to be sold.” The problem with Case #2 is that this is not new – it’s been around for months. And as much as “something wicked this way comes”, and as much as I believe the market should be considerably lower – it begs the question – Where will $600B POMO dollars go if not into stocks? Honestly – if you're a big time banker, and because of a sweetheart deal between you and the Federal Reserve, what on earth do you do with all that money you’re raking in from selling Treasuries to the Fed other than buy stocks? The existing POMO program – is schedule to buy $7–9B on 11.16, $5B on 11.16, $4–6B on 11.17, $7-9B on 11.18, $6-8B on 11.19, $1-2B on the 22nd – and this continues for all of November and December. So if the money doesn’t go into stocks – where does it go – and I don’t have a good answer to that!

So I think it’s Case #1 – the garden variety fleecing of the short-term sheep, and they'll step back in and run this puppy back up with all their Fed POMO money. I think we'll know by Wednesday evening just what we have here. If the selling continues Monday and Tuesday, and we don't get a classic "Wednesday reversal" we'll have to consider the idea that something bigger is going on and look at some short side ideas. Be careful out there!

Tips:
Let’s review our holdings – with an eye toward our doubles (over 100% gainers) in the past four months of NG and SLW!
GDXJ – a basket of gold miners
GG – IAG – NG – AAU – NGD – ABX – FCX individual gold miners
GLD – pegged to the price of Gold itself
SLW – SSRI – SLV - silver miners and indexes
AUY – specific miner
VXX – volatility index (for the long haul)
DNN bought at 2.75
CBOE – JCI – MDT all stopped out for a slight gain
PHYS – Sold for not going up fast enough

We still like the metals and are buying on the dips – and looking at buying some SIVR, SIL, and SGOL.

We’re still in and out (mostly out these days) of TZA, DXD and SDOW on a daily basis (these are ETF’s that allow you to invest directly in the market going ‘down’ – for those that do not like to ‘short’).

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

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

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This week in Barrons - 11-06-10

This Week in Barons – 11–07-10:

2012 Could Bring a Very Different Day of Reckoning:
Ben Bernanke once said: "consumer confidence will rise with the gradual rise of stock prices". Ben could only say that – because he had the ability to MAKE the stocks go up. When Ben said this - the DOW was at 7k – and sure enough – as strange as it sounded – as home sales hit historic lows – as retail sales went down – as foreclosures hit record highs – as joblessness continued to rise – the market just kept going up! And yes – "the market can stay irrational, longer than you can stay solvent". But we’re talking thousands of points within the biggest recession since the Great Depression. It’s not so impressive to me that he knew what to do – after all he’s a student of the ‘depression’ scenario – but how did he set up the system to ‘quickly’ to make this happen? And Ben’s last weeks quote in the Washington Post hit it on the head: "Lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion." So 2 years AFTER he muttered those previous words – he comes out and says almost the same thing again - but this time credits his manipulations for making it work.

OK – so this week Bernanke un-leased yet another $600 Billion of fantasy money that we don't have – and what happened - Gold went up $41, Silver hit a new recent high – and other countries - Germany, China, Brazil, Russia and a host of other nations lashed out against Bernanke’s policies. Hey – who can blame them? If I held a ton of US dollars I’d be upset as well if (in an instant) they became worth less! Here’s an excerpt from the German finance minister: "With all due respect, U.S. policy is clueless." Wolfgang Schaeuble believes there is no shortage of liquidity: "To say let's pump more into the market is not going to solve their problems.” China in turn said: “The unbridled printing of dollars is the biggest risk to the global economy. As long as the world exercises no restraint in issuing global currencies such as the dollar, then the occurrence of another crisis is inevitable, as quite a few wise Westerners lament.”

Did you catch the word ‘inevitable’? As Bernanke continues on his College day thesis that pushing money out of helicopters is the solution to all problems – more and more of our moral friends are turning into our financial enemies. And what about this little gem that Obama and Bernanke were not going to tell us: “The cost of Fannie, Freddie bailout might hit $685B. Initially projected two years ago to cost taxpayers $200B, the tab so far is $134B, but a slowdown in the housing market might lift that total to $280B. Creating the companies to take the place of the two fallen mortgage giants will likely cost taxpayers another $400B in capital.” - an expensive repair job for U.S. taxpayers.

The jobs report came on out Friday – and on the surface it told us that 151K jobs were created. I couldn’t believe it so I did some digging. 61K of those jobs were created from the ‘birth/death’ model – so those are not real. 7K more manufacturing jobs were lost - but wait it gets worse. The labor participation rate is at its lowest point since 1984, at 64.5%. If we were to assume a ‘normal’ participation rate of 66% - that means 3.5 Million people have dropped off the employment rolls – and have quit looking for work. Adding this number back into even ‘their unemployment number’ would increase the unemployment rate to 11.6%.

Where the heck did 3.5M people go? One day they were out there looking for work and the next day, "poof" they're gone. With a sweep of the mighty pen, people active in the job market fell to a 26 year low, with 3.5M are unaccounted for.

So there you have it - Bernanke’s going to continue to print money, the rest of the world hates our guts and will embark on their own form of protectionism – to think that this ends well is naïve! I’m trading the market gains and investing in gold and silver like crazy – but frankly – I think that a major league disruption is lurking and it's going to hit by 2012 – maybe those ‘old Mayans’ were onto something!

The Market:
It’ Up! That's all you need to know. If someone asks you: "What's the market doing lately?" just say: “It’s UP!” On Thursday we learned that 450,000 people had to apply for first time unemployment benefits – but the market went up! For two years we've averaged 450K initial jobless claims per week – and there has been NO private sector job growth.

We went long FCX on Thursday morning – by noon on Friday (one day later) it was up $7 per share (7% in one day). We also bought SVM on Thursday morning at $10.58 – and on Friday it was $12.35 (16% in a day)!

My ‘gut’ has screamed for two weeks that we are topping out – but the market marches higher. We are in a momentum driven, Fed induced dream, and it is no longer going to use regular methods to tell us when it ends. In any event here's the deal: If someone says "stay long this market, it's going up-up-up" - and it does, it's not because he's a genius, it's because the Fed and Wall Street want it up more. Likewise if a well-respected trader/investor says "be cautious this market is very over-extended" and yet it goes up - don't give him grief. There is not ONE SOUL that really knows when this will end except Ben Bernanke and the boys of international banking. Only the clan of elites (doing their behind the scenes magic) knows when the rug pull will come.

We have to keep leaning into this market, because it keeps going up despite any semblance of reality, but I refuse to swing for the fences. I am buying smaller positions and keeping my stops tight. Watch the dollar - when it weakens load the boat with stock. When the dollar bounces - sell out. Nothing could be easier actually, it's really that simple – and completely insane.

Tips:
Let’s review our holdings:
GDXJ – a basket of gold miners
GG – IAG – NG – AAU – NGD – ABX – FCX individual gold miners
GLD – PHYS – pegged to the price of Gold itself
SLW – SSRI – SLV - silver miners and indexes
AUY – specific miner – heading into earnings season
VXX – volatility index (for the long haul)
CBOE at 24.02
JCI at 33.00
MDT at 34.05

We still like the metals and are buying on the dips – and looking at buying some SIVR, SIL, and SGOL. Jim Cramer now wants 20% of your portfolio in metals – wow pretty insightful!

We’re still in and out (mostly out these days) of TZA, DXD and SDOW on a daily basis (these are ETF’s that allow you to invest directly in the market going ‘down’ – for those that do not like to ‘short’).

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

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

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This week in Barrons - 10.31.10

This Week in Barons – 10–31-10:

Buy the “Rumor” – Sell the “News”:
Happy Halloween to all of you. Trick or Treat – well this is truly one of the reasons I'm comfortable holding my gold and silver. It isn't just "money" it's the alternative to Government. When people completely mistrust their Government, they look to alternative ways to protect themselves and gold fits the bill. By the way, there was another interesting "blurb" concerning silver manipulation this week:

The Commodity Futures Trading Commission (CFTC) urged action on their silver probe. At a CFTC hearing, commissioner Bart Chilton pressured the agency to take action in its high-profile, two-year-old investigation of the silver market. Chilton said market players have made "repeated" and "fraudulent efforts to persuade and deviously control" silver prices, and he believes there have been violations of CFTC rules that deserve to be prosecuted. Though Chilton declined to name specific offenders, sources said that the agency began to look into allegations earlier this year that JPMorgan (JPM), one of the largest silver traders, was involved in manipulative trading. CFTC Chairman Gary Gensler declined to comment on the silver investigation or Mr. Chilton's comments.

But wait, there's so much more we can ask. As you know, we've been helping to expose the gold and silver market fraud and manipulations for years. In the past year, the heat has been turned up, as it went public that Andrew Mcguire, a lone silver trader had called out the SEC and CFTC to watch the manipulation in "live time". He showed them what would happen, and it happened. So far there's been all sorts of "investigations" but no action. Now we hear that the lawsuit, being represented by Labaton, Sucharow has the ability to really expose JPM and HSBC as the true market manipulators we have said that they were. What happens if indeed one of the new guns in this election, actually has the backbone to stand up for what's right and helps those proceedings go properly, and exposes it to the American people? Do you think it would be a wake up call? Do you think people would listen to a politician exposing another area of high level corruption and the exact steps he's going to take to eliminate it? I think it would open some eyes. If there was a new Republican, or Democrat, that came in with guns blazing and decided to show America how things are really done here, he'd be my hero. Wouldn't it be a great “Trick” and a “Treat” if someone actually did the right thing and exposed the back room ponzi schemes! I feel Americans from both sides of the aisle would support him.

The Market:
For the past several sessions, the "market" has decided to take a wait and see approach to the elections and the upcoming announcements from Ben Bernanke about how much more quantitative easing he's willing to do. After running up for week after week, the market has remained in an incredibly tight range, ending the days "flat" almost to the point of unnatural. Now of course the big question is "what's next? I can make a case for the concept that we are about to see a major league rug pull coming. If the elections show a big sweep by the Republicans – some say that's good, and some say that’s bad – but the bottom line is that this is already been priced in. And what about Quantitative Easing by Bernanke – well once again, some measure of that expectation is already baked in the cake.

One of the oldest adages about the market is that it "buys the rumors and sells the news". Well the rumors are that the Republicans take a new majority of the House, and gain in the Senate. The rumors are that Bernanke is going to announce $100 Billion worth of more treasury buying. So, if both of them come to pass, what's to keep the market moving higher? The market is sitting just below 11,200 (a hefty resistance level) – but if it got here via interventions, what's to stop it from going even higher? Nothing – but I do have my suspicions, that banks are using their free money to bid the market higher and lure in John Q. Public - to put more money in the pot – and behind the scenes (via "dark pool" trading platforms) they're amassing huge short positions.

Here's how this scam works. When banks get their free money from the FED they go into the market and buy stocks. As John Q. Public sees the market go up – he fears not making any money – and at some point the amateur investor finally takes the plunge and puts his money back in the market. The market continues to rise for a bit and then "whammo" – the rug gets yanked. But it works both ways for ‘banksters’ – as they put their free money into the market - they take ownership of stocks and drive the price higher. So when John Q. Public shows up – the banks sell their higher stocks to Mr. Public for a tidy profit. The more sinister side of all of this is that big institutions now use platforms called "dark pools" to trade. It’s a way large institutions can hide what they're doing from the normal exchanges. In a "Dark Pool" their trades do not show on the tape. So, while on the open exchanges we see them buying, we don't know what they're doing on the other side of the pool. It's my guess they're building up a substantial short position. One of the reasons we can point to that belief is that this week the ratio of Insiders that are Selling their own stock, versus Buying it just hit an all time new RECORD of 3,777 to 1. The very insiders that are posting rosy earnings reports and telling us fairy tales about business going forward - are trying to get out faster and harder than at any time in recorded history. Since the insiders at big corporations are often tied closely to the very investment banks that can utilize dark pools, wouldn't it make sense that they are working together for their common good? The insiders cash out by selling their stocks with massive gains to John Q. Public, spurred on by knowledge that business isn't that great, and their banker buddies are probably telling them that the end is near. We just don't know the level from which they're willing to fleece the sheep. Maybe it's at 11,200, maybe it's at 11,700 or maybe they take it all the way back to 14K – but we feel that when the rug pull comes – it’s going to be violent.

The combination of the elections and the Central banks maneuvers, will be awful interesting to watch unfold this week. It's my guess this week has the ability to be one of the more volatile weeks we've seen this year. How will the bond pits, currency markets, and the stock markets react? Will gold set another new high? And when will Bernanke announce $100 Billion a month in Treasury buys? We’ll know a lot more by Wednesday evening – bring some popcorn!

Tips:
Let’s review our holdings:
GDXJ – a basket of gold miners
GG – IAG – NG – AAU – individual gold miners
GLD – PHYS – pegged to the price of Gold itself
SLW – SSRI – silver miners and indexes
AUY – specific miner – heading into earnings season
VXX – volatility index (for the long haul)
CBOE at 24.02
JCI at 33.00
MDT at 34.05
NGD at 6.90
ABX at 48.15

We still like the metals and are looking at buying some SIVR, SIL, and SGOL. Think about NEM over 65 and look at Freeport McMoRan (FCX). What scares me – is Jim Cramer also likes these picks ☺.

We’re still in and out (mostly out these days) of TZA, DXD and SDOW on a daily basis (these are ETF’s that allow you to invest directly in the market going ‘down’ – for those that do not like to ‘short’).

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

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

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This week in Barrons - 10-24-10

This Week in Barons – 10–24-10:

We are Human Beings – non Human Doings:
"Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights." -Alan Greenspan Just as Alan Greenspan knew what happens when you let the worlds "improvers" take over the money supply, Ben Bernanke also knows. Greenspan wrote an entire ‘white paper’ on the virtues of gold, and knew all along that loose monetary policies would cause great disruptions. But we are all human beings – not human ‘doings’ – and as such, we tend to do a lot of things that seem to run contrary to our core beliefs.

Scientist Stanley Millgrave, did a series of experiments after WWII, concentrating on human behavior and some of his findings were so outrageous that they were banned from public view. In one experiment, Dr. Millgrave took some very ordinary people (one group) and some actors (second group), and placed the actors in a glass booth. In this game - the Ordinary people, were to ask the people in the glass booth a question. If the ‘actors’ answered the question wrong, the ‘ordinary people’ had to hit a button that would "shock" the person behind the glass (the actor). Naturally, the ‘ordinary people’ didn't know there were ‘actors’ inside the booth – nor did they know that there really weren't any shocks being delivered, but upon a wrong answer and subsequent shock - the actors would plead, scream, writhe in agony, and beg them to stop. The astounding thing to all who witnessed the experiment was this: No matter how hard the actors screamed, pleaded and begged - the question givers did NOT stop. They succumbed to the "authority" that gave them the right to hurt these people if they gave the wrong answer. Millgrave repeated the experiment all around the world, to find the same result everywhere. Once in "power" the people used the power – and it was not uncommon to have it corrupt their morality. So Alan Greenspan and Ben Bernanke’s behavior is totally predictable. They are being told to make things pretty no matter the pain, anguish, and outcome – and like those Millgrave experiments, they’re doing exactly as they were told.

The important part about studying mob psychology, is trying to determine where they are going, and how long they'll stay. The idea of contrarian investing is that what ever way the masses are going, your best bet is to go the other way, because invariably they'll be proven to be chasing a mirage – well fair warning – last week was the first week in the last 23 where money flowed INTO ‘mutual funds’ – which could mean – that it’s really time for a ‘rug pull’ – time to leave the market for a bit.

Finally – this week Mr. Bernanke told us that inflation is virtually non-existent. I’m wondering (outside of housing) which inflation Mr. Bernanke doesn’t see:
- Corn prices are dramatically higher this year resulting in higher food costs across the world,
- Rising textbook prices have inspired University Bookstore and Tech Bookstore to search for new ways of lowering students' financial burden,
- Disney hiked adult admission prices 3.8%,
- Airfares are up 17%,
- A 30 pack of Bud-Lite is up 3.9%,
- Movies up 5.5%, Gasoline up 8.5%, Chicken up 13%, Beef up 14%,
- Used car prices jumped 8.5% in September from a year earlier, and
- The price of a 31-item basket from Wal-Mart rose 2.7% in September – and Wal-Mart prices have jumped 5% since the start of the year and have been at their highest levels in the 21 months


The Market:
This past week – what we saw was when the Fed was involved in POMO and large interventions – there was a big ‘up’ day – when it wasn’t – surprise – flat to big down day! Now, we all know, at "some" point, despite the Fed, despite the elections, the market is going to a “rug pull”. It's what it does. It lures people in and then dashes them on the rocks of desperation. Last week, we saw the first "inflows" of money into mutual funds in over 23 weeks – so John Q. Public can't take it any more - he sees the market moving up and up and up and he's scared to death the train is leaving the station without him. When the public starts showing up, you can bet a rug pull is not far behind.

One of the big theories is that the FED is keeping the market up for the elections. So, if that thinking prevails - they will have to keep the market "up" again for another couple weeks. I do not usually act on what I feel they're about to do, I let them do it first and then react. This is why we've been leaning long. But that doesn't mean I throw caution to the wind. We have been using smaller positions and less of them. Right now we’re in MDT which was up two dollars a share for us in a week, JCI which was up over a buck and our latest pick up, CBOE was up over half a buck for us.

The bottom line is that once again, the stars are aligned for a pull down, starting within the week. I don't know if it will happen, or if the Federal Reserve will step in and save the day again. In the past, they've tossed off the gloves and gotten their hands dirty, pushing us up despite the technicals. They very well might do it again, but understand the rubber band is very stretched and when it snaps back it will be violent.


Tips:
Let’s review our holdings:
GDXJ – a basket of gold miners
GG – IAG – NG – AAU – individual gold miners
GLD – PHYS – pegged to the price of Gold itself
SLW – SSRI – silver miners and indexes
AUY – specific miner – heading into earnings season
VXX – volatility index (for the long haul)
CBOE at 24.02
JCI at 33.00
MDT at 34.05

Consider snapping up some NGD (New Gold) as it’s run over the 6.90 target we had on it. For a trade - I also like IBM over 140.5, CTXS over 60, and UYM over 40.5.

I’m still looking at the miners – because with the recent run up in the metals – their earnings could be a real up-side surprise – look at: ABX over 48, and NEM over 65.

We’re still in and out (mostly out these days) of TZA, DXD and SDOW on a daily basis (these are ETF’s that allow you to invest directly in the market going ‘down’ – for those that do not like to ‘short’).

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

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

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This week in Barrons - 10-17-10

This Week in Barons – 10–17-10:

Ben Bernanke = Pass - Fail
Some of you know me as a Professor at CMU – and in that capacity - very few people take the courses that I teach “Pass/Fail” – but those who do – often do so because they ‘lack the time’. Well – Mr. Bernanke – let’s assume you’re one of those people – taking my course – Pass/Fail.

As Steve Forbes wrote me this week: “I'm always flabbergasted at the CNBC's of the world and their absolute rejection of the notion that we're not headed for a catastrophic meltdown. They report the day-to-day life of traders, without consideration of what's happening in the real world. For example: in today's Seattle Times, they are advertising ‘resort style condominiums’, which originally went to the market from: $380k to $990k, are now one the auction block starting at $145k. This is in a prime, suburban area with all of the typical design highlights. You do the math – but taking a 40% haircut – 40 cents on the dollar – what is ‘Fair Market Value’ (FMV) anymore?”
- Well, I guess Ben just didn’t have the time to concentrate on housing, so Housing = ‘F’

Last week the world met to try and get a grasp on the global currency wars that we predicted so long ago, and which have come true. It seems that Gold has risen against 72 out of 72 fiat currencies around the world – with the U.S. and Zimbabwe falling into the same boat. What everyone was hoping for was a global agreement to emerge, but each country was sticking to its guns, knowing silently that their only hope for survival was to have their currency beat everyone else’s to the bottom.
- Well, I guess Ben just didn’t have the time for Currency either = ‘F’

Remember when Mr. Bernanke told us that our banking system was solid, and there was not a chance that anything bad could happen – and then the banking system imploded. Then he said subprime mortgages were contained, and there was no chance of a contagion that worked into other mortgage arenas – and then subprime imploded and now even prime mortgages were found to be fraudulent. Well a good friend Jacob Hawkinson wrote me this week about the most recent foreclosure fiasco – it seems as if in the mass of securitization, IOU’s, MBS’s, REMIC’s, MER’s (and the list continues) – it seems as if some people either forgot or ‘forged’ other people signatures in order to get the mortage/loan paperwork thru the conduit. The main thinking on any home title is that you need a clear ‘chain of title’. That is to say: you can endorse the loan/note as many times as you please, but you have to have a clear chain of title right on the actual note: I sold the note to ‘Moe’, who sold it to ‘Larry’, who sold it to ‘Curly’, and all our notarized signatures are actually, physically, on the note, one after the other. Now, if for whatever reason any of these signatures is skipped, then the chain of title is said to be broken. Therefore, legally, the mortgage note is no longer valid. That is, the person who took out the mortgage loan to pay for the house no longer owes the loan, because he no longer knows whom to pay. Now – let me repeat that – If the chain of title of the note is broken, then the borrower no longer owes any money on the loan! And what if some of those ‘signature enhancers’ (people who over-looked or faked signatures) – were investment banks. Well, now we get to sue the Goldman’s of the world for all kinds of issues – again!
- Well, I guess Ben just didn’t have the time for Foreclosures either = ‘F’

Now Mr. Bernanke is indeed a very smart fellow – and he knows exactly what is happening. What is Ben spending his time on – the answer is ‘inflation’ vs ‘deflation.’ And one of our major debt holders – China – is quite troubled over what we've been doing and what we continue to tell them to do. I can't say I blame them. We have a Treasury Secretary (in charge of Trillions of dollars), but couldn’t file a tax return? We have a Central banker who never saw a single issue coming our way, but now supposedly knows how to fix them. And we just announced to the world that some 60 Million U.S. mortgages ($ Trillions) and more Mortgage Backed Securities might be/could be/probably are fraudulent and potentially worthless. The fraud other nations are seeing:
- Steven Rattner (former car-czar) is finalizing a deal with the SEC over his role in a "pay to play" scandal involving New York's public pension fund – he’ll pay $6M and agree to a two-year ban from the securities industry
- Angelo Mozilo, CEO of Countrywide has agreed to pay the biggest fine ever assessed to an executive of a public company - $67.5 million.

Getting back to Ben – what Ben needs, is to get money into the hands of the U.S. consumer so that they can ‘shop till they drop.’ And without being able to write everyone a check ‘personally’ – he went to the most common vehicle he could manage – the stock market. Remember 2 years ago when Ben Bernanke said to a Senate committee: “a gradual increase in economic strength will be evident as asset prices (stocks) rise. Because as asset prices rise (stocks), the economy will get better.” Steve Sjuggerud’s research confirms that in 83% of the cases – following ‘Fed’ cash injections – the stock market was higher. Ben told us two years ago that asset prices would rise. He could NOT have known that unless he was going to make it happen.
- Well, Ben definitely had time for Market Manipulation = ‘PASS’

The Market:
So, if Ben’s directive works – asset prices (stocks) will go higher, and people will "get richer" and hopefully feel better and spend some money. That's the ONLY reason this market is at 11K! In fact, new data show us that the stock market saw it's 23rd consecutive weekly outflow of money via mutual fund redemptions, with $5.6 billion pulled out for the month. Only the Fed has pockets big enough to off-set billions fleeing from the ‘consumer’ side of the market.

So, we've been telling you all along to lean long, but keep a finger near the sell button – and so far that’s been working. But understand that this market – like a rubber band – is getting pretty stretched.

Since Friday was options expiration day, and it ended the session essentially flat – honestly – it’s hard to determine if they're looking to take a breather here, or "push for more returns".

Congrats to one of the readers who wrote in about a trade on Friday - SLAB – if it were to get over $38.10 it could run – well it ran immediately to $39.69 – congrats there!

Tips:
Let’s review our holdings:
GDXJ – a basket of gold miners
GG – IAG – NG – AAU – individual gold miners
GLD – PHYS – pegged to the price of Gold itself
SLW – SSRI – silver miners and indexes
AUY – specific miner – heading into earnings season
VXX – volatility index (for the long haul)

Consider snapping up some NGD (New Gold) as it’s run over the 6.90 target we had on it.

I’m still looking at the miners – because with the recent run up in the metals – their earnings could be a real up-side surprise – look at: ABX over 48, and NEM over 65.

We’re still in and out (mostly out these days) of TZA, DXD and SDOW on a daily basis (these are ETF’s that allow you to invest directly in the market going ‘down’ – for those that do not like to ‘short’).

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

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

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This week in Barrons - 10-10-10

This Week in Barons – 10–10-10:

Whistling past the Graveyard
This week:
- Mortgage applications and refi’s fell for the fifth straight week - despite the lowest mortgage rates ever recorded.
- Banks want to foreclose and sell the houses cheaper, to make their money on the spread, but they can't because no one can follow the paper trail.
- Global investors, screwed by the likes of Goldman are starting to push back via lawsuits.
- The jobs report showed that we lost 106k jobs (95k + 11k in the birth/death model) – and the real underemployment number rose to 17%.
- AND this past week 2,343 to 1 (sellers to buyers) of the largest corporations in the world – were selling their own stock rather than buying it! Yep the CEO’s and CFO’s are "gettin out while the gettin is good". Oracle insiders alone sold a whopping $465 Million dollars worth of their stock!

Yet the market went up. It broke over 11K and held it for the weekend. Now with gold and silver rising, bonds rising, insiders bailing out, mutual funds posting their umpteenth week of withdrawals, and a horrid employment report, should the market have gone up? It's rising because the Fed will continue to push fairy tale money into a bloated system. The Banks and Wall Street get the first cut, so they have no problem pushing stocks higher. Now, if the Fed does not react with another $2 - 2.5 TRILLION worth of stimulus – we will slide into a deep dark depression, AND some major banks will fail. Our credit economy was built on low down payments and easy monthly payments, and unless everyone is allowed to have that same level of leverage again, there is going to be a "new normal" and that new normal is economic activity on a much subdued level. So, Item One: we have 41 million on food stamps now, record bankruptcies, and millions out of work without access to unlimited credit. They can't "borrow themselves out of the hole". Item Two: Jobs. Sanofi just announced it was laying off 25% of it's American workers – notice they said "American". Item Three: We are no where close to a bottom in housing! Foreclosures had to be halted in many states because of bad paperwork? It seems that all along the way – during the bubble – we didn't care about recording deeds and liens properly. Now – currently the foreclosure industry is about 18 months behind – and is made up of two pieces: Piece #1: If you’re not paying your $1,500 or $2,000 a month mortgage each month, you have a lot of monthly money to go buy "stuff" with – such as: clothes, iPads, TV's, music players you name it – and people are using their mortgage money to live large. Piece #2: With all of the excess paperwork – it seems that the banks can’t figure out who owns the liens on the houses. So, judges have called a halt to a lot of the foreclosure process. We now have moratoriums in over 23 states until regulators can dig through the mess and figure out just who owns what. This allows people a little bit longer to ‘live large’ but puts a big crimp on the banks. You see – due to a recent change in the regulations – Banks now really DO want to foreclose, because if they foreclose and then blow the house out with a "short sale", Uncle Sam picks up the tab for the shortfall. In other words, if the original mortgage was for $500k, and the house now ‘short sells’ for $150k – the taxpayer makes up the $350k difference! If this moratorium continues, banks that were looking to make a fortune turning over cheap properties are going to take a big hit, but "folks" squatting in the houses get a stay of execution. And to add insult to injury – as more and more homes sit in foreclosure, more and more local Governments are going belly up. Governments need tax revenues to survive – and with swarms of houses paying no taxes, incomes at the town level continue to fall. And further on - townships are re-evaluating their real estate taxes and seeing homes assessed at 300K, only coming up at 100K now, thus taking in considerably less in tax dollars on down the road.

But wait - just this week, Goldman Sachs was sued this week by LBBW because it lost $37M in a Goldman-sold CDO deal. Goldman advertised the deal as being "Safe, Secure, and Nearly Risk Free". But inside this deal, it was 33% subprime and 46% "mid-prime" mortgages – which (naturally) all defaulted and LBBW took the hit. Now LBBW wants Goldman to admit to “committing fraud and, or, was negligent in marketing and selling the notes". LBBW is laying the groundwork for hundreds of these legal suits.

It gets worse – J.P. Morgan – who at one point was short 30% of the entire worlds silver production – is watching silver continue to climb. Who's making up for the losses? Are we staring at a situation where some of these monster short sellers are about to go under without another bail out? I believe we are. The short sellers have lost control of the manipulations and they are in dire straights.

We are going to get QE2. It’s not an accident that gold and silver have gone up against 73 fiat currencies of the world. As countries try to devalue their currency, gold and silver will do what they've done for centuries - preserve your buying power. You see - the Fed can create money but cannot control its "velocity". Meaning making the money is only half the job – the other half is getting it into the hands of those who will go and spend it. You see Bernanke thought that if they printed enough money, the banks would lend it out, consumers would eat it up and we could party like it's 1999 again. But the Banks didn't lend it - they instantly parked it right back at the Fed and made the interest rate spread with NO risk. So there was no velocity. Then the FED pushed business credit, but to quote one businessman - "I don't need credit, I need customers". So the Fed has been pushing the MARKET higher – so everyone feels rich enough to start spending. Well, we're over 11K – and the individual investor is still scared - (he should be, he's been fleeced twice in ten years) – and the sentiment surveys show a drop in confidence. So, the only question is, how far will they push the market? Honestly, I didn't really think they'd get it this far. It’s becoming increasingly clear that the world has had about enough of our economy and is scrambling to diversify out of our Treasuries – leaving the FED as the only customer for our paper, either Government or Corporate. That has never gone on all that long – and I have a feeling we're about to find out how far they can go.

The Market...
DOW 11K - I'm amazed. Who would have thought – when we bought SLW on May 14th, 2009 at $3.25 – that it would be $27 now. The shares of UYM at $10.50 at the time, are now worth $39. Our NGD that we purchased at $2.59 is now worth $7.00. Yes, the world certainly believes in the metals and miners.

Okay, so what happens now? The first scenario is that in the fall of the second year of a Presidency, stocks generally run up into December – because investors know that the midterm elections probably produced gridlock and they don't have to fear new policies. Then on top of that, we know that at some point Bernanke is going to unleash holy hell via Quantitative Easing, giving Wall Street even more money to go peddle stocks with. That is a powerful combination and could push us straight up from here. Scenario two is a bit bleaker with earnings season is upon us and we already know what the insiders think – they’re leaving their company’s stock in record numbers. Is it possible that despite the Presidential cycle and the Fed's money printing, enough companies give lousy guidance to derail the run for a bit, even allow for a mini rug pull so Wall Street can pick everyone's pocket?

Unfortunately - we could continue to 12K and beyond – stay strong into the elections and then see the bottom fall out, or we could have a rug pull at any moment. I honestly wish I could be more decisive. Pay special attention to materials and metals, since a weaker dollar makes commodities of all kinds more expensive. But it's prudent to use smaller positions and hang near those sell buttons just in case.

Tips:
Let’s review our holdings:
GDXJ – a basket of gold miners
GG – IAG – NG – individual gold miners
GLD – PHYS – pegged to the price of Gold itself
SLW – SSRI – silver miners and indexes
AUY – specific miner – heading into earnings season
VXX – volatility index (for the long haul)
I did pick up some AAU @ 3.10

If the market continues to have legs – you may want to look at: MME over 35, MDT over 34, UYM over 39, and BTU over 52.

I’m still looking at the miners – because with the recent run up in the metals – their earnings could be a real up-side surprise – look at: ABX over 48, NEM over 65, and NGD over 6.90

We’re still in and out (mostly out these days) of TZA, DXD and SDOW on a daily basis (these are ETF’s that allow you to invest directly in the market going ‘down’ – for those that do not like to ‘short’).

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

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

Remember the Blog:
Until next week – be safe.

R.F. Culbertson