This week in Barrons - 1-30-11

This Week in Barons – 1–30-11:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This week in Barrons 1-23-11

This Week in Barons – 1–23-11:

When do we go to cash?

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

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

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

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

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

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

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

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

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

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This week in Barrons - 1-16-11

This Week in Barons – 1–16-11:

“To Dream – the Impossible Dream”

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

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

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

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


The Market:

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

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

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

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

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

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

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

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This week in Barrons - 1-09-11

This Week in Barons – 1–09-11:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This week in Barrons - 1-3-11

This Week in Barons – 1–3-11:

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

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

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

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

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

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

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

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

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

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

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

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

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

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This week in Barrons - 12-26-10 (abbreviated)

This Week in Barons – 12–26-10:

Twas the Day After Christmas – and All thru the House:

This will be an abbreviated letter – due to the holiday. But wow – it’s holidays like Christmas that allow you to appreciate friends and family – thanks to all for a great holiday! But our ‘beat’ is ‘The Street’ and tomorrow the lunacy will begin again. We’re going to hear about more European downgrades, and more tensions in Korea. But often we use this week to reflect and see what’s worked and what hasn’t. We make a bad trade now and then (it happens ☺ ) and the key is to cut them off and move into something that's going in the proper direction. So how did we do this year? Well our trading account is up 40.4% on the year! We were bolstered by thinking that Obama and Bernanke would destroy our currency, and hence allowed to get into materials and metals very early SLW at $3 – ending the year at $39.

In fact – here’s a quote from last year’s newsletter – January 4th, 2010 – “As the dollar continues to crumble – and we think it will – ‘stuff’ becomes more expensive, and the world needs ‘stuff’. While it's true that in the short term they might leave the material guys for something more sexy, the fact is that the dollar will fall again, and when it does, the materials and metals should go higher once again. We can't ever ignore them.”

But we also had Amazon at $120 and it hit $183, Apple at $267 and it hit $323, and Salesforce at $75 that just hit $150. Now did we get all of those gains – absolutely not – why – because we generally get out of a stock a bit ‘before’ the top. Investing is a discipline and ‘in my world’ there’s no problem taking profits.

It’s been a good year – and next week’s letter will have my thoughts and predictions for 2011!


The Market:

Okay one week left and it’s not "common" for them to do a rug pull during the last week between Christmas and New Years, but it's not unheard of either so we need to continue to be cautious. We didn’t do much last week – again due to the holidays and potentially won’t do a whole lot this week either – again same reason. This market is being propped up on very low volumes, and I don't want to get trapped. It's my guess we limp sideways into the year end. Unlike last week where the market closed for Friday, this is going to be a full week.

Tips:
Let’s review our holdings:

We really don’t have anything in the short term holds account – and it may be doubtful that we do much at all this week as well (honestly).

This past week we were stopped out of EXK with a loss - ugh. It is possible the materials guys come roaring back – naturally we’ll have to watch the dollar, but it's sure possible.

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

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

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

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This week in Barrons - 12-19-10

This Week in Barons – 12–19-10:

Remember the Day!
December 25th is right around the corner. It’s a truly magical day. It’s a day when the world puts down their weapons and for one day we have ‘Peace on Earth – Good Will Toward Men’. Yes it’s a truly magical day!

But unfortunately – we know the end is coming:
- The U.S. debt will top $13.6 trillion this year and climb to an estimated $19.6 trillion by 2015, according to a Treasury Department report to Congress.
- U.S. Postal Service workers who handle letters addressed to Santa at the North Pole say more letters ask for basics – coats, socks and shoes – than ask for extras: dolls, video games and computers.
- 6 more small banks on Friday – bringing the total to 157 closed this year.
- Payrolls decreased in 28 U.S. states and the unemployment rate climbed in 21.
- This week marked the 32nd consecutive outflow from domestic equity mutual funds – equaling $2.7 billion versus $1.7 billion last year.

This week Moody's Investors Service warned this week that it may downgrade Spanish government debt, citing the country's refinancing needs next year and the strain of recapitalizing its debt-strapped banks. Moody's said a downgrade could be triggered by "Spain's vulnerability to funding stress given its high refinancing needs in 2011," a problem that "has recently been amplified by fragile market confidence.” Spain's debt problem could worsen "should the cost of bank recapitalization prove to be higher than expected," Moody's said in a press release, adding that there are concerns whether Spain can achieve the needed "sustainable and structural improvement." Europe is a disaster. There are destructive riots raging in Greece, in Italy they're protesting; in Ireland the ECB is shoveling money as fast as Bernanke is over here. No matter where you look except for Russia, China, India, Brazil things aren't going so well.

But not to fear, this week we learned that consumer prices went up a mere 0.1%. The Empire state manufacturing report came in, and it went from -11 last month to +10 this month. The only reason we're seeing economic activity is because Ben Bernanke has expanded the Fed's balance sheet to record levels. Perhaps Ben understands that after spending $2.5 Trillion in stimulus - the best he could get was a sub par rebound. But the tug of war is brewing. Wall Street wants to do it's regularly scheduled “rug pull” to fleece the American investor – but Ben’s giving Wall Street money to support prices so that people "feel wealthy" as their stocks go up. It's an interesting tug of war for sure.

But remember: EVERY single dollar in circulation came into being as a DEBT. Meaning the U.S. says that it needs dollars – so the U.S. asks the Treasury to print some money – well if the Treasury doesn’t have it (which they don’t) they go to the Fed (Mr. Bernanke) and ask for it – and Ben naturally says YES – but it comes with an interest payment (say 3%) due to the FED in ‘real dollars’. Now there comes a point when just the interest on all the money we've borrowed from the Fed, is bigger than we can pay and still keep things moving along. That day is here – because all the interest due the Fed is now our 5th biggest expenditure right behind defense. In 2009, we the people paid $383 Billion in interest to the Fed, and this year will be more. That's 11% of our entire U.S. budget that is going toward paying the Federal Reserve interest on money it didn't have and printed out of thin air.

Also notice that in the face of all the Fed's efforts to keep interest rates down – they are indeed rising. Now - are they rising because of the imagined economic strength, or are they rising as people around the globe flee the dollar and rates have to rise in order to attract buyers? My feeling is that the world does not want dollars any more. Russia has agreed to use the Chinese currency in trades between the two nations. As this continues and expands, two things will happen. Silver and gold will be looked to as a safety haven against fiat currency, and interest rates will continue to rise - not in a straight line of course. The Fed will step up its efforts - but in the long run – it’s inevitable. How do you think real estate will fare if rates go to 6% when they couldn't sell them at 3.95%? In September home prices fell in 18 of the 20 metro areas tracked by Standard & Poor's Case-Shiller composite home price index – which was worse than August. "There is a large supply of houses on the market," says David Blitzer, chair of the index committee at Standard & Poor's. "And further, hidden supply due to delinquent mortgages, pending foreclosures or vacant homes." The top 5 urban areas of decline are:
- Cleveland where prices dropped a scary 3% in September alone.
- Minneapolis, where home prices have retreated for three straight months, most recently declining by 2.1% in the month of September.
- Portland, where housing prices fell by 1.9% in September.
- Dallas, where the town's football team isn't the only thing sinking this fall. Home prices fell 1.6% in September after sliding 1.2% in August.
- And Phoenix, where the residential real estate market in Phoenix has cause for concern, trending downward by 1.5% in September and 1.3% in August.

The Market:
The market is putting in a top – there’s no question about its intentions. But the Fed, buying Treasuries from Wall Street banks, and paying them billions in premium, is countering the mutual fund redemptions and hedge fund scale backs. Those banks are then using the new money to gamble in the market, and keep it higher than it would normally be.

The big question is: Can the Fed's billions offset the exodus from all the funds? I truly don't know the answer to that and frankly I don't think anyone does. We have never seen this before. Right now we've got all manner of "technicals" screaming "TOP". From the over the top bullishness, to the daily, weekly and monthly stochastics to the buying/selling pressure, to the volume, to the
"Hindenburg Omen (HO)." For those not acquainted with the term, the Hindenburg Omen is a series of technical observations that has occurred ahead of every major "crash" in the last 50 years. Now there is a catch - although no crash has ever occurred that wasn't preceded by an HO – but we have had HO moments that didn't develop into anything. In other words a Hindenburg is not a perfect predictor – and can be observed yet the market remains flat or even goes higher. The bottom line is that, Hindenburg Omens are indeed something to take notice of, but not necessarily to panic over. It does however support the theory that we are nearing a major top. For weeks now I've been suggesting that we are working on a top in the market, and that it's going to be a significant top. This latest omen simply augments that outlook.

We are still above the November 4 closing high of 11,444, which means you can consider the market still being in something of a "breakout", but it's a pained and strained move. On Friday because of the options expiration day, I thought that in order for the market to impart the most pain on the most people, the most likely thing it could do for the day was to trade sideways, and we'd probably end the day flat to slightly red – we did!

So this is it - the week ahead of Christmas. Does the market have one more shot left in it? Will Bernanke double down on a POMO buy and give his Wall Street buddies a bunch of new billions to push the market up with? Or do we simply burn out here, hobbling and trading sideways until year-end? My guess is that we trade sideways – but the ‘darling stocks’ such as DECK on Friday can still push higher toward the New Year!

Be careful out there folks, it's getting extremely choppy. I "think" they're going to get us a bit higher, but right now I'm calling almost 50/50.


Tips:
Let’s review our holdings:

This week we were stopped out of FCX, GG, SLW and SSIR – all with very nice gains indeed. Investing is a discipline – we set our stops – and when a stock hits them – we sell. Now it’s possible the materials guys come roaring back – naturally we’ll have to watch the dollar, but it's sure possible. Right now I’m not seeing anything jump out at me as a screaming buy for Monday.

Our Long Term Holds look like:
SLV at 25.81 - up 10%
NG at 6.825 - up 90%
AAU at 3.02 - up 44%
DNN at 2.71 - up 21%
AVARF at 4.00 – flat even
EXK at 7.40 - down 7%
USSIF at 0.61 – spec play (penny stock) down 6%

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