This week in Barrons - 3.6.2011

This Week in Barons – 3–6-11:

Watching ‘The Ben Bernanke’ Squirm:

I don't know if you've noticed, but Ben Bernanke has been getting more and more smug recently. But the attacks on the Federal Reserve have been coming faster and more furiously. On Tuesday, Ben was getting his dose of "Humphrey Hawkins" questioning from Congress, and you could tell the questions were a bit more "hardball" than usual. There was one period where he was getting questioned about Federal Reserve "legality." The Charter clearly says the Federal Reserve can NOT buy Treasuries straight from the Government. So, out of the clear blue, Congressman Schumer says: “Mr. Bernanke, you're prohibited by law from buying government debt, so it is our understanding that you have others buy government debt and then you buy it from them - yes?"
Bernanke: "Yes"

Now this is called a Ponzi scheme and just because you can print money – doesn’t make it any less criminal. The Fed has two mandates: (a) to keep full employment, and (b) to keep inflation contained. Well they have failed miserably on both items. Discounting the 42% weighting that the CPI gives our housing index – consumer inflation is running between 6 and 7%. To add insult to injury, The Goldman Sachs are the ones helping Ben out in terms of buying government debt – and ‘coincidentally’ The Goldman Sachs went an entire quarter without a losing trading day. In the last two years Goldman lost money a total of 25 days. The odds of that happening without insider trading, and illegal knowledge are 0 - completely impossible. One thing I do know is, and I stand firm – as they are arranging the chairs on this Titanic - gold and silver will continue higher.

As we speak, we are still beholden to foreign oil. Out of curiosity – did you know that the US went off the gold standard the same year the EPA was created? Richard Nixon removed us from the gold standard in 1971, the same year that deals were made that all oil, and ultimately most trade would be conducted in dollars. But there were objections raised concerning America having oil that it could produce – and luckily for President Nixon – the EPA was there to regulate its production (or non-production).

But things – they are a changin’. The dollar is very quickly becoming un-installed as the world’s sole reserve currency. Just this week China said again: “China hopes to allow all exporters and importers to settle their cross-border trades in the yuan by this year, the central bank said on Wednesday, as part of plans to grow the currency's international role. The central bank said it would respond to overseas demand for the yuan to be used as a reserve currency. It added it would also allow the yuan to flow back into China more easily."

James Taylor wrote me about the three pillars of the dollar’s fall from grace. First, changes in technology are undermining the dollar's monopoly. Nearly everyone carries a hand-held device that can be used to compare prices in different currencies in real time – so there is room in the global economic and financial system for more than one international currency. Second, the dollar is about to have real rivals in the international sphere for the first time in 50 years. There will soon be two viable alternatives, in the form of the euro and China's yuan. Finally, there is the danger that the dollar's safe-haven status will be lost. Foreign investors (private and official) hold dollars not simply because they are liquid but because they are secure. The U.S. government has a history of honoring its obligations, and it has always had the fiscal capacity to do so. But now, mainly as a result of the financial crisis, federal debt is approaching 75% of U.S. gross domestic product. Trillion-dollar deficits stretch as far as the eye can see. And as the burden of debt service grows heavier, questions will be asked about whether the U.S. intends to maintain the value of its debts or whether it resorts to inflating them away. Foreign investors will be reluctant to put all their eggs in the dollar basket. At a minimum, the dollar will have to share its safe-haven status with other currencies.

Now, when the dollar drops from Global reserve status, no one will want dollars and certainly no one will want treasuries. We will then be forced into developing our own energy sources again – and enter shale gas deposits. With shale gas technology we can run every power plant at a cost basis that is less than half of oil or a third of coal. Once the dollar is removed – the deals to purchase foreign oil are relaxed – and internal, domestic production comes to life. If this peaks your interest – look at the charts of Approach Resources (AREX), GeoResources (GEOI), or Gulfport Energy (GPOR) – great looking charts – better looking futures!

The Market:
So what happened this week – well – we got the non-farm payroll report on Friday – which said we created 192K jobs and the unemployment rate fell to 8.9%. On the surface that was right – and after 3 years of stimulus spending, bail outs, mortgage rewrites, quantitative easing part 1 and 2, and literally hundreds of spending programs designed to get the US out of the recession/depression we entered when the housing market blew up and the banking sector failed – gaining 192k jobs is a far cry from wonderful – but it’s at least moving in the right direction – yes?
- Well - of the 192,000 jobs – 112,000 of them were ‘fake’ jobs statistically created by the government’s very own ‘birth/death’ model – those jobs don’t really exist – so we’re down to 80,000 new jobs (that’s not good).
- And the falling unemployment rate to 8.9% was due to the job participation pool falling to it’s lowest level in 26 years. In other words, many more people simply stopped looking for work, and when you do that, you fall off the report (that’s not good).
- Wages of the workers were flat to down (that’s not good).
- The Challenger report on Wednesday said that more layoff announcements hit in February of 2011 than in February of 2010 (that’s not good).

I think we’re still in a ‘danger zone’. After setting hitting a high of 12,398 back on February 18th, we've pulled back to 11,998, and bounced up and down between 12K and Thursday's high of 12,283. In “normal terms" when the market gets choppy, some form of big move is brewing. I think we're putting in some form of short-term top and we have some lower numbers coming, but that’s a tough call considering that Bernanke has made it clear he wants the market higher. Overall, Ben is going to have to really push to keep this market up. I think we should roll over and at minimum test the 12K level again. If we lose that, the next stop is the 50-day moving average at 11,944. However, lately my track record of picking highs and lows has been questionable at best, but to my defense - we’ve never been in a situation before where it's common knowledge that the FED is behind this run, so things are decidedly "different" right now. For me to consider that they're going to ramp us upward, we'd need to see a close or two over that spike high of 12,283 on Thursday. If they do that, then they'll probably get us back to challenging the Feb 18 high, but if they fail, we should then be seeing lower numbers.

Tips:
Our long holds looking like: SLV at +34%, NG at +87%, AAU at +26%, DNN at +42%, AVL at +85%, and USSIF at +16%.

In our short-term holds we have:
N up 13%, SLW up 30%, FRG up 25%, QSURD down 2%, NGD up 15%, PAL up 6%, AUGT up 14%, EXK up 26%, SVM up 10%, and AGRO off 3%

We bought more SLW last week – potentially will load up more on Silver side (especially if there’s a pull-back this week at all) – and look at the shale gas drillers that I mentioned – good lookin’ charts.

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 4 months or so ago now:

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This week in Barrons - 2-27-11

This Week in Barons – 2–27-11:

What Happens in the Middle East – Stays in Vegas!
I've had many people ask me about my thoughts on the Middle East, and unlike many of you I am not an expert concerning the inner workings of the Middle Eastern nations. As these regimes are toppled, will people band together to create some form of democracy, or will roving bands of armed thugs cut their countries into their own little fiefdoms? I don't know. But what I do know is that what happens there, affects each and every one of us here via the price of energy – which makes the price we pay weekly to "fill up" dependent upon tribes of rioting dissidents in far away places. Honestly – they won't let you and I on an airplane with nail clippers yet we leave our most vital energy needs in the hands of lunatic fringes on foreign soil. Between our coal, nuclear and shore-side drilling we could be completely energy independent. But for some reason we can’t do something that basic - while we wait for truly acceptable alternative energy. Remember what happened 4 years ago with $4 gasoline - people stop going on business trips and vacations and leave their boats and RV's parked, etc. I don't know the outcome of the unrest in the Middle East – but world history isn't very ripe with overthrows that worked out better than what they had.

The U.S. was built on cheap energy. In Europe if you leave "town" you’re immediately in rolling farmland. In the U.S. when you leave “town” you're in endless fields of subdivisions that stretch on forever. You remove the word ‘cheap’ from the equation and now it's a massive burden just getting to work. So the problems in the Middle East are our problems as well.

However, we may see oil hit $50 a barrel before we see $150 per barrel. (a) The reason the Middle East is in revolt is that their people are sick of being ruled like slaves with little food and education. So these nations are going to need to introduce more social programs – and since the previous ruling parties have taken all the money – they’re going to slash prices to sell oil because $50 oil sells faster than $150 oil! (b) There is ‘slack oil demand’ all around the globe that will decline as the recession worsens in the US, Europe and Japan – so prices need to come down. (c ) And then there’s ‘bio oil’ – Algae biofuel start up companies that are producing a lot of oil in very little space – that can be refined easily for cars and trucks.

Closer to home:
- Housing prices continue to fall, while interest rates are inching higher, which will to continue to drive prices down even further. CNBC announced this week that the median home sale last month was the lowest level since 2002 - with 39% of ALL transactions being foreclosures and short sales. Until all the shadow inventory is gone - prices will continue to fall.
- We’re seeing states go ‘broke’ – and unlike Uncle Sam, they cannot print money out of thin air – so how all the riots will work out remains to be seen, but you can color me skeptical that the outcome is going to be smooth.
- Hyperinflation – are we seeing it? Food prices across the globe have gone up at the "fastest pace ever" according the U.N. Oil is up $20 a barrel. Cotton and wheat are "limit up" day after day. Underlying inflation is roughly running at (at least) 8%.
- So is deflation right around the corner? One of the issues with a monetary expansion move higher on the commodity chain, is that at some point, the facts collide. Honestly at some point people will stop buying because they can’t afford it – and then everyone will reduce prices in order to sell – and then people will hold off on buying knowing that it will be ‘cheaper’ tomorrow. That is the balancing act!

I was giving a talk this weekend and someone asked me whether I thought ‘gold was a bubble?’ Gold and silver are not going up because people are buying jewelry – they’re going up because all fiat currencies are falling apart due to too much debt created from too much fiat currency and credit. The debt is un-payable in the United States, Europe, and in Japan. Here’s the deal – if you’re a fund manager, How do you feel knowing you have your folks in stocks that crashed in 08 - 09, while silly little gold roars to new highs? How do you feel if you told people to sell gold at $500 because it has no "interest payments" and is just speculation, not an investment? Now all of a sudden you 'know/think" that it's time to sell it (again)? Have you ever been right calling a Gold top? Gold isn't going up on speculation, gold is going up because it's MONEY, and the only MONEY that has ever held its value. Well – this week - silver hit another high. In my world, Bernanke doesn't stop printing, Europe doesn't stop printing, and gold and silver continue doing what they've done for ages – becoming money again.

But won’t deflation hit gold and silver as well? Yes and No. Gold is looked upon as money, and Silver as ‘almost money’ with some industrial demand. What ‘should’ happen is that gold and silver will continue higher as the printing presses run full blast and the debts mount, and more countries admit bankruptcy. When the currency buyers switch over to chasing gold and silver – that will be the final "hurrah" for the two metals. And when that hits, you can be sure that in a very short period of time, a "new" currency will be ushered in. But let’s be honest, right now if the U.S. decided it was going to back the dollar with a fractional gold backing, gold would have to be $7,000 an ounce for their holdings to equal the amount of dollars out there.

The Market:
Two weeks ago I called for a pullback. That was suicide, and I was wrong. But I was only wrong by a week. This week, we opened Tuesday and fell 400 points – touching briefly below 12,000 on the DOW. Now, what happens next? I think we ride Monday slightly higher and then begin to pull down again. The bigger question is: How deep is the pull-down? Well, once it's firmly broadcast that we're looking at a 10% pull-down, they won't let us fall that far. Maybe we fall 5 or 6% and they'll rush this back up. That way, the people waiting on the 10% down, will have to buy much higher, and when they "really" yank the rug it will crush more people, at higher prices.

This week GDP came in at 2.8% - lower than the expected 3.2%. Oil also pulled down from it’s high - below $100 per barrel. I think that if nothing blows up over the weekend we will see a big green day Monday, as they try to claw back what we lost this week, but I still think we have some dip work to do later in the week. I don't think it's straight up from here. Potentially they may stay in technology on Monday – thinking that oil doesn't impact the techs like it does the industrials, so if you're looking for a quick play, I'd stay in tech. But continue to watch the volume bars as during the selling, the S&P volume has been huge.

Many are asking me whether this is the time to go short. I personally do not think that this is the "big one" and we can get short. But don’t get me wrong, if you want to day trade some shorts, by all means go for it. But what I'm waiting for is the repeat of 2008, and this pull back is not that one. Just don’t overstay your welcome on the short-side, as when they pour back in – it will be wicked and fast.

Tips:
Our long holds looking like: SLV at 25.81 (+26%), NG at 6.825 (+82%), AAU at 3.02 (+24%), DNN at 2.71 (+43%), AVL at 4.00 (+85%), and USSIF at 0.61 (+2%).

In our short-term holds we have:
N up 17%, SLW up 18%, FRG up 23%, QSURD down 7%, NGD up 3%, PAL flat AUGT off 2%, EXK off 3%, SVM off 4%, and AGRO off 11%

Last week out, silver was $29 dollars, and it just closed at $32. We bought more of our favorite silver stock – SLW last week @ 35.00 and it ended the week @ 40. I still like Silver this week and with the pullback that I see coming we may get more of it.

Mark P. wrote me and pointed out that last year the exports for chemicals and plastics were up 17% and projected to be strong again this year for exporting chemicals because of the low cost of natural gas in the US. Mark recommends Conoco Phillips, Dow, Air Products or Huntsman as a few companies for possible investments and I tend to agree with him – thanks Mark.

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 4 months or so ago now:

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This week in Barrons - 2-20-11

This Week in Barons – 2–20-11:

The Ben Bernank’ says: “No Inflation”
The ONLY constant I've ever seen in my life is that every year, things cost more. If the prices of "things" that we need continue to go up, what makes more sense: (a) trying to make more dollars to keep up, or (b) investing in the very things that will indeed be going up? People will get uglier as the economy remains on life support, and as our debts and deficits continue to rise. One of the oldest and best ways to "get rich" has been buying real estate. Right now that seems toxic because the housing bubble pushed prices to insanity, and on average, they're still over priced. But a very bright person once said that the easiest way to get rich was to buy real estate and let someone else pay for it. In the olden days, you would put $25,000 down, rent the house out for 15 years, and you were guaranteed a nice return when you decided to sell it. But right now real estate appreciation may be a long way down the road. Housing prices, the foundation of so much of private citizen debt loads, are destined for stagnation (not inflation) as the supply of homes is far greater than the demand (11% of the nation's homes stand empty today). However, what has been rising is rent – and as more and more people cannot afford to purchase a house – they will be forced to rent.

The point of all this of course is that although I think gold and silver are the single best inflation hedges, they are not the ONLY places to be. The right property will always carry a nice value, but it’s the entry price that is the important variable right now. The right price is NOT a property that was 100K in 2000, ran to 500K in 2006 and is now trying to get 265K. Real estate has traditionally gained between 2 and 5% per year. A quick way to know a bargain is to go back to 1997, ’98, and ‘99 and check comparable sales in the area. Once you get that price, add 2 to 5% per year until you get to 2011, and that will be a realistic price for the property today. If you can find the right property – at the right price – it will maintain it's value better than U.S. dollars.

This week we saw the market once again ignore:
- Riots, as 3 more countries are facing governmental overthrows,
- Insanity ruling Wisconsin as the Democratic leaders left the state so they wouldn't have to vote on the Union proposals,
- Inflation figures soaring, and
- Initial jobless claims bouncing higher.

Last week I warned that everything was setting up for the first significant pull back in months. Well, the pullback never came, and now we’re in the land of the unreal. Right now - it's so blatantly "in your face" that floor traders on the exchanges will tell you that this market is all about the FED pushing it, and how you have to be long because the FED is pushing money at the market until summer.

Now, my issue with that is: it’s pretty rare that the market makes it that easy. So since everyone knows that is the plan, what happens in summer? But as this market goes higher - people are capitulating. John Q. Public is coming back into the market as after 38 months of mutual fund outflows - those same funds are now experiencing major inflows. I do think the one thing that everyone is beginning to believe is that The Ben Bernanke can't stop printing this summer, because if he does the economy crashes.

The Market:
Jim Taylor wrote me a comment this week that I’ll share with you: “My opinion is, given the trillions we are spending propping up the banking system, the cost of the Fed using Futures and Options to quietly prop up the equity markets is probably small. The key to doing that is to create the perception to the consumer that the Economy is OK – and believe in a high correlation between equity market valuation and consumer confidence. Right now I find it hard to justify owning any large diversified equity basket, as the combined valuations may be untenable. Individual equities need to be closely analyzed using the DDM (Dividend Discount Model of the 60’s and 70’s). In a nutshell – No Dividends – No Earnings – No Dice.”

This week silver went ballistic. You could come up with 15 different reasons why, and some will say it's big pops like that, that spell the end of a run – while others will say it's because of the technicals. All I do know is that inflation is now so bad that it’s in every economic report. This week the Empire and the Philadelphia manufacturing reports were released. We found out: hiring was down, sales were down, orders were down – but prices jumped like mad. The CPI and the PPI are now so bloated with inflation, they can't seem to fudge it any more. So, what happens to gold when inflation rises? It goes up.

With all the elements going on in Egypt, Ireland (their credit rating was cut yet again), the PIIG nations rebelling against austerity, the storms in Australia causing coal/mining shortages, the harshness of the US winter, the undersupply of food, the inflation we see, coupled with Bernanke's insane plan to devalue the U.S. dollar – I think silver’s time has arrived – and I resumed buying it last week. Over the past 2 weeks I said I was now ready to buy silver again. I stated that I was to be buying 4 “monster boxes" total, and I would scale into them. By scale I simply mean I wasn't buying all 4 in one day. Since we never really know when a breakout, or a pull-down will be manufactured, I was “averaging in.” Thus far I have only bought ONE out of the four I wish to own – and ‘knock on wood’ we got that right, as silver perked up and then in the last few days "roared" higher. I have 3 more monster boxes to buy. I'll probably buy my next one sometime next week. I'm hoping that yesterday wasn't a clear breakout and it just keeps roaring higher, but if it does, it does.

Tips:
Our long holds looking like: SLV at 25.81 (+22%), NG at 6.825 (+90%), AAU at 3.02 (+34%), DNN at 2.71 (+52%), AVL at 4.00 (+85%), and USSIF at 0.61 (+3%).

In our short-term holds we have:
N up 18%, SLW up 13%, FRG up 22%, QSURD = flat, NGD up 2%, PAL up 10%, AUGT off 3%, EXK off 2%, SVM off 1%, and AGRO off 5%

Last week out, silver was $29 dollars, and it just closed at $32. We bought more of our favorite silver stock – SLW last week @ 35.00 and it ended the week @ 39.20. I may take more of it next week if conditions are right. A couple other places to look:
- NVDA over 26.00 is going to get attention,
- IPI when it finally gets over 40.00 should be interesting, and
- FCX over 55.60 should finally see it rise. They did their split a while back, went through a funk.. but with copper at all time highs, and gold moving back up, it's day is coming.

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 4 months or so ago now:

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This week in Barrons - 2-13-11

This Week in Barons – 2–13-11:

Did ‘The Grand Plan’ Include Egypt?

People will put up with many things but not being able to eat or feed their children is usually the tipping point. We have seen exponential increases in food prices over the past 6 to 9 months – and in a true global ‘food fight’ it’s hard to tell who (if anyone) will win. Currently, you can certainly point to the weather as having been uncooperative – with droughts in Australia, Ukraine, Europe and Russia as well as floods in Australia, Brazil and the U.S. With corn (in particular) trading over $6.75 a bushel (almost double the $3.60/bushel rate in June), it’s a strong possibility that we will continue to hear and read about continued food riots in parts of the world throughout the globe until the 2011 harvest time. With the U.S. being a major supplier – we not only need to look at the U.S. supply situation (E.G. our diverting corn production to Ethanol) – but also QE1 and QE2 aiding in the devaluation of the U.S. dollar – helping to cause a ‘power keg’ of food price inflation – not witnessed in decades. What we all need to ask ourselves is – “Was this planned?”

Well this week’s “Plan” included:
- Federal Reserve Governor Kevin Warsh, who was one of Chairman Ben Bernanke's closest financial-crisis advisers before becoming the only governor to question the expansion of record monetary stimulus in November, resigned after five years at the central bank. According to sources – it isn’t because he disagrees with Bernanke. You’re kidding right? Several times Mr. Warsh has openly written OpEd's about how QE could have serious ramifications – including commodity price inflation. And NOW he’s quitting. I think he understands what's coming and wants out before it hits.
- CBO Director claims that the Obama Health Care Law Will Cost 800,000 Jobs.
- Steve Forbes and Richard Gonzalez point out that the ‘rumblings are back’ (as if they were ever gone) in the EU – much to the disdain of the ECB. Take a look at a graph of the Portuguese Bond – as it reaches a 10 Year High this week – and remember what Greece did to the market a little bit ago. The PIIGS are clearly in trouble and food prices are not helping one bit.
- U.S. Home Foreclosures jumped 12 percent last month, but the sharp divide between states suggests the industry remains backlogged by investigations into the foreclosure process. According to a report from real estate data firm RealtyTrac, lenders foreclosed on 78,133 properties in January, up 12 percent from the month before. We are 3 years after the banking collapse, 4 years after the housing bubble and foreclosures are still rising.


Forgotten in the price of corn ‘doubling over the past six months’ is a ‘trickle-down’ effect leading to higher prices in everything from animal feed, to breakfast cereals, and even soft drink sweeteners. “U.S. shoppers will see higher grocery bills as early as three months from now, though most of the impact won't be felt for another six months”, said Scott Irwin, an agricultural economics professor at the University of Illinois.

Of course The Ben Bernanke doesn't include food or energy in his calculations for inflation. In fact, through substitution he consistently tells the world we’re running under 2% inflation – when in reality we’re closer to 7 or 8%. And as you look back over weeks and weeks of headlines – do they square up with Obama’s view of the economy? Now, is it any wonder that people around the world want out of dollars?

Bottom line – I DO think food inflation (in particular) was part of ‘The Plan.’ We have a Fed head quitting because he sees The Ben Bernanke basically becoming a despot and proving to everyone that “absolute power - corrupts absolutely!” We have all the ills we had two years ago, and more. And as you look at the accelerated pace of our dollar depreciation – you have to ask yourself – is all of this coincidental? I think not!

The Market:

I have to say that this week was one of the weirdest I've seen in a while. I was calling for a weak market and we got it – but each day – as if by a miracle – the market in ‘pre-open’ and at 3:30 pm would go from ‘red to green.’ President Mubarak’s leaving then triggered a rally on Friday. Now we’ve all heard wonderful things about Egypt being a newborn baby democracy, and how it will be so much kinder and gentler. Now, I’d love for their people not to be repressed, but to think that there won't be infighting from the hard liners seems a bit of a stretch.

Last week, I said that I thought we were in the danger zone for a pullback. I said that I figured the rally would continue Monday and into Tuesday, but by Wednesday we should see the first cracks appear. Sure enough, Monday and Tuesday were pretty good days, and on Wednesday the market got soggy. It was down 77 points early on – and I thought that this could be the day that it was going to finally take a breather, pull back 8+ percent and shake out some excess. The downside volume said yes, the RSI said yes, many indicators said yes – BUT The Ben Bernanke said NO. Out of the clear blue the futures programs fired off and they brought us up to close the day "flat". Thursday we were flat at the open and then again plunged 77 points – but guess what showed up like clockwork – out of the blue came multiple futures buys and soon we were moving up. Then of course on Friday, President Mubarak did resign and we pushed back up.

So, did my pullback call fail and did I look stupid? Considering the market was higher on Friday, than it was on Wednesday – YES. But one would have to agree that watching the market fall for over 70 points, two days in a row, only to be "brought back up" – well – even a CNBC analyst came on camera and came right out and said that the FED is supporting any dips.

So one thing we can draw from this is that the Fed still has the firepower to push the market, despite a market showing many signs of fatigue. Does that mean it's over, and we can buy again? I don't think so. The market is at an interesting inflection point, and I think that it may try one more time this week to roll over. I would not be surprised in the least if we move up Monday, see fatigue set in on Tuesday, and we go back to grinding sideways. They saved us last week – will they save us again if we soften up? With that in mind, we're mostly sitting on our hands, 'leaning long’ and very quick to take profits.

Tips:
We still have a couple positions in 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, AVL at 4.00 and USSIF at 0.61

In our short-term holds we have:
N up 18%, SLW = flat, SLV up 13%, NGD = flat. And we purchased some PAL, AUGT, and AGRO.

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 4 months or so ago now:

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

This week in Barrons - 2-6-11

This Week in Barons – 2–6-11:

Liar, Liar Pants on Fire:

Ben Bernanke, the head of the Federal Reserve is a ‘bold faced’ liar. There, I said it! I listened to him give a speech and the corresponding Q/A session – and to say I was puzzled would be an extreme understatement. Ben said that his monetary policy is NOT responsible for commodities soaring higher. According to him it’s due to “demand from emerging markets.” And then Ben goes on to say that his policies have: "strengthened the stock market as it pushed investors out of one class of assets and into another.” Now how is it remotely possible that his money printing has caused the stock market to rise, BUT has had NO effect on the prices of commodities? (1) This is Economics 101 – when X dollars are going after Y product – increasing X dollars increases the prices demanded for Y product. (2) If indeed the emerging markets had so much pent up demand for "commodities" that it was causing commodity prices to soar higher, then the Baltic Dry Index (BDI) – the index used to track the shipping of goods around the globe – would be noticeably higher – yes? So it stands to reason that if all this demand, such as in copper (which just hit an ALL TIME HIGH this week) - would be backlogged on ships for months. Well – not exactly – in fact the BDI has crashed – literally cut in half in the past 18 months – and it’s not because of the new shipping capacity that was added – the shipping business is just lousy!

Ben also said: “inflation is low and getting lower.” Now everyone out there knows that medicine, education, food, energy – are all up over 6%. Ah – but what is lower – housing (the average person’s #1 investment)! Oh and what did the CEO of Whirlpool say the other day: “10:36 AM - Rising commodity prices are blamed for declining revenue at Whirlpool's North American segment. Raw material inflation is driving costs higher," CEO Jeff Fettig says, "and we expect to mitigate these costs with recently announced price increases.” Well Ben maybe that’s just Whirlpool – let’s ask the CEO of General Mills: “11:31 AM - We are seeing a fundamental level of price inflation, higher than the 1980s and 1990s," says General Mills CEO Ken Powell. Oh Ben – I suppose the U.N. announcing global food prices up – 3.4% in January alone – really threw you for a loop! Now I do realize that Ben has been TOLD to lie to us – I get that. But where do the lies stop?

Consider the Jobs Report we got on Friday. Everyone was looking for an addition of 144,000 jobs – and all we got was 38,000. But everyone was giddy about the unemployment rate going from 9.4% to 9.0%. The reality is: (1) the rate number is full of ‘seasonal adjustments’, and (2) 504,000 people (the single largest body of folks ever) fell OFF the roles and out of the pool – taking us down to employment levels not seen in 26 years. Well, what about the gain of 38,000 jobs you say – well that’s less than Wal-Mart employs in one state!


At some point in the future (between now and the beginning of 2013) I think we're going to see the proverbial black swan. At that point China and Russia will decide that the game is over, they will sell their US-denominated assets, and the dollar will be completely removed from its global reserve currency status. Once it is abundantly clear to everyone that the US consumer is NEVER going to be able to binge spend like they did during the housing bubble years, all these countries will turn inward, looking toward their own consumption to sustain themselves, shunning the Dollar, and what's left of our exports.

So what do you buy – well gold and silver – that’s nothing new from me – aye? But you don't buy GOLD to get rich. You buy gold to preserve your purchasing power. As the value of the dollar continues to fall the price of gold continues to hedge against that loss of buying power. Silver (however) is totally different. While it too occupies space as ‘money’ in people's minds, unlike gold, silver has so many other uses that it's a very high demand commodity. And in fact – we are running out of silver – as each year demand outstrips new supply, with the bulk of the shortage made up from simple above ground inventory. As the dollar loses its place as a world reserve currency – I think gold will be a very good place to be. But silver tends to have better income abilities to me. But what about timing? About a month ago we cashed out of about 10 positions we had in the metal space – all of them for very good gains – NG for over 100%, SLW for over 100%, and the list goes on. We then sat on our hands, knowing that the bear raid would take us down – knocking gold from 1450 to 1320, and Silver from 30 to 27 (both about 10%). However, traditionally silver would take a 40% hit on one of these raids – why only 10% this time? I think they’re losing the ability to manipulate the price of silver as they once did. I think the ‘naked short banks’ are buying up their naked shorts even at these prices. Now, many out there think that silver could see $22. So watch out there – maybe we go to $26 – but if it can’t pull down to $22 – silver could explode upward.

With all the Egyptian issues, Ireland’s credit rating being cut yet again, PIIG nations rebelling against austerity, the storms in Australia causing coal/mining shortages, the harshness of the US winter, the undersupply of food, the inflation we see, and Bernanke's insane plan to devalue the dollar - I think silver’s day has arrived and I am going to resume buying as of today. If it fades, I will ladder down into it, and if it rises, I'll add more to it.

The Market:
This past week was a “marvel of modern science” – watching the buyers rotate from tech to commodities, to materials, back to tech and all the while the averages ticking higher. Even Friday on the heels of a horrendous jobs report, Bernanke and POMO saved the day! Now allow me to do something ‘stupid’ and call for a pull-back – that should start this week. I’ve always criticized people for ‘calling a bottom’; however, that’s not what I’m doing.

We are overbought in every sense, and I think that it’s about time Wall Street fleeces the latecomers to the party. I think we’re in for a 10% correction in the near future that will be quickly be ‘bought back up’ and we’ll hit a high after May. I think we can have an ‘up day’ on Monday and possibly have it last through Tuesday, but by Wednesday I think we get our first decent pull down. If I'm right, it won’t last long as those people who missed the whole run up will be buying on any significant dip. For me – I’m going to lean long but start scaling out early in the week. If I'm wrong, we'll simply have to buy back in, but I feel pretty good about this… so we’ll see.

Tips:
We still have a couple positions in 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

In our short term holds we have:
N is still flat to slightly lower for us, and on Friday we purchased: SLW at 31.50, SLV at 27.45, NGD at 8.40

I’m still looking at: IAU over 13.20, NAK, AG, UXG, and more NG.

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 4 months or so ago now:

Remember the Blog:
Until next week – be safe.

R.F. Culbertson

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