This Week in Barrons - 4-10-11

This Week in Barons – 4–10-11:

It’s Funny – I wonder what a 3rd World U.S. will look like?

It’s funny – on Friday the big panic was the debate about shutting down the Government for a week as they haggle over numbers and politics that make no difference. When you realize that they're haggling over a few billion in a situation where we're underwater by trillions is kinda funny to me. As much as I do my best to stay out of politics, I have to chuckle when Nancy Pelosi tells everyone that the Republicans want to starve the elderly, while she's a headliner at George Soros's "Take Over the World" conference next week. We (the U.S.) lose over $4 Billion per HOUR into debt – and we’re haggling over $39 Billion in cuts – really? So we lost more money just DEBATING the cuts than what we saved – really?

It’s funny – to think what the U.S. will look like once the US Dollar is removed as the global world currency. You see there are a couple givens here: the dollar will crash, the dollar will be removed from its sole Global reserve status, Greece and Portugal are back begging for bail outs, Ireland has been given the green light to beg next year, and Germany is tired of paying for it all.

It’s funny – we’re talking about cutting defense. We’re presently at war in Afghanistan, Iraq and Libya – does anyone know why? Allow me to defer to the two-time Congressional Medal of Honor Recipient Major General Smedley D. Butler’s book: “War is a Racket!” The answer is simple says General Butler, “Bankers and the military complex create wars, so they can finance them and make billions.”

It’s funny – we’re talking about cutting social programs. Over two-hundred years ago a politician came out with the statement: “Doesn’t anyone realize that when we ALL start voting for the guy who gives us the most – we’re doomed?” Well, with 44 million people on food stamps, and 1 in every 6 Americans getting some form of Uncle Sam hand out – do you really think that the U.S. is ready to vote for really tough measures?

It’s funny – we’re talking about making changes to credit policies. Well – over the past 4 months we’ve seen consumer credit explode. People have been snookered into thinking the worst is behind us and are (once again) taking on more and more debt. Last week personal credit was expected to come in around $2.5 Billion – it came in at $7.2 Billion. I’ve seen this movie before – the ending will just kill ya!

It’s funny – as much as I’ve preached about inflation – and that someday Silver and Gold will rise both as currency hedges but also inflation hedges – this week we really saw them both take off. Beware – nations inflate and crash and the only thing that comes out smelling ‘like a rose’ is gold and silver.

Many are asking if it's "too late" to get in. Well – I continue to buy silver coins – why – (a) because it's going higher, and (b) there's a pretty good chance that JPM and HSBC have lost control and all their naked shorts are going to burn them. Just this week JPM (J.P. Morgan) was granted a vault and weigh station license. What that means is that J.P. Morgan decided that it was time to be a precious metals warehouse. Why become a warehouse now? My guess is that they’re going to take in a bunch of bullion, and then use it to cover all the naked shorts that they're getting killed on. Just like fractional banking – as long as ALL of the metal depositors don't show up all at once to make a withdraw, they can potentially pull it off. But that tells me (however) that they know the metals are going higher. JPM is horribly exposed to the short side and the "squeeze" is on. So in my opinion it's headed much higher, and I’m still buying.

The Market:
The market is in a very interesting area folks. The line in the sand is at S&P 1,333 and the resistance level on the DOW is 12,400. The market has attempted to attack these levels for days now, and each time gets rejected. A while back I had said to you all that we'd need to see a couple market closes above those levels to confirm they're going to push us even higher, and thus far they can't manage it. You could easily see the DOW "rolling over" from here. But of course this isn't your daddy's market, and we have Bernanke handing Wall Street $8 Billion a day via the POMO program, so it's hard to believe that this isn’t getting put to work and driving things higher.

But the one thing you have to understand is that all the gains are coming from overnight gaps. This is important - watch the futures overnight and they're usually red, and then they start their march towards green. By the open we're often big and green and the market "gaps up" and CNBC gets to gush that all is marvelous with the world. All that's happening here is that the Street is walking the futures up, luring in more and more dollars from “John Q Public” and then using their existing inventory of stock to sell right to him at higher prices.

Again – if The Ben Bernanke can push us over 12,400 on the DOW – the next stop is 12,700. However, if they can’t get us over 12,400 we may very well be looking at the start of a hefty pull back. On Monday I’d pop champagne over the "agreement" reached Friday night, but until we get a couple good healthy closes above those numbers we're in very, dangerous territory.

Tips:
Our long holds looking like: SLV, NG, AAU, DNN, AVL, SLW and USSIF. If any of you caught the USSIF 12% gain on Friday good for you. That stock is still 80 cents (yes – 80 cents) so it’s an interesting ‘speculative play’.

In our short-term holds:
- We purchased more SLW this week, along with SVN, and UXG.
- Still have FRG, QSURD, NGD, PAL, EXK, SVM, AGRO, SD, NBR, and SQM.
- Obviously the metals did very well this week – congrats to all of you who had those with me!

I am trying to be more diligent on Twitter at least in the early mornings when I do most of my business.

The oil space continues to scare me - The shale drillers last week - Approach Resources (AREX), GeoResources (GEOI), and Gulfport Energy (GPOR) – have all started to move south and we have not purchased as of yet because our recipe is: rising market, a catalyst, and a technical break-out.

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 - 4-3-2011

This Week in Barons – 4–3-11:

When you’re up 130% - What do you do?

If you purchased SLW, GG, NBR – others like AVL that are in our long-term holds – you’re currently up over 100% – and someone wrote me asking: “What should I do?” My advice is simply: Wash – Rinse – and Repeat – meaning sell 50% of the winner (so you’re now playing with the house’s money) and go find the next winner!

Moving on, I always wondered – if I was a pension fund manager in Germany (for example), and I had purchased a collection of mortgage backed securities (all rated AAA by the three US ratings agencies) – I would have been suing the world when I found out that what I had purchased was junk! But that has yet to happen – why not? Well, this week the Federal Reserve finally had to admit to who was doing all the borrowing during those dangerous years, and most of it was going to FOREIGN banks. According to Bloomberg, foreign banks accounted for at least 70% of the $110.7 billion borrowed during the week in October, 2008 (which was the ‘record’ week). Arab Banking Corp., the lender partly owned by the Central Bank of Libya, received 73 loans from the U.S. Federal Reserve in the 18 months after Lehman Brothers collapsed. Ah – at least now we know that there was ‘obviously’ a deal struck between The Ben Bernanke and the foreign central banks to bail them out of anything bad. As we look through the ledgers, tons of the really bad stuff is now the property of The Federal Reserve, and that is why The Ben Bernanke fought so hard to keep us out of his books. Now ask yourself how you feel about bailing out foreign banks? Ask yourself how you feel about The Ben Bernanke - knowing his buddies at GS, JPM, and others were packaging up absolute garbage, taking in billions in fees and bonuses, and then being rescued by tossing it on the backs of the American Taxpayer?

Well in April, 2011 – Bill Gross of the Pimco Bond Fund – the single largest bond fund on earth, and the gentlemen who has been behind it’s remarkable performance for years said: “I am confident that this country will default on its debt". Now for those of you that think Bill is ‘blowing smoke’ – I’d say - two weeks ago Bill sold ALL his US treasury funds. For a gent that trades nothing but bonds (and tens of billions of them) that's quite a statement. Bill’s convinced we will default and sold his T-Bills and notes as proof. The U.S. is in the process of quietly devaluing it’s currency in order to pay back debt with devalued dollars. It makes covering the debt easier. But this time it's not going to stop with just rampant inflation. Over the years (when we had recessions) the FED would rush in - lower interest rates - people would finally take advantage of the cheap money - buy "stuff" - create demand - and businesses would finally respond by hiring workers and creating a new economic boom. Currently we are 3 years AFTER TRILLIONS in stimulus, bail outs, work programs, owning auto companies – and the best we can get is a 10% unemployment rate, with Housing sales still falling like a rock, and a 2% "growth" rate! Unfortunately the ‘run of the mill’ devaluing of the dollar will not be enough to offset the trillions in debt. I think Bill Gross knows that, but is such a public figure he cant' say it. At some point the U.S. dollar will be ‘replaced’ with something – and judging by the way China, India and Russia are buying up gold at the Central bank level – it’s going to have some form of loose gold backing again.

So what do I do with my 130% returns? Well (a) I don’t want bonds (Bill Gross told me that) and the Government and most municipalities are bankrupt anyway, (b) I don't want most Real Estate because it’s still falling, and (c ) I’m not marrying stocks because they're works of fiction based upon two sets of accounting books. So – when you ask me whether I still like precious metals the answer is still - Yes!

The Market:

Fast times at Ridgemont High – “People on ludes, should not drive” (Jeff Spicoli). The market drove past it’s 2-year high this week, but couldn't hold it and closed under that by a small margin. Everyone said it was due to the 216k jobs number that came in on Friday. Maybe, but 112,000 of those jobs were ‘fictitious’ (birth/death model jobs).

In any event, the question now is – will we truly take out the old high and romp higher? The general feeling is yes. The market has ignored Europe imploding, the PIIGS, a nuclear meltdown in Japan, a Tsunami, massive frauds, crashing housing, stubborn unemployment, and anemic growth. But it’s different this time, because at no time in the history has the Federal Reserve come out and stated that their policy includes causing the stock market to rise. The Ben Bernanke loves the "wealth effect" it gives people. But currently fund flows are anemic, as baby boomers are beginning to face retirement and are actually cashing out, not buying more. So the question becomes – how long can The FED keep this market afloat? I have two streams of thought. One: The FED is pushing the end of QE2. Now if fund managers buy into the idea that the FED is going to end the printing of money in June - they are going to be convinced that it's going to fall like a rock in June and should sell out in Late May. Well, the market never makes it that easy. So, one very real possibility is that we begin a protracted market slide in April, well ahead of the fund managers that will be trying to get "every last drop" out of the market. So, IF we can't get up and over 12,400 on a closing basis, we might start rolling downhill now. BUT if we do get up and past that level, we'll probably run up some into earnings reporting season – and then I'd expect the rug pull. The second scenario that I see playing out is that since everyone is convinced that the end of QE will spell the end of the market, that the market just keeps on grinding higher and higher by quiet QE3, 4, and 5. The people that sell out in May and early June will watch it keep going higher. They will rush back in in late July and August, and THEN in September (after everyone's back in and we've made some new short term highs) the FED yanks the rug and yanks it hard.

Be careful out there. Don't be afraid to take some profits home.

Tips:
Our long holds looking like: SLV, NG, AAU, DNN, AVL, and USSIF. The double down on DNN from the week before proved to be very beneficial indeed - and I believe that there’s more to run there.

In our short-term holds:
- We sold N and AUGT last week (both on the plus side)
- Still have SLW, FRG, QSURD, NGD, PAL, EXK, SVM, AGRO, SD, NBR, and SQM.
- AVL had quite a jump forward last week – all of those who had it with me – congrats!

The shale drillers last week - Approach Resources (AREX), GeoResources (GEOI), and Gulfport Energy (GPOR) – have started to move north – but we have not purchased as of yet because our recipe is: rising market, a catalyst, and a technical break-out.

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 - 3-27-11

This Week in Barons – 3–27-11:

Didn’t Housing get us into this Mess?
Today’s the day my older son ends his spring break and goes back to attending Northwestern University – a day that always brings new meaning to the phrase: “Do you love them enough to say goodbye?”

In terms of the business at hand, today's 10 Year Treasury Bonds are trading at 3.33. In spite of inflation – that’s very good news for the bond and housing markets for the near term. Silver hit 30-year highs, Gold hit all time highs (in the $1,400’s), Oil is north of $105; therefore, one has to believe the market is getting ready to see bonds respond to the pressure and move north of 4.00. The sticking point here is housing! Housing accounts for approximately 7% of GDS – and is currently at near record lows for “New Home Starts.” New data just out from the Commerce Department indicate national home sales declined the third month in a row (Feb), the slowest pace on record, with sales down 16.9% to a 250,000 annual pace (from a reading of 1,400 in July of ‘05 to a reading just above 200 last month!) The new median price of a new home also fell 13.9%, (over the previous month) moving the market back to 2003 levels. And to add insult to injury – existing home sales fell 9.6% over the previous month. As Steve Forbes writes: “Depreciating home values and a declining pace of home-buying continue as critical factors to economic recovery. Couple that with global markets continuing to drive pricing in many sectors such as commodities and energy – and this not a ‘recovery friendly’ environment.” One point of note out of California in January is that 31% of closings were "cash.” It’s doubtful that the average ‘first time home buyer’ has the ability to purchase a home with cash. Therefore, one could conclude that the housing market in California is not currently supported by homeowners, but rather by investors flocking to the market. Until U6 under-employment numbers are halved to roughly 9%, US housing is going to remain “soft.”

Now think in terms of in 30 years we’ve gone from being #1 in the world to:
- An Underemployment (U6) reading of over 17%
- Over 50% of all US citizens survive on some form of Government subsidy
- Due to inflation (roaring @ 8 - 9%), wages have been stagnant for 14 yrs
- No energy policy (although we use more than anyone else on the planet)
- A million plus homes are in foreclosure
- We are engaged in 3 wars, none of which are winnable
- The FED has kept rates at 0% for years, and is the sole buyer of 50% of our treasuries
- Banks are insolvent, able to survive because they run two sets of books

Now my question is and the CFO of Best Buy asked the same question: “What happens when consumers buckle under the increasing pressures from unemployment and higher gas prices?”

The elephant in the room is ‘global currency’ devaluation. With so many central bankers printing money like it's going out of style, the whole system is simply too rotten to save. Everybody is going to have to get together and collectively agree to simultaneous devaluation. If you think not – let me remind you that George Soros – on April 8 of this year, is holding a major economic conference with the goals being to establish new international currency rules, and to reform the currency system. The event is bringing together more than 200 academic, business and government policy thought leaders to repeat the famed 1944 Bretton Woods gathering that helped create the World Bank and International Monetary Fund. Mr. Soros believes that central bankers printing money is causing the world to starve its population to death – and there’s certainly some truth to that rumor!

Two weeks ago I suggested that we should be hearing from the FED heads about ending QE2. As of Friday - 3 separate FED Heads have come out to tell us that QE2 is no longer necessary. So will quantitative easing end – of course not – it will just not be called Quantitative Easing. The FED will print until the crash – they have no choice. The point being that if enough FED heads continue to talk about stopping QE2 – some may sell their silver and gold – and that may cause a pull back and a buying opportunity in those two metals.

The Market:
Remember when people were biting their nails watching the market dive below DOW 12K and falling fast. But then (like a "miracle") it reversed and soared right back up, ending in the 12,200 area where the dip started. That’s just your usual fleecing! In case you missed it – the FED makes a regular policy of walking the market up in overnight futures trading and also in the late afternoon buying binges. ALL of the up moves come on very thin volume, but the selling comes with massive volume. I.E. Wall Street allows the FED money to walk the market higher, and then when it's rug pull time they liquidate massive amounts of stock. Then it gets walked higher again – rinse and repeat! But now the plot thickens. With the DOW smack in the middle of the "range" between 12K and the Feb highs at 12,400 - What happens now? One theory has us inching higher to the 12,400 level, and finally pushing up and through during earnings reporting season, and then it exhausting itself in a multi month long slide that drops us 10% or more. The other theory is that we inch higher and higher, but fail to break out and we experience a multi month long slide. Either way, as May - June gets nearer we feel the market will have topped and be in decline.

Mark P wrote me something that I found interesting about the element Iodine – boosted in popularity because of what’s going on radiation-wise in Japan right now. The company is called SQM. “SQM is the worlds leading producer of elemental Iodine. Chile is the largest exporter of iodine with almost 70% of the world’s capacity, followed by Japan with less than 30%. Annual world production for iodine is around 29,500 metric tons and Japan produces around 6,800 annually. Currently, due to the power outages in Japan their capacity for iodine is at 60%, and their appetite for iodine chemicals is extremely high. Iodine is used in plasma TVs and as intermediates in many chemicals. Furthermore the demand for use in pharmaceuticals is at all time high with the demand for potassium iodide pills. All of the 2011 iodine capacity has been pre-sold, with normal contract pricing running around $32-35 per kilogram. Currently the European spot price is approximately $50/kg and they expect that price to hit the U.S. very soon. SQM was (at one time) owned by the government of Chile; however, was divested by the government several years ago. Now – granted iodine is not gold or silver – but it is an essential element that is only provided by a small amount of companies.” I actually purchased some this week – so thanks Mark for that tip.

Tips:
Our long holds looking like: SLV, NG, AAU, DNN, AVL, and USSIF. Even with the commodity raid – we held through it – in fact we doubled our holdings in DNN down at the $2.20 level – so that 15% bounce upward was certainly beneficial to us – and I believe that there’s more to run there.

In our short-term holds we have:
N, SLW, FRG, QSURD, NGD, PAL, AUGT, EXK, SVM, and AGRO. Last week we did add SQM per Mark P’s suggestion.

As an example of our day trades over the past week - we currently own:
- SD at 12 – stop @ entry, and (if the market is flat to up – watch this one – could be a quick 20% gain)
- NBR at 28 – stop @ entry as well.

The shale drillers last week - Approach Resources (AREX), GeoResources (GEOI), and Gulfport Energy (GPOR) – have started to move north – but we have not purchased as of yet.

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 - 3-20-11

This Week in Barons – 3–20-11:

Should WE be a Buyer of this Market?
Do you remember the market topping on February 18th, and then entering a period of incredible chop with mood swings of over 150 points? This type of action is NOT normal and signals a change in the wind. At virtually any other time the easiest call in ‘investing’ would have been to say: “okay, go short and hold on". Unfortunately we have The Ben Bernanke who likes the "wealth effect" that rising stock prices have on people's attitudes – so at any moment, he may very well do another "injection" of stimulus, and "drive" the markets higher. It’s with this fear that most of my trades in the past 3 weeks have been strictly day-trades. I personally don’t enjoy ‘day trading’ all that much – and therefore I don’t publish my day trades on twitter, but I potentially will start if this market chop continues.

Many people suggest that this down turn was a result of the earthquake, and tsunami in Japan. I think that we were overbought, over extended, had gone months without so much as a hiccup, and had already dropped from 12,380 to 12,000 before the Japan issues started. So, it’s my belief that our market is moving in concert with ‘monetary policy’ more than anything else. In the last two days, we've bounced from 11,589 to 11,860 and let’s examine the news to potentially find a reason for the bounce.
- Even though The Ben Bernanke says inflation does NOT exist - a special index created by the Labor Department to measure the actual cost of living for Americans hit a record high in February! Ouch – now how can the cost of living increase to a record high if there is no inflation? So we know that the market didn’t go up due to a drop in the cost of living – how about the U.S. debt situation?
- A new assessment of President Obama's budget released Friday says the White House underestimates future budget deficits by more than $2 Trillion over the upcoming decade. I remember when our entire debt situation wasn’t $2 Trillion! So we know that the market didn’t go up on our debt situation – maybe good news coming from Japan?
- At 2:52 PM on Friday, breaking down in tears, the managing director of TEPCO concedes the radiation being emitted from the damaged reactors is enough to kill people. The NISA, which earlier raised its severity rating on the disaster, acknowledges the water-spraying operation is "fighting a fire we cannot see.” So we know the Japanese news didn’t send the market higher – so maybe the Middle East has calmed down?
- At 12:24 PM on Friday Syrian security forces kill at least one and wound dozens as they fire on demonstrators. And, "There is no longer any possibility of mutual understanding with this regime and he has no choice but to surrender authority to the people," says the head of Yemen's opposition after a massacre in which 42 were shot dead and hundreds wounded by security forces. So it doesn't look like there is an outbreak of peace across the Middle East – so maybe there was good news on the jobs front?
- Friday the Labor Department said that the unemployment rate rose in 351 metro areas, fell in only 16, and was unchanged in 5. That's worse than December, when the rate fell in 207 areas and increased in 122. So with unemployment rising – Japan melting – the Middle East at war – inflation increasing and the debt increasing – why did the market go on a two day romp higher?

The market bounced because Wall Street and more importantly The Ben Bernanke said it was time to bounce. So are we going to continue up? My guess is we have some more upside to come, but we won't be breaking out to new highs. I think they're going to try to claw back to the 50-day moving average that resides just above the DOW 12K line. In this new era, with Central bankers all around the world flooding the markets with dollars, yen, Euro's, etc. – all fundamentals have vanished. Now it's all about capital flows, which direction they're heading, and we need to understand that there's a very good possibility that the big banks are playing big games behind the scenes via their dark pool platforms. I personally believe that QE-3 thru QE-8 are right around the corner – they just may not be official! The end will either come by Central Banks tightening – which I view as unlikely – or hyper-inflation followed by a massive deflationary roll over. So our guess is that we bump up for a while longer, and then the air comes out again. As we come into the late spring, we should be looking at a much lower market as they anticipate the official end of QE-2.

The Market:
Once again I am hearing people calling a top in gold and silver. Please, the entire world is inflating "fake" dollars to try to plug all the holes. The real issue is that our Governments are bankrupt. We are facing sovereign debt issues that cannot be solved. The interest expense on the debt already borrowed is consuming the ability for productive spending. We have to borrow even more today, in order to re-pay the debts we created yesterday. Thus, global defaults will indeed be coming to a nation near you, and in the not so distant future.

It's not easy suggesting that the Lehman debacle and the economic meltdown were just ‘warm-ups’ for the big show that's coming. But, our economic and financial pains are not over, there is much more to come. Now, you can trust The Ben Bernake and continue to want his dollars; however, I (on the other hand) don’t want his dollars but will gladly exchange them for other currency of gold and silver – especially silver.

I continue to use the stock market to amass dollars, and then use those dollars to buy gold and silver. Maybe my lucky streak is going to run out and I'll look the fool, but every single fiat currency in the history of all time has always ‘gone away’ while gold and silver, simply march on.

Be careful out there. The day-to-day ups and downs will indeed be influenced by major headlines, but, the real danger lurks in the back ground, as each day brings us more and more bogus bucks. One day the banks will make more billions yanking the rug, so do NOT get caught in the rug.

Tips:
Our long holds looking like: SLV, NG, AAU, DNN, AVL, and USSIF. Even with the one day gold and silver raid last week – we held through it.

In our short-term holds we have:
N, SLW, FRG, QSURD, NGD, PAL, AUGT, EXK, SVM, and AGRO.

As an example of our day trades over the past week (which we will attempt to put out on twitter starting next week) - we currently own:
- CAT at 102.30 – closing Friday at 105.06,
- HK at 22.13 – closing at 22.49,
- ANR at 54.04 – closing at 55.28,
- GLNG at 20.52 – now at 22.96,
- BTU at 67.34 – now at 70.21, and
- FCX at 50.45 – now at 51.78.

We mentioned some shale drillers last week - Approach Resources (AREX), GeoResources (GEOI), and Gulfport Energy (GPOR) – however, did not purchase as of yet – but continue to have our eye on these!

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 - 3-13-11

This Week in Barons – 3–13-11:

Japan, and Bill Gross, and QE-3 – Oh My!
The height of the Mayan empire was about 400 AD. They predicted a lot of mind-boggling events – but their calendar (created by Pacal Votan) ends on Dec 21, 2012. On that exact date at 11:11 am, the earth will have finished a 26,000-year journey around the galaxy and end up in the "dead center" of it. Pacal Votan did not say that this date would bring the end of the world; he said it would bring an end to an "age." An age where people have gotten so into material things, and so far away from the natural instincts they once had, that all sorts of distortions were going to happen as we approach that time. Seeing those Japanese tidal surges pick up houses, roads, trains, and just carry them along like Tonka toys certainly looked like something out of those ‘end of an age’ movies. Unfortunately the events in Japan are all too real, and my heart goes out to everyone affected. Japan's going to need steel, copper, oil, natural gas, lumber, and the list continues. Granted they don't have the money to purchase it, but like all fiat currencies and Governments, they will print it and make it happen.

I look at the US, where Democrats, Unions, and Republicans are almost coming to blows over necessary "change." I look at the U.S debt structure that we have created, and for the first time it is mathematically impossible to "fix." And then there was the news this week that Pimco’s Bill Gross, arguably one of the most elite investors and connectors in the world, has liquidated all his Treasuries and is in cash. Why would he do that? The first thing that comes to mind is that he feels there will be no Quantitative Easing (QE-3) and therefore rates will soar higher, causing bonds to fall. But I think there are many ways this could play out. One scenario is triggered because The President isn’t doing so well in the polls, with deficits, with inflation, etc. The Republicans are moving up in the polls by talking about spending cuts, and deficit reduction. What if this is just a political maneuver? What if Bill Gross knows that when QE-2 ends in June, The Ben Bernanke is not going to institute QE-3 right away? What if Obama has said: "The Republicans are blaming all of this on us. They don’t want any more stimulus. Let's give it to them and see what happens?" Now we all know – without QE-3 the economy stops, and at that point Treasuries won't be worth much. I’ll bet that’s the point where Bill Gross starts buying them again. Why - because soon Obama will come back and say: "See, the Republicans said I was doing everything wrong, so we took their approach and the economy is now rolling backwards into a recession. Now, do you see why you need me in the White house?" Immediately yields would crash, bonds would soar and Bill Gross will be a genius.

Let’s dig a little deeper and put some details around their implementation of this. The Ben Bernanke has just 3 more meetings of the FED before the official end of QE-2. Now China, Russia and others have been screaming that they are not happy about what we're doing to the value of the dollar – and if The Ben Bernanke comes out and suggests he's going to keep the QE program in place, they are going to step up their retaliations. It's my guess that Ben will start leaking to us that QE-2 will indeed end – but he’ll change his voice to: "We have various ways to continue a stimulating environment." Remember – Ben didn’t invent Quantitative Easing – he simply took it to a whole new level. When Greenspan took rates so low back in ’02, ’03, and ’04 – that was a form of Quantitative Easing. But now the plot thickens. Remember when I posted the news that the FED was going to change the way they account for their holdings? Up until Dec 24th, if the FED was holding toxic assets it could have gone bankrupt, but, by allowing toxic assets to be offset with "income" from good holdings, they can keep the books steady in "perpetuity." You see, the Fed now has so many mortgage backed securities and notes – that as they mature, and as "some" amount of people continue to pay their mortgages – the Fed is taking in massive amounts of money on a monthly basis. In other words, the Fed can announce that they are not going to expand their balance sheets any further and end QE-2 (sounding marvelous to other countries), but because they’ve changed the accounting rules – sit on the toxic assets, taking in what payments they get, and use those payments to continue to buy 2 and 10-year notes. How much are those payments – you ask? Approximately $600B – which is just about the level of QE-2!

The Market:
Now that puts a question out there, how will the market react when they announce the end of QE-2? Well – again, the devil’s in the details. The next FED meeting is the 15th. I'm pretty sure they will nod to each other that QE-2 must end in June. That "should" be the pill that pulls the market down, and commodities, materials, and stocks should come down on those announcements. But big time bankers know what The Ben Bernanke is going to do – which is to use the interest/payment income to do QE-3 just without announcing it. So, it’s my prediction that the big time bankers would be loading up on market shorts via the dark pool programs, and then do a major market rug pull. The ‘rug pull’ would be easy to justify, and they would tell everyone that due to the end of QE-2, and no subsequent plans for QE-3, we have to be much more cautious. All of the people bidding up commodities and materials may flee too – thinking that inflation will be subdued because of the end of QE-2 (this includes gold and silver.) And being a good banker – once everything pulled down substantially, I'd be actively buying the very commodities, materials and stocks (and gold and silver) that I just sold. Why? Because it would be easy to come out and say "Hey, The Ben Bernanke is still doing just as much as he did during QE-2, but he just didn’t announce it!" Instantly the market would soar and everything that had pulled back would soar along with it. We will know if this is the plan, if we hear everyone talking about the end of QE-2 ‘being official’ with no concrete plans to do QE-3. If my guess is correct - this could be more like a 20% correction, and then sometime in the fall, after buying up everything that fell – The Ben Bernanke comes out with a statement about how they're actually doing QE-3 Lite and we get our final hurrah run up into year end.


The market’s actions lately coincide very well with my theory. After setting that high back on February 18th, the market has done a lot of nothing but chop sideways and down, literally making lower lows and lower highs. We've seen gigantic mood swings as they've dropped us 228 points, rallied us 150 points, etc. – but those types of incredible moves are normally indicative of the market being close to making a big move, or a direction change. Yes – on Friday – the Government’s PPT (Plunge Patrol Team) stepped in to save the day and get us back up over 12K and the 50 day moving average, but where did we end – 12,044. Until we break under DOW 12,000 or over DOW 12,400 we’re still in a “danger zone.” I think we're going to get that correction we've been missing and I think it's getting awfully close. Or they don’t announce anything and continue to push us sideways.

Tips:
Our long holds looking like: SLV, NG, AAU, DNN, AVL, and USSIF. Even with the one day gold and silver raid last week – we held through it.

In our short-term holds we have:
N, SLW, FRG, QSURD, NGD, PAL, AUGT, EXK, SVM, and AGRO.

We haven’t done much other than small day trades over the past several weeks – mostly due to market chop. We mentioned some shale drillers last week - Approach Resources (AREX), GeoResources (GEOI), and Gulfport Energy (GPOR) – however, did not purchase as of yet – and all are between 10 and 15% cheaper now than a week ago!

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 - 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