This Week in Barrons - 10-14-2012

This Week in Barrons – 10-14-2012

QE3: “to Infinity and Beyond…”... Buzz Lightyear – Toy Story (the movie)

I my view we should have gotten a 5% market ‘pull-back’ when The Ben Bernanke announced QE3; therefore, the current pullback isn't surprising.  But it is still surprising to me to have us trade virtually sideways and down for over 20 sessions.  I still believe that there's a year-end romp waiting in the wings.  I’m not sure of the catalyst for it just yet, but at some point we're going to see them put The Ben Bernanke's money to work and drive this market higher.  It could happen on a Romney win, since Wall Street is backing his campaign.  All in all, I think there's one last run higher left in this market, and then sometime in 2013, we're going to see the market roll over and it will fall a lot further than most people can imagine.

I tend to think that when we go short next year, we're going to have another record return year.  Currently you can’t short this market because at any time we could touch the 50-day moving averages on the S&P and DOW and instantly bounce for 400 points.  You need to wait on the big picture trend change.

Factually:

-       Consumer credit outstanding is at an all-time high of $2.73 trillion – as the Federal government has dished out billions in student loans.

-      Total credit market debt ($55 Trillion) now exceeds 350% of GDP.

-       The National Debt of $16.2 trillion will exceed $20 trillion in 2015 no matter who wins the Presidency in November.

-       40% of our citizens are obese, and diseases like diabetes are growing exponentially.

-       This week 4 major companies sent out letters to their employees that if Obama-care were implemented, they would have to do everything from laying people off, to changing their entire work force to part-time status.

-       CNBC reported that 4% of all trading in the U.S. stock market last week was executed by one algorithm that placed an order once every 25 milliseconds and then canceled that same order.  It was a specific firm’s way of baiting buyers interested in purchasing a specific stock (showing them extremely high volume), and thereby forcing purchasers or sellers to reveal their positions prior to executing a trade.

-       In one Texas school district, children wear RFID devices so the school can track their every move.

-       The UN is pushing for the implementation of the first "global tax".

I received many questions this week from readers – and here are three:

“Is now a good time to buy a house?”  Housing is a key economic issue as it has lagged the recovery badly until this year.  What I see is that most of the pickup in demand is not coming from real home buyers, but speculators, hedge funds and Freddie Mac / Fannie Mae getting into the rental business or buying the speculation.  Hence I don’t see a sustainable housing recovery – and see foreclosures picking up in Q2 thru Q4 of 2013 along with an already massive backlog of foreclosures.

“Will there be a Santa Claus Rally?”  Stock trends around the world all point toward a major stock bubble bursting just ahead.  There is very strong upper resistance on our S&P at 1,580 to 1,600 and on the other world markets as well.  That means that even our best estimates give an 8% gain remaining for stocks until the end of the year.  I think stocks will peak over the next 6 weeks and (like 2008) leave Gold and Silver to diverge and continue their own rally into 2013.

“Can we fix the U.S.?”         Yes we can – but it’s not going to happen.  The single most important reason that we were able to become the most powerful middle class on earth – leading to our expansion and manufacturing was CHEAP ENERGY.  Cheap energy allowed people to purchase their dream homes 40 to 50 miles from where they worked.  They could afford the 35-cent a gallon gasoline that allowed them to work in the city, but live in the country.  Housing was the ticket to a strong middle class.  The fact is that when a developer puts up 1,000 houses, tens of thousands of craftsman have a job.   Demand for goods rises.  Factories expand to meet the demand.  But, without cheap energy, it all stops.  So why don’t we have an energy policy out of Washington?  For 40 years I've been promised (by every single Presidential candidate) that we'd have a safe and secure energy policy that kept our energy cheap and our nation safe.  In the past ten years, via the improvements in fracking, oil discoveries off Alaska, and deposits in Canada, the amount of energy the US can produce is staggering.  Yet it's opposed every day by our own government.

-       Obama pledged billions to drill offshore – where – Brazil.

-       Remember when Obama looked at the camera and said point blank: “Oh you can open a coal company, but you're going to go broke." 

-       Obama turned down the pipeline project.

-       Obama’s tried his best to halt offshore exploration and drilling.  He comes on TV and says: "Exploration and drilling have expanded on my watch."  But what he doesn't tell you that it’s all on PRIVATE lands.  On the U.S. owned lands, exploration and drilling are all but nonexistent. 

Thus, we have no choice but to prepare for a pretty tough stretch of road ahead.  We need to understand that this path is unsustainable, and will end badly.  But hey, maybe that's the very medicine we need.  Once we all see the big depression hit, maybe then, we can finally do the things we need to rebuild correctly.  But between now and then, I’ll continue to hunker down.

The Market:

When Bernanke announced QE to infinity, my reaction was that the market should have "sold the news" and done a 5 to 8% pull back – back to around 13,000 on the DOW.  But instead it didn't, and slopped and chopped sideways for 20+ trading sessions – between 13,300 and 13,600.  Inside that range, everyone has played the sector rotation game, bidding up materials one day, tech the next, pharma the next – but basically running in place.  This all could be described as ‘base building’, but I was disturbed that we didn't have that initial correction.

After trying to break the DOW above 13,600 and failing the previous week, we are now experiencing full tilt selling.  We are just about 10 points above the 50-day moving average on the DOW.  On the S&P the scenario is worse, we're a couple points below the 50-day moving average.  If we put in a close or two under that 50-day moving average, we could be looking at 13,000 in a very short period of time.  There's not a lot of support at 13,300 and under that things get ugly.

Could this be the pullback we expected on the The Ben Bernanke announcement that's finally come home to roost?  It very well could be folks, but allow me to apply a slightly different spin to this.  Back in 2008, Wall Street was all about Obama.  The Wall Street campaign donations were enormously skewed to the Obama coffers, and Obama won.  This time, Wall Street's hundreds of millions is going to the Romney camp.  In fact the ratio is higher than 10 to 1 for Romney.

Is it possible they kept us up all those days just chopping around so they could then let a correction hit – just so that Obama can't point to the market, and tell the lie that his policies have pushed the market to new highs validating that he's on the right track?  With algorithmic trading robots, high frequency trading, etc. there’s virtually nothing that bankers can't pull off when it comes to the market.  In fact a Swiss entity just put out a study that found a mere 147 corporations have control of 40% of the world's wealth; which is the real economy.  Of those 147 corporations, the big hitters are the banks, and they cite: Goldman, JPM, UBS, etc.  If you are that powerful globally, it wouldn’t take all that much to pull off a little market sell off which would benefit Romney.

I know that might sound silly, but the market is doing what it always does – dissuading the most amount of people it can – before it "takes off".  Don't forget that many fund managers (and individual investors) thought that when QE3 was announced we'd soar to new highs.  Well, the market is rarely that accommodating.  The market senses if too many are long, it goes down, and when too many are out (or short the market) it goes up.  That's its job, to separate as many from their money as it can.  So, as more and more folks get depressed that QE 3 hasn't worked and are pulling out or going short, the market will punish them with a long side run.  But it will do it when it wants, not when I want.

In terms of gold and silver, the numbers tell the story: Silver is up over 18% in 2012 and up at least 27.5% since mid-June, only four short months ago.  Silver Wheaton’s (SLW) CEO Randy Smallwood (and other experts) believe silver will soar to $40 an ounce within six months, and end 2013 with 47% gains, putting silver at $50.  There is a definite ‘silver lining’ in the Fed’s "QE to Infinity" remark.  And if some analysts' predictions come true (that we do experience QE4 next year), silver could go even higher.  It really all comes down to how many U.S. dollars are being printed to carry, restart, or build on the economy here in the United States.  We may not be able to stop the Fed from aligning with the government to support a wasteful bureaucracy at the expense of taxpayers like you and me, but we can make money on it via Gold and Silver.

Tips:

Consider this, with Romney doing so well in the polls and telling voters in West Virginia that if he's elected he's going to help the Coal industry – the coal stocks are moving upward.  I like BTU over $26.25 per share. 

Also consider HPQ.  Hewlett Packard / Compaq is NOT a trade.  I’m thinking about holding this for a few months.  HPQ is still a major player, and their 3D printing could be the fundamental catalyst that allows them to exit the tunnel that they’re currently in.  I may be willing to hold it for a while and see if the value guys start to sniff around.

This week (on twitter and for real) I purchased some: SLV, SIL and SLW.  I also stopped out of:  JNJ – $0, MMM – $0, FCX – $0.25 cent gain, GDX for a $10 gain, and IBM for $10 gain.  It was a good week!

My Current Holds are:

-       FDX – in at 86.03 (currently 90.38) – stop at 88.15

-       SIL – in at 24.51 (currently 24.37) – no stop just yet

-       SLW – in at 38.50 (currently 39.10) – no stop just yet

-       GLD (ETF for Gold) – in at 158.28, (currently 169.91) – no stop ($1,768.80 per physical ounce), AND

-       SLV (ETF for Silver) – in at 28.3 (currently 32.37) – no stop ($34.05 per physical ounce).

To follow me on Twitter and get my daily thoughts and trades – my handle is: taylorpamm. 

Please be safe out there! 

Disclaimer:

Expressed thoughts proffered within the BARRONS REPORT, a Private and free weekly economic newsletter, are those of noted entrepreneur, professor and author, RF Culbertson, contributing sources and those he interviews.  You can learn more and get your free subscription by visiting: <http://rfcfinancialnews.blogspot.com> .

Please write to <rfc@getabby.com> to inform me of any reproductions, including when and where copy will be reproduced. You may use in complete form or, if quoting in brief, reference .

If you'd like to view RF's actual stock trades - and see more of my thoughts - please feel free to sign up as a Twitter follower -  "taylorpamm" is my handle.

If you'd like to see RF in action - teaching people about investing - please feel free to view the TED talk that he gave on Fearless Investing: http://www.youtube.com/watch?v=K2Z9I_6ciH0

To unsubscribe please refer to the bottom of the email.

Views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest and is not in any way a testimony of, or associated with Mr. Culbertson's other firms or associations.  Mr. Culbertson and related parties are not registered and licensed brokers.  This message may contain information that is confidential or privileged and is intended only for the individual or entity named above and does not constitute an offer for or advice about any alternative investment product. Such advice can only be made when accompanied by a prospectus or similar offering document.  Past performance is not indicative of future performance. Please make sure to review important disclosures at the end of each article.

Note: Joining BARRONS REPORT is not an offering for any investment. It represents only the opinions of RF Culbertson and Associates.

PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS (INCLUDING HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS AND OTHER SPECULATIVE INVESTMENT PRACTICES MAY INCREASE RISK OF INVESTMENT LOSS; MAY NOT BE SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop.

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Opinions expressed in these reports may change without prior notice. Culbertson and/or the staff may or may not have investments in any funds cited above.

Remember the Blog: <http://rfcfinancialnews.blogspot.com/>
Until next week – be safe.

R.F. Culbertson

<mailto:rfc@getabby.com>

<http://rfcfinancialnews.blogspot.com>

This Week in Barrons - 10-7-2012

This Week in Barrons – 10-7-2012

“Unbelievable jobs numbers… these Chicago guys will do anything… can't debate so change the numbers”... J. Welch

To quote last week’s letter: “The Ben Bernanke and Obama should be able to create the illusion of prosperity”, and darn if they didn’t.  I agree with Jack Welch.  The Obama administration and the Labor Department managed to fudge data and statistics enough to get the unemployment rate below the "magic" number of 8 percent.  Why – because no president has been re-elected with an unemployment rate above 8 percent since the Great Depression.  With the rate declared at 7.8%, Barack Obama has cleared yet another hurdle in his quest for re-election.  At this point, Obama will say that unemployment is lower than when he took office and will ride this one statistic to re-election.  As soon as the number was released (Friday at 8:30 a.m. ET), The Associated Press ran an article with the headline: US jobless rate falls to 7.8 pct., 44-month low.  But four hours earlier, it was a totally different story -- with the AP’s headline was:  In wake of debate, Weak Jobs Numbers Expected.  The earlier article predicted that unemployment numbers would tick up slightly, meaning more bad news for Obama.  

Let's understand what has happened here.

-      Obama got smoked in the debate.

-       Obama’s economic policy has been viewed as a disaster.

-       The GDP number was revised downward to just slightly over 1% growth (anemic at best). -       The number of new people signing up for unemployment each week remained around 370,000. 

They had to do "something" that they could talk about, and they did the jobs thing. The "U6" reading for jobs remained the same; however, the number of people working part time for economic reasons soared 582,000.  That was the magic – they found 600K people that were working ‘part time for economic reasons.’  Factually – that number is higher than ‘any number’ since 1984 – and it occurred exactly 30 days before a presidential election where President Obama was basically tied for re-election with the challenger.  Jack Welch is right.

Let’s think a little longer about this.  September (the month that they were reporting on) is when kids go Back-to-School and ‘part time’ / ‘summer jobs’ are lost not gained.  But nope – not this year!  This year all of the students went out and got part time jobs instead of going to school.  Oops, there’s a problem here – the LOAN data for students going back to College on student loans remained constant.  So, somehow 580K kids decided to not only go to college, but also to get part time jobs.  And to add insult to injury – there just happened to be 600K part time jobs sitting there (in one month) waiting for the avalanche of these students.  Jack Welch is still right.

The truth is that the real unemployment rate is actually much higher than 7.8%  when you factor in the number of people who have given up looking for work since the President took office.  Seventeen million Americans have been driven out of the workforce by the Obama administration's failed economic policies.  If the job participation rate were measured the same today as when our 44th president was inaugurated, the AP and other media outlets would have announced an unemployment rate of 10.7%, not 7.8%.

Switching gears – and thanks to JT, JA and Bill Gross of PIMCO (for the PIMCO monthly report) – some of it’s findings were:

-       The US has a Federal Debt / GDP ratio less than 100%, an Aaa/AA+ credit rating, and the benefit of being the world’s reserve currency.

-       Studies by the CBO, IMB and BIS suggest that we need to cut spending or raise taxes by 11% of GDP rather quickly.

-       Unless this gap is closed, the inevitable result will be that our debt/GDP ratio will continue to rise, the Fed will print money to pay for the deficiency, inflation will follow, and the dollar would inevitably decline.

Often a picture is worth 1,000 words – and the graphic below best describes countries that are managing their economies (in green) and ones that are not – with the ones that are NOT located in the “Ring of Fire.”

If elements were left unchanged – and investment results of this “Ring of Fire” would be that:

-       Bonds would be burned to a crisp,

-       Stocks would be singed,

-       Only gold and real assets would thrive within the “Ring of Fire.” 

If this were to occur, the U.S. would no longer be in the catbird’s seat of global finance.  For 40 years the world has depended upon the U.S. economy as the world’s consummate consumer, and the dollar as the global medium of exchange.  If we remain true to our course, then rating services, dollar reserve holding nations, and bond managers will force a resolution that will end badly.  It would be a memory that investors would WANT to forget.

The Market:

Everyone’s unhappy:

-       Money managers are unhappy because 70% of them are lagging the S&P 500 and see the end of another quarter approaching.

-       Economists are unhappy because they do not know what to believe: this month’s forecast of a strong economy, or last month’s forecast of a weak economy.

-       Technicians are unhappy because the market refuses to correct, and gets more and more extended.

-       Foreigners are unhappy because due to their under-invested status in the U.S., they have missed the biggest double play (a big currency move plus a big stock market move) in decades.

-       The public is unhappy because they just plain missed out on the party after being scared into cash after the crash.

It almost seems ungrateful for so many to be unhappy about a market that has done so well.  People would prefer the market to correct to allow them to buy and feel happy, which is just the reason for a further rise – because frustrating the majority is the market’s primary goal.  I’m reminded of something Mark Twain once wrote:  “October, this is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February."

October is known as the "crash month".  But 97% of the time, October is just another month.  I suggest that unless Israel launches an attack on Iran, this October will not be a crash month either.  With Obama desperate to hold power, he will not let a crash occur.  That doesn't mean it will not pull down some.  It certainly could.  But crash – no – too many eyes are on it.

That said, I will admit that I thought that the QE3 last quarter should have reflected a higher market by now.  We have chopped and hopped sideways for a while, and then on Friday we saw them try and break us free, but it didn’t hold.

On September 14th, right after QE3 was announced, the market put in an intra day high of 13,653.  After that high, we did a lot of running in place, finally fell a bit and then moved back up.  The intra day high Friday was 13,661, but it couldn't hold and we faded off of that high.  Now after QE1 they bought the market.  After QE2 and the twist, they bought the market.  After QE3, the world will be staring at corporate earnings (starting Monday) that will NOT be good.  So will they continue to buy the market despite fading earnings, falling revenues and a punk economy?  Or, will they say "enough is enough” – stocks do not deserve their price point and their multiples – and sell the news?  The jury is out.

I am siding with the idea they continue to buy stocks and drive us over that Sept 14th high for one simple reason.  The Ben Bernanke's $40 billion a month is pushing cash into the banks.  They are flush with it.  They can sit on it, or use it to play risk trades – and I think they will use it to make trades.  For the past 4 years it's all they've known.  Banks won't want bonds paying 1%, if they can jam stocks higher and get a quick 8%.

The good news is that we will all know this – THIS WEEK.  If companies are missing their earnings, and the market doesn't fade off much – they’re telling us that they are willing to continue the ponzi scheme and we're going to make a year end run.  If however this market pouts and sells off, then thinking has changed and we will not know how low this market will fall.

In the meantime I’m leaning slightly long, and placing some select trades.  If this week looks to push the market higher (despite fading earnings), we will get "longer".  If not, we will pick a few select shorts for a couple weeks.

Tips:

Keep an eye on the silver market, as I think it’s getting ready to make a move.  Take a look at the chart of the SLV and you will see that the 50-day and the 200-day averages crossed a couple days back.  Whenever the 50-day crosses over the 200-day (after being below it for months) – that’s a very bullish sign.  The SLV has been threatening to break above the 34 level – that’s held it back for a while.  So on one hand we have the chart pattern, and on the other we know that The Ben Bernanke’s printing press and the European printing press are beginning to make some noise.  Adding up the chart with the excess printing, a close over 34.10 on the SLV would be a good area to consider picking some up if you're so inclined.

I’m becoming a lot more diligent in using Twitter to dictate my buys and my stops.  This week I purchased some: JNJ at 69.51, FDX at 86.03, FCX at 40.00, and MMM at 94.01.  I also stopped out of LOW this week for a $2 gain and MRO for a $1.50 gain.

I also agreed with DS and purchased some SIL at 24.51.

My Current Holds are:

-       JNJ – in at 69.51 (currently 69.62) – stop at 69.29

-       FDX – in at 86.03 (currently 86.91) – stop at 86.15

-       FCX – in at 40.00 (currently 40.45) – stop at entry

-       MMM – in at 94.01 (currently 94.96) – stop at entry

-       SIL – in at 24.51 (currently 24.90) – stop at entry

-       GDX – in at 42.50 (currently 53.65) – stop at 52.80

-       IBM – in at 198.34 (currently 210.53) – stop at 208.00

-       GLD (ETF for Gold) – in at 158.28, (currently 172.61) – no stop ($1,778.60 per physical ounce), AND

-       SLV (ETF for Silver) – in at 28.3 (currently 33.35) – no stop ($34.51 per physical ounce).

To follow me on Twitter and get my daily thoughts and trades – my handle is: taylorpamm. 

Please be safe out there! 

Disclaimer:

Expressed thoughts proffered within the BARRONS REPORT, a Private and free weekly economic newsletter, are those of noted entrepreneur, professor and author, RF Culbertson, contributing sources and those he interviews.  You can learn more and get your free subscription by visiting: <http://rfcfinancialnews.blogspot.com> .

Please write to <rfc@getabby.com> to inform me of any reproductions, including when and where copy will be reproduced. You may use in complete form or, if quoting in brief, reference .

If you'd like to view RF's actual stock trades - and see more of my thoughts - please feel free to sign up as a Twitter follower -  "taylorpamm" is my handle.

If you'd like to see RF in action - teaching people about investing - please feel free to view the TED talk that he gave on Fearless Investing: http://www.youtube.com/watch?v=K2Z9I_6ciH0

To unsubscribe please refer to the bottom of the email.

Views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest and is not in any way a testimony of, or associated with Mr. Culbertson's other firms or associations.  Mr. Culbertson and related parties are not registered and licensed brokers.  This message may contain information that is confidential or privileged and is intended only for the individual or entity named above and does not constitute an offer for or advice about any alternative investment product. Such advice can only be made when accompanied by a prospectus or similar offering document.  Past performance is not indicative of future performance. Please make sure to review important disclosures at the end of each article.

Note: Joining BARRONS REPORT is not an offering for any investment. It represents only the opinions of RF Culbertson and Associates.

PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS (INCLUDING HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS AND OTHER SPECULATIVE INVESTMENT PRACTICES MAY INCREASE RISK OF INVESTMENT LOSS; MAY NOT BE SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop.

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Opinions expressed in these reports may change without prior notice. Culbertson and/or the staff may or may not have investments in any funds cited above.

Remember the Blog: <http://rfcfinancialnews.blogspot.com/>
Until next week – be safe.

R.F. Culbertson

<mailto:rfc@getabby.com>

<http://rfcfinancialnews.blogspot.com>

This Week in Barrons - 9-30-12

This Week in Barrons – 9-30-2012

“Can we change back – I don’t know – I think it’s harder!” … Dialogue from the movie Pleasantville

I’ve been termed: “Mr. Doom ‘n Gloom” – a person who always views the glass as being half empty.  I’m really not.  I just haven’t found a way (yet) to make financial frauds, manipulations, and $100 Trillion in debt sound “fun and upbeat.”  We've seen the U.S. – the greatest economic machine in history, turn into the most indebted nation in history – all within our lifetime.  And thanks to PM for the following video: http://www.youtube.com/watch?v=3EZQvSCGaJI&feature=youtube_gdata_player

This past spring, we made some predictions:

-        The ECB would become more like a regular Central Bank, begin to print money that would end up not being sterilized.

-       The German Court would go along with the ESM.

-       And The Ben Bernanke would give us more "QE".

All of the above came true, and The Ben Bernanke even went well “above and beyond" our expectations.

My logical next step was that the market would eventually push higher.  The game being played here is that by keeping rates at ridiculously low levels, Governments, Pension and Insurance plans are being forced to seek better returns.  Nobody wants to invest in bonds paying 1.5%, when inflation is multiples higher.  The Ben Bernanke knows that if he keeps the rates low, it forces big players into stocks.  Then by adding another $40 Billion a month to buy mortgage backed securities, he's basically handing the banks "free money" to go splurge.  What will the banks do with it (given they don’t want to LEND it) – it will find its way into risk assets.

I think we'll get pull backs (like we saw this week), that could blossom into 300 to 500 point drops.  But I also think that the Fed and Obama (with his Plunge Patrol Team (PPT)) are so desperate, that they'll actually go in and buy stocks if they have to.  The Ben Bernanke knows that his knowledge of the Great depression (and how to fight one) has failed thus far, and he's getting anxious viewing the Global economy fold up on HIS watch.

It’s currently fraud versus fundamentals.  In the long run the fundamentals win and we will indeed crash, but in the short run (the next several months) The Ben Bernanke and Obama should be able to create the illusion of prosperity.

The Market:

2^nd Quarter GDP (the growth rate of our country’s output) was announced as 1.245% - downright awful!  Estimates for 3^rd Quarter are moving toward 0.9%, 4^th Quarter rumblings of 0.4%, - and yes – more and more rumblings of a recession in 2013.  Durable goods orders came in just as “horrible”, and once again housing was down.  Everyone's feeling a bit scared.  The Ben Bernanke announced QE to infinity and yet the market has done nothing but trade sideways and down.  The “Talking Heads” are out in force, some saying that it's over – QE won't save us – we’re doomed, and others suggesting that this is just the pause that refreshes, and we're going up.  One gent on CNBC suggested that we should load up the truck with stocks and get on board, because this is the single greatest moment in history, and 2013 will be the best year we've ever seen.  “I’ll have what he’s having!” :)

Honestly when The Ben Bernanke announced the forever QE, I did not rush to change my asset allocation (i.e. put more money to work).  I did not load the boat with "trades" in the short-term account.  I had a hunch that Wall Street would do what it always does – suck people in, take their money, and when everyone's disgusted – ramp up again.  I thought we would have a 5% pull back – and we’re not there yet.   

But I do indeed think we've got one last spurt left.  Not because of fundamentals (faked), or earnings (which are artificially inflated), but simply because all of the rules have now been broken.  There is no fiscal sanity.  If it takes $80 Billion a month to keep the markets up, so be it.  If that's not enough, this administration will do $100B, because the supply is endless.  This administration had two choices: (a) let the economy crash and pick up the pieces, or (b) continue these massive monetary injections, until the economy dies from overdose.  Understand, “Politicians always pick Overdose.”

We’re about to enter earnings season:

-       Corporate earnings will be very bad,

-       Insiders are selling in volumes not seen in years,

-       Mutual funds are seeing massive outflows,

-       The Michigan Consumer Sentiment Index missed expectations,

-       The Chicago Purchasing Managers Index came in at 2009 lows,

-       The Baltic Dry Shipping Index is in the toilet (worst numbers in years), and

-       The Transport Index never confirmed the big DOW move – why – because no one is shipping anything!

The Ben Bernanke and Obama both know this.  Their real job (right now) is to counter all that selling by forcing the banks to pick up the pace of buying in order to keep the market up.  This should work in the short term.  So, trading-wise – I am biding my time.  I've taken the exploratory trade now and then, but I’m playing light.  I think that (at some point) we will see one of those ‘no news, no reason’ runs higher.  I want to catch that run and escape with the winnings.  On a side note, the Obama administration says they ‘found’ an additional 400K+ jobs they hadn't seen before.  I’m betting that the Obama administration also ‘finds’ the unemployment rate going below 8% right ahead of this election (despite it being a lie). 

I believe that the only reason that the run higher hasn’t started is due to Israel versus Iran, and that’s a true wild card.  Israel has a terrible choice to make.  Does Israel attack Iran now (ahead of the election), knowing it will force Obama to come to their aid, or wait to see if Romney wins – who’s already said that he would help Israel out.  If Israel were to stage an offensive, and even if we were to jump in and help, Iran can inflict damage that would cripple the entire world.  Iran could torch oil fields and create hazards in shipping oil lanes.  People are suffering now with $3.80 gasoline, a spike to $4.75 would halt them in their tracks.  I really do believe that the only reason the banks haven't started their buying binge of stocks is because of the very real possibility that Israel says “GO” and the attack (and corresponding market collapse) happens.

This is simply a war between a world that's in trouble and facing a deep recession, and the fiat money printers.  Nothing could be more basic, but the answer on a daily basis isn't clear.  I'm still in the camp that says in the short run, the Central banks can inject so much money into the system that it "has" to go somewhere and it will end up in the market.  But because it’s truly a war, we're getting some real chop and slop here.  

In any event, I’m keeping my powder dry for now.  I feel that a last hurrah run is out there; I just don't know when it will start.  When the world believes that Israel is holding true on waiting until after the election, then that would be the green light for stocks to go wild.

Tips:

I stopped out of SPY last week for a $3 gain. SUBX for a $2 gain, NTAP for even, MNST for $1, and BRCM for even.

As DS suggested – I’m going to review the defense sector closely.  I could be too late, but there must be charts of defense contractors – that will truly suffer if Mr. Obama is re-elected. 

Currently I’m holding:

-       GDX – in at 42.50 (currently 53.59) – stop at 52.80

-       LOW – in at 28.02 (currently 30.24) – stop at entry

-       MRO – in at 28.13 (currently 29.55) – stop at 28.80

-       IBM – in at 198.34 (currently 206.59) – stop at 204.00

-       GLD (ETF for Gold) – in at 158.28, (currently 171.84) – no stop ($1,771.10 per physical ounce), AND

-       SLV (ETF for Silver) – in at 28.3 (currently 33.40) – no stop ($34.52 per physical ounce).

To follow me on Twitter and get my daily thoughts and trades – my handle is: taylorpamm. 

Please be safe out there! 

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