This Week in Barrons - 7-7-2013

This Week in Barrons – 7-7-2013

Are we Ever going to create ‘Real Jobs’ again?

In a digital world – where information flows like rain drops in a tropical storm, the seemingly endless stream of data can overwhelm anyone.  It gets worse when the information seems to contradict itself.  Heading into Friday's non-farm payroll report, we received some rather bizarre news out of Europe.  The ECB and the UK said that they would be more forthcoming about giving ‘guidance’ about their actions going forward.  For some reason the market found that to be ‘good news’.  Frankly, I think it had more to do with Draghi saying he's not opposed to keeping stimulus in effect for a considerable period of time, but you can see virtually any form of ‘not bad news’ is cause for celebration.  If the U.S. is talking tapering of QE, why is Draghi saying he's going full steam ahead?  Can the U.S. be strong enough to taper QE, without the help of a European trading partner?  No.  Can Draghi's money printing create enough economic activity that we can taper with no ill effects – because Europe will pick up our slack?  No.  Let’s chalk it up to information overload.

Friday’s non-farm payroll report was a masterpiece of contradiction.  The report talks of 195K jobs being created, yet a peek under the hood shows us a plethora of tangled wires.  Because of Obamacare’s rules requiring anyone working over 30 hours a week to be included in the organization’s health plan, businesses have started cutting full-time people and replacing them with part-time workers.  We have a situation where part-time jobs have soared to their highest level ever.  Is this tidal wave of part-time workers really good for our economy?  Thus far, in 2013, we have created 130K full-time jobs and 557K part-time jobs.  This is The Ben Bernanke recovery.  Along with the increase in part-time workers, we have also seen the number of ‘discouraged’ workers rise to over 1 million.  Of the 195K jobs created, 132K of them were ‘fake jobs’ jobs that were reported under the Birth/Death model.  Coincident with the jobs report, the 10 Year Treasury yield spiked up to 2.7% while Gold was once again beaten senseless.  In what parallel universe is an all time high reading of part-timers considered a solid recovery and reason for the Fed to slow its stimulus?

Yet – as if in lockstep – all the major brokerage houses are now on the "September taper" bandwagon.  As I've mentioned in the past couple weeks, something has changed.  My first thought was that The Ben Bernanke was going to cut some of the QE (from $85B to $65B a month), step down from his job in January, and his successor could then step in and ‘push it back up’ because it was ‘just a bit too premature’.  But then I had to start asking the deeper question: What if they've decided to just stop, let everything crash? – and try and pick up the pieces?  The jury is still out on that one, but one thing is certain – our economy is NOT healthy enough to support its own weight.  September isn't all that far away, and all are convinced the first taper is coming then.

To say that this is a confusing time is an understatement.  Do you go long stocks, knowing that The Ben Bernanke might take away the ONLY thing that has kept stocks up?  Or do you go short the stock market, and then get freight trained if he doesn't yank any QE and the market soars all the way to year-end?  As much as I detest day trading, it seems that for the next few months, the only safe bet is to only do very short-term trades.  Friday was a prime example.  Right after the open we were up over 100 points, then we lost it all and went red, and then we gained it all back again at the close.    Once again the 50-day moving averages proved to be stubborn.  Until we are squarely above the 50's on the S&P and the DOW for more than one session, I can't get too excited.  Be careful out there folks, everything is a mess, and literally anything can happen.  I can just as easily make the case for a 3,000-point fall as I can a 2,000-point run higher.  It's all about the Fed, nothing about the fundamentals any more. That is an awful way to run a market.

The Market:

For years I've stressed that the market is only at these levels because of Fed money.  And yet, to this day, the talking heads on financial TV come on and tell us that stocks are up because of strong earnings growth.  Really?  Doesn't anyone (other than me) find it sort of funny that we are now witness to the single largest number of earnings ‘Warnings’ we've ever had?  If you're pushing stocks, and a record number of companies have come out and said that earnings will ‘stink’ – How do you continue pushing those same stocks?

In any case, on Friday we opened okay, the DOW plunged back down by 100 points, only to reverse and run for 140 points higher at the close.  The S&P wasn't to be left behind, and it too broke over its own 50-day moving average.  So the question is: Are we now free and clear to run wild and attack the May highs?  In any other time of financial history that suggestion would be met with howls of laughter.  A market challenging all time highs while companies the world over are warning about earnings, interest rates are surging, gasoline is spiking and mortgage applications have fallen off a cliff?

But this isn't any other time in history.  This is the most perverted representation of a free market that has ever existed; therefore, we can't dismiss the idea as lunatic.  That said however, I do urge a huge amount of caution.  While Step-One had to be getting over the 50-day moving averages, Step-Two is going to be holding them.  Step-Three will be the ‘trend line’ that is hovering at the S&P 1650’ish level.  We need to get past that in order to restore faith that the market will continue to run higher.

Step-One was somewhat easy to do on absolutely NO volume, on a Holiday shortened week – where most traders were more worried about their next umbrella drink than their next stock.  On Monday and Tuesday (when most of Wall Street is back in town) will the 50-day moving averages hold?  I'm thinking that the 50's might hold, and they move the market higher, but the market (once again) will run out of gas at the trend lines and will fall back down due to lack of earnings.  We're soon to be deep in the heart of earnings season and as much as they'll try and doctor them up – the upcoming earnings won't be pretty.  It will take some real desperation money to jam the market higher when waves of earnings are found to be mediocre at best and outright lousy at worst.  

If we close above the 50's Monday, a short-term window on the long side could present itself as they gather the support they'll need to attack the overhead trend lines.  But it probably won't last long.  I'm only calling for a short-term trade, not a ‘set it and forget it’ type action.  I’ll write more next weekend on gold and silver – because that’s a story unto itself.  Please be careful out there.

Tips:

The stocks that I’m looking at for entry points are: 

-       HASI (@ $12.50, love the dividend yield and I like it on a pullback below 12),

-       PCYC (@ $87 – due to acquisitions in the space – it could be challenging $100 soon),

-       GOV ($25.50, I missed the latest move – should go to $27 shortly),

-       COAL ($55.80, beaten up coal mining space - looking for $65 going forward),

-       BTU ($14.60, another coal miner – I’m waiting for a bottom here – then it’s time to move), (you could also make a case for: CNX, ACI, ANR, and CLD), AND

-       A shout out to DS for:  Silver (SLV) and Freeport–McMoRan (FCX).  Silver broke thru the $18 mark on high-volume on Friday – and I plan to trade SLV above $18.79.  It helps that all the big analysts are jumping on board the precious metals wagon:  JPM = “it’s our first overweight call on commodities since September, 2010”.  Goldman has closed it’s silver and gold shorts.  And Oppenheimer is saying: “at this time, we believe gold and gold miners represent good risk/reward. Indeed, the recent extreme weakness is judged to be the reciprocal or correlative of the extreme strength witnessed in the summer of 2011. The ‘despair’ relating to gold now is as palpable as ‘euphoria’ then.”

My current short-term holds are:

-       SIL – in at 24.51 (currently 11.46) – no stop

-       GLD (ETF for Gold) – in at 158.28, (currently 118.30) – no stop ($1,212.90 per physical ounce), AND

-       SLV (ETF for Silver) – in at 28.3 (currently 18.20) – no stop ($18.73 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 <rfcfinancialnews.blogspot.com>.

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 - 6-30-13

This Week in Barrons – 6-30-2013

This Time it could be Different.

During a question and answer session a week ago, The Ben Bernanke hinted that he wouldn't mind seeing QE start to taper off later in the year, and maybe end in 2014.  While he didn't make a single actual move, the markets all around the world reacted violently.  I personally do NOT believe QE will end.  If the mere mention of it ending tosses the market around for hundreds of points, and pushes bond yields up so fast (the likes of which we’ve never seen before) – what would happen if they really did end it?  The results would be catastrophic.  The ‘wealth effect’ would be gone.  The ‘wealth effect’ comes from seeing asset prices rice, and realizing (if you own those types of assets) that you are implicitly wealthier than before.  The ‘wealth effect’ causes people to feel better and therefore, spend money on things that they don’t need – with (potentially) money that they don’t have.

Can you imagine what would happen if the Fed stopped pushing $85B per month into the economy?  To quote Peter Schiff:  “Although Bernanke dodged the question in his press conference, the Fed has broken the normal market for mortgage backed securities (MBS).  While it's true that the Fed only owns 14% of all outstanding MBS’s, it is by far the largest purchaser of newly issued mortgage debt.  If the Fed were no longer buying, there are not enough private buyers to soak up the issuance.  Those who do remain would certainly expect higher yields.  To put it bluntly, rates would increase dramatically if there would be any mortgage market at all.”  The ‘wealth effect’ would then work in reverse: spending, confidence and home prices will fall, foreclosures and unemployment will rise, and we will be in a recession even before the Fed begins to taper.

Ah, but remember those words ‘budget deficit?’  Well if we are spending a huge amount each year to service our debts in a ‘zero interest rate policy’ world, how are we going to service them with rates increasing dramatically?  Our national debt would soar once again.  The Fed has built an economy based on the Fed.  Our Federal Reserve System has gone from hiding in the shadows, to being our masters.  In the 60's and even into the late 70's, you based your investing on the economic growth of the economy and the individual companies that were sharing in that growth.  You watched corporate expenses and profits and you loaned them your money because you felt that they'd use it wisely, and return both a dividend and possibly some capital appreciation.  Today that notion is as old fashioned as curing you with leeches.  Today we don’t care about earnings, revenues, or marking assets to market; but rather all we care about is the Federal Reserve and if they will keep rates artificially low. 

Which brings up the question: What is the Fed's next move?  What ever it is, it has to be a change from what they're doing because the current path simply isn’t working.  But let’s not forget, the Fed doesn't work in a vacuum, but rather works with other Central bankers from other nations on a total agenda.  So, what is that agenda?  I think Gold is telling us that agenda.  I know this will sound somewhat cloak and dagger – but as the title suggests – this time it could be different.  This time we're not talking about a few trillion dollars in debt between a few nations.  This time we are talking hundreds of trillions in debts, and inflating the money simply won’t catch-up with all the debts that need to be paid.  There needs to be a bigger, bolder plan. 

My guess is that when Asia gets enough gold to make a stand with their currency, they're going to call for a global ‘reset’.  I think that all of the major currencies and nations will be called upon to enter into some form of Bretton Woods type of plan - where everyone resigns debts and we all issue a new global reserve currency.  It appears that this currency will require some metal backing.  If you think about it like that, you can make some sense out of the incredible attacks on Gold.  In the 30's when they wanted to re-price dollars, they passed a law making it mandatory that everyone turn in their gold.  It was the largest confiscation of wealth on record.  Well, instead of having people turn in their gold – what if they get all that they need by reducing the paper price and chasing people away from investing in it?  We’re seeing a massive move of gold to Asia.  It feels like this coordinated attack on the metals is being done to allow the Asians the opportunity to amass enough gold that when they pull the plug on dollars, everyone can meet at the table with enough physical gold that a new standard can be issued.  I think the agenda is to allow the major nations the ability to obtain the physical metal, and then cut free of the current system of reserve dollars. 

I might be crazy, but no amount of money printing is going to cure the debts.  The EU is all but bankrupt.  The US cannot mathematically pay off its debts.  China is slowly admitting to building several unsustainable bubbles.  Japan is a nightmare.  But it’s different this time.  This isn't one nation struggling – like Argentina.  These are the major economies of the planet dying in debt.  No amount of inflating the money supply will take away the ills of the world’s current overactive debt problem.  Gold’s message is that nations need to obtain it.

But there is one catch – there is not enough physical gold to be purchased.  When gold was rising in price – people were buying it.  When gold is falling in price – people are buying it.  Why does it take 7 years to give back Germany's gold?  They first must find enough of it to ‘give back’.  So this time could be different.  We could be looking at a global currency reset.  How it all plays out – I’m not certain, but it is the most logical path. 

The Market....

Ever since Bernanke chatted about wanting to taper QE this year, and end QE next year – just about everything has sold off.  I’ve consistently said that they can’t end QE because if they do, we crash.  But what if the debts are so enormous and the possibility of inflating our way out so impossible – that once all the nations have enough gold, they will:

-       Back away from the stimulus.

-       Let things crash.

-       Rebuild from the ashes.

-       Write off the debts.

-       And introduce a new global reserve currency? 

That is a hard pill to swallow.  All Central bankers have ever known is to continue to print more money, and to inflate away problems.  But since this isn't just one single country, and the debts aren't just a few trillion, can it actually be that they're going to give up?  Is that why The Ben Bernanke is so hot on the idea of him leaving?  He made his life’s work about what the depression experts did wrong, and he said that he could solve a similar situation.  Maybe he just wants out before they do indeed yank the plug on the whole darn system. 

If that is the ‘final solution’, then we are in a whole new ball game.  Don't get me wrong; I’m not there – yet.  I think it is something to ponder, and dissect into its component parts.  But if that becomes the case:

-       We would become deflationary.

-       Economic activity would slow to a crawl.

-       Prices would crash because no one would buy anything.

-       Stocks would fall below 2008 levels.

-       It would be the "Greater Depression".

If however they are going to continue on the printing press bandwagon, then the situation remains relatively the same.  They continue to print, stocks hold up or even rise, and the distortions become even larger.

Stocks have entered what looks to be their first significant correction since November of last year.  From the May highs we've drifted sideways and down, and the volume on the down days far exceeds the volume on the up days.  At our lowest point we had about a 6.2% correction – the deepest of the year.  We then ran back up and tried to get over the 50-day moving averages in the big indexes, but it wasn't to be.  Thursday’s close was not above them, and Friday slid back another 115 DOW points.  Last week I thought that we'd rally back up, test the 50-day moving averages, and if we failed to break through them, we would drift down again.  If I'm right about that scenario, what should happen is that we fade back down and re-test the 14,650 area.  If that area doesn't hold, we could see a real 10% pull back (something new this year) and a long way down.

In a very strange twist, the only sector showing incredible strength on Friday was the gold and silver miners.  All in all, the key word (especially for the “long only” investor) is to please be careful.  This market could easily break in either direction.  Earnings season is fast approaching, and it isn't going to be pretty.  They will have to do a lot of spin to try and make these upcoming earnings look acceptable.  In any event, listen for the Fed heads talking about QE, and try not to get too involved long or short.  Volatility will rule the week. 

Tips:

My current short-term holds are:

-       SIL – in at 24.51 (currently 11.72) – no stop

-       GLD (ETF for Gold) – in at 158.28, (currently 119.21) – no stop ($1,223.80 per physical ounce), AND

-       SLV (ETF for Silver) – in at 28.3 (currently 19.07) – no stop ($19.50 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 <rfcfinancialnews.blogspot.com>.

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 - 6-23-13 - Congrats to all the 2013 NU Grads ...

This Week in Barrons – 6-23-2013

Trouble, Trouble, Toil & Trouble:

There’s a certain humility that comes over you after you spend 3 days on a university campus – away from all the world’s hustle and bustle – and focused solely on celebrating the Class of 2013 at Northwestern University.  I’m truly humbled by their intellect – and sincerely apologize for the financial ‘mess’ that we’ve left them.  But none the less, Congratulations to the Class of 2013.

Financially, I'd venture to say that just about everyone knows what happened on Wednesday.  Without actually saying the words, The Ben Bernanke hinted that he would like to see a tapering off of the Quantitative Easing (QE) by late this year.  That caused a 400+ point drop in the stock markets over the next two days.  I received an email from someone that summed it up quite nicely: "It would seem that if the market fell 440 points in two days over the mere mention of tapering, I believe your are right that when they ‘actually taper’ we will have all hell to pay". 

But it wasn't just stocks that were getting hammered.  Gold, silver, copper, lumber, bonds, swaps – virtually everything was getting hit.  The unwinding of an out of control policy – that tried to keep interest rates at 0 for too long – isn’t pretty and will cause issues we currently don’t understand.  This unwinding could easily become truly catastrophic. The world is in a massive debt bubble and the Central banks are now officially losing control.  And according to Donald Trump, the stage is now set for a possible collapse that dwarfs 2008.  Speed is the real issue right now.  If the wheels come off slowly (as has been the case in Europe), they will continue to plug the holes by printing more cash, and kick the can down the road.  But, if a chain reaction were to occur, where derivatives start to default, that could freeze up the entire banking system – circa 2008.

I'm on record as saying the Fed won't stop printing.  There have only been two choices: (a) continue to print and ‘inflate-away’ our debts, or (b) stop printing and have the economy go into a recession/depression.  We either take the pain, allow business to fail, banks to go belly-up, endure a year or two of a horrible economy, or print money to keep the wheels turning.  I think the Fed will continue to print. 

If The Ben Bernanke wants to step down in January, he could cut a bit of stimulus on his watch, and then his replacement could make a determination that we are just too early for less stimulus and jack it back up – potentially higher.  Why do I think The Ben Bernanke won't stop printing?  His entire career is based upon knowing what the Central bank did during the Great Depression was wrong.  He told everyone that he had tricks and gimmicks and could solve any depression.  He would look very bad if he quit printing and the economy imploded on him.  Similarly, his replacement isn't going to want a world depression on his or her watch, and the only way to ward that off is to print more and more.  Therefore, in my opinion, a year from now we will still have QE (in some form) and it will potentially be larger than it is today. 

Which makes things even more bizarre when we look at what happened to commodities this week.  On Thursday Gold was down $90 an ounce.  Yet (once again) demand for the physical metal went through the roof.  Understand, there must be quite an agenda behind debasing the commodities, because you just don’t ‘naked short’ the precious metal market (time and time again) – just because it’s a fun thing to do.  The agenda must include migrating gold from west to east.  China has seen what many different dynasties have done for money, and know that gold has gotten them through all of it.   China wants all the gold it can get because (in my opinion) they would like the Yuan to be part of the global currency reserve, and would like gold to back some percentage of it.  But that creates a problem for the European central banks, and they will need gold to be a part of their currency as well. 

We currently have Central banks being quite aggressive about their gold purchases.  Therefore it makes sense for them to drive the paper price lower, and potentially drive buyers into other risk assets such as currency or stocks.  Along with attacking the prices, there are other ways to keep the physical metal out of people’s hands:

-       FedEx has stopped delivering precious metals to individuals in the UK and Germany.

-       On May 23, France passed a law prohibiting their postal service from delivering gold to the public.

-       And the Chicago Mercantile Exchange (CME) just increased margin requirements on Gold by a whopping 25%.

So, where are we?

-       We have The Ben Bernanke winking and nodding that QE is going to start to taper.

-       We have the market in panic model. 

-       Gold and silver were sold off on the upside down belief that there will be less Fed inspired inflation.

-       Interest rates are soaring with mortgages costing 3.5% a couple weeks ago to 4.12% this Thursday.  If the economy is to return on the back of housing, then higher interest rates will let housing die on the vine.

If indeed the Fed was to stop QE, who would buy the treasuries that Japan and China don't purchase, and at what interest rate?  My guess is that we will begin to hear about a new Government program to make you buy bonds for your retirement fund (like they are making us buy Obamacare).  Last week $13.6 Billion came out of the bond markets.  People are frightened about Benghazi, the IRS, the NSA, Afghanistan, Iran, Syria, employment, debt, higher taxes, Obamacare – and the list goes on. The single element that people were able to feel better about has been the stock market and now that is scaring the hell out of them.  That 5% correction could have repercussions.  People can't hide in gold or silver, Bonds are plunging, stocks got whacked – they don't know what to do.  I certainly understand that, and there is something ‘different’ about his market downturn. 

I wanted to end on a positive note, but it is hard.  The pieces of the puzzle are coming together faster and faster, and the picture they create is one of deep economic trouble ahead.  One thing I suggest is that for the next several months – consider putting 6 months worth of living expenses (in case) in a good home safe.  Why – because if a cascade of crazy stuff happens one night, starting in Japan and spreading across Europe and into the US, I could easily see a banking system shut-down (for several days) as they would try and sort out all of the derivative nightmares.   This is a pretty good time to really be cautious.  Sorry – it just feels that way. 

The Market:

After a 400+ point drop, we only managed to claw back some 40 points on Friday.  That means a lot of the money simply wasn't willing to jump back into the market just yet.  So the Fed supported things, but this time they didn't really "buy the dip".

Historically June is the worst market month.  After 7 months of "up", we’ve had our first really big plunge, and it was overdue.  I've said for two weeks that this time ‘feels different’, almost like they're losing control all across the globe.  When they're selling virtually everything from commodities to stocks to bonds, it is hard to decipher where the buyers are going to pop up next. 

We're only down about 5% from the all time highs set in May.  A typical correction is between 8 - 10%, and thus far they haven't been willing to let that happen.  A lot of profit has been made, and no one is going to want all to slip away.  And if you hadn’t noticed, the market volume on Thursday was the HIGHEST volume of the year – and it was ALL to the downside.   

My guess is that we have a bit more work to do on the downside before all the players decide to come back in.  The only reason it doesn't feel like we are just heading down for good is because of all The Ben Bernanke bluster.  I don't think this Fed inspired market run is over yet, although obviously it is looking fragile.   Patience is the key.  We need to let the market come to us.  Right now with everything from the DOW to the S&P to the XLF (the banking ETF) are all at or below their 50 day moving averages.  Too many days like that, and the market mood will turn negative instead of profit taking & buy-the-dip. 

All that said, if we were to fail Friday's S&P low of 1577, and end the day there – then it would seem apparent that the overall direction is going to be considerably further down – and going short a little there would probably be nicely profitable. 

There's no question about this – this is not your every day shake out.  A lot of damage has been done, and folks are scared.  Volatility will soar in the next few days.  If you can't be ‘trading-wise’ nimble, then I don’t see a reason to play right now.  There is a lot of gold and silver technical jargon being spoken, but frankly I don’t believe any of it any more.  The precious metals are being systematically attacked in a way never seen before.  This isn't a normal market function.  Over in Asia, they once again lined up for hours to buy physical gold.  This is a fight to the death between the folks that want the metal versus the Central banks.  It is truly an ugly fight, and I just continue to nibble away on the dips.  The way the global economic picture looks, I can think of nothing better to do. Not just in the U.S. but all around the world.  People will be selling everything to raise cash.  When it all falls at the same time, (stocks, bonds, & gold) you know there's some underlying panic.  I want to buy some of that panic.

Good luck out there. Be careful.  Don't jump the gun long or short.  Buckle your seatbelt because we're going for quite the ride. 

Tips:

This week we sold out of MUX – otherwise we did very little.

My current short-term holds are:

-       SIL – in at 24.51 (currently 13.60) – no stop yet

-       GLD (ETF for Gold) – in at 158.28, (currently 134.55) – no stop ($1,387.30 per physical ounce), AND

-       SLV (ETF for Silver) – in at 28.3 (currently 21.30) – no stop ($21.95 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:

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