This week in Barrons - 08.30.09

This Week in Barrons – 08-30-09:

Thoughts:
I’ve been fielding mail – many surrounding the same set of questions – how can government owned / operated institutions such as Fannie / Freddie / Citi / and AIG be doing so well – when but 3 months ago they were bankruptcy candidates – and by all counts – at least 2 of the 4 should currently be in bankruptcy? Along those same lines, I listen to people on CNBC tell me how AIG should be a $300 stock. So I ask you: “How many of the toxic assets have been retired?" Answer: “Who knows – but evidently the market doesn't think it's a problem". Then there is Ms. Blair (FDIC Chairperson) who honestly tells us that banks are in a whole lot of trouble and it's going to take years to sort it out. Their list of troubled banks has grown from 280 to 416 recently, all in the ‘red’ for over $299 Billion dollars, a 15 year high, and that (a) 28% of banks are now unprofitable, (b) Non-current loans now make up 14% of all loans (a normal range for that number is < 4%), and, (c ) charge offs have soared 48%. Oh, and did I say that the initial jobless claims came in at 570,000 once again. What I can’t figure out is how AIG can put Hundreds of Billions of dollars of toxic loans in the ‘mark to model’ category, the FDIC tells us that 416 more banks are in trouble – with 84 failing, people continue to lose their jobs at an alarming rate, and people are talking ‘green shoots’ and we are out of the recession?

Obama just appointed Ben "helicopter" Bernanke to another term. The market rejoiced – after all - where else can they find a gent so willing to completely indebt the middle class for decades on end, and at the same time collude to give bankers their bail out money, allowing them to make billions? My simple question is: Is Ben really fixing anything, or just delaying the inevitable? Aren’t we all a little bit amused when we hear: “Housing has bottomed” – and we find out that (a) Uncle Sam is giving away $8K dollar bonuses to first time buyers, (b) the FHA has lowered credit and income restrictions and is allowing 3% down payments, and (c ) banks have now started packaging toxic loans with prime loans and selling them as AAA again. Not to mention the tidal wave of foreclosures sitting "off the books" just waiting for the right time to hit the market.

Meanwhile, China is rapidly doing just about anything they can to get away from "dollars" and since selling them on the open market will crush the value of the ones they still hold, they've decided to go on a global shopping spree.
LOS ANGELES (MarketWatch) -- The president of China's well-financed sovereign wealth fund said his group plans a massive, ten-fold expansion of its overseas investment this year. China Investment Corp. President Gao Xiqing said the fund's foreign holdings will go from $4.8 billion last year to "several tens of billion dollars.” Allow me to clarify: China holds a lot of our dollar denominated paper, and they're trapped. Each day the dollar sinks in value, but if they try and unload them, the dollar will sink faster. So, instead they are now going to the market and purchasing raw materials, businesses, land, toll roads, etc. We are in the first stages of seeing a massive "dollar exit" and it could get ugly. That is why Gold and Silver are destined higher. If you don't have any of either, may I make a suggestion - get some.

One of the more interesting items we follow closely is the Federal Reserve, their monetization of debt, and of course the tug of war between the Feds and Senator Ron Paul – to bring you up to speed:
- The Federal Reserve, headed by Ben Bernanke is actually a private banking concern, and despite them making monetary policy for our Country, they will not allow ANYONE to see their books.
- Ron Paul introduced a bill that ask for a complete audit of the FED – who they were lending to, how they are actually monetizing our debt, and as you can imagine, they are fighting against that.
- Bloomberg had a question a bit ago – “Who’s getting the bail out money” – and the FED answers “none of your business.”
- Well Bloomberg took the FED to court – and the first court ruled for the FED – citing ‘state secrets’.
- Surprising – upon review – the appeals court overturned the ruling, stating that because the taxpayer was on the hook for this money - they should be able to see where it goes.
- The FED has gone ballistic, flooding the courts with all types of ways to block it, and appeal the ruling. The FED is saying that it's much better for us to guess, speculate and be completely in the dark about a bank’s integrity and possible insolvency.
- The FED is crying that if we don't let them do as they please with no oversight from anyone at any time, the system will collapse.
- I find it interesting, that if we were to go to one of their banks for a loan, they would make us produce documents proving our income, our payment history, money on hand, and assets. Yet according to them, WE the people (who are on the hook for the money the FED is doling out) have no right to see which banks are getting what because it might stigmatize them. Excuse me?
- You should do anything you can to help Ron Paul and HR1207 through the Senate! Remember the words of former Federal Reserve Board Chairman Arthur Burns, when asked about all the inflation he brought about in 1971 before Nixon's re-election, he said “The FED has to do what the president wants it to do, or it would lose its independence.” That’s’ about all you really need to know – yes? In fact, Chairman Bernanke stated on November 14th 2007, "A considerable amount of evidence indicates that Central Bank transparency increases the effectiveness of monetary policy and enhances economic and financial performance".

The Market:
We are coming into the single most interesting time of the ENTIRE year. The mad dash rally that started back in March has indeed been powerful, one of the most stunning run-ups since the monster bounce of 1933. But with next week running into the holiday weekend, with all the big hitters coming back from their stays in the Hamptons, the daily volume will indeed pick up, and they are going to "push" this market where they want it in the short term. But layered across all of that, we have major influences from several areas converging. For all the green shoot baloney and talk of a recovery, it seems that Insiders are selling at the single fastest pace virtually on record. Individuals who run the companies are not waiting for a higher market. Many (who got crushed in the down turn) are sitting there hoping for DOW 10K, so that they can pull their money out. Then of course the question: Where would the market go, to take the maximum amount of money from the most amount of people?

All these factors are going to come into play over the next 3 weeks. Remember back in March when we were predicting DOW 9600? Well we came to 9600 and abruptly stopped. And do you potentially think that some of that government printed money – has landed in Citi, Fannie, Freddie, and AIG – driving those stocks immensely higher (beyond all logic)? I’m having a hard time calling the next move, bit I see two very distinct possibilities. Scenario 1) We see the market slide (potentially heavily) this week – then when the big hitters come back after the Labor Day Holiday, we dip just a bit more and then "boom" another incredible push higher that takes us to 10K. Scenario 2) The market continues higher this week, and when the big hitters come back, we continue up for a few more days then out of the blue, "boom" down for a thousand points quite quickly.

Either of these scenarios are possible and they both make equal sense to me, and I do think that the dip is ‘buyable.’ The next 3 weeks will be the most critical of the whole year. I would advise using smaller trading positions and don't be afraid to take profits when they are available.

TIPS:
- we’re holding the GDX (a basket of gold mining stocks) with No Auto Stop
- we sold NGD (a gold miner) for 27% profit
- we’re holding MOO (agricultural business ETF)
- we’re holding IPI (a potash hold – again in the agricultural theme)
- If you can hold your finger on the ‘sell trigger’ – there’s ‘daily’ money to be made in the volatility associated with Citi (C ), Fannie Mae (FNM), Freddie (FRE), and AIG (AIG) – but remember the ‘sell’ button.

If I dive into anything this week – it will have a hard stop associated with it!

Remember the Blog http://rfcfinancialnews.blogspot.com/

Until next week – be safe.

R.F. Culbertson
rfc@getabby.com
http://rfcfinancialnews.blogspot.com/

This Week in Barrons - 08-23-09

This Week in Barrons – 08-23-09:

Thoughts:
A Culture of Corruption:
Roll that around your tongue for a few minutes. Try and get the flavor of what it says. For example: an X-Credit Suisse broker was found guilty of fraud. Eric Butler, a former Credit Suisse (CS) broker, was convicted of securities fraud in connection to the sale of millions of dollars of subprime securities to corporate clients. Butler could face as much as 45 years in prison, though the judge said he's unlikely to impose such a strict term because Butler operated in a "culture of corruption." What is the judge saying. The judge is saying that the financial business is so filthy, diseased, and fraudulent that lying, stealing, and cheating are actually normal behavior. This is:
- why the SEC was no where to be found (on 4 separate occasions) concerning Bernie Madoff,
- or why GE had to pay a fine for announcing fraudulent earnings numbers,
- or why Paulson bailed out the crooked bankers that took down the system,
- or why Bear Sterns was assassinated,
- or why $2 Trillion dollars in bail outs has basically disappeared,
- or why the Term Asset Backed Securities Loan Facility needed to extend (for 6 months) their $1 Trillion dollar bail-out program (if things were going so well)
- or why Readers Digest just had to declare Chapter 11,
- and why we’re on track for a $2 Trillion dollar deficit – which is hopelessly beyond our ability to pay,
- and why some journalists are actually referring to the U.S.A. as a ‘Banana Republic’!

We’re coming off a $14 trillion loss of household net worth, which represents a 20% implosion of the consumer balance sheet coupled with a post-bubble credit collapse, which means that despite the government stimulus, despite the brave heroics of Jim Cramer and the PPT, the economy is going to be limping along for a prolonged period of time as savings rates rise and debt ratios decline.

However – on this anniversary of WoodStock please realize:
- Job suicides have risen by 28%
- Keeping up with rising food and energy prices and job stress have produced uproars at the "town hall" meetings
- Obama’s popularity is sinking like a stone
- In bad times (just like Woodstock) the silent majority wakes up and gets very, very vocal.
- The silent majority is saying: "Hey if I can't spend my way to glory, maybe the Government shouldn't either.” Because Thursday’s headline read like this: WASHINGTON (Reuters) - The Obama administration will raise its 10-year budget deficit projection to approximately $9 trillion from $7.108 trillion in a report next week.
- The National Debt is growing at approximately $3.92 BILLION per DAY and is roughly $12 Trillion dollars.

On Friday night, three more regional banks failed. Then on Saturday, another one bit the dust. I believe that makes 81 this year, and 114 in the past 20 months. Our original estimate was for 550 to croak, and we are well on our way.

What about housing? The latest sales figures showed a jump in sales from 0 to $125k, a smaller jump from $125 to $250k, from 250 to $500k they were down and from 500 to $2 mill they were down over 30%. So, what we are seeing is twofold: (1) 31% of the homes bought were first time buyers taking advantage of an 8K dollar tax credit that the administration put in place as an incentive, and (2) 37% of the homes sold were foreclosures and distressed property. With millions more foreclosures waiting in the wings, and with the incentives to end in November, we can expect sales to slump once again – Housing has NOT bottomed.

What about manufacturing? The Philly Fed came in +4%, the first time in ages it was positive. However, employment in the index was -12%, prices paid were +10%, while prices received were -1.5%. So, with inventory at a minimum, they had to boost some production to replace and restock the shelves. But inventory replacement is a far cry from having to increase capacity utilization to meet strong demand. Like housing, this is a short-term phenomenon.

The Market:
Tuesday night someone popped a pin into the Chinese market and the Hang Seng fell hard. That rattled the world and mid-week our futures looked bleak at best. But on came the cheerleaders à CNBC and Jim Cramer were on telling us why the bear arguments were silly, china doesn’t mean anything, and that rising oil prices proves demand and that's why we should not worry. Then out of the clear blue, on no news, the market soared 100 points in 14 minutes. Why? Markets just don't move 100 points in 15 minutes for no reason.

Remember back in March, with the DOW plunging to 6600, we stated in this letter that we were on the verge of a massive rally that would go further than anyone thought possible, and we picked 9600 – and now here we are at 9505. However, this rally has lacked one thing – real ‘smack-downs.’ It’s missing the 200 and 300 point down days that are common in a Bear Mark rallies. My guess is that because the Fed and Uncle Sam are juicing this market with all they got, they've been able to keep the monster smack downs at bay.

Now do we continue higher, flirting with 10K soon, or are we ready yet to roll over once again and take some of the steam out of this? My guess is that we are working on forming something of a "short term blow off top" here soon. That means we could easily see several more strong up days, putting us in a massively overbought condition and then "poof" the air comes out and we put in a significant drop. Over the next week or so, I would not be surprised to see us reach up, way up, and then roll over and fall back.

Watch for the pace of the action to accelerate. As shorts scramble to cover and the media makes a circus out of the new highs, we could see multiple "fast gains", but I suggest you be very careful. It's fun riding the wave higher, it's not so much fun getting caught in the curl and wiping out. So, take this run for what it is, a bear market manipulated joy ride. Just don't overstay your welcome, because one of these days Mr. Bear will want to take another bite.

TIPS:
- we’re holding the GDX (a basket of gold mining stocks) with No Auto Stop
- we’re holding NGD (a gold miner) @ $2.48 – hard stop @ 3.25
- we’re holding MOO (agricultural business ETF)
- we’re holding IPI (a potash hold – again in the agricultural theme)
- I still like CIEN over 14 if it gets there. There's a huge gap to fill from 14 to 17 it created last September
- I like PCX over 10.05
- I like CBI over 15.00
- I like MRVL over 14.30
- I like over 25.00
- I like BTU over 36

If I dive into anything this week – it will have a hard stop associated with it!

Until next week – be safe.

R.F. Culbertson

This week in Barrons - 08-16-09

This Week in Barrons – 08-16-09:

Thoughts:
The wheels are coming off the train. It's a slow motion train wreck, but make no mistake about it, the wreck is in progress.
- Toll Brothers released earnings – Q3 signed contracts were up 3%, and revenues down 5% from a year ago. Deliveries were down 36% and 42% respectively.
- Home foreclosures rose 3.8% - so of those home sales – 36% were foreclosures – with the median price of a home sliding 15.6%. So much for Cramer’s call for a ‘housing bottom’ (two months ago)!
- FACTUALLY -- We are currently running 18.7M home vacancies (that’s not counting new homes unsold) – but ONLY 3.8 of those homes are for sale! That means that 14.9M homes are NOT even being offered for sale because the banks that have foreclosed on these home (14.9M of them) – as soon as they put them up for sale – will need to do all the paperwork on them – show the loan losses for what they really are – and potentially file for ‘bankruptcy’ protection themselves. So these ghost homes sit vacant – for the time being.
- Reuters came out and said that almost 48% of the people in 2011 will owe more on their houses than what they are worth!
- Maguire Properties Inc., one of the largest office-building owners in Southern California, is planning to hand over control of seven buildings with some $1.06 billion in debt to creditors, the latest sign that rising vacancies and falling rents are causing stress in the commercial real-estate sector.
- Over the coming months – as many as 1.5M jobless Americans will exhaust their unemployment insurance benefits – now do you suppose that just some of those 1.5M people might have homes that they are just barely clinging to?
- Thanks to Steve F. for contributing → From the perspective of second quarter GDP, it appears that it has been revised downward to -1.7% from -1.0%. Along with the Census Bureau reporting that sales and manufacturers' shipments although improving – the recovery will have a long way to go, as sales are still down 18% since June 2008.
- On Friday the regulators closed 300+ branches of Colonial BancGroup – a major lender in the real estate development market.

Now let’s look at the working ‘Average Joe’ in this country.
In 2007, the latest census bureau reading, the "average household" takes in was 50,233 dollars. Now, the median income per household member (including all working and non-working members above the age of 14) was $26,036. Now, if you start to take expenses, and taxes out of that income, we come up with a shocking problem - life costs more than the ‘Average Joe’ makes. The only true reason we as Americans have lived life so very high on the hog – for so long - has been CREDIT. With both parents already working – the cost of life exceeding wages – the only logical movement is to have (wage earning) children move back in with parents – in order to reduce costs and potentially increase earnings.

But it's not just jobs, falling housing, crashing Commercial real estate - this is just the warm up pitcher. (Reuters) - Banks in the United States are poised to make $38.5 billion in customer overdraft fees this year, citing research by Moebs Services. A large portion of the revenue is likely to come from the most financially stretched consumers, according to the paper. Many banks have increased charges on overdrafts and credit cards in order to boost profits. Banks are returning to a fee-driven model and overdraft fees are the mother lode. Overdraft fees accounted for more than 75 percent of service fees charged.

So how’s this playing out in the rest of the world? The Baltic Dry Index (one of the best indicators of true growth we have) – has crashed because the global economic crisis is wreaking havoc on shipping. Ports are filling up with fleets of empty freighters. We’ve never had a shortage of ‘cargo’ before – and this crisis has fueled cut-throat competition and not all companies will survive.

What's really happening is the "monetization" of all our debt. Don't forget – the FED has pledged to buy $1.2 trillion in mortgage backed stuff, and several hundred billion in straight treasuries. This money goes straight into the major investment banks – who are buying up stocks and commodity futures. When we let "them" change the rules and allowed assets to be market to fantasy versus marked to market, the banks were allowed to carry all their toxic sludge, without accounting for it's true value. So, they took the TARP money, and all Bernanke's monetization money and went to work in the markets.

This is NOT an accident, however we are in completely unexplored territory. Never before, and I mean NEVER has the world been in a synchronized recession, while at the same time operating on Fiat currencies. To think that all these Central bankers are going to be able to pull the right levers and push the right buttons to right this ship is just beyond my scope of imagination. I don't believe they can pull it off correctly. In other words, it's my guess that the truly worst of this nightmare lies ahead of us, not behind us. Nothing has been fixed, all we've done is rearrange the chairs on the Titanic. Please continue to buy gold and silver as they are the only two things that have a shot at remaining valuable.

The Market:
Last Week's Insiders Transactions: 10 Buys For $60 Million, 136 Sells For Over $1.15 Billion. NOW, if all these company insiders really thought things were as rosy, wouldn't they be BUYING their own stock?

My ‘recent’ bottom line is that the market will always do what inflicts the most pain on the most people. At this point in time, who would stand to take the biggest beating over the next week? Would it be the shorts as the market just plows higher, or the bulls as it rolls over? Unfortunately the cries are pretty even from both sides, and that is a major problem. There's an awful lot of people screaming that this market is overdone and needs a rest. But there's also quite a few saying that with the stimulus coming, the "better" earnings, the shot at a positive GDP because of inventory rebuilding, we are going higher. The camps are so equally divided that I can't get a real feel for whom the market is going to "smack".

Now I understand that this isn't how you were taught to invest. You were taught to invest in good companies with stable incomes, and pay attention to their earnings, etc. The new game is simply "which way do the criminals want the market to move?" For an example of how that works, from March to June – we had a stunning run - better economic numbers - analysts preaching we were going to the moon - people were buying hand over fist – then from 8800 in early June to 8051 on July 10th – the late comers to the party got seriously singed. Then the guru’s started screaming that the market was putting in a "head and shoulder" pattern and it was going to plunge for over 1000 points – people got nervous – started taking profits and going short – we said that this market ‘will go up’ – and it went from 8051 to 9466 – again burning the maximum amount of people.

Now, in the big picture, I think this rally still has legs – but my guess is in the short term we see some more soggy, sideways trading with a slant to the downside for a few days. But if chorus for "the market is going to tank" gets louder and louder, it will blast higher.

TIPS:
- we’re holding the GDX (a basket of gold mining stocks) with No Auto Stop
- we’re holding NGD (a gold miner) @ $2.48 – hard stop @ 3.25
- we’re holding MOO (agricultural business ETF)
- we’re holding IPI (a potash hold – again in the agricultural theme)
- we sold our XLK (a technology (minus healthcare) ETF)
- we sold our DIA’s @ 84.45 with a stop @ 93
- we sold our SPY’s @ 91.97 with a stop @ 100
- we sold our QQQQ @ 36.26 with a stop @ 39.40
- we sold our UYM @ 22.11 with a stop @ 23.40 → all with nice profits across the board !!

This week in Barrons - August 9, 2009

This Week in Barrons – 08-09-09

Thoughts:

Apparently there are two U.S. economies. One that you hear about on TV programs such as CNBC – telling us about how the economy is improving, housing has bottomed, people are feeling better etc. – and one that appears thru absolutely facts. It’s earnings season – and almost to a ‘T’ – each company that is beating their estimates are doing in on incredibly shrinking revenues. So therefore, they need to be beating profit estimates by: 1) cost cutting, 2) or by changing accounting standards - humm. An example of #1 - Garmin – EPS of $0.83 beat by $0.32 à Revenues down 27%. For an example of #2 we need to dig a little deeper – GAAP stands for ‘Generally Accepted Accounting Principles’ – and it is the numbers companies would be POSTING if they were not allowed to charge off items and report ‘proforma’ earnings. Morgan Stanley just reported that if the 500 companies in the S&P were to have used GAAP to report their numbers – collectively the 500 companies would have made $0 in earnings over the past year! Did you know that recently GE had to pay a fine to the SEC for misleading investors – i.e. GE used “improper accounting methods to raise earnings and avoid disappointing investors”? Well, you didn’t hear about it because GE owns CNBC – and well – the rest is left to your imagination. So there are ‘two’ economies - one that CNBC tells you is happening and the real one.

A couple examples of the real economy:

- more than 126,000 new consumer bankruptcy cases were filed in July - up 34% year over year and the most since October 2005, when Congress enacted bankruptcy reform making the process more difficult

- Consumer Confidence is sitting at -49, 92% of the people surveyed say that the economy's in bad shape; 76% say it's not a good time to buy things and 56% rate their personal finances negatively

- The recession is starving the government of tax revenue. As Obama is trying to enact an incredibly expensive health care plan – the government’s tax receipts are down 18% this year – the single biggest decline since the Great Depression – while the budget deficit balloons to $1.8 Trillion

- Individual income taxes are down 22%

- Corporate income taxes are down 57%

- Personal income fell in June by 1.3% as the effects of the stimulus checks wore off.

- Retail sales fell 1.6% in July – worse than expected

- GMAC needs $5.6 Billion more from the Federal Reserve. Since the government has already invested $12.5B in GMAC – the lender is unlikely to find external investors willing to help raise capital

- Finally the Post Office is set to lose $7 Billion this year. Now if we can’t deliver LETTERS profitably – do you really think we can run an entire health care system profitably?

Finally – let’s go down a different path for a change. Since the market started its ascent, we have seen equities gain somewhere around $2.7 Trillion dollars worth of movement – and during that same period, less than $400 Billion has come out of money market funds. So where did all the money come from then to buy all this stock? Most of the hedge funds were close to fully invested all through the disaster, and there's no evidence of a major move out of bond funds. There’s only ONE avenue left - the FED is virtually laundering money through the major institutions, and they are using it to force the equity market higher. The interesting part is that the market gains are being fueled by money printed out of thin air, which is ultimately and always a taxpayer liability.

Tell me how all of this ends well? Tell me how companies beat the estimates while revenues fall 67%? Tell me how this Friday's jobs report, where we lost 247K more jobs is "great news" just because it wasn't 400K. Oh, and by the way, the next rounds of layoffs are where you ‘close up completely’. So, bottom line, the rally is a manufactured illusion – certainly one that’s tradeable – just be ready to ‘SELL.’

The Market:

On Friday the market was euphoric over the jobs number. Wave after wave of experts told us how losing a quarter million more jobs in a month signaled the end of the recession. So what happens now? It's my best guess that we do some backfilling on Monday – potentially seeing a little red. Then Tuesday some sluggish trading, followed by another mindless push higher later in the week. I still think we have some "surge higher" days ahead of us before they turn out the lights, so until proven wrong, we have to continue to buy the dips.

One of the problems lately is the speed of the sector rotation we see. One day tech is hot, the next day it's financials, then over to basic materials, etc. Trying to stay ahead of the rotation is pretty hard to do. You’ll see huge spurts, then nothing, then huge spurts of growth again. Patience is tough, but it's paying off.

TIPS:

- we’re holding the GDX (a basket of gold mining stocks) with No Auto Stop

- we’re holding NGD (a gold miner) @ $2.48 – hard stop @ 3.05

- we’re holding MOO (agricultural business ETF)

- we’re hold XLK (a technology (minus healthcare) ETF)

- we’re holding IPI (a potash hold – again in the agricultural theme)

- we’re holding DIA’s @ 84.45 with a stop @ 93

- we’re holding SPY’s @ 91.97 with a stop @ 100

- we’re holding QQQQ @ 36.26 with a stop @ 39.40

- we’re holding UYM @ 22.11 with a stop @ 23.40

- I like NVDA over 14.00

- I like CHK over 25.00

- I like YUM over 36.75

- If you purchased CitiBank ( C) over 3 weeks back – congrats – I like it going forward..

Remember the Blog http://rfcfinancialnews.blogspot.com/

Until next week – be safe.

R.F. Culbertson

rfc@getabby.com

http://rfcfinancialnews.blogspot.com/

This week in Barrons - 8-02-09

This Week in Barrons – 08-02-09:

Thoughts:
Okay – this Clunker Car program has me baffled. In order to jump start the auto industry your government decided to help people buy new cars and help the environment by letting people get up to $4,500 for a vehicle that gets poor mileage, for one that gets "better" mileage. OK – so we’re using taxpayer dollars, to try and push people into buying taxpayer owned car company products (GM and Chrysler)? Isn’t that ‘robbing Peter to pay Paul?’ But let’s leave that for an instant – what reports ‘thus far’ are showing us is that people buying Hyundai's and Hondas (by a wide margin) – with my U.S. taypayer dollars – which is slightly disconcerting. But let’s ask a different question – where is the money is coming from to pay for this. Well – potentially the TARP program – which means that the FED just PRINTED it! Which really means that we ‘the public’ borrowed it from the FED – that is charging us INTEREST on that money – and we’re using it fund our neighbor’s purchase of a ‘foreign car’. That is our ‘monetary policy’ at work! The ‘cash for clunkers’ program will indeed be found to be a money hole, with no significant gains of employment nor spending, but leaving us with the bills.

Sounds like something Goldman Sachs might do – and speaking of Goldman – their past CEO – Mr. Henry Paulson – here’s the exchange between Congressman Stearns and Hank Paulson. http://www.kingworldnews.com/kingworldnews/Broadcast_Gold+/Entries/2009/7/31_Congressman_Cliff_Stearns.html Congressman Stearns had his way with Mr. Paulson – which the crux being – “why should we trust you after you begged us for TARP money to buy up toxic assets and then ten days later decided "the heck with that" and gave out billions to his banker buddies, including AIG which of course sent a boatload ($13B) right back to Goldman Sachs. But that’s not what is shocking to me. What I didn't know and this interview exposes is the incredible "deal" that Paulson got when he accepted his governmental position. You see – Hank Paulson was the CEO at Goldman, and owned $200 Million worth of Goldman stock. If he sold that on the open market, he'd get hit with a $35 Million tax bill. Well, no self-respecting banker is going to give Uncle Sam $35 Million in tax money. So what did he do? He took the job of Treasury Secretary for a short period. Why give up such a great position at Goldman? Well – when he became Treasury Secretary - he had to get rid of his Goldman Stock, but the law reads that if you're doing it for a position such as that, your taxes are waived. Yes, that’s right – Henry Paulson paid $0 in income on $200 Million worth of Goldman stock!!!

Now I ask you – did Paulson give up a great job at Goldman making millions, to become the Treasury Secretary because he wanted to do the very best for his country, OR did he accept the short term position knowing he could sell his stock TAX FREE, then get Congress to GIVE HIM BILLIONS which he could distribute to his banker buddies and especially Goldman via AIG? You tell me, if that wasn't the sweetest piece of con jobbing anyone ever pulled. Yet even scarier is the fact that very well connected people in our Government were all for Mr. Paulsen being the Treasury Secretary, and applauded the consistent Goldman connection!

On fact – to act like icing on a cake: just this Thursday we found out that 5,000 bankers got over 1 MILLION dollars in bonuses – that’s amazing in my view – given we’re floundering in the midst of the single biggest economic crisis in 80 years – and that doesn’t include the Goldman bonuses over ½ a BILLION dollars.

The Market:
What a while ride it’s been. Our 401k’s up very large this year – our trades (which we make public) – some examples are: FAS up over 400%. SLW up 150%. UYM up 79%. XLF up 27%. BUCY up 40% - and the list goes on. On Monday and Tuesday of this past week - market "tested" 9K, and each time it held. Then just to make the week complete, by Thursday morning the market was up almost 200. But Monday is the first trading day of the new month and that "generally" brings some mutual fund buying – so we "should" be flat to green on Monday. Now logic would dictate that we roll over after that, but frankly they have a tiger by the tail right now, pushing the market to 9171, and probably don't want to lose much of that - so, our guess is a greenish Monday, followed by some sluggish and soggy trading and then yet another push higher later in the week.

My feeling was, and still is , that we are going to see a wicked run higher, and I do believe that late Thursday we saw the ingredients being put together. Then on Friday we saw the bravado. The jobs number sucked, and don't forget that was the very best number Uncle Sam could give us. All they cared about was that the FED was going to come out with their plan on Monday, and as long as the FED is tossing trillions around, they wanted in. So, the market is in rally mode. AS LONG as we don't get anything supersized that comes out of nowhere, we should see this thing pick up steam shortly and really roar higher – to about 9,600 for a starter.

TIPS:
- we’re holding the GDX (a basket of gold mining stocks) with No Auto Stop
- we’re holding NGD (a gold miner) with No Automatic Stop
- we’re holding MOO (agricultural business ETF)
- we’re hold XLK (a technology (minus healthcare) ETF)
- we’re holding IPI (a potash hold – again in the agricultural theme)
- we’re holding CSCO @ 19.20 / hard stop @ 21.60
- we’re holding DIA’s @ 84.45 with a 90.50
- we’re holding SPY’s @ 91.97 with a 98.00 stop
- we’re holding QQQQ @ 36.26 with a 39.00 stop
- we’re holding FRO @ 23.79 with a 24.00 stop

Until next week – be safe.

R.F. Culbertson
rfc@getabby.com
http://rfcfinancialnews.blogspot.com/

This week in Barrons - 7.26.2009

This Week in Barrons – 07_26_09:

Thoughts:
"I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men." -Woodrow Wilson, after signing the Federal Reserve Act

- Another 554,000 people had to apply for unemployment benefits, topping 5 Million in 2 years – but to the ‘talking heads’ that meant that unemployment was slowing!
- Existing home sales were up 3.6% - of course 50% of those were foreclosures
- The FHA is back to taking 3% down and securing 120% on mortgages (isn’t that how we got in this mess?)
- Revenues for our top-line companies such as Caterpillar FELL over 40% - and there were cheers for ‘not as bad as it could have been’ and ‘they beat their estimates’
- Remember 1999 – another time when ‘earnings didn’t matter’ – until THEY DID.
- Microsoft – for the first time since going public – had their revenues decline – and their profits fall 29%
- AND then we had half of New Jersey’s leaders and politicians thrown in jail for everything from bribery to selling body parts.
- MANY of the top-line brokerage houses – Morgan Stanley, Charles Schwab, Credit Suisse are facing criminal charges
- AND there are over 35 criminal and civil investigations into issues including suspected accounting fraud, and public corruption concerning the dispersed TARP funds.
- BUT – there is no sign of investigating Goldman for their trading programs!

Remember – the Government can only directly influence it's people if they 1) want to be led around, or 2) are so financially destitute they have no choice but to rely on them. And remember ‘Hope’ – the ability to show you the light at the end of the tunnel – those ‘green shoots’ → just ask any of your local businesses if they are rolling in the dough or if things seem to be slowly getting better – you know that answer.

However, there are still hundreds of trillions worth of derivatives floating around the world like a ticking time bombs, that no one knows how to price, nor even how many institutions are still solvent enough to cover them. While the US taxpayer had to bailout a bankrupt AIG, AIG then paid off Goldman on a $12 billion CDS scheme, (because NO ONE rips off Goldman – NO ONE). FYI – if you wondered – ‘mark to market’ accounting is STILL suspended. It is presumed that Commercial Loan losses will exceed $30 Billion by the end of 2009 – with some 500 regional banks likely to go under. Alt A loans are defaulting faster than subprime, and some 600,000 more foreclosures could be being kept intentionally "off the market" to keep from lowering existing home values. Factually: Regulators on Friday shut six banks in Georgia and a small bank in New York state, raising to 64 the number of federally insured banks to fail this year.

And yes – I realize that the market “looks forward 6 months".

Now The Market:
On Thursday the DOW closed over 9,000 for the first time since the beginning of the year. You all probably know the arguments. We are technically overbought in the short term. This run has been blistering, making advances over two weeks not seen in a decade. We have been long the entire run, but that doesn't answer the question – is this coming week one of serious profit taking, or is it the pure lust to "get in before the train leaves the station" so great that we just continue higher?

We feel that "overall" the run isn't over yet and the market is going to go higher, possibly much higher. But, in the very short term such as this coming week, logic tells us that a profit taking smack-down "should" occur. And judging by how they defended that 9,000 level they achieved on Thursday, I'm guessing that we might see a "pause" here, as they try and build a new base at this level, and then once again push us higher. For every day that 9K doesn't fall, you can consider that another bullet in their ammo belt, to be used to blast us higher again. But just as importantly, if we were to see 9K fail, and experience a good "whoopin" of say 300 points, I'd think that dip would be completely buyable!

TIPS:
- we’re holding the GDX (a basket of gold mining stocks) with No Auto Stop
- we’re holding NGD (a gold miner) with No Automatic Stop
- we’re holding MOO (agricultural business ETF)
- we’re hold XLK (a technology (minus healthcare) ETF)
- we’re holding IPI (a potash hold – again in the agricultural theme – we’re very slightly underwater here)
- we’re holding CSCO @ 19.20 / hard stop @ 19.80
- we’re holding DIA’s @ 84.45 with a 88.60 stop
- we’re holding SPY’s @ 91.97 with a 96.00 stop
- we’re holding QQQQ @ 36.26 with a 38.00 stop
- If you’re brave and looking for somewhere to go long ☺ …
- FRO on a bounce up to 22.15 is interesting
- SGR over 30.00 looks okay
- UYM over 22.00 is good
- And SUN over 25.00 could make sense

Until next week – be safe.

R.F. Culbertson
rfc@getabby.com

This Week in Barrons – 07_19_09:

Thoughts:
Nowhere but in the U.S. could (arguably) the 2nd most powerful man in the world – Vice President R. Biden – utter the words – “We have to spend more money to keep from going bankrupt!” And when given the chance to retract it said: “Yes, that’s what I’m telling you.” With minds like this leading our comeback – is it any wonder why the rest of the world has had to "lend" us $2B per day to keep us solvent? Someone should tell ‘good ole Joe’ that in the real world – if you spend money you don't have, soon you are insolvent. OK ‘Joe’ back into the real world – it’s 2009 and:
- We've shed 5 million jobs.
- Unemployment is almost 20% in real terms.
- Our nation is virtually bankrupt, running more deficits than all the last 100 years COMBINED.
- Our National debt is now 95 TRILLION dollars
- Our Tax revenues are shrinking by 30%.
- There is still $600 trillion worth of derivatives that no one can accurately price, hiding in the shadows.
- Manufacturing is virtually dead.
- Commercial real estate is imploding.
- Sheila Blair of the FDIC said that 500 more banks will fail.
- Credit card delinquencies hit another all time high, foreclosure notices hit 1.5 MILLION households in just the first 6 months of the year, a 15% jump from last year.
- AND Goldman Sachs raped (oops) reaped the largest profits in their history.

The Congressional Budget Office (CBO) said the following this week: “Under current law, the federal budget is on an unsustainable path, because federal debt will continue to grow much faster than the economy over the long run. Rising costs for health care and the aging of the population will cause federal spending to increase rapidly under any plausible scenario for current law. Large budget deficits would reduce national saving, leading to more borrowing from abroad and less domestic investment, which in turn would depress economic growth in the United States. Over time, accumulating debt would cause substantial harm to the economy.” And yet despite this - Obama pushes forward for Cap and Trade legislation and with nationalized Healthcare. The CBO itself said: “The health care overhauls released to date would increase, not reduce, the burgeoning long-term health costs facing the government.” AND – in my world – NONE of this was by accident, and I’ll revert to the old Boy Scout Motto – “Be Prepared.”

The Market:
We’re in earnings season, where companies tell the world how their last quarter went and how much money they made. 72% of the companies that have reported have beaten their estimates. But let’s take a peek ourselves – at just one ‘bell weather’ company – GE – who was reported to have ‘blown the doors off” estimates. The Headline Number: “GE’s 2nd quarter results – earned 26 cents per share – beating the estimates by 3 cents on revenues of over $39Billion.” The Reality was: GE’s net income fell 47 percent, to $2.9 billion, down from $5.4 billion a year ago. The company's revenue fell 17 percent, to $39.08 billion, and after adjusting for a stronger dollar, which reduces the value of overseas sales, sales were down 12 percent from the previous year. In a conference call with analysts, company executives said they expected industrial equipment orders to be off about 25 percent for the year. The finance business was the biggest drag on G.E.'s results as its operating profits fell 80 percent, to $590 million, down from $2.9 billion a year ago. And revenue in the finance unit, which includes home mortgages in Britain and private-label credit cards in the United States, declined 29 percent, to less than $12.8 billion, from nearly $18 billion.” So GE’s profits plunged 47%, cut their dividend, lost their AAA rating, revenue fell 17%, finance arm profits fell 80%, but they BEAT the estimates.

The Point is that today it’s ALL about the psychology of the market – and where the government (temporarily) wants the market to go. As always the question is the same, what's next? After the market has gone up 5 days in a row - some form of logic has to enter the picture – yes? In other words, at some point you are going to get a down day, that's just life. But here's the deeper question, the chart slaves were convinced we were going to plunge 1000 points – and the economic news agrees with that, it's all horrible. Yet the market roars for 700 points upward. Now consider the psychology. The shorts that just got burned are now screaming that this is just a bounce, nothing more. Those same shorts are salivating over the idea of reshorting, so they can make their money back. Even the smarter one's didn’t short the last time are now talking about how smart they were to hold off, so they could short this bounce from even higher. Is the market going to reward them?

Considering how bad earnings really are, the economic reports (horrific) – this market should fall like a rock. Is it going to be that accommodating? I doubt it. Our guess is that after an overbought pull down, that adjusts for the recent move up, this thing roars again, eventually taking us to the 9600 level. By then all the shorts will have been chewed up, and all the people that missed the last move will have bought in, so it could THEN roll over and land downward.

TIPS:
- we’re holding the GDX (a basket of gold mining stocks) with No Stop
- we’re holding NGD (a gold miner) from $2.59 and will be doubling up on Monday with this
- we’re holding MOO (agricultural business ETF)
- we’re hold XLK (a technology (minus healthcare) ETF)
- we’re holding IPI (a potash hold – again in the agricultural theme – we’re underwater here)
- we’re holding CSCO @ 19.20 / hard stop @ 19.80
I really wanted to see some ‘red’ on Friday in order to purchase about 20 contracts of the August 80 DIA calls. I wanted to do this on a down day – and on the next decent pullback, even if it's just 100 points I will buy some contracts on the August DIA 80 calls. They were just 6.80 an hour ago, so it's costing you 80 cents a share to gamble on them going much higher in a month. I think I like that gamble.

Remember the Blog http://rfcfinancialnews.blogspot.com/

Until next week – be safe.

R.F. Culbertson
rfc@getabby.com
http://rfcfinancialnews.blogspot.com/