This week in Barrons - 2-28-10

This Week in Barrons – 2-28-10:

Our Thoughts:
I lost my job. No, I didn't really lose my job. I know where my job is. It's just, when I go there, there's this new guy doing it … Bobcat Goldthwait

Let's Just Suppose...
Indulge me here for a moment. What if: What if the global sovereign debt problems balloon and take down more nations? What if the next "Lehman" hits? Then of course we had that "mistake" by CitiCorp when they released an email to clients telling them that Citi has the right to refuse to give you your money for 7 days. Yes – CitiCorp is denying you access to your money for 7 days if they "warrant" it as necessary. What if this is a foreshadowing of things to come? What the heck do you do about it?

We know Gold has been important for over 6000 years, and silver for longer than gold. Will the ‘market’ always exist – unfortunately it’s man-made. So for today, let's just allow our minds to wander to the dark side for an instant. If we plunge into a depression – there are many elements that will make this one even more severe than the last. Back in the 30’s, our population did not live in cities – but rather in rural areas and loose townships where you could hunt for food and grow (and can) your own. Today's society is wholly and completely at the mercy of the "system". If the local grocery store was bare, what exactly would we eat? And what about power and water? The issue here is that Europe has lived thru this poverty, destruction, death and pain – at least twice in the past 100 years – and they don’t want to see it again. So the idea of sovereign wealth funds going under is real to many Europeans.

Now what if the ‘dollars’ we carry in our pockets became worthless because of devaluation and inflation, you would need ‘real money’ to swap for food and goods. Through out history there have been very few elements that have seamlessly acted as money: diamonds, gold and silver. Gold ‘in the past 10 years’ may have priced itself out of the ‘exchange-money’ arena – for example: if the dollar devalues – the Fed has done all it can – and we’re not in a mess. Gold has gone to $4,000 per ounce. What if you want to purchase milk, bread, and meat. Would you cut an once of gold in tenths – or hundredths – not likely. So you may want to think about silver.

You can still buy "bags" of pre 1964 dimes, quarters and half dollars that are made of silver. You can still buy an ounce of silver for $18. Therefore, if we were in a ‘world of hurt’, I'd sure rather trade someone two one ounce silver rounds for some meat and potatoes, than attempt to cut one-hundredth of an ounce of gold. So for ‘ease of use’ Silver wins over Gold in a catastrophe.

The next reason I like Silver is because Silver is so darned cheap right now. I have every reason to believe that the decades of silver manipulation is slowly coming to an end, and this latest dip in silver might be the ultimate "bottom" we see for many years.

Finally, Silver is compelling because without economic implosions or depressions – Gold will indeed come down. Because other than being used as money and in jewelry, gold doesn’t have a tremendous amount of industrial uses. Silver (however) is used in everything from medical, to 3 D movie screens, to electrical components, to cell phone towers, to – the list is virtually endless. If silver was allowed to trade based on it's true worth/value versus getting stomped on via huge short positions at major institutions, silver would be higher than it is today - anyway.

If the world melts down - Silver will go higher and it will make for wonderful "money". If the world doesn't melt down – Silver will remain relatively stable if not gain in value due to demand. So from where I sit (up here in the cheap seats) Silver is a win/win situation. If you buy silver coin, I tend to think you come out of it smelling like a rose either way.

The Market:
America is one of the finest countries anyone ever stole… Bobcat Goldthwait

Because of absolutely horrid economic reports, the market struggled a lot this week. The initial jobless claims rose to 497K. New home sales hit the lowest number ever registered. Greece and half of the European Continent is awash in debt. Our treasury sales are acting bizarre – for example: on Wednesday, $30+ Billion went into Treasuries that have virtually no return – a return of 0.005%. So, for a month, there are a whole lot of people more interested in just getting their money back, than making anything on it. Isn't that odd?

What happens now? Well next Friday is the all important "jobs" report. The first Friday of the month brings the non-farm payroll report and allows us to find direction in this economy. If that report is poor, the chances of a move higher are slim, but if the the report has been ‘doctored’, we could finally get the last leg of our bounce and possibly threaten the recent highs.

Monday is the first trading day of the new month, and new months usually bring in new money - therefore, you can almost buy into the idea that we'll have an up day on Monday and possibly into Tuesday. Wednesday could bring us some slack as they await Friday's report. I personally will be "leaning long" for the front part of the week, then lightening up for the second part.

TIPS:
If you ever see me getting beaten by the police, put down the video camera and come help me… Bobcat Goldthwait

CLNE - A few weeks back we mentioned CLNE if it got over 18 would be interesting. Then Cramer came on TV and hyped it, sending it over 18.00. I didn't buy since Cramer hype's tend to roll over after the shorts pound his picks. But it's holding up and now I'd probably take it at 18.30

RIMM - has that huge gap to fill if it gets over 72.00. I'd probably take that.

APWR - is trying to build a base under 14.00 and a move over, could let it romp for a few days.

CLF - has been amazingly strong now during this wicked market, and if it takes out 56.00 I'd have to move.

C - CitiBank over 3.50 would be interesting. To quote a trader – “they won't let it go out of business, so what's the downside?" Great point.

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 - 2-21-10

This Week in Barrons – 2-21-10:

Our Thoughts:
A girl phoned me the other day and said: “Come on over, there's nobody home.” I went over – and there was Nobody home. … Rodney Dangerfield

Conspiracy Theory: It didn't take long to realize that the true ‘global warming’ agenda – and that was to tax people and have more control over lives. He who rules the energy, rules the people. Now that the entire scam has been exposed, from the leaked emails where the scientists hid data and "made up" theories, to scientists saying we haven't warmed at all since 1995 and are probably cooling, to high profile global warming advocates quitting in disgrace.

I haven’t spoken to my wife in years. I didn't want to interrupt her. … Rodney Dangerfield

Last week in a fifteen minute time we had:
- the Head of the Greek Debt Office replaced by a former Goldman Sachs employee. That makes 18 x-Goldman people placed in government positions of authority around the world.
- a Pfizer – Merck researcher admits to faking dozens of research studies for over 13 years.
- a School give laptops to kids – and spies on them via webcam – an invasion of privacy like no other.
- the UN Climate Chief Yvo De Boer resigns
- the world’s biggest coal company brings U.S. government to court for climate fraud,
- 1.8M homes are about to flood the foreclosure market – that banks have been hiding in shadow inventory – this should really hit housing prices
- and on CNBC – Larry Levin – announced that “the market isn’t free, but controlled by government interventions.”

I told my dentist my teeth are going yellow - He told me to wear a brown tie. … Rodney Dangerfield

And what about the famed Trilateral Commission – “which is international and is intended to be the vehicle for multinational consolidation of the commercial and banking interests by seizing control of governments." Who is on this commission you ask? Larry Summers (former Secretary of the treasury), Timothy Geithner ( Current Treasury Secretary, was head of the NY Federal Reserve), Maurice R. Greenberg, (Chairman, CEO, American International Group (AIG) - who we bailed out and they funneled at least $13B back to Goldman), and Robert D. Hormats, (Vice Chairman, Goldman Sachs International). These are the guys that really pull the strings. So when you ask yourself "How could the bankers wreck the system and then get tens of billions in bonuses a year later?" Just look at the roster – it makes it all so very simple to understand. Your only other choice is to think that all this was on giant mistake, every fail safe failed, a monumental amount of good intentions simply "goofed up" and it was all by chance.

Now onto the market:
I remember the time I was kidnapped and they sent a piece of my finger to my father. He said he wanted more proof. … Rodney Dangerfield

A very interesting week, eh? Gold was beginning to look pretty good. Gold had put in a correction and was just starting to make some gains that looked impressive. And just as it was starting to move, the IMG decided that it was going to sell 191 tons of Gold. Isn’t it odd how they didn't announce the sale until Gold had stopped falling and was starting to march higher? And what about those gigantic short positions held by three major institutions – do you think that announcement helped them out? And when that news really didn’t have the desired effect - out of nowhere Bernanke comes out on a Thursday night and says he's going to up the discount rate from fifty to seventy five basis points. That "should" have the effect of strengthening the dollar and knocking gold for a loop. Is this really a coincidence? Well interestingly gold shook off the IMF and the Bernanke rate hike and ended Friday UP $9.

I came from a real tough neighborhood. I put my hand in some cement and felt another hand. … Rodney Dangerfield

Now, when the Fed boosted the discount rate by 25 basis points (a quarter percent) – what does that mean? First, the Fed has been draining liquidity from the system for a while now. They know the pressure is on them from every angle as their own balance sheet has ballooned to unimaginable proportions, and people are giving them a ton of flack over the bailouts and bonuses – so they are trying to make it look like they are reigning in the system a bit. So, is this the first step towards a true hike in interest rates - technically yes, but practically NO. This move will only affect about $30B in funds, and the Fed knows quite well that there is NO WAY they can hike the true money policy rates – which would effectively erase any and all benefits they may see from the stimulus. This was symbolic in nature, a way to strengthen the dollar a bit after China actually SOLD treasuries last month and frightened the heck out of them. The Fed HAD to do something to try and show the world that they are still in charge and they have some sort of credibility.

I told my wife the truth. I told her I was seeing a psychiatrist. Then she told me the truth: that she was seeing a psychiatrist, two plumbers, and a bartender. … Rodney Dangerfield

Maybe we got lucky on Friday, but sure enough after a couple dips in the am, we came back to level and ended the day "flat" with the DOW up 9 points. Okay, so where do we go from here? It's our guess that we are in a bounce period and it could take us to the 10,600 level. Our feeling is that this bounce has a bit more legs and you should milk it for what you can get.


TIPS:
I have:
DIA’s at 100.66 hard stop at 103.4
CSCO at 24.03 hard stop at entry point
CTXS at 44.04 hard stop at 44.44

Now the question is, is the market going to continue to move higher next week, or roll back over? I think it goes higher and if it does, there's a few things we might want to look at.

Think about JOYG on a move over 50.50.
Watch CLNE – a move over 18 could take me in.
Watch QCOM - over 40.00 should be worth a few dollars.
Look at C – a move over 3.50 is a low risk play.

Until next week – be safe.

R.F. Culbertson
rfc@getabby.com

This week in Barrons - 02-14-10

This Week in Barrons – 2-14-10:

Our Thoughts:
“Babies don't need a vacation. When I see them at the beach I go over to them and say: 'What are you doing here? You haven't worked a day in your life!' … Steven Wright

For the longest time no one cared about gold and I couldn’t get anyone to even consider investing in it. Now, all I’m hearing is: "it's too high, it's going to come down". Gold is not a stock to be traded and flipped. You buy gold for one reason: It’s money! If you took $1,000 in the year 2000 and put it in your mattress – it would purchase about $750 worth of stuff today. If you took $1,000 in gold and put it into your mattress in 2000, it would purchase about $2,333 worth of stuff today. Gold preserves buying power. Now, you do have the issue of ‘last man in’. In fact, there are some very powerful people that want gold down under $1,000. First, the bankers that have gigantic short positions would love nothing more than to be able to get out of some of those on the winning side. But you also have an entire world (China, India, and Russia) that understands that gold is money, not a trading vehicle, and they want to buy it. They would rather buy gold at $900 than at $1,200. Gold carries no debt, no derivatives, no mark to model, you can't print it, or push a button and instantly "have some".
And as currencies of Greece, Spain, Italy, Ireland, Portugal, Dubai, and others are imploding daily, gold will be seen as the ultimate money at some point – but patience needs to be on your side on this trade.

I had a friend who was a clown. When he died, all his friends went to the funeral in one car. … Steven Wright
- Corporate bankruptcy filings rose 7% last month, with an average of 342 businesses filing for bankruptcy every day in January.
- Pressure is continuing to increase on wealthy borrowers, with serious delinquencies for prime jumbo mortgages rising to 9.6% from 9.2%, a 32nd straight monthly increase.
- Defaults on FHA-backed loans passed 9% in December, ending the year at 9.12%, up from 6.82% a year earlier and 8.94% in November

With the Fed suggesting they're going to stop buying bad mortgages in March, with the Commercial Real Estate market set to experience resets in the fall and into 2011, with jumbo loans imploding, with millions of foreclosed homes sitting idle – what happened to the loan ‘rework’ program?

Do you think that when they asked George Washington for ID that he just whipped out a quarter? … Steven Wright

Now think about this for a minute – (a) it’s not good for a bank to rework a loan from $300k to $200k – they immediately lose a lot of money in interest income and princpal – just to keep someone in their home. But how is it that "some" banks are making a fortune keeping the foreclosure house. One that is making a lot of noise recently is the Indymac Bank story. In July of 2008, Indymac was closed, and the assets were sold to One West Bank – that is owned by a Goldman Sachs VP along with George Soros. What you find is that if a bank “re-works” a loan – they will definitely lose money – but if they do NOT ‘re-work’ the loan - they stand to make a fortune as the FDIC is forced to ‘pay up’ and who pays – you and I end up paying to help the FDIC remain solvent (this video will tell you the entire story). http://www.thinkbigworksmall.com/mypage/player/tbws/23088/1459958

I drive way too fast to worry about cholesterol. … Steven Wright

The government is thinking quite seriously about "borrowing" our savings, and using them to create massive work projects and infrastructure improvements. In its basic form, we (the U.S.) have begun to save rather than spend. Over the past two years the savings rate has risen dramatically. Well, in a consumption society, if people are saving instead of spending, then you start to see a deflationary spiral. Ben Bernanke’s approach has been to cut interest rates to "zero" while at the same time, injecting monetary stimulus. Uncle Sam now looks at all the money sitting in 401K's, pension and savings plans, and is thinking of a way to ‘use’ that money. Right now the Treasury needs money, so the Federal Reserve "prints money", buys T-Bills, and WE have to pay the Fed back with interest. Currently the Chinese and the rest of the world are buying our debt – but what if – Uncle Sam DEMANDS that the 7,000 banks and institutions, loan the US the Trillions of dollars in savings accounts and money markets to buy our debt. We keep the money in our country – and WE (the people) suddenly own our own National Debt? Be very careful here as you are going to hear about a new "retirement" option, or a mandate to the banks that they have to lend Uncle Sam their reserves. As we speak the Money Market industry has been in talks with the Fed, about how to set up this game. With over $3.2 Trillion sitting in money market funds, and fund managers finding little in the way of "good investments", they actually like the idea of a guaranteed Fed payback. And Uncle Sam plans on spending your ‘savings’ to invest in stimulus – work programs – anything to keep GDP rising. And YES – this WILL put us even DEEPER in debt than we currently are – but elections are coming.

Which begs the question – can we spend our way out of a recession without creating either a depression or terrible inflation – the answer is NO. I think the U.S. will continue to borrow and spend ever-increasing amounts just to keep the GDP from rolling negative. There will be no slowdown in fiscal insanity, and our debts are going to continue to pile up until there is a coordinated global implosion - devaluation. All the debt bubbles from Greece to Ireland, from Spain to the UK, from Dubai to the U.S. are just floating around looking for a pin. It's my guess they'll find one. Stay long precious metals.

The Market:
I live on a one-way street that's also a dead end. I'm not sure how I got there. … Steven Wright

The wicked chop continues. The DOW and the S&P haven't been able to put in back to back "up" days since Feb 2nd. We get 150 points up, followed by 100 points down, or 65 up followed by 140 points down. Taking positions is akin to suicide. When the market enters a period of wicked chop like this, it "usually" signals a change is coming. Well, given the market ran UP from March of last year thru January of this year, then the most logical "change" would be one of a FALLING market instead of a RISING one. Except for the manufactured counter trend rallies, I feel that the path of least resistance is going to be "down". Yet the fact is, the PPT (plunge patrol team) is going to throw the kitchen sink at this market – in order to preserve the 2010 elections. There’s a lot of talk out there suggesting that more stimulus money is coming to market, earnings are going to soar, and yes the markets will rise. My guess is - the stimulus will keep the market moving sideways, not up. Frankly we've been looking for a mindless 300 to 500 point romp to sell shorts into, but so far we haven't seen one. If we get the romp, we'll ride it long, and then start shorting and buying puts. If we have one more leg down before a good bounce, we'll short that lightly, and then flip to long for the bounce. It's a traders market right now, and that's all we can do.

TIPS:
I saw a bank that said "24 Hour Banking," but I don't have that much time. … Steven Wright

We’ve sold out of everything – and are on the way toward finishing selling our 401k’s as well. The market has been a choppy mess for weeks, and I would honestly just sit on your hands and do nothing – seems to be the smartest strategy as of late. But if you must trade:

I would short the DIA under 99.00
I would short the SPY under 106.00.

Now if they get their act in gear will I go long? No. I would play the bounce be ready to short the romp higher.

Until next week – be safe.

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

This week in Barrons - 2-7-10

This Week in Barrons – 2-7-10:

I put a dollar in a change machine. Nothing changed … George Carlin
Several people have written me about the dollar - Could a sudden sharp decline in the value of the dollar destroy a foreign government’s wealth and make them a curiosity and not a problem. Alternatively, can foreign debts owed by America lead us to a dollar crash that cripples the U.S. economy. It is likely that the answers to these questions are no and no.

The future will soon be a thing of the past. … George Carlin
For at least a decade, economists have been anticipating a sharp fall in the dollar – except for the fact that: (a) Rich private foreigners value having large chunks of their money in the U.S. as a form of political risk insurance. (b) Foreign governments continue to increase their holdings of dollar-denominated securities to make sure that they can keep exporting to the United States at a pace that allows for export-led growth and thus produces domestic social peace. And (c ) the role of the dollar as the key currency of the international monetary system creates a large demand to hold dollars as reserve stores of wealth. As long as these three factors keep operating, the value of the dollar will remain relatively high. Moreover, the fact that the United States has borrowed and its debt is denominated in its own currency makes a world of difference. Huge debt in your own currency is different; the United States can always create more dollars and its value is everyone else's problem.

If the cops didn’t see it, I didn’t do it. … George Carlin
Now – the real issue is the thinking that “as long as the dollar remains the centerpiece of the world economy.” Certainly the dollar is worth no more or no less (relative to other currencies) that it was back in the late 1970’s. The issue is the ‘ripple effect’ of one dollar ‘spent’ in 1978 vs today. For example: if $1 was spent to purchase a pack of chewing gum back in 1978 - it's conceivable that five different companies could have enjoyed the profits of a sale because you purchased five packs of gum. This would figure into the various company plans to hire and possibly expand production. In 2010 it’s possible that our lonely dollar only buys 1 or No packs of gum, and this difference is NOT insignificant. The velocity of money (how often it changes hands) tends to be quite retarded when inflation rears its ugly head. You see, although the U.S. dollar’s standing relative to other currencies (index) remains identical to 1978 – the purchasing power, impact, and velocity of our money have deteriorated by hundreds of percent since 1978.

Soft rock music isn’t rock, and it ain’t music. It’s just soft. … George Carlin
And the line: “As long as the dollar remains the centerpiece” – well much has changed. In 1978 we were the world’s biggest Creditor – today we are the world’s largest Debtor. Today, each dollar printed comes with an ‘interest due’ note attached to it. The interest on our debt is now the fourth biggest budget line on our balance sheet after defense, Medicare and social security. Now consider that almost 51% of our interest goes to foreign holders of our debt, and one might pause to wonder: "How long can this go on?"

Well – just this week, a lot of our market's wicked movement was in response to the Greece – and their potential economic nightmare – and let us not forget Portugal, Ireland and who uncovered a huge amount of loans to people with no ability to pay them back – and then there is Dubai?

The Market:
Swimming is not a sport. Swimming is a way to keep from drowning. That’s just common sense! … George Carlin
Re-hashing the jobs report - does anyone really think that we only lost 20,000 jobs? Not when 480k signed up for initial jobless claims this week, 460k the week before, and 445k the week before that. One has to wonder why almost 2 million folks a month need INITIAL unemployment if we only lost 20,000 jobs? A much more intriguing question is: "What about that initial reaction?" We had already fallen from 10,723 to 10,060 in general market weakness, and then Friday we fell another 167 points at one point during the afternoon – and then the ‘plunge patrol team’ appeared in the last hour and took us from down 167 to + a few. Now was this (a) a simple correction, (b) the Greece ‘effect’, or (c ) the dollar’s strength - and the answer is: it’s all of these and more. The troubles in Europe are real, very real – put that with Obama’s budget, and his passion to punish the same bankers that got him elected, and you have a real war between Wall Street and Washington, D.C. going on. After all, we have November elections coming at us this year and the Democrats are going to push forth as much stimulus money as they can possible between now and then. You can't push trillions in the pipe without better-looking economic statistics showing up somewhere. Could we see the market regroup, and push ever higher, threatening the highs we saw at 10.7k – sure – it’s possible. Whether we can rally to that degree will be answered around Wednesday of this coming week. A reversal, and any news out of the G7 about helping Greece, we could easily tack on another 150 points Monday. But a reversal and a one-day spurt higher doesn't a trend make. Don't forget, despite the market recovering those 167 points, the market only "gained" 10 points over Thursdays close. However, I think there is some momentum over the recovery, and I think that I will try and play it to the long side. But I am not going to be even a bit surprised if we're looking at a one-day wonder and we're back under 10K in a couple days.

Think of how stupid the average person is, and realize half of them are stupider than that. … George Carlin
My feeling is that we might be entering a period of lower highs. For example: the market runs up to say 10,600 – then after a big dip pushes up to 10,450 – dips again and then runs up to 10,200 – and so on. This rolling pattern and chop could take us right on through the whole year. Could I be nuts and we simply blast over 11K – sure. There's a ton of cash out there, and given the government’s spent $12 Trillion already – what’s a couple ‘hundred Billion’ among friends?

The IQ and the life expectancy of the average American recently passed each other in opposite directions. … George Carlin
Time will indeed tell, but every day I see more and more cards falling in this global house. Maybe we get higher, but I’m in the camp that we’ve seen our highs for the year and we will do the rolling chop to lower as the year progresses. I am going to try and lean long into the market Monday and see if this turns into a decent bounce. I won't feel that great about it until Wed, and by then we'll know.

TIPS:
We’ve sold out of everything – and are on the way toward finishing selling our 401k’s as well. I shorted the SPY’s and the DIA’s and covered on Friday. We’ll see what the bounce brings us on Monday.

I will buy SPY’s on a move over 107.00 – with a stop @ 106.80.
I will buy DIA’s on a move over 100.45 – with a stop @ 99.90.

Until next week – be safe.

R.F. Culbertson
rfc@getabby.com

This week in Barrons - 1-31-10

This Week in Barrons – 1-31-10:

Thoughts – “I believe that our President will someday make this country what it once was... an arctic wilderness.” …Steve Martin

I have no idea what President Obama is going to point to as being a success:
- Coming into office the unemployment rate was 7.7% - it’s now 10.2%
- Coming into office the public debt was 10.2 trillion – it’s now $12.6 trillion.
- Coming into office foreclosures were 274,399 – they’re now 349,519.
- 2009 produced the largest deficit in our entire history
- in 2009 Bankers posted their single biggest profit levels EVER – AND Sam’s Club recently laid off another 1,100, VZ another 10,000 jobs.
- There is no healthcare, no cap and trade, we’re still in Iraq and we’ve added another war in Afghanistan!
- Obama told us that his administration would be completely open – yet we don’t even know how the TARP transactions were paid out.
- Last month existing home sales fell 17% - the largest drop in 40 years.

“Boy, those French: they have a different word for everything!” …Steve Martin

All we did over a year – was:
- spend money we don't have,
- help out Obama’s banker buddies,
- push through things no one wanted, and
- NOW we are in worse economic shape than when we started.

“You know the President’s problem is, it's that he hasn’t seen enough movies - all of life's riddles are answered in the movies.” …Steve Martin

Now, is that because Obama had a lot of great ideas that went wrong, or was this the original plan? Obama ran on a platform of making the tough choices:
- The tough choice would have been to let the big banks fail, and let the hundreds of well-run Regional banks take over.
- The tough choice would have been to tell AIG "no thanks" and let Goldman take it on the chin.
- The touch choice is to declare a ‘freeze’ on the entire budget – not just 18% of it (if that). And - how do you have a stimulus and a freeze?

“Well, excuuuuuse me, Mr. President! We are the wild and crazy guyz!” …Steve Martin

And thank you Mr. Bernanke (who was just re-appointed this week) for your insight:
- "Given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited," …Dr. Bernanke, May 2007
- “It is not the responsibility of the Federal Reserve - nor would it be appropriate - to protect lenders and investors from the consequences of their financial decisions." …Dr. Bernanke. October, 2007
- “I expect there will be some failures. I don't anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system." …Dr. Bernanke, February, 2008

“I believe that sex is one of the most beautiful, natural, wholesome things that money can buy.” … Steve Martin

So you ask: “How did GDP increase by 5.6% in the 4th Quarter?” Most companies in 2009 were simply selling existing inventory and NOT replenishing it. Well, according to Uncle Sam – a ‘SLOWDOWN’ in inventory growth is viewed as an increase in actual economic growth (GDP). So removing that 3.4% depletion of inventory - you’re left with 2.2% growth – and that will be whittled down with "revisions". Oh, the Government stimulus IS included in GDP calculations – wonder if that is more than 2.2%?

“Don't have sex – it leads to kissing and pretty soon you have to start talking to them.” …Steve Martin

In my view what we’ve seen from March ‘09 to last week is NOT a bull market – but rather a bounce in a massive bear market. Most bear markets are punctuated with runs of 40 to 60% that seem to prove to everyone that the pain is over – then they sink even lower.

The Market:
How has the market taken all the news this week – honestly, not so well. How many times have you heard me say: "The market doesn't belong at these levels." If the market was a true reflection of the economy, we'd have the DOW at 7500 as we speak, and on it's way to 4500 over the next couple years. There was never any question in our minds that the market was going to roll-over, it was simply a matter of when. As the 2009 run up began getting long in the tooth, and every time the market looked ‘vulnerable’ - “someone” (wink-wink) stepped in and purchased 280,000 S&P futures, and with the stimulus and bail out money not being lent, but being put to work in the markets, there was (honestly) no telling how far they ‘elite’ could push this rally.

When we hit that high a couple weeks back – we sold out of all our positions except our 401K – and we began to sit on our hands. We didn't go short, simply because with all the crosscurrents, and "free money" sloshing around from the Fed, we didn't want to get it tossed back in our face with another blast higher. But what is different about this ‘sell-off’ is the fact that we can't even manage a silly bounce. The market has blasted thru support at 10,500 and then at 10,200 – and is left with defending 10K as the last bastion of hope.

“A day without sunshine is like, you know, Night.” …Steve Martin

Now, I think they are going to make a bigger stand here at 10K – but I’m not looking for ‘higher highs’ – but potentially a 300 to 400 point bounce. And, if we get it – I’m going to sell out of my 401K’s and start loading the boat on shorts and puts. Because even if we bounce for 500 I think that we'll see 9500 soon. In the short term we have become oversold – and at some point the market will reflex snap back a bit.

TIPS:
We sold out of everything except our 401K – and we’ll do that on the next bounce – honestly. I think ‘shorting and buying long term puts’ is almost upon us.

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 - 1-25-10

This Week in Barrons – 1-25-10:

Thoughts – “When I was a kid I used to pray every night for a new bicycle – then I realized that the Lord doesn't work that way so I stole the bike and asked Him to forgive me.” Andrew Dice Clay.

This week the biggest news in many years hit the wires. Obama challenging the banks – nope. Ben Bernanke potentially NOT being re-appointed to the FED – nope. The market falling 500+ DOW points in 3 days – nope. It was the Supreme Court’s 5 to 4 decision on Thursday to allow Corporations to spend any amount of money they please on the Politician of their choice – deciding that corporations are people and people are entitled to “free speech”. This decision could eliminate the last vestige of any integrity in our election system. It throws out over a century of restrictions imposed by Congress against corporations so that they could not influence the outcome of elections. Corporations have an unfair advantage over the small guy, over real people, in the amount of money they control.

What does this all mean? It means future Supreme Court Justices will be appointed by presidents who have been bought, purchased, and are controlled by corporations, and confirmed by U.S. senators who also have been purchased by corporations. It means Exxon Mobil, who earned $45 billion last year, can spend any amount of money they want on advertisements supporting a political candidate, and if they want a candidate elected – they have billions to spend on that candidate. How on earth could an honest man compete? It means candidates will cut deals with Google, Microsoft, General Electric, Exxon Mobile in order to get elected. It also means these same companies can place people in our government, who will pass and enforce legislation favorable to their special interests. Consider that there may be more wars because companies love getting giant military contracts, and there may be less labor rights because they just ‘get in the way’ of profitability.

Andrew Dice Clay: “I don't drink to get happy or to forget the pain, I drink to stop the voices in my head. The bad part about the voices in my head is that they stutter.”

So what about the Democrats losing Massachusetts: it was a true “rebellion” by the masses giving the message: "no more!" But what about Obama coming out strongly for his new financial reform at the banker level. Potentially you could dismiss this as politics – losing Massachusetts – striking out at Wall Street so that he looks good to the voters. But after looking at the transcripts of the speeches – I get the impression that Obama was personally wronged. In other words, what if when Congress bailed out the banks, Obama made one of those back door "deals" where the banks had to do something to make Obama look good when it was over – such as lower bonuses or understate profits. And let’s assume the banks did not keep up their end of the bargain. And now it’s Chicago Politics gone wild – it’s PAYBACK time. Heck, Ben Bernake is Wall Street’s best friend – giving them money when (and even if they don’t) need it – and now his appointment is clearly in jeopardy. So we fell 500+ points in 3 days – blasting thru 10,200 on the DOW as a level of support – because the idea of “Helicopter Ben” not giving out free money to Wall Street scared all the bankers – and honestly Wall Street could be saying to Obama: “Let's see how many people love you after we crash this market and take the 401K's down to next to nothing." Obama wants rules and regulations that would seriously crimp the bankers style, instead of going along with every agenda they have. Something's brewing folks, you can feel it, smell it, sense it. I smell a bit of warfare between Obama and his Banker elite handlers. And do I think that the ‘paper dollar’ can withstand the onslaught of all the ills we face right now – honestly – I’ll continue to trust gold.

The Market:
Andrew Dice Clay: “It takes only one drink to get me drunk. The trouble is, I can't remember if it's the thirteenth or the fourteenth drink.”

Look how fast things can change. It was just 5 short trading sessions ago that the market was at 10,723, and the bullish crowd was preaching DOW 15,000. In just 5 sessions we've fallen 561 points – the single biggest pull down we've seen in a year. So, the market is in a funk, Washington is at war with Wally Street, our Political parties are coming apart at the seams, so what is an investor to do? Now, I truly believe that we will see DOW sub 5,000 between now and 2012, and even if this week was indeed the beginning of that monster slide, it's not going to be a straight line down. We are already short term "oversold" from last week’s carnage, and we should see a fairly meaningful bounce at the beginning of this coming week. And that will be the nature of the entire race to the bottom – we will have periods of free fall, punctuated with periods of wicked bounces. This will take a long time to play out.

My guess is that we will bounce, next week, but not terribly far. Friday night the founders of Google registered to sell 5 million shares each. Oh, and by the way, insiders in ALL areas of business have been bailing out of this market for a year. Just last week insiders bought $1million worth of shares and sold $419 million. If they thought their shares were going to go up, wouldn't those numbers have been reversed? If you're a trader, after some wild volatility on Monday, it's my guess you can go long for a day or two, but by Wednesday afternoon, the steam should come out and we roll lower again.

Andrew Dice Clay: “I don't want to achieve immortality through my work. I want to achieve it through not dying.”

I think it's time to start jotting down your longer-term short list. Remember, we can go short in two ways, literally selling shares short, or buying puts. The single best trade I’ve ever put on was being in long dated put options against the DOW and S&P during 90% of 2008. The returns were incredible. An example trade for you to consider: HOG is the symbol for "Harley Davidson". They just announced terrible earnings – and duh – who has $20k sitting around for a motorcycle? So I think HOG – currently selling around $24 – has a date with $10 in the not too distant future.

TIPS:
We sold out of everything except our 401K. We’re still buying hard gold and silver (but what else is new).

If you’re thinking long then:
REXX over 14 is still attractive
ORCL over 25.50 still looks good
CLNE over 19 would pull me in
FMCN over 18 would be interesting.

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 - 01-18-10

This Week in Barrons – 1-18-10:
Thoughts – “It’s Wabbit Season, and I’m hunting wabbits, so be vewy, vewy quiet!”… Elmer Fudd (cartoon character)

Narrator: It is a well-known psychological fact that people's behavior is strongly affected by the way they dress.
Elmer Fudd: Bang, bang, bang! Come out of your holes, you cowardwy wabbits! Bang, bang! And I'll bwow you to smitteweenies!

Buoyed by strong post-Christmas bargain hunting, retail store sales rose 1.5% from the previous week and 2.3% Y/Y. Now, what didn’t say was: Vacancies at U.S. strip malls hit an 18-year high in Q4, with a vacancy rate of 10.6%, worse than the vacancy rate of the "commercial real estate depression" of the early 1990s. Unemployment and inconsistent consumer spending are expected to continue weighing on retail properties for at least another 18-24 months. And in the commercial space in general – the square footage of space available for office rent in Manhattan is 38% higher than a year ago, totaling 43.8M square feet for lease (11% of the city's total office space). Oh – I forgot - people without jobs don't spend money, and small businesses don't need to lease office space if there is no business.

Well surely all the stimulus money that's about to come roaring down the pike will solve all these problems yes?

Bugs Bunny: Hey, Lemme see the rabbit, mister! Can I see da rabbit?
Elmer Fudd: Awright.
[Bugs goes inside basket, comes out other side]
Bugs Bunny: No rabbit in there, Doc! You've been robbed!

Recently – a huge study finds stimulus dollars spent on road construction had no material impact on local unemployment. The analysis reviewed $21B in stimulus projects in every state, and found no statistical difference between counties that received the most money and those that received none. Now why is that – well, when Uncle Sam decides he wants to go spend money, he doesn't look for bargains, he doesn’t analyze the market – he simply waves his hand and spends the money. Now, because there are no market or pricing decisions being made – why would you believe that any government stimulus projects would have any effect on a market-driven economy? If Uncle Sam waves his wand, produces 100K dollars and hands it to you to dig trenches – more often than not you won't be researching the digging of trenches, and manufacturing a new more efficient way to do it. Yet if that trench was being bid to all the known trench diggers, chances are good someone would invent something quite efficient to help him get the job done quicker and easier. Government spending stifles that type of ambition, slows invention and progress. Not to mention, it's a zero sum game for the most part.

Okay, a while back I said that at "some" point, things would get so dire at the Treasury that they would impose rules that pension plans MUST buy our Treasuries. They would have to because no sane investor around the globe wants to lend money to Uncle Sam at the ridiculous rates he offers. So, in the past couple months, the FED has been buying between 40 to 80% of our own debt – but this isn’t enough. And just this week Rick Santelli hit the wires with this very discovery. You’re seeing the first steps towards Uncle Sam moving to capitalize on the trillions of dollars sitting in pension funds, by first "allowing" them to roll into a Gov't backed annuity (buying our treasuries) which I believe will be followed by a move to "make" them invest a certain percentage into the market.

Daffy: It's a lie. It's a lie. My name is Jack, Jack Rabbit.
Bugs: Oh, no. You're Jack, all right.
Daffy: I’m not. You're Jack.
Bugs: You are Jack and you know it, because it is a fact.
Elmer: I guess I'll have to open up with a pair of Jacks.

Finally, sometimes the baloney is so incredibly bizarre, that even the media can't get their arms around it. On Wednesday, while the big bankers were testifying to congress about how they saved the known world, we received this news blurb: “The White House this morning congratulates itself on last year's stimulus package. The stimulus package has allowed nearly 38M people, or one in eight Americans, to rely on food stamps.”

The Market:
They say history doesn't repeat itself, but it sure can rhyme. My stance during this ‘bear market bounce’ has been that it’s stimulus injected, fiat currency manipulated, a Federal Reserve based run up – that MUST end badly.
My original feeling was that coming into the New Year, they'd move us up into earnings and they did. Now will the market move us up – past earnings – before rolling over – the jury’s still out on that one for me – and here’s why.

Elmer Fudd: Gaze deepwy into my eyes.
Bugs Bunny: Heh, Dracula.
Elmer Fudd: You are getting sweepy, sweepy.
[Bugs goes into his hole, Elmer sticks his head in]
Elmer Fudd: You are Asweep. Asweep and helpwess.

A Chicago floor trader remarked this week that “out of the blue” someone purchased 228,000 S&P e-mini future – and seconds later the market shook off it’s ‘funk’ and ran higher. The trader then remarked – “with that kind of Government intervention, the path of least resistance seems to continue to be up". So someone with substantial backing – goosed / manipulated the market and made it go up. And, if it weren't for that kind of back door dealing, it would be VERY simple to tell you that: "it's time to go short and buy long dated puts".
But, how can I say the 2010 run up is over, when it's still clear that Uncle Sam is letting the banks goose the market when ever it seems ready to roll over? At "some" point the collective running for the exits will overpower the dark pool stimulus that keeps getting injected.

I am just not ready to say ‘now’. We sold out all our short term positions this week, it seems to be a really good time to think thru the miners for signs of life. (Often when the market drops - gold and silver will go higher, and mining stocks might go with it.)

TIPS:
We sold out of everything on Tuesday of last week. I looked at ORCL on Friday but didn’t pull the trigger just yet. So, right this second, I am technically out of the market except for our brokerage accounts. Now, this is an interesting development on the heels of Intel beating estimates – so there is a ton of ‘secret selling’ going on in the background.

I might go right back into ORCL if it crosses 25.50 again, I like it.

We’re still buying hard gold and silver – fyi.

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

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