This week in Barrons - 7-25-10

This Week in Barons – 7-25-10:

I’m just a Normal Capitalist:
I’m just a normal capitalist – but let’s talk for a minute about Silver and Gold. I’ve gotten quite a few panicked e-mails about the metals – since they have come off their highs. First off – determine why you’re buying Gold and Silver. I’m recommending and buying them as the ‘ultimate insurance’ against the FED’s policies. Now, it's true that in the short term, you may buy Silver one day and the next two weeks it's "down" – that’s happened over 1,000 times since 2001.

What Ben Bernanke told us this week was: the economy sucks, jobs won't recover for years, and he's going to get even more "unconventional" in his approach to halting this depression. Do I believe him – maybe. Do I think what he will do will work – in the short term – No! Hence the need for Gold and Silver.

I think if you bought the GLD when gold was 1250 – and you thought it was going to 1500 the next week – you lose. If you bought gold at 1250 thinking that as our economy continues to slow - gold going to 1500 and higher – I think you'll win.

Now I don't usually do this, but as I said before – I treat these metal holdings as long term holds. Many times we've had the opportunity to take profit, but didn't. That wasn't by accident. Let's look at what happened:
- GG we got on 4/28 at 42.04 - 5/12 it was 47.41 - and as late as 6/28 it was 46.00 - profit was there for the taking.
- SSRI we got at 20.02 on 4/28. But on 5/12 it was 21.00 – profitable.
- SLW at 18.31 on 4/28. Was 21.58 on 5/12, and on 6/28 it was 21.89.
- IAG at 16.81 on 5/12 20.24
- NG at 6.82 - a month later it hit's 7.80.
- GLD at 116, has been as high as 124 – profit to take.

I’m not in these trades for the $2 or $3 winners – I’m in them for when all ‘heck’ breaks loose – but having said that – there’s nothing wrong with you “buying the dips and selling the rips.”

The Market:
The older I get, the more "life gets in the way" of the people I am fond of. If you have kids – from where I sit – the world that we’re leaving them … STINKS.
Last week I suggested that the market had one more pop in it, one more surge that defied gravity and lured in some more participants. Of course the main reason that the market is moving higher is to completely confound and defeat the short-sellers, that had seen a technical pattern setting up in the market and went short. If the maximum amount of people are long the market, you can rest assured that a massive pull down is about to take place, and vice versa. The only question is the timing. Hence the phrase: “the market can remain irrational longer than you can remain solvent!” And as further proof of irrationality: if supply and demand dictate price movements, how can the market go up, if more money is going out than coming in? Factually: "ICI reports that the week ended July 14 saw another massive outflow from domestic equity mutual funds of $3.2 billion, bringing the July total to $7.3 billion, and year-to-date equity outflows to a stunning $37.5 billion.” Just as ICI tells us - usually when the funds are redeeming like that, a large percentage of people are also starting to go short. So it was easy to know that a massive reversal was imminent. Now, how does the market continue to lure some of those billions back in – the market needs to continue to rise, even in the face of absurd economic reports. Eventually people can't take the fact that they're sitting in cash while the market is roaring and they rush to get back in. When Mr. Market is satisfied that he's got all he's reasonably going to get, he pulls the rug and takes their money. For right now it still seems to me that this move is "crush the shorts" action - because of the speed of the ascent. Usually if the market is going to lure in the sheep, it moves sideways and up slowly. It wants people to look at the news and see that "yep the market was up again today" day after day, week after week. Finally after months, they can't sit on the sideline any more and they capitulate, buying stocks with a frenzy. When the market just wants to bury the shorts and the chart slaves, it does it ferociously – gaining 400 points in 3 days – just like did. Often then – it just rolls over and falls hard – so we need to be really careful. If I'm right, this run will end between now and 10,600. If I'm wrong and they're pulling one of their "lure in the sheep" moves, we could see 10.8.

Tips:
We’re in metals and in and out of a couple small positions in ‘short’ ETF’s: We’re back in (and out) of TZA, DXD and SDOW (all 3 inverse market ETF’s (that is to say these ‘Exchange Traded Funds’ increase in value when the market goes down)

As you see above – the metals we like for a while – unless something dramatic occurs. And with (what we think to be) this final surge - think about long dated PUTS – and please be careful out there.

If you’d like to view my actual stock trades - feel free to sign up as a twitter follower – “taylorpamm” is my nickname on Twitter – fyi.

If you’d like to see me in action – teaching people about investing – please feel free to view the TED talk that I gave a month or so ago now:
http://www.youtube.com/watch?v=K2Z9I_6ciH0&feature=PlayList&p=6F63374ED7A97658&playnext_from=PL&index=5

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 - 7-18-10

This Week in Barons – 7-18-10:

Waiting for the Shoe to Fall:
Factually this week:
- the Federal Reserve suggested that a full recovery might take 5 - 6 yrs
- FinReg passed (a disaster waiting to happen)
- BP capped the leaking riser (maybe)
- Goldman Sachs was fined $550 Million (chump change)
- Bank Repossessions rose 38% in the second quarter
- the Philly Fed report on economic activity fell from 8 to 5 (almost in half)
- the NY Empire state report crash from 19 to 5 (fell by almost 75%)
- TIC data showed China dumping $33B worth of U.S. treasuries in May
- Consumer confidence crashed from 76 to 66, the lowest level in a year
- the ICI report showed a domestic equity mutual fund outflow of $4.1B (the third largeset weekly redemption in 2010 – the 10th sequential outflow – totaling $34B in total outflows YTD)
- the Baltic Dry index hit another low
- the Mortgage Bankers Association say that both purchase applications and ref's fell again, to levels not seen in 15 years.

When I hear the outcry for “JOBS” – I look at a lot of the Fortune 500 businesses – and realize that many were tiny businesses started in homes. You know the story, Mrs. Applegate bakes cakes in her kitchen – neighbors love them – she goes door to door selling them – and in no time there’s Entenmanns or Swanson foods. Today Mrs. Applegate would be in jail – because she couldn’t afford a health inspector, permits, $25,000 in kitchen upgrades for fire emergencies. We have regulated ourselves out of prosperity. The simple act of putting a shed in your own back yard is fraught with permits, building inspectors and other worthless ridiculous money-grabbing bureaucrats. How many wonderful businesses will never see the light of day, because they don’t have the money or time to go through the hassle of trying to get all the "okay's" necessary to start a business. Yeah – I know – it’s for our own safety - but somehow “America the Brave” turned into "America the we can't do anything because one day something bad may happen to someone, somehow, somewhere". And then there’s the fear of the lawsuit. Remember the lady in Philadelphia that would feed the homeless on Thanksgiving – she was shut down because she had no health license, insurance and permits.

I guess you wonder what brought this up? Well in the past few weeks I've talked to a couple people that wanted to "give entrepreneurship a shot". They had lost their jobs and wanted to do something on their own. By the time they got done talking to the insurance people, the town people, the inspector people, the environmentalists, the lawyers – they both gave up. "No thanks. I'll try and find another job". How disgusting that America (at her roots) does more to dissuade someone from trying to open their own shop, than nurture them? Either one of these guys, had their business been successful would have led to expansion, hiring, and good pay. Now they just sit home cutting the grass, and living on unemployment checks. Remember - Henry Ford was a little guy once. There's no way in heck old Mr. Ford could have created the enormous empire he built if he was to start today. And that goes for tens of thousands of now established businesses that couldn't possibly have been created in today's atmosphere. So, again – if the number one issue in our economy is JOBS – and the number one growth engine for JOBS is small business – How do we create JOBS?

Goldman Sachs was hit with a $550 Million dollar fine. That number is so enormously tiny, it's almost like a sick joke. Goldman makes that in 14 days! That number is LESS than the Goldman CEO makes in bonuses. In fact, it was a fraction of the $8 Billion in market cap GS gained in the hour after the news hit. We regulate small business out of existence – and yet NO ONE goes to jail for some of the biggest frauds ever created. And Dell announced this week that it’s right behind GS in settling with the SEC – as it set aside $100M to cover the cost of settling charges that employees misled auditors and manipulated results.

Factually – we’re really in trouble ... one in four American consumers - more than 43M people - now have credit scores below 600 (according to new FICO figures) marking them as poor risks for lenders – reaching a new high.

And By the Way:
- Nothing "Just Happens"
- We didn't fall from the single strongest manufacturing nation on earth because of a slip "Oops".
- We didn't see our high-school kids go from the highest scholastic scores on earth to number 41, because of a few "Mistakes".
- We didn't go from the world’s biggest creditor nation to the world’s single most indebted country ever seen because of a few "Mis-steps".
- But notice the SPEED at which America is being ‘Dismantled.’

The market..
OK – well I’m still in the camp that says the market needs to pause and pull back SLIGHTLY so all the chart slaves looking at the lower highs and lower lows charts feel confident to go short. On Friday we ended red. Frankly even I was a bit surprised at the size of the drop, I was figuring more along the lines of about 150 to 160 points and we lost 260. Now, if I'm right, what "should' happen is that Monday we fall some more, and then, almost out of the blue we start a bounce higher. It could be a very powerful bounce that takes back all the points we just lost. Then, it's time for the market to roll back over and plunge too much lower levels. Why – well in times when the ICI report shows the largest monetary outflows / 10th sequential outflow / totaling $34B à we’ve had a blistering run “UP” of almost 900 points! How does that happen?

If you believe that the market exists to 'take as much money from the most people as possible’ - you can often figure out what the market is going to do, simply by figuring out which way it would have to go, to inflict the most pain.
As we were on that rip roaring tear last week which topped out at 10,406 – we were at some interesting technical levels that always bring out the chartists telling us that it was time to ‘go short’. So, Wednesday we paused, Thursday we were weak, and Friday we plunged. Well there's no better way for Mr. Market to lure in the chartists then to fade some. This way the chartists look like geniuses, and they pile in with the shorts. But, more times than not, Mr. Market is right behind the curtain ready to smack the winners down. I think what happens from here is that we'll fall a bit more and then see a big ‘powerful’ bounce – and once the shorts are all toasted and everyone's trying to get long – then it rolls over again, only this time for a much longer period.

So again, our guess is a bit more downside early on, and then the start of a pretty good bounce, just so they all have to cover. Then the market can resume it's roll downhill.

Tips:
We’re in metals and ‘short’ ETF’s: We’re back in TZA, DXD and SDOW (all 3 inverse market ETF’s (that is to say these ‘Exchange Traded Funds’ increase in value when the market goes down)

Think about long dated PUTS – and please be careful out there.

If you’d like to view my actual stock trades - feel free to sign up as a twitter follower – “taylorpamm” is my nickname on Twitter – fyi.

If you’d like to see me in action – teaching people about investing – please feel free to view the TED talk that I gave a month or so ago now:
http://www.youtube.com/watch?v=K2Z9I_6ciH0&feature=PlayList&p=6F63374ED7A97658&playnext_from=PL&index=5

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 - 7-11-10

This Week in Barons – 7-11-10:

Would you like “Two Dips or One”?
Is there a double dip coming – absolutely not! To enter a double dip, means that we first must have recovered from the recession – which we never did. We simply had a party with trillions of dollars of stimulus. DOW 8,000 will simply be a stepping-stone toward DOW 5000.

Now – allow me to be simply ‘logical’ about the economy for an instant and ask you to consider the Demographics. As the "Baby Boomers" reach retirement age (the single biggest spending body the world has ever seen, and correspondingly the single biggest "investing" body the world has ever seen) they will FLIP from putting money INTO the market - to taking money OUT OF the market in order to live. That demographic hasn’t changed, and each year (from here on out) will accelerate the withdrawals. So the market will have "pressure" coming at it for years as people tap their investments to get them through their golden years. But not only are aging baby boomers taking money out of the market to retire on, we are seeing wave after wave of unemployed looking at their 401K's from their old job and cashing them in – penalty and all. And where is that 401K typically invested – stocks. For example: the week of July 1st saw $11 Billion come out of stocks. If people can’t refi their homes and take cash out of the refi – if they have no job – and maybe they just ran out of unemployment benefits – the panic begins to set in – and that leads to 401K’s looking like a tool for survival in the near-term rather than a retirement plan for the future. Now toss in more housing foreclosures, falling retail sales, states going bankrupt, pension plans getting reworked, and commercial real estate beginning their plunge to zero – the pressure on equities is huge. And EVEN IF the economy recovered – you will still have the “Baby Boomers” pulling out of the market naturally – which will be huge in and of itself. Also - don’t forget the tax increases that are coming next year (regular as well as capital gains increases) – add to that the tremendous cost of Healthcare – and again – YES - DOW 5K is in our future.

Believe me when I tell you – I WANT to be WRONG. But I also believe in free market Capitalism – and Ben Bernanke is caught between a rock and a hard place: 1) he can let the economy fall into depression, clean itself out, break the people that made stupid choices, reward those that did right, and come out the other side leaner, meaner and ready to roar, or 2) continue to print trillions and trillions of dollars, spread it around, hope it ignites some real organic growth and then tax everyone for the rest of their lives to pay it back. I think ‘they’ are choosing Door Number 2! Does that mean long-term doom and gloom? Absolutely not – if you prepare for it!

The Market:
Historically the market moves higher into earnings season and last week was no exception. This market was desperately in trouble during the last week of June as the market fell and fell, and it was no surprise to me that the Fed (in concert with the member banks) drove the futures up and the market went with it – with or without proper bidding. I don't know how many of you watch the mini futures but I am constantly amazed when one of these "pushes" takes place – the prices blast right past stacked bids and establish new prices. Why and How? The reason is the bids ‘really’ don't exist. But the problem with Fed induced market romps is that (like musical chairs) you don't know when they turn off the music and when you’ll be left without a chair to sit in – so we used smaller positions and pulled the trigger faster during this past week.

So – What’s Next? Although there is reason to think Monday could be a reversal down day, my guess is that they'll do their best to keep the market "up" for the first part of the week – because as earnings come out, some of them will be great but the guidance might be soft, and they'll need the "room" of a higher market to absorb the news. However, we are still going to be playing small positions and moving quickly. It's our guess that whether we've seen this run-up top out, or we have a bit more to go, this earnings period will mark the market top for a while and we can get to sliding back down. And even if they held us up all the way through reporting season, what would the market have to look forward to – August and September – which are traditionally not great months. We have elections coming in November – they could be ugly – and the market naturally hates uncertainty. All in all, I think the hoopla over this earnings season will post an intermediate top.

We are strongly considering taking on some longer dated put options in the near future – you may want to follow us on Twitter or if that strategy fits your portfolio.

Tips:
We’re in metals and ‘short’ ETF’s: This week we purchased TZA, DXD and SDOW (all 3 inverse market ETF’s (that is to say these ‘Exchange Traded Funds’ increase in value when the market goes down):
- After a natural down-draft - GLD is heading back toward it’s resistance at 122 – so keep an eye on that as it gets close to it to see if it can break thru it.
- We had tight stops on DXD, SDOW, and TZA – and with the market run-up we were quickly stopped out of these – loosing a little money – but we’ll be back to play in the near turn I guarantee it!

Think about long dated PUTS – and please be careful out there.

If you’d like to view my actual stock trades - feel free to sign up as a twitter follower – “taylorpamm” is my nickname on Twitter – fyi.

If you’d like to see me in action – teaching people about investing – please feel free to view the TED talk that I gave a month or so ago now:
http://www.youtube.com/watch?v=K2Z9I_6ciH0&feature=PlayList&p=6F63374ED7A97658&playnext_from=PL&index=5

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 Barons - 7-4-10

This Week in Barons – 7-4-10:

“I Gots to Get Me One of These…” Independence Day (the movie)
Happy 4th of July! Thanks to Steve Forbes and Jim Taylor for input to today’s Barons. What we saw this week was fear – not necessarily fear of our own economy but rather the economy that’s driving global expansion – China! As China’s economy slows (transitioning from exporter to importer) – our hopes for expansion now rest in the hands of someone else. The U.S. Debt to GDP ratio now mirrors Japan where household numbers on personal debt have moved from 68 to 98% over the past 10 years – which is simply too much debt to service both expansion and a robust market.

Currently, we need to worry about a ‘mentality shift’. The mental shift from there being ‘optimism’ and something ‘better’ being just around the corner – to that of resignation and defeat. The impact of this recession extends far beyond the 16.6% who are underemployed:
- 55% of adults in the labor force say that since the economic slump began they have suffered a spell of unemployment, a pay cut, a reduction in hours or have become involuntary part-time workers
- 15% of Americans say the U.S. economy is in good shape
- 62% of Americans have cut back on their spending
- 48% of Americans say they are in worse financial shape now than before the recession. Those with annual household incomes below $50,000, and those between 50 and 64 are being viewed as in the worst shape.
- We are experiencing the biggest financial meltdown in the post-World War II era – as household wealth fell by about 20% from 2007 to 2009.
- 26% of Americans say that when their children reach their age, their children will have a worse standard of living – up from 10% a decade ago.
- 32% of adults now say they are not confident that they will have enough income and assets to finance their retirement – up from 25% a year ago.

Some ‘disturbing’ facts:
- The SEC settled this week with Gary Aquirre for $755,000 – a lawyer that was wrongfully terminated for ‘aggressively’ pursing an insider-trading case involving the hedge fund Pequot Capital Management. WHAT?? → he was fired for "aggressively pursuing an insider trading case" – isn’t that what we pay the SEC to do? OK – then did we fire the FOUR (4) SEC investigators for NOT pursuing Bernie Madoff – NO! OK when Goldman Sachs posts 100% perfect trading histories (NO LOSES) – so can anyone really do that without insider information – NO – but is that being actively pursued – NO!
- Illinois stopped paying it’s bills this week.
- 7.9 million jobs lost – most forever
- Fannie – Freddie bailout could cost taxpayers over $1 Trillion
- Home Sales → Pending home sales plunge a record 30%. Remember that dramatic drop in home sales last month – well - Foreclosures accounted for 31% of those U.S. home sales in Q1 (according to RealtyTrac). And the average price for foreclosed properties was 27% below that of regular sales. In a normal market only 1 to 2 percent of home sales are foreclosures FYI (so this is significant.)
- The June ISM (manufacturing) index fell 20.6 points from 89.9 in May – to 69.3 in June – WOW!
- Congressman Ron Paul sponsored a bill to audit the FED – with 320 co-sponsors – it came back from the Senate – and 114 co-sponsors ‘jumped ship’ and reversed their stance – I wonder why?
- KRUGMAN: 'We are now, I fear, in the early stages of a third depression' – but a push for new Internet sales taxes; Would draw $23B”
- We are IN a depression – that is being covered up by food stamps, unemployment benefits and some 30 other Government programs. The depression will get worse.

JOBS Report: Look at Friday's jobs report – it was a horrifying disaster. After trillions of dollars spent on stimulus – the BEST we can do is lose more jobs? Not only did 600K people just give up looking for work, the workweek itself contracted, as did hourly earnings. On TOP of that – imagine if the birth/death model didn’t say we ‘created’ 147,000 ‘phantom’ jobs – subtract those – and we revised the previous months jobs report lower. To add insult to injury – and to quote Richard Vedder (director of the Center for College Affordability & Productivity in Washington, D.C.) “We have credential inflation in America. A college degree has become mundane and ordinary. We used to send kids to college to become lawyers and doctors. Now we send them to college to work at Walmart."

The Market:
I will have another update on the ‘oil patch’ (some potential ways to play the oil stocks) coming out on Tuesday of this week.

The jobs report stunk as we knew that it would. The market tried to "hold up" in the face of it, but couldn't hang on. We ended the day 46 points lower. So, we just came through a very poor quarter, where the market is down some 10%. Many are telling us that the worst is behind us and we should expect a rising market. My question is why – what’s changed? Hype over earnings season – maybe?

On a short term technical basis the market is "oversold". However, some of the single biggest train wrecks we've ever had came while the market was oversold technically. The 50 day moving average fell under the 200 day in the S&P and that is called a "death cross", meaning it shows that in the short term the market is very weak. Then we had a DOW theory bear market confirmation as the transports and the industrials hit and closed on lower lows. That’s two very powerful signals that "all is not well". If the market was truly free (no plunge patrol team – etc.) we'd fall 2000 points in the next two weeks. But the market is NOT free so it’s very hard to figure out the short-term moves. But the long-term moves are fairly well set in stone – we will be heading lower, much lower. My target is DOW 5000. But to get there we will have to be on a very wicked, volatile ride. My guess is that we shoot a bit lower this week and then they "rush in" and try and hype us higher into earnings season. But then after that's over, I see no reason why we won't fall back pretty substantially seeing DOW 9,000 this summer. And whether that happens in 2 weeks or 2 months – that is the question.

I think you can short the rallies and buy the big dips. I wouldn't be against buying long term put options against the major averages on any big market moves higher.

Oh yes – Gold and Silver. They were both attacked this week by hedge funds selling to raise cash and central banks beating on it. I expect them to sell more and yes - I'll be buying.

Tips:
We’re in metals and ‘short’ ETF’s: This week we purchased TZA, DXD and SDOW (all 3 inverse market ETF’s (that is to say these ‘Exchange Traded Funds’ increase in value when the market goes down):
- GG at $43, IAG at $17, SLW at $18, SSRI at $20, GDXJ at $27, GLD at $115.86, NG at $6.64 and PHYS at $11.65 → FYI for the second time in two weeks, the Gold ETF (GLD) surged above resistance at 122 and then moved back below with a long red candlestick. The overall uptrend in GLD remains in place, but there is considerable resistance in this area. First support is set at last week’s lows. Second support is set at the May low.
- DXD an inverse DOW fund we bought in at $31.50, SDOW is a 300% short – but please be careful here as things move quickly, and TZA a small cap 300% Bear fund as well we bought in @ $8.60 – again be careful here.

Please enjoy the 4th of July with family and friends – because in the end – that’s what really matters → ‘honestly’ this money stuff is secondary!

If you’d like to view my actual stock trades - feel free to sign up as a twitter follower – “taylorpamm” is my nickname on Twitter – fyi.

If you’d like to see me in action – teaching people about investing – please feel free to view the TED talk that I gave a month or so ago now:
http://www.youtube.com/watch?v=K2Z9I_6ciH0&feature=PlayList&p=6F63374ED7A97658&playnext_from=PL&index=5

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

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

Barrons - Gold and Silver Buys

Gold and Silver Buys:

OK – here are some thoughts on small miners and areas where I do business:
- In terms of coins and bullion - prices vary day to day and dealer to dealer – there’s no shame in shopping around a bit. Most offer free shipping and insurance.
- 2 web companies: www.golddealer.com and www.coloradogold.com
- For buys of 100 to 1,000 ounces or more – I’ve never seen anyone less expensive than www.tulving.com

In terms of some small silver miners that have a shot at seeing their share prices soar. For example: In 2008 we put out a buy on SLW (a silver aggregator) – at a price of $3.59. We sold it at $11 two years later – and currently (we’re still holding some) and it’s at $22. Although I still like SLW – you could easily argue that the bulk of their move might have already happened. Sure they could get to $30 a share and should – but wouldn’t it be nice if we held them from $4 rather than $22? Now a few of the ones I like trade on the Toronto Exchange – so you may need to go thru a ‘phone based broker’ rather than your web-based platform. And – my yardstick – is the company needs a proven reserve with a proven operation.
- UXG ($5.28) is due for a small pull back, this one has the ability to be a 3X gainer the higher gold and silver go
- NGD ($6.51) is a stock we owned at 3 bucks for months and didn't move – then it ran into the 6’s. I think it's got more to go – to potentially 10.
- MVG ($6.64) is interesting and is not playing the rocketship ride ‘just yet’ – but does have all the attributes.
- NG ($7.37) is one we bought a while back at 6.85 that's already been up to 9, and is back down in the 7's.
- HL ($5.78) had not experienced an explosive move as of yet.
- HLLXF (0.56) is really speculative – but it’s the kind of play that when the gold mania really kicks in it could go to 4, 5, 10 bucks.
- AZK ($5.14) / EGO ($18.38) / AEM ($62.70)
- I like SSRI and PAAS (and own them both) – but they’re not the explosive movers
- EXN (Toronto Exchange)
- EAS (Toronto Exchange)
- CG (Toronto Exchange)
- LSG (Toronto Exchange)

These are my best ideas for buying gold/silver and my best ideas for miners/aggregators poised for explosive growth. I wouldn’t recommend buying all of them – but some risk money spread around this group should reward.

This week in Barons - 6-27-10

This Week in Barons – 6-27-10:

Can we ever CURE what started this mess – Housing?
Last week new home sales fell 32.7%, to a level just about equal to the disaster of 1981 when we had 20% interest rates. And if you discount the ‘seasonality’ slightly – it was the LOWEST amount of new homes EVER SOLD! Now you can certainly equate this to ‘hitting bottom’ – or ‘potentially trending higher’ – but how many of us make our livings catching falling knives? It doesn’t take a rocket scientist to figure out that when Uncle Sam stopped giving people $8,000 to buy a house – they stopped buying houses. Meredith Whitney – the person that went public with the banks impending doom said: “Consumers have stopped paying their mortgages so that they can cover other bills, leaving banks with rotting assets and a mounting foreclosure problem. A double dip is coming in housing, no doubt about it." Couple that with Richard Russell (the gent that spawned the idea of the DOW theory) stating: “We're now in the process of building one of the largest tops in stock market history. The result will be the most disastrous bear market since the '30s, and maybe worse.”

Now on July 2nd, we are going to get the "Non-Farm Payrolls Report" – often termed the “Unemployment Report”. Last month the addition of U.S. Census workers caused this report to show an addition of 431K jobs – with only the ‘fine print’ telling people (a) these were only temporary positions and (b) they would be all gone by September. This months’ report should show the beginning of some of those layoffs. Combine that with this past Thursday, Congress decided NOT to extend unemployment benefits past the existing 99 weeks - means that upwards of one million NEW people are going to have "no" income in July – as their benefits expire.

Now – I think we’re running out of things to hype? If it's not a bottom in housing, and it's not job creation, and it's not an increase in credit, what’s left à Earnings! They are going to do their best (this week) to tell you to ignore all the other ills and just focus on earnings – but understand – corporations don’t have Europe to lean on any longer – there’s still an oil spill in the Gulf to contend with – most of our states are virtually insolvent – we haven’t solved the regional banking crisis and potentially we may not even have world peace (that much longer) as we begin to see some form of hostility in the Iran Theatre.

But let’s talk about earnings – right now the accounting of today doesn't even resemble the accounting of years past. Words like ‘Proforma’ and ‘Intent based’ have all but replaced GAP and FASB as our national standards. At "some" point there are so many out of work, so many making lousy wages, so many in desperation, that a company won’t be able to sell its goods and services any longer – without either (a) a huge increase in economic activity, or (b) economic activity slowing to a pace where products and services have to be priced much lower just to sell – which will cause a company not to make as much profit – and then ‘miss’ or ‘fail to beat’ estimated earnings – and the stock price falls. It's my guess that this next earnings season will mark the "top" of the earnings cycle for quite some time. Combine lower outlooks for earnings with all the other ills we face, and you can make a pretty strong case for the market loosing an awful lot of ground. It's also my guess that sometime during the year 2011 we are going to see an even bigger stimulus package than anything we've seen before. Central Banks around the globe will flood the planet with as much liquidity as possible – trillions of dollars.

In the meantime, there is money to be made. Gold and silver will still rise. People who know how to go short via puts and inverse ETF's will do fine. The key will be active management.

I think we hit DOW 9K this summer (September is my guess) – and my longer-term outlook is DOW 5K – potentially lasting years. The only reason we don't have mile long bread lines right now is because of 40 million people on food stamps. The only reason we don’t have riots in the streets is people deciding to stop paying their mortgages, and 6 million people more on extended unemployment benefits. Municipalities, healthcare, insurance, even education – will all need to trim/cut costs fairly dramatically going forward. Into the fall we should see a bounce of some type, followed by the next round of stimulus that will evoke hope – and it won’t be until that final, enormous, tidal wave of coordinated stimulus wears off that we can finally hit bottom, and finally dig our way out of this mess – which could be 2012 (another election year!) I do think third quarter earnings are going to miss the mark – and that will prompt an interesting run till year end.

Now onto the market:
This week the action in the market was all about Ben Bernanke and the Federal Reserve. After two years of 0 % interest rates, and Bernanke telling us we were in a “V-Shaped” recovery and thinking about exit strategies for all the stimulus programs – which became a "U-Shaped" recovery and keeping interest rates "exceptionally low for an extended period of time" – which became a ‘fragile recovery’ – and NOW, we see from the most recent data that the economy has burned through the stimulus money and everyone wants to know "What’s next?"

I think next week we’ll see a push higher for a couple of days – for two reasons: (a) it's the end of the quarter and (b) it's the end of the "half" year. Both of those are fairly important for the fund manager ‘window dressing’ – so all the funds will be buying the leader stocks like AAPL – trying to get into winners ahead of July.
With that in mind, we "should" have a green Monday – potentially Tuesday – and we’ll start getting edgy around Wednesday – as thoughts drift toward Friday’s Jobs Report. Potentially – worse than the jobs report – is that we are seeing some major index's all around the world approach a nasty "technical pattern". It is not good for the Bulls when the 50-day moving average falls below the 200-day moving average. The London ‘Footsie’ has just done that – our S&P is racing toward it – and all around the globe that pattern is showing up, and that pattern often leads to a very sharp decline.

I think the main theme for the next couple weeks is going to be continued volatility. Let's suppose they sell us lower on the jobs report – in a nano-second they will switch to focusing on the earnings season coming up and try and hype that. So, we could be up for a few days early, then drop out Friday into next week and then see them try and rally us into earnings again. I still believe that sometime between this week and approximately July 20, this market will begin to slide down into the DOW 9K area. However, remember the old adage that the market can remain irrational longer than you can remain solvent. Simply put – we need to be patient and let the market "come to us". Please be careful out there.

AN ASIDE: Since last week’s letter on Silver – I’ve gotten a tremendous number of requests surrounding where to invest and where to purchase. I will be putting out a supplemental letter today on this topic – thanks to all for your interest.

Tips:
We’re still almost totally in metals, and they’re performing nicely – all things considered:
- GG at $43, IAG at $17, SLW at $18, SSRI at $20, GDXJ at $27, GLD at $115.86, NG at $6.64 and PHYS at $11.65
- We dabble during the week – taking advantage of day trades here and there – but until we feel comfortable about shorting this market – we’ll stick with the metals for longer term holds, potentially looking again at the VXX, and seeing which way the wind takes us during these next several weeks.

If you’d like to view my actual stock trades - feel free to sign up as a twitter follower – “taylorpamm” is my nickname on Twitter – fyi.

If you’d like to see me in action – teaching people about investing – please feel free to view the TED talk that I gave a month or so ago now:
http://www.youtube.com/watch?v=K2Z9I_6ciH0&feature=PlayList&p=6F63374ED7A97658&playnext_from=PL&index=5

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 - 6-20-10

This Week in Barons – 6-20-10:

How to make a Million Dollars over the next 5 to 10 years?
Great Question – well – I think you might be able to do it with silver. We know that the silver market is manipulated by the big institutions, the SEC, the Comex, etc. The commodities commission and everyone else has been put on notice that it's happening AND they have acknowledged that they are looking into it. Consider that for a moment - silver should be trading at $50 per ounce – in fact using history and gold as our guide – then the figure is closer to $100/ounce. But due to big institutions such as J.P. Morgan given free license to naked short 40% of the world’s silver product – you could easily argue that silver is artificially cheap right now. As the worlds fiat currencies and economies continue to sink, people are scrambling to buy value – which is why gold hit an all time high last week. There will come a time when physical demand for silver is going to overcome the ability to keep it down. Currently an ounce of silver costs $18 – and I always advise investing in the physical metal whenever possible.

Let’s suppose that I’m truly not some conspiracy nut – but if silver could find it’s way to end the manipulation – it would immediately be trading for over $30 per ounce. As people around the globe saw the break out – the buyers would enter and silver would end up north of $100 – potentially closer to $125 per ounce – as it coincides with it’s historic ratio to gold. But wait the other piece of this is the investment in the miners – the companies that pull the metal from the ground. As silver increases in value – the miners of silver also increase dramatically. We have historical proof of $5 miners going to $50 a share – and imagine having a few thousand shares of a couple junior miners when silver makes it's sprint?

I do believe that silver is one of the best investments for the next 5 years. I could be wrong and potentially the manipulation can go on forever. But it is currently so undervalued to gold that it’s my bet that they can’t keep it under lock and key all that much longer.

Now – on to some news:
- On Tuesday morning, TV analysts were telling us how well the consumer was doing – and then Best Buy completely missed their numbers and made references to the consumer ‘hunkering down’ – hum?
- Then on Tuesday – 8:37AM – came the news blurb that Fed officials have quietly begun to discuss their next steps in the event that the recovery fizzles or inflation keeps falling. Well the good news is that we NEVER recovered. Let’s talk recovery to the 8 million unemployed! But honestly, $12 Trillion buys a lot, 99 weeks of unemployment buys/costs a lot, and expanding the food stamp program to cover 50 Million people costs a lot!
- Since June 1st, 340K people have lost their unemployment benefits. Estimates say by the end of June - 1.25 Million people will be OFF the benefit roles. Now what happens when over a million people (end of June) stop spending? Now – is it just ‘coincidence’ that Best Buy missed their numbers?
- At 11:48 AM on Tuesday – we learned that 91 banks and thrifts skipped their May TARP payments - 23 of them for the first time. That's up from 74 banks deferring in February, and 55 in November. Twenty banks have missed four or more payments, and eight have missed five. Maybe these are all ‘strategic defaults’ just like the people who have decided to just be squatters in their own homes?
- Single family housing starts fell 17% last month.
- A couple contributions from Steve Forbes:
- Fannie Mae and Freddie Mac (institutions that hold over $6 Trillion in American mortgages = ½ of an entire years GDP) were delisted from the stock exchange this week – with stock share values less than $1 – causing shares in each of them to plummet over 40%
- Lumber futures – a leading indicator of housing activity – have fallen 40% since April.
- Finally – with Fannie an Freddie out of the way – will banks be forced to foreclose on properties and recognize losses – or are the Feds going to start/continue buying up all the toxic assets?

Is it any wonder that (without being a day trader) I recommend Silver and Gold!

Now onto the market
The goal of the market is to take the most money that it can – from the most number of people that it can. This week was options expiration week – and look at the action on Thursday. All day long the market was slightly red, and then in the last forty minutes the day ended green across the board. Friday was the same thing. Our guess was that to continue to roast the shorts (basically make option contracts null and void), the market would move sideways for the day or two, ending with a very small plus or minus. When the final bell rang, the DOW gained 16, the S&P 1.5 – yawn – but they put the market where the most amount of shorts via put options would get burned, without pushing it far enough that any of the call buyers made a fortune.

Now that we have options expiration out of the way – the market is paying attention to the 1120 level on the S&P – and if it gets above that – it could pop higher quickly. But if it can't put in a close for a day or two above that, chances are pretty good we fade back away from that level. Now there’s no question the "desire" is there to make this happen. But considering the latest economic reports, thinking that Russia is considering moving away from the dollar as the world reserve, and considering the "run up in gold" lately – do they have the fire power to make it happen?

Right now we're in no mans land. Earnings will start to trickle out next week, but the real "season" won't start until the second week of July. In normal historical terms, the market does tend to move higher into earnings season as optimism builds surrounding the releases... but it's a bit too early for that. So, one logical outcome is that the market gets trapped here in a trading range, trying to build a base so it can push higher into earnings. And, my bet is that we're going to see a pretty volatile week, without a lot of overall direction.

Although I am still completely convinced we'll see DOW 9K sometime this summer, it would probably make the most sense to see it happen "after" earnings as we start heading into the historically weakest month of the year - September. Between now and then almost nothing will surprise me.

For all of you DAD’s out there – Happy Father’s Day!

Tips:
We’re still almost totally in metals:

- GG at $43, IAG at $17, SLW at $18, SSRI at $20, GDXJ at $27, GLD at $115.86, NG at $6.64 and PHYS at $11.65
- We dabble during the week – taking advantage of day trades here and there – but until we feel comfortable about shorting this market – we’ll stick with the metals for longer term holds, potentially looking again at the VXX, and seeing which way the wind takes us during these next several weeks.

If you’d like to view my actual stock trades - feel free to sign up as a twitter follower – “taylorpamm” is my nickname on Twitter – fyi.

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

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