This week in Barrons - 11-29-09

This Week in Barrons – 11-29-09:
Thoughts – Mr. Oscar Wilde
Oscar Wilde: “Illusion is the first of all pleasures.” We give ALCORN millions each year – only to find out that they help prostitutes buy houses in order to carry on her "business" and they even offered ways to help import underage girls to work in the industry. With Healthcare - no matter what they try and tell us, the facts show it will cost more, be more intrusive, be less effective and we can't afford it. Wasn’t it just a year ago that Bankers lost billions – came crawling to congress begging for a bail out before financial Armageddon – and now they’re suddenly swimming in billions of profits again, while main Street crawls along, hoping for a rescue. Corporate profits that show Mark to Model instead of Mark to Market accounting. Revenues continue to fall while profits increase. Corporations announce stock buybacks with no plans to execute them – and insiders are still selling 18 times more than they are buying. Our own government states that unemployment as 10.2% - but based upon 1980’s calculations (before "rejiggering") it's well over 20%. Inflation that “doesn’t exist” – meanwhile oil, food, medical, insurance and education continue soaring higher – and while GDP is constantly being revised lower. And, the FHA’s recent binge to subsidize mortgage loans – will result in an astounding 20% default rate. Oscar Wilde: “I guess I’m not young enough to know everything. It is a very sad thing that nowadays there is so little useless information.”

Oscar Wilde: “Anyone who lives within their means suffers from a lack of imagination.” In midweek – we learned that Dubai has had to ask it's creditors for an extension. Now – if you owe people money - and you ask those people to postpone your debt payments – it clearly tells you that they don't have the money, they need time to re-jigger things – and they are in financial trouble. In CNBC’s view - Dubai's 80 billion is a drop in the bucket and this event could be the perfect buying opportunity for those looking to get into the next stage of the bull market rally. But understand our own ‘sovereign’ situation is a thousand times worse – with just one government agency (the FHA) set to default on 20% of it’s $725B in bad mortgages – and that isn’t counting Fannie, Freddie, AIG, Social Security, Medicare/caid, or the FDIC. The FDIC itself said this week that “bank lending fell by the largest amount since the government began tracking data.” Also total loan balances fell by $210B – the largest decline in history. News flash à the U.S. will default (devalue) on it’s payments. There’s no other way out – you only print money for so long as a world abandons you as an investment vehicle. The Fed is monetizing our debt – it’s printing money, swapping it with other Governments through currency, and then that very money is coming back to us via treasury auctions. This is worse than a zero sum game, it’s normally called a 3-card Monty. We can't tax enough, or cut spending enough to make it work. Oscar Wilde: “America is the only country that went from barbarism to decadence without civilization in between.”

Oscar Wilde: “I think that God in creating Man somewhat overestimated his ability.” Now – why is gold so despised by TV’s talking heads? Well respected fund managers who lost their shirts in 2008 – while gold was increasing by 20% continue to point out a bubble. Millions around the globe are coming to the realization that the whole world is a fraud, fiat money is worthless and "he who has the gold makes the rules". Now it's migrated from silly newsletter writers to entire Governments like India and China. Well – you can justify a stock price by whatever means you wish – but gold just sits there. An ounce equals an ounce, there are no earnings to massage, no sales to jigger, or interest to swap. They hate it because they can’t lie about it. Gold is NOT rising because it's a hedge against inflation – or because it does well in deflationary times also. Gold is rising because its the only money that's going to count when more and more Dubai's come to center stage. When Uncle Sam has to finally admit that the jig is up, we're busted and we need to devalue our currency and default on our debt. We told people in the year 2000, that gold will be $1,500 an ounce – and now we’re $300 from that point. With the 2010 Congressional elections looming – our government will want to pass more stimulus, and do more monetization. Hundreds of banks will go belly up, and there will be hundreds of thousands of foreclosures. The dollar will get crushed, and we will pave the way into the next massive bear market. Gold is still buyable – as is silver. Oscar Wilde: “We often give our enemies the means of our own destruction.”

The Market:
Dubai is going belly up, and what happens in the global markets? Europe had a big down day and ended the next day green - Asia had two red days because they have a lot of exposure to the mid east region – the U.S. market opened down 250 points and in an hour and a half almost looked like it was going green. Now for those new readers – it’s my opinion that the DOW will see 4500 sometime in the next few years. I plan on shorting and buying long dated puts on the averages when it's time – but it’s not yet time. This fall we’ve seen three major forces at work. One is the desire for performance, as all the hedge fund managers got killed and liquidated in 2008 – are doing anything they can to keep the market higher in order to make their bonuses. Then we have the talking heads cheerleading the recovery daily. And finally, we have the U.S. injecting trillions of dollars in stimulus via buy backs, interventions, backstops, guarantees, and direct ‘dark pool’ purchases. All of this has caused a complete market disconnect with the real economy. On the other hand, there are many who did make their fortunes this year and are quite happy to cash out and hide in safety.

The market warfare over the next couple weeks is going to be intense, with those wanting out probably outweighing those looking to get in. I'm thinking that the analysts will hype black Friday's sales as being "very good" and that will push the market up for a couple days, but after that, I wouldn't be surprised to see it back off again. This is great news for daytraders, but not exactly the environment that we like to trade in. In 2009 the market ran from 6600 to 10450 in a lousy economic atmosphere – and 2010 is shaping up to be a real "doozie" as far as the economy and bad news is concerned, so to think we have significantly more upside is probably looking too hard.

The easiest way to play this will be to simply daytrade or sit on your hands if the DOW is below 10,450, and go long if it gets over it. Even if we seem to be rolling over hard, I wouldn't go short for anything more than very short term trades. I think our shot at going wholesale short is coming, but it's not here yet. Oscar Wilde: “Man is least himself when he talks in his own person. Give him a mask, and he will tell you the truth.”

TIPS:
We have HL at 4.51, with a hard stop at 5.75.
We have SPY at 108.84, with a hard stop at 108.35.
We have NEM at 52.72 with a hard stop at 52.20 – over 55 buy more.
Let’s begin to watch GDXJ – the junior gold mining ETF – and SGOL (thanks to Josh for this one) – as there will be something here.

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 - 11-22-09

This Week in Barrons – 11-22-09:
Thoughts – Mr. Mark Twain

Mark Twain: “A man is never more truthful than when he acknowledges himself a liar." In these days, people on financial networks often influence our actions. For example: famed guru Jim Cramer declared several months ago that housing had bottomed. Since then foreclosures have hit more all time records, mortgage defaults have hit all time records, the median price has fallen, and there is no bottom in sight. Now did Cramer really believe housing had bottomed, or did he simply lie and push the Wall Street/banker agenda. Now really, Jim can read the numbers as easily as I do, and therefore his ‘truths’ have caused people to do something that will cost them dearly. Now, when does he come out and tell us that he ‘lied’ to us? Heck, for the first time in US History, the number of foreclosed homes exceeds the number of homes for sale. Overall, about 14% of all mortgage loans were delinquent or in the foreclosure process during the quarter. That is the highest level recorded since 1972, and is up from about 10% during the same period last year. Mark Twain: “Don't tell fish stories where the people know you; but particularly, don't tell them where they know the fish.”

Mark Twain: “It is better to keep your mouth closed and let people think you are a fool than to open it and remove all doubt.” Just this week Mr. Bernanke said: “It is inherently extraordinarily difficult to know whether an asset's price is in line with its fundamental value. It's not obvious to me in any case that there's any large misalignments currently in the U.S. financial system." Mr. Bernanke, what isn’t obvious about: 122 bank failures, joblessness – charge-offs – bankruptcies – and foreclosures at record highs, gold at 1140, oil back to 80, AIG never paying us back, Goldman is making hundreds of billions, and YOU not noticing any misalignment! When you compare the 1980’s to today the misalignments are striking: Stock market P/E multiples were 8X not 26X, Dividend yields were 6% not sub-2%, Monetary policy was aimed at reducing money growth and inflation rates not creating both, Deficits were peaking and coming down not surging to 10%+ relative to GDP, Deregulation back then was in vs today it is all about re-regulation and government ownership, Credit and household balance sheets were expanding not contracting, AND Tax rates on income, capital gains, and dividends were declining then vs rising now. Sony CEO Howard Stringer said the consumer electronics industry continues to languish and he warned the recovery "will be neither a V nor a W, but an L.” Mark Twain: “Now, suppose you were an idiot, and suppose you were a member of Congress – ah but I repeat myself.”

Mark Twain: “If you tell the truth, you don't have to remember anything.”
We are all witness to a generational event – where the United States will no longer be the economic engine of the world, and our standard of living will forcefully contract. I think everyone has become comfortable of China being a huge part of the global economy, but few will come to the conclusion that China will dominate global economics in the future. The interesting part to me on China is that China has never had to depend upon us for protection. And to that regard - we have absolutely NO power over them. China laughs out loud at our inept economic advisors, and when we threaten them over the value of their Yuan, they simply say "shut up, look what you're doing to your own dollar - jackass". China will continue to shift more of their attained dollars into gold, silver and resources, as we will use our dollars (printed out of thin air and then borrowed) to bail out bankers. And how this will end is that the Fed (for the next 1 or 2 years) will continue to push stimulus, and deficit spending. Once that is proven not to work - will cause rapid inflationary pressures, and we'll roll over into a deflationary depression. Just this Thursday, hundreds of protesters chanted, marched and took over a building on the UCLA campus, where University of California regents were scheduled to vote on a 32% student fee increase. 32% is that price inflation that we’re not supposed to have? Mark Twain: “It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.”

Please watch and applaud Ron Paul’s push to have the Fed more closely audited. The House Financial committee approved it this week. Now it should pass after Thanksgiving, let’s keep our fingers crossed.

The Markets:
The fight is on, and it's getting awfully nasty out there. Back in March, the market started on a tremendous bear market bounce, however many of the shell shocked fund managers were so afraid of losing any more money they didn't catch the wave. Now that the market has passed 10K, there's a war going on, a war between those that entered in March - made their 35% and are happy and cashing out, versus those fundies that came late - are up only 10 to 15% and are pressing the market for more. We opened last week at 10,318.61, and ended the week at 10,318.16. Now as this market has run up the pattern that we’re seeing is this: we had a run to 9370, a dip, and an open at 9119 to start the next run – a close at 9622, a dip lower and an open at 9276 to start the next run – a close at 9840, and a dip, then an open at 9434 to move higher – a close at 10,081, a dip and an open at 9844 to move us back up. Now we just recently put in a close at 10426, and a dip to 10318. What’s that mean – well if we move up from here it means that this is the shallowest dip of this whole run. So the pattern suggests that we could see a bit more downside before they turn us back higher again.

On the gold front, all hell has broken loose and it's not just supply and demand, it's starting to become much wider than that. Although the ultimate push higher will come when enough people look to it as being "money" instead of a commodity, or a storehouse of value, we are also seeing all manner of possible upside pressures coming into play. People are genuinely worried that the Governments don't have the gold they say they do. Fake bars have been found in inventory in Asia, and it’s becoming increasingly clear that there just isn't enough of the "real stuff" to satisfy demand. Now, I do expect gold to take it's lumps as people who are 'trading it" take their profits and move on, and the cartels do their best to beat it lower again. But there's no doubt in my mind the economic suicide they have us on will ultimately demand that more and more Governments move toward the metal, along with the hedge funds that are gold centric, and the push for more ETF shares. Just an interesting thought here folks, in the GLD prospectus, there's no guarantees about the fineness of the gold they supposedly hold, and no real oversight of the third party auditing of the gold.

Gold and Silver will go higher. The complication now becomes – what if you make 30% on your stocks – and the dollar continues to decrease by 30% per year?

Let me wrap this up today by wishing everyone a Happy Thanksgiving, and there's so much to be thankful for, that at least we have ONE day to catch our breath and say thanks.

TIPS:
We’re still holding our HL purchased @ 4.50
Let’s begin to watch GDXJ – the junior gold mining ETF – there will be something there.

Until next week – be safe.

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

This week in Barrons - 11.15.09

This Week in Barrons – 11-15-09:
Thoughts – An Alice in Wonderland Market

Alice laughed. "There's no use trying, one can't believe impossible things."
"I daresay you haven't had much practice," said the Queen. "When I was your age, why sometimes I believed as many as six impossible things before breakfast!" Here in the US, the Fed, along with our White house and economic leaders want us to believe completely impossible things. And judging by the people that call in to talk shows, especially Cramer's, it's apparent that many people are perfectly willing to believe absolutely impossible things. Nothing drives this point home better than the two former Bear Stearns hedge fund managers who were found not guilty of securities fraud in federal court in Brooklyn. Despite emails between the two that show explicitly that they knew the toxic sludge they were pawning off on people was destined to blow up, WHILE they assured investors of the high quality of those instruments, the jury found no evidence of fraud. And worse than that - one of the defendants, Mr. Cioffi was also found not guilty of insider trading charges on accusations that he moved $2 million he had invested in one of the failing funds to another less risky fund while telling investors he was adding to his position. The moral of that story is what The Duchess said: “The more there is of mine, the less there is of yours.”

And what's a little flip flop among friends? Well, Al Gore finally sat down and did some real math surrounding Global Warming and he sounded a lot like Alice: “Let me see: four times five is twelve, and four times six is thirteen, and four times seven is -- oh dear! I shall never get to twenty at that rate!” So Al decided to change his mind! In a most stunning reversal, Al Gore has now changed his mind on Co2 being as much of a concern in Global Warming. According to Al, Co2 is no longer that mean nasty gas that we all need to live (on this planet) but rather it’s now "black soot" and methane that are the main culprits for the majority of global warming. Al did admit to Newsweek magazine that he does understand that his position change might make it a bit harder to rally the people around Carbon Taxation. Well it's really quite simple, when people were fat, dumb and happy from 2003 to 2007, everyone bought Gores dog and pony show about global warming. But when housing imploded, the stock market crashed, unemployment hit 10%, layoffs, foreclosures, bank closings and lack of credit hit – then of course we set record low temps around the world, and had more snowfalls earlier than ever recorded all around the globe. People started thinking – I’m broke, the system’s broken – why do we need to spend umpteen $ trillions to combat global warming that doesn't exist? As the Eaglet said “Speak English! I don't know the meaning of half those long words, and I don't believe you do either!”

As The Duchess said: “If everybody minded their own business, the world would go around a great deal faster than it does.” More and more people are believing that the Fed did it, they pushed the right buttons, pulled the right levers and somehow we end up all fat dumb and happy, and we're going to party like it's 1999. Honestly, as the Fed (in each country) prints trillions of dollars, each trying to get their currency below their neighbors so their exports can sell, we are seeing a rise in economic activity. You simply cannot push an entire years GDP worth of money into the system without seeing little pools of activity pop up. The masses are looking at this as proof positive that the all-clear bell has rung. That will be a monumental mistake. It is my hope that we ride this market for what it’s giving us in order to save money, pay down more debt, and hunker into a more reasonable lifestyle. In the opinion of many, we aren't going to double dip into recession we are going to roar headlong into depression. I know that sounds horrid, but you don't have to be Alice to "get it". In Alice’s own words: “If I had a world of my own, everything would be nonsense. Nothing would be what it is, because everything would be what it isn't. And contrary wise, what is, it wouldn't be. And what it wouldn't be, it would. You see?”

In terms of a ‘Trading Tip’ this week – in the words of Jessie Livermore (famous stock operator) – the big money is always sitting idle. The concept is simply that if the trade you entered hasn't shown any fundamental reason why it's no longer a good buy (or sell), then you must hold through some dips and divots and over the longer haul, as long as your initial trend and hypothesis hold up, you'll make big money. Now – this is a very difficult thing to do. For example – back in March/April, DOW at 6600 – we knew the market would run to 9600 and said so – it started with Ben Bernanke’s statement “consumer confidence will rise with a gradual rise in the equity markets". Now – how did Ben know the markets would rise? Easy, he gave bankers free money to play with – and the markets ran from 6600 to 10K while employment fell, wages fell, commercial real estate imploded, foreclosures hit all time highs, etc. So, we KNEW two things. 1) Ben was going to backstop the market and 2) all that money he was printing would be major inflationary for the commodities. We knew it, we told you about it and we traded based upon it. The take away here is: some stocks we enter as a trade – and earning $2 or $4 a share is fine. There are other trades we enter where it's based on a "theme" such as the falling dollar, and when you enter a "theme" trade, it's fine to skim a bit off the top if the trade shows a good profit, but please do your best to let the balance of your position ride, especially if nothing about the reason for you entering the trade has changed. The big money is indeed always in waiting. When your money is in a trade – you’re always waiting for it to fully develop. When your money is in cash – and you don’t see a trade – you’re simply waiting until things line up properly – and that makes for a great trader.

The Market:
This week the "Junior Gold / Silver Miners" ETF launched. The symbol is GDXJ. What I find compelling about this is that the juniors are the ones with the biggest leverage. If gold continues up, this little basket of miners should do very well. I'll give it a few days to calm down from the initial launch, but I tend to think that at some point we'll dive into that one.

President Obama’s approval rating dipped below 50% for the first time, as we continue to see retail sales declining, unemployment rising – and deficit spending rising. If you ever divide the amount of stimulus + bailout spent – by the number of jobs created – it would have been less expensive to give every homeowner $50k and tell them to spend it (but that wouldn’t have helped Goldman – humm). We’re still allowing 100% home financing with 2% down – isn’t this what got us into this mess? And courtesy of Steve Forbes – as you look across the landscape of our states – realize that state sales tax and income tax receipts (which make up the bulk of state income) are down 12% and in the 30%’s respectively. Also – according to Bloomberg – mortgage applications (to purchase homes) plunged last week to their lowest level in almost 9 years. Now – how is it possible that people are saying ‘housing has put in a bottom?’ Don’t you have to actually buy something to show that it’s put in a bottom?

Up – pause for a day – pause for a bit – and move up. That's been the pattern for a while now and it played out again Friday. As we said before "lean long, but be cautious" – because at any time the music could stop and you're going to need to hurry to grab a seat. Remember, this isn't the beginning of some bull market bounce that started in March - after 7 months of soaring higher, we are in the stratosphere, and only up here because of fraud, manipulation and Wall Street's desire to finish out the year strong. Those are NOT fundamental ‘theme’ trading strategies but rather the $2 and $4 per share kind. Banks are using the ‘bailout’ funds the FED gave them to move the market (pay their broker’s bonuses) – rather than make loans. Did you know that according to Goldman's 10Q, out of all the trading days last QUARTER they lost money on just ONE? Do you know what the odds are against just losing money on ONE DAY out of a QUARTER? But when you tell me that Goldman Sachs IS the FED – ah – it all comes together for me. Now – what will happen when the FED money runs out - we fall and fall hard. It could be tomorrow, it could be in February it could be in October 2010. Now we should see the market pause for a bit this week. But again - all we can do is lean into the prevailing trend – but I sure wouldn’t be shy about taking profits.

TIPS:
It was a good week last week – in the course of the week we jumped in and sold:
- DIA’s for a $2 gain
- GG for a $6 gain
- NEM for a $6.50 gain
- And broke-even on RIG and UYM
We’re still holding our HL purchased @ 4.50

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

R.F. Culbertson
rfc@getabby.com

This week in Barrons - 11-1-09

This Week in Barrons – 11-01-09:

Thoughts - As Nero Fiddles:
"This is where it gets tricky, because policymakers realize that asset prices must be supported in order to generate positive future nominal GDP growth somewhere close to historical norms." - Bill Gross of Pimco (the worlds largest bond trader).
At one point – fundamentals ruled our investment decisions – however recently it’s anything but. Let me ask you – How do you know that the earnings you're being told are even remotely right? With insiders still selling at a ratio of 30 sells to 1 buy, if earnings were really as good as they tell us each quarter, wouldn't they be investing in their own companies? In our world – ‘lately’ – the market is there to confound, confuse and take the most amount of money from the most amount of people, at any one time. Figuring out which way the market would have to go to achieve that goal is indeed the direction the market will go.
The Economic Cycle Institute is saying that we are “poised at the brink of the strongest economic recover in a generation.” Let’s examine this: (a) Despite the first time homeowner credit, new home sales took a step backward in September, showing a much lower-than-expected annual rate of 402,000 in a report that includes a steep downward revision to prior months. The year-on-year rate also took a step backward. So, we're giving people tens of thousands to buy homes, with interest rates at levels not seen since the 60's and we’re still moving downward = "strongest economic recovery". Factually the purchase index fell 5.2 percent in the Oct. 23 week while the refinance index dropped 16.2 percent. (b) Capmark is one of the largest U.S. commercial real estate finance companies, with more than $10 billion in originations, filed for bankruptcy this week. (c ) GMAC the former lending arm of General Motors is in talks with the Treasury Department for a third injection of taxpayer aid – yet another sign of “strongest economic recovery.” Maybe the third time’s the charm? (d) Maybe it’s the $54 Billion dollars in ‘gold shorts’ that are being held by large institutions – do you really think that they have the ‘gold on hand’ to cover these shorts – really? (e) Maybe it’s the state coffers – except 48 out of 50 states are in serious deficit and some (California included) are technically insolvent.
A lot of you are asking me about gold and it's next move. We all saw gold go up to 1060 and get repelled. My thinking is this: if you're looking at gold, or the miners as day to day plays, you're in the wrong sector. Many were the times during the last 9 years when my gold holdings were under-water. But then almost like magic, they'd move higher and higher again. This is NO different. When the dollar rises gold will take a hit. When Russia says that it’s going to sell gold – it will take a hit. And when 4 banks are short $54 Billion in gold that they can not possibly ‘cover’, gold will take a hit. But you’re not in gold to buy at 1,000 and sell at 1,050 – you’re in gold because the dollar is going to ‘heck’ in a handbasket. At some point the dollar index won't be in the 70's as it is now, it'll be in the 40's – and gold will potentially be 3,000 at that point. The very same thing with the miners. When gold goes to $3,000 – miners will (because of leverage) see gains that will even make Google blush. Could gold come down to 1,000 or 950 – sure – and I would just buy more. Until I see the Fed stop printing money, monetizing debt, until our country can balance it's books our currency isn’t worth the paper that it’s printed on. Gold is the answer to depreciating currencies, fiat dollars, and bankers gone wild. So buy on the dips and don’t sweat the pullbacks. To mine one single ounce of gold, hundreds of tons of earth must be dug, ground, and separated. Men in nasty places sweat to exhaustion. Huge mechanical earthmovers are bought and employed. On the other hand a tree is cut down, $700 in lumber and turned into pulp and then into paper. Bernanke prints the number 100 on each of these pieces of paper, and within an hour 1 Billion dollars has been produced. Which one do you think is a better “store of value?”

The Market:
Let’s not confuse an economic recovery with what Bill Gross said: “a push to support asset prices” because asset prices are deemed to BE the economy. The market is supported by a ‘printing press’ and could they pump so many billions into the market that we actually see this market defy gravity and continue much higher? Unfortunately, yes. Friday we failed 9800 on the DOW and 1050 on the S&P, and I believe that this is the "big pulldown" and we've got another 5% or more to go. If we get up and over 9800/10150 and we can hold that for a couple days, chances are good we're going to go back up. But put in two or more days under that level and I suspect we'll be visiting 9400/1000 soon. We went to cash last Tuesday/Wednesday because we saw some "funky" looking things brewing on the horizon. Since then we've peeled off 390 points from the Intra day highs. Sure we could have gone short, but with the Fed injecting money at will, it's pretty dangerous. We were willing to just sit tight and go fishing. So far, sitting on our hands in the safety of cash has been a winning strategy.

TIPS:
We lost 9800 at the close – and therefore I’m going to scale by my market exposure from 60% to 40%. In the meantime, like most of the last week, I'm sitting on my hands until something solid develops (other than gold or silver!)

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 - 10-25-09

This Week in Barrons – 10-25-09:

Thoughts:
Let’s talk about precious metals for an instant. A week ago 2 US banks, held 38 contracts long silver and 38,375 contracts short silver for a total net short position of 38,337 short contracts. These are 5,000 ounce contracts – with just two reporting entities able to amass a net short position in silver of 38,000-plus contracts – (COMEX has a 6,000 contract accountability limit (for two traders) – so they’re outside that – and is that unusual - (unfortunately) it’s not.) For example: as of July 1, 2008, two U.S. banks were short 6,199 contracts of COMEX silver (30,995,000 ounces). As of August 5, 2008, two U.S. banks were short 33,805 contracts of COMEX silver (169,025,000 ounces), an increase of more than five-fold. Now - between July 14 and August 15th, the price of COMEX silver declined from a high of $19.55 to a low of $12.22 for a decline of 38%. This was almost a record fall – and was this coincidence? The SEC, the CFTC, and virtually every governing body has looked the other way, while 4 or possibly 5 major US banks have grouped together to ‘naked short’ silver into oblivion time and time again. The U.S. prosecuted the Hunt Brothers for attempting to ‘corner the silver market’ – and their entire holding of silver (even with millions of ounces on margin) was ONE FIFTH of the size of these two banks short positions. What’s interesting is that no one is ‘screaming’ about these banks.

The reason that this is important is that the end game could be ending. People all over the world are tired of the currency melt-downs, and are flocking to gold and silver to preserve their wealth. Can two or three banks naked short the market enough to offset millions of people clamoring for the metal? At some point the answer is no, and I think we're getting very close to that point. I have good reason to believe that during last months naked shorting binge on Gold, the COMEX had a fail to deliver problem with all that gold, and made deals to pay off in dollars instead of metal, simply because there was no metal left. Could this happen in silver - absolutely. Some sharp observers of the reported holdings in the GLD "vaults" noticed some incredible disconnects lately.

The bullion banks, along with the Fed Cartel, and Wall St, have been playing in the Gold and Silver markets for years. Now that the enormous demand for the metals (from all over the world) has hit, what we appear to think is a huge "short covering rush" – it’s causing everyone to scramble to secure enough metal to meet requirements. This is quite spectacular to watch and if the buying pressure continues, gold will roar higher, possibly taking out 1250 in a relatively short period.

Shifting gears a bit - our good friend Steve Forbes wrote us with the following: “(a) September year over year home sales were higher by 9.2 percent – with a corresponding median price decline of 8.5%, (b) Inventory levels were 7.8 months which are the lowest since March, 2007, (c ) The activity is largely at the bottom end of the market, in part to the 8k 1st time buyers (45 percent of all buyers) package offered, expiring at the end of November. And (d) In September, 70% of transacted homes were priced under $250,000 – with 29% of those being short or foreclosed sales. Now couple this with: (a) Industrial output is at 70% of capacity, lowest level in 2 decades, (b) Consumer credit is off 6.5% from Sept 2008, (c ) Unemployment continues to increase, (d) The stimulus packages have been "spent" with the biggest impact resulting in 49 of 50 states with higher unemployment then prior to TARP. It will be interesting to see if they extend the home-buyer tax credit – because without it – the housing market is potentially facing a double-dip recession. Unless we establish a firm foundation for middle-class wealth recovery, this post-recession economic growth will not be sustainable and shall be one of the weakest in U.S. history.”

Now the FHA is by far the largest mortgage lender out there. They simply require 3.5% down. 21% of the homes sold were between $0 and $100k. To be considered a first time home buyer, all it means is that you have not owned a home for 3 years. Okay, for example - take a foreclosed house that sold for $169K in the bubble, got foreclosed and the bank offloads it for $95K. That first time tax credit is almost 10% of the price of the house. In an interesting way, Uncle Sam is floating the banks loans - that are eating those types of losses, and then giving people on the lower end almost 10% of the price of the house. The bottom line, is that the taxpayer is putting up the down payments for these houses, AND (at the same time) insuring these homes via the FHA, AND on top of that, covering the spread via bail outs, to the banks that let those houses soar in the first place! My – we are a generous population!

And I do wish that I was in banking about now. As a connected bank – I can borrow from the Fed, at virtually zero interest. I can lend that right back to the "country" by buying short term treasuries, picking up say 2%. Then on top of that, I could use a type of leverage by simply "pledging" the notes I already have, as collateral to borrow even more. That creates many-many billions that I can use to do what ever they want with it. Since the money is FREE, my appetite for risk is fairly broad – so I use the bulk of the money to trade the markets. This is why banks are racking up hundreds of billions in profits, and it certainly explains a lot of the market movement over the past 6 months – yes? Unfortunately – our national debts are soaring, our deficits are out control – this makes Al Copone did look like Sunday school play.

The Market:
Last week I was sitting here in almost stunned silence as CNBC was going absolutely gaga over Caterpillars earnings report – but alas – their year over year revenues FELL 44%. They did enjoy tax breaks, and due to currency differentials (selling in foreign currency's and repatriating into cheaper dollars) CAT did beat some very low estimates. Reuters (on Tuesday) said that earnings were lower by 22% for those companies reporting thus far which compares to 24% lower for the previous period. OK – now if earnings are coming in 22% lower (yet still beating analyst’s expectations), are we in growth mode, or are we in "make Wall Street look good" mode? Unless basic business is wrong – if my revenues keep falling by 44% - fairly quickly I’ll need to close up shop – yes?

Now our guess was that we would jockey around DOW 10k, struggle a bit, then move even higher, possibly to 10,300 or 400, pulling in all the "naysayers" and then once they were all back in the game, pull the rug out and we fall hard and fast for a while. And yes – I read a lot of the other newsletter editors out there - Ken Fisher for one – calling for the proverbial “V-shaped pattern – IF history repeats itself, expect another 25% upside gain by January.” But I must tell you – the market action recently just doesn’t feel right. Are we seeing a market moving up because of this dollar devaluing already – absolutely – but throw in interest rates at virtually zero, cost cutting via layoffs at half a million a month, direct stimulus payments, and never underestimate the power of fraud.

Currently we’re just under 10K again, and I wouldn't be surprised if they once again circle the wagons and try and drive us higher once again. If we cannot clear those intra day highs this week, I'm going to become incredibly defensive. We have very few trading positions open – and we’re in a no mans land of chop. I don’t think you can go legitimately short until we lose 9,800, nor long till we clear 10,157. If they clear 10,157 – then we should see 10,400, but at that point I'd think our smackdown would appear, seemingly out of nowhere. If we can't clear 10,157 and we lose 9,800, it could snowball us down to 9,400 quickly. Trade fast, use small positions and don't marry anything. This is a VERY dangerous market.

TIPS:
- we’re still holding MOO – agricultural space ETF)
- we’re still holding IPI – agricultural – potash arena

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 - 10-18-09

This Week in Barrons – 10-18-09:

Thoughts:
This week the NABE (National Association of Business Economics) came out and declared that the recession is over. Forty-four (44) of the "best" economists told the NABE that we have weathered the storm and things are moving along quite well. Now I tend to think that things are getting worse – not better. The most recent Business Roundtable Survey showed that 49% of all CEO's expect their sales to be flat or down in the coming 6 months – 79% of all CEO's surveyed expect their capital spending to be flat or down in the coming 6 months – and 87% of all CEO's expect to do no hiring in the coming 6 months. Delinquencies among U.S. commercial mortgage-backed securities surged to a record amount of 3.64% in September, vs. just 0.54% one year ago. Every 13 seconds, there's another new foreclosure filing somewhere in America – more than 6,600 foreclosure filings a day. Yep – there have been roughly 2 million foreclosures so far and our Assistant Secretary of Treasury, Michael Barr, saying that another 6 million families will face foreclosure over the next three years. Hummm – sounds like the recession is over to me!

Even the Government’s own doctored and painted non-farm payroll reports show that we are still losing 250,000 to 400K jobs a month. In the past, employment was a lagging indicator – people would get laid off – they would cut back spending, and as the number of unemployed rose, they would simply hunker down. Uncle Sam would then push a stimulus in the form of tax cuts and/or lower interest rates. Businesses would start to recover and even people that were still unemployed would "feel better" about things – and they would begin to whip out the credit card and start spending again. Even the unemployed felt safe doing it because the businesses were returning to growth, they'd be hiring and felt good about being re-employed soon. What most people don't understand is that because of that "feel good about the future" emotion, the unemployed were using credit to continue spending, which ultimately led to the businesses actually doing better. As the business did better, they hired more people and "bingo" the recovery was in. So, it was always the fact that consumer buying, based on credit, is what ultimately got the businesses expanding, and then ultimately hiring again. In this case - that option is gone. There is no longer a house to refinance – because the home equity lines of credit have been shut down. The credit card agencies have reduced the public's outstanding credit available. Lending standards have risen – so the jobless are NOT going to increase spending. So this time there is NO credit, and businesses have cut back so hard for the past 2 years, capacity utilization is at record low levels. That means that business can increase output many times over, just by expanding the workweek of the people already there. Without the consumer going into hock on credit to buy products and services, business cannot expand. Therefore, without credit, joblessness is a current indicator – and without hiring there is no recovery.

Okay, so where is the NABE getting the idea that the recession is “over"? Please understand – these are the same economists that didn’t see any problems in the first place. Consider that these same 44 economists didn't see the single largest financial disaster of the last 80 years coming, and when the recession hit – they said it wasn't going to be a problem, it was nothing to worry about – and now they say that it's over. It scares me to think that “they” pushed this entire economy down just so they could get their own agenda's pushed forward, and that's why America is reeling in it's second ever “depression".

Yet this week, amid much fanfare, we busted over DOW 10,000. Was it because of a robust economy? Was it because Intel's revenues fell 8% on top of last year’s fall? Nope – it was because Uncle Sam is keeping the market up – and the marketing being up is the only thing keeping the “commoners” from revolting. So enjoy the game while it lasts. Just know that without the $ Trillions in funny money, without interest rates at virtually zero, without "mark to fantasy" accounting, without cost cutting, the market would be at 5,000, not 10,000 – and yes – we will get there.

The Market:
This week they managed to squeak us up and over 10K – for a bit. Yes they missed on Friday, but only by 5 points. We said last week that they'd pull out the stops and try and keep the market moving higher and they have. It really doesn't matter if it's a house built of cards or not, up is up, and we like tagging along with it. But, how long can they keep this going?
Just try and get your arms around the fact that the market doesn't belong "way up here" and that it's being pushed there. If you understand that, you've won half the battle. Now there are a handful of ways this can play out. We could see the market move up, pause, move up, pause and keep on going to January. Or, we could see the market put in a big "last ditch push" and then after half the earnings are out, see us roll over for a good pull down. One thing is certain, 2008 wasn't friendly to a lot of hedge funds and mutual funds – and they didn’t get their yearend bonuses. These same hedge funds want that bonus, and they'll probably let it all hang out in hopes of achieving it.

Unfortunately, the market does not exist to make you fat dumb and happy into your golden years. The market exists just like a casino exists, so the owners of the market, and the main contributors to it - make money. Since we are talking big money here, billions upon billions of dollars per day, the market has evolved to the point where it is impeccable at confusing, confounding and taking the money from the most people at any one time. Years ago we worked on corporate balance sheets, P/E's, price to book and all the standard fundamentals that one might think actually count for something. Then we learned an important lesson. We make our money by trying to figure out how the market would make the most amount of money at any one time. If it's by going higher, and pulling in more people and burning those that went short, up it will indeed go. If the market will rake in more money by rolling over and burning the longs, and punishing the latest people into any rally, then down it will go. Unfortunately – that doesn’t do much for fundamentals – but that’s the way we’ve been trading for a while now. However, if they let the market roll over right now, all the people that were going to sell out if the DOW ever reached 10K again, would be smart. If it just continues to pause, move up, pause, move up, then every "dip" buyer would continue to be rewarded, and the market rarely likes to show it's patterns so easily. So, I'm thinking it inches up a bit more here – because those who say they'd sell at 10K will watch and decide to stay in. Those that didn't think it could ever surpass 10K will say "wow this must be real, we just passed 10K, I gotta get in". And all of those that sold short over the last two weeks would have to cover or lose big time. Then, just about when everyone is totally on board that the market is destined for 11K, they pull the plug and ALL those people get spanked.

But wait it gets even better. Let's suppose we do hit 10,400ish or so. Let's say then they do pull the plug and we lose 700 points or so, causing everyone to scramble, sell out, go short, etc. What would be better than once again reversing and pushing straight up into year end, frying all those that just "got out?" It's almost too perfect - yet I wouldn't be a bit surprised if this is the way it pans out.

Just remain nimble and let’s see how this plays out. We're going to continue to "lean long" but keep our hands near the sell button.

TIPS:
- we’re still holding MOO – agricultural space ETF)
- we’re still holding IPI – agricultural – potash arena
- we’re holding PTEN – with a hard stop 26.06

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 - 10-11-09

This Week in Barrons – 10-11-09:

Thoughts:
Not a day has ever gone down in history where it wasn't "different" than before.
Yet despite the fact that things are always different, history does tend to play little tricks on us by mimicking things that have taken place in the past and running them again, almost like a product that's been out for 50 years, and gets a new box saying "new and improved". Steve Forbes wrote me last week – with this little gem: “Over the years - there have been 28 episodes of hyperinflation of national economies in the 20th century, with 20 occurring after 1980. Professor Peter Bernholz (Professor Emeritus of Economics - University of Basel, Switzerland) analyzed the 12 largest episodes of hyperinflation - all of which were caused by financing huge public budget deficits through money creation. His conclusion: the tipping point for hyperinflation occurs when the government's deficit exceed 40% of its expenditures. According to the current Office of Management and Budget (OMB) projections, the US will run deficits equal to 43.3% and 39.9% of expenditures in 2009 and 2010, respectively. To put it simply, roughly 40% of what our government is spending has to be borrowed.
Has the US reached the critical tipping point. The qualitative perceptions of fiscal and monetary policies are impossible to control once confidence is lost. In fact, recent price action in metals, the dollar and commodities suggests that the market is already anticipating the future."

All we’re hearing now is that Ben Bernake was a student of the Great Depression, and knows how to avert another one. To which I say "hogwash". We’ve handed out billions: (a) for cash for clunkers, (b) to save the very banks that drove us into our current situation, (c ) in unemployment benefits, (d) in the form of first time homebuyers tax credits, and (e) for more war. Yet reality is telling us: (a) 49% of all CEO's expect their sales to be flat or down in the coming 6 months, (b) 79% of all CEO's surveyed expect their capital spending to be flat or down in the coming 6 months, and (c ) 87% of all CEO's expect to do no hiring in the coming 6 months. We just saw 550K more initial jobless claims last week, and 263K people lost their jobs in September, and here are the CEO's saying that they will NOT be hiring anyone for 6 months? Is THIS what a recovery looks like?

U.S. apartment vacancies rose to 7.8%, a 23-year high, and if they can't rent apartments, are they really going to be selling more houses? Office rents fell 8.5% year over year in Q3, the biggest drop since 1995. The decline came as renters ‘gave back’ 19,600,000 square feet to landlords; YTD they've given back 64 Million square feet - the highest negative absorption rate on record. The office vacancy rate of 16.5% is a five-year high. With more job losses still predicted, don’t you think we’re going to shed more office space. Who called a bottom in housing – and is THIS what a recovery looks like?

Internet advertising in the United States slipped 5 percent in the second quarter as the recession extended the first slump in online marketing since 2002.

But let’s look at our buddy Goldman Sachs – and what happens if CIT goes bankrupt. And remember Jim Cramer told you to dive into CIT when it was still over $2 (it’s a lot less now!) A CIT failure would benefit Goldman to the tune of $1B in cash. A CIT failure would hurt small business, hurt the taxpayer, certainly hurt the shareholders – but who would win – ahh Goldman Sachs – and potentially someone who has a lot of Goldman Sachs shares (Jim Cramer!)

GOLD – well the other day "rumors" spread that Saudi Arabia was in talks with Japan, Russia, China, France and several other countries to try and sell oil in a different currency than dollars. That smacked the dollar hard and sent gold on a huge run, ending around 1050 an ounce. Now, are the Saudi's and OPEC trying to get out of dollars? Of course, the entire WORLD wants out of dollars because dollars are being de-valued. But if they stampede the gates, everyone will try and get out at the same time and crash the whole financial system. Once again Gold proved that it’s true purpose is ‘money’. As the dollar falls – gold will continue to rise over the next several years. Now realize that the major cartels, the Central Banks and money centers are short a ton of gold and right now they're in panic mode. If they can't beat gold back down, there's going to be major fireworks. The COMEX could actually fall as "fails to deliver" take over the floor. In other words we're about to witness a street fight over the value of the metal. I predict that gold still wins – but it won't be a straight shot, and we could see gold under 1K again.

The Market:
Monday went as we figured it would, although it did close higher than we thought. We called for a gap open, a fade to red and a push back to green which we got. But I was thinking something like a gain of maybe 50 points, not the 100+ we got. Tuesday the market absolutely roared out of the gate and in no time at all was up 160. Then during the afternoon session, it looked like they might lose control as we were up only 75. But the "powers that be" came in and bought up everything, and we closed up very strongly. Wednesday was a grind that ended essentially flat. And then Alcoa hit - sales in North America fell 25%, sales in Europe fell 25%, BUT sales in China rose 15% - which according to Alcoa solves all their problems. Yes – they "beat the estimates" but they had to do it on revenues that fell 34%. Once again we see currency exchanges, and finely tuned accounting being the reason for such "BTE" (better than expected) results.

The rest of the week was a reaction to Alcoa – and was grand and we’re beginning to flirt the DOW busting over 10K. With the flood of earnings really starting next week, there's a pretty good chance that a lot of the darlings will really run into their release. We seeing that with IBM, and AMZN, we saw it in the material sector and the coals. As much as it doesn't make a lot of "fundamental" sense, leaning long is probably going to be the right way to go.

TIPS:
- we’re still holding MOO – agricultural space ETF)
- we’re still holding IPI – agricultural – potash arena
- we’re looking at a lot à AEM over 72, GG over 43, RGLD over 50, MFN as it crossed the 10.20 area, NAK it crosses the 7.75/8.00 area, SLW which I loved over 13.13, SSRI over 24 should run nicely, PAAS over 25.50 could be a very nice breakout move, OIH gets over 120.00 all hell could break loose, watch RIG for a move over 87.00, DO over 98.00 would put it in an interesting area, PTEN crossing over 16.00 makes an interesting trade
- I grabbed some ANR @ 36.14
- I also bought some MEE @ 29.11

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

Until next week – be safe.

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