This Week in Barrons - 4-14-2013

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This Week in Barrons – 4-14-2013

Winds Of Digital Change are Blowing…

Sometimes it is hard to stay buried in economics and financial structure when so much is changing around you.  Who wouldn't have wanted to be there when Polaroid debuted its new technology?  Or when Johnson and Johnson (back in 1885) brought out the first "ready to use" bandages?  The speed of innovation has not just doubled or tripled in the last hundred years, it has gone parabolic.  My great grandmother (when she was alive) – went from living in a wood structure with a horse, buggy, and no plumbing – to seeing someone land on the moon.  There is one particular technological innovation that we're living through that is going to affect all of our lives in a way that we don't fully understand – it is the complete transition to a cash-less society.  Money has been around (in one form or another) for thousands of years.  Money created it’s own ‘business boom’ because money (rather than barter) made it easier to buy things.  Money is on slightly newer ground now – not being backed by a ‘gold standard’.  But what happens when we become a completely digital, cash-less society – and every transaction becomes a card swipe, or a smart phone pass.  Every transaction comes with a complete digital, unbroken trail.  No more hiding from the IRS. 

-       Will sales increase because you can swipe faster than you can wait for change?

-       Will jobs be created because you can no longer hire someone "under the table"?

-       Drug dealers will potentially go out of business – as will any other companies that don’t comply with regulations.  But what will that impact be?

After all, governments are broke and they're on a wild hunt for tax income – tracing money is their game, and digital currency makes it that much easier.  

A huge thanks to Mitch F. and Morgan C. for contributing the following on a new global, digital, decentralized currency called Bitcoin.  The value of a Bitcoin (the first global, digital currency) has gone from $15 to $260 to $90 in 3 months – so it is ‘investable’.  But there are some differences between Bitcoins and today’s currencies.  Often, global (country based) currencies are backed by a Central Bank – that produces ‘real money’ on an ‘as needed’ basis.  Bitcoins are created at a constant rate by a process called ‘mining.’  Their creation is based upon a mathematical solution and has a hard limit of 21 million Bitcoins in existence.  As the number of Bitcoins in existence (mined) approaches the 21 million limit, the creation algorithm is mathematically slowed in order to maintain the balance.  Here is a video that explains this using pictures: http://vimeo.com/duncanelms/bitcoinexplained

To invest in Bitcoins – you need to use an online exchange.  Of the three major exchanges: MtGox.com, BitStamp.net, and CampBX.com – MtGox.com is (by far) the largest exchange – and the one our experts recommend.  In order to do a transaction, you will need to deposit funds into the exchange.  MtGox provides instant deposits by using BitInstant.com.  But, be aware, this costs you a 4% fee, and should only be used if you want funds in your account as soon as possible.  Otherwise, bank transfers are available that take 1 to 3 days, and charge less than a 1% fee – or potentially no fee at all.  In terms of sales and withdrawals – the transaction speed and percentages are the same.

Once you have some Bitcoins you will need a digital wallet to store them in.  Why not just store your money in the exchange itself?  The reason not to do that is because these exchanges are fairly young, and therefore targets for hackers.  E-wallets such as Blockchain.info are strongly recommended.  Your E-wallet will give you a Bitcoin address (or several) in order that your Bitcoins can be automatically transferred (as needed) in and out of your ‘more secure’ wallet.  Because it’s digital – make sure you keep an automatic back-up of your digital wallet account.  For a more thorough FAQ discussion – please refer to the wiki page: https://en.bitcoin.it/wiki/FAQ.

Like any new element, Bitcoin is not without it’s hurdles.  Last week the main Bitcoin exchange was subject to several DOS (denial of service) attacks which caused the price to fluctuate wildly between $260 and $90 per coin in one day.  Therefore, Bitcoins are not for the faint of heart investor – but rather a step into a completely global, digital currency that brings as many questions as it does promises.  As for me, I’m going to try it, because I think it is the shape of things to come.

The Market:

I have to start with gold, since it made headlines Friday.  Gold, silver, copper and many other metals were attacked on Friday, but it was gold with the most dramatic result.  Why did gold decline by $70 an ounce?  After all, isn’t Gold supposed to go up during inflation, and at minimum "hold steady" during times of turmoil?  There is significant inflation and tons of global turmoil, however; Gold is off 20% from its 2011 high.  As a very smart gentleman once told me: “People sell – when they need the money.”  Now as mundane as that sounds, what he meant was – most people don’t calculate the exact moment to sell – and then execute the trade.  Most of the really big trades happen - when people (countries) really need money.  And if you knew that a specific country really needed money, and their only asset was Gold – you would do everything you could to ‘reduce’ the price of that asset (in this case Gold) before the sale – in order to maximize your profit – yes?  Now would the amount of Gold that a nation like Cyprus "could" sell on the open market actually correlate to a $70 drop?  No.  But if sovereigns wanted Cyprus’ gold at a real bargain, then pushing the paper market down ahead of any sale would be quite advantageous.  

Also, with the consistent deterioration of the Japanese Yen and the Euro, the US dollar is still the defacto global currency.  Due to that – there is still no love lost between any Central Banks, Wall Street and the precious metals.  Nobody can package up ‘bogus tranches’ of gold to sell to investors and make large premiums.  In fact when gold is falling, financial institutions are often quick to tell you that you should sell any and all of it and buy ‘their’ financial instruments.

Can Gold go lower?  Sure.  Is this a reason to bail out and run for the hills?  For me, once it stops falling and finds its footing, I'm going to buy more.  Personally, I would rather buy more at $1,400 than at $1,500, but let’s see where it settles.

Speaking of stocks, both J.P. Morgan and Wells Fargo made their earnings estimates on Friday, but they made it by moving loan loss reserve monies into the "general pool" thereby increasing earnings.  Fair warning, that’s an accounting scheme that’s just wrong.

Another consumer sentiment report came out Friday, and it showed the single, largest "estimate miss" ever recorded.  We were expecting a consumer confidence reading of 78.8, and instead received one of 72.3.  After weak bank earnings and the lousy economic data, we still ended UP 2 DOW points on the day.  Many analysts are calling this most recent stock market run-up a ‘bubble’ that could go on for months or could end Monday.  I have seen the market ignore 11 separate economic report misses.  But, the Fed isn't going to stop printing any time soon, so we could be looking at Japan 1989 – when their stock market made it to 40,000 before imploding to 9,000.  In those days, Japan went from 5,000 to 38,870 in 5 years, fell back to 9,000, and today (24 years later) is around 13,400.

If you are "IN" the market, then things are good.  If you’ve been in the market for over a month, then you have some cushion, and could sell and take profits right now.  But getting in NOW is extremely dangerous.  If the Fed is pushing the DOW to 17,000, then you want to be in.  You just don’t want to be in days ahead of its first correction.  Bubble markets are scary.  We're in one, and each day brings new excitement.  Small positions and taking profits quickly aren't the ideal plays, but it beats not being in at all, and it beats losing when a ferocious drop comes.  Be careful out there.

Tips:

Thursday COP hit 60.63 (up over $1 a share) – and on Friday we stopped out flat.  The same was true for ORCL.  I'm still watching SBUX and JNJ, but lets face it, this market desperately needs a rest.  Even a manipulated market needs help now and then.  So I'm okay going slow here.

My current short-term holds are performing nicely (with gold and silver still lagging):

-       NUAN – in 19.10 (currently 21.64) – stop at 20.50,

-       SPY – in at 154.45 (currently 158.67) – stop at 157.25

-       SIL – in at 24.51 (currently 16.20) – no stop yet

-       GLD (ETF for Gold) – in at 158.28, (currently 143.55) – no stop ($1,501.00 per physical ounce), AND

-       SLV (ETF for Silver) – in at 28.3 (currently 25.10) – no stop ($26.32 per physical ounce).

To follow me on Twitter and get my daily thoughts and trades – my handle is: taylorpamm. 

Please be safe out there! 

Disclaimer:

Expressed thoughts proffered within the BARRONS REPORT, a Private and free weekly economic newsletter, are those of noted entrepreneur, professor and author, RF Culbertson, contributing sources and those he interviews.  You can learn more and get your free subscription by visiting: <http://rfcfinancialnews.blogspot.com> .

Please write to <rfc@getabby.com> to inform me of any reproductions, including when and where copy will be reproduced. You may use in complete form or, if quoting in brief, reference .

If you'd like to view RF's actual stock trades - and see more of my thoughts - please feel free to sign up as a Twitter follower -  "taylorpamm" is my handle.

If you'd like to see RF in action - teaching people about investing - please feel free to view the TED talk that he gave on Fearless Investing: http://www.youtube.com/watch?v=K2Z9I_6ciH0

To unsubscribe please refer to the bottom of the email.

Views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest and is not in any way a testimony of, or associated with Mr. Culbertson's other firms or associations.  Mr. Culbertson and related parties are not registered and licensed brokers.  This message may contain information that is confidential or privileged and is intended only for the individual or entity named above and does not constitute an offer for or advice about any alternative investment product. Such advice can only be made when accompanied by a prospectus or similar offering document.  Past performance is not indicative of future performance. Please make sure to review important disclosures at the end of each article.

Note: Joining BARRONS REPORT is not an offering for any investment. It represents only the opinions of RF Culbertson and Associates.

PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS (INCLUDING HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS AND OTHER SPECULATIVE INVESTMENT PRACTICES MAY INCREASE RISK OF INVESTMENT LOSS; MAY NOT BE SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop.

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Opinions expressed in these reports may change without prior notice. Culbertson and/or the staff may or may not have investments in any funds cited above.

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

R.F. Culbertson

<mailto:rfc@getabby.com>

<http://rfcfinancialnews.blogspot.com>

This Week in Barrons - 4-21-13

This Week in Barrons – 4-21-2013

Take Two they’re Small…

To quote Vishal Mehta (a garment dealer living in India): “I usually buy one gold coin a month, but this time I’m buying two.”

Because I have received so many questions surrounding gold (and silver) allow me to address those elements first.  The raid on Gold was truly a once in a lifetime event.  In fact, the $140 drop in the price of gold was statistically a 4.88 standard deviation price move.  We get this type of move every 4,776 years.  So the sun is expected to burn out before another move in gold like this will be seen.  Where the disconnect happens with me, is that in most areas price is set due to supply and demand.  But, gold isn’t most things.  Gold is a precious metal.  The price of Gold is not determined by the number of people actually buying and selling the physical metal itself, but rather by the ‘futures’ market.  The futures market is a ‘paper’ market (important point), and it is what happens in the futures market that affects everything else.  Why trade something as valuable as gold on an exchange where paper futures determine the price of the metal?  Because you can manipulate the price easier on the ‘paper’ market – than you can on the ‘physical’ market.  For example, if the physical market determined the price, the only way prices could fall is if more people were sellers than buyers.  But in the paper market, manipulators can knock down the price of the physical metal, without ‘actually’ selling the physical metal.  In fact, in the futures market you can do something called a "naked short".  Let's dig into that. 

In a short sale – if you believe a stock (say ‘IBM’) is worth $10 a share, but it’s currently trading at $20 – you can go to your brokerage house and borrow 1,000 shares of IBM.  You would immediately sell those borrowed shares for $20,000 ($20 per share * 1,000 shares).  Then you would wait for IBM to fall to $10 per share, purchase 1,000 shares of IBM for a total of $10,000 – and give those 1,000 shares back to the brokerage house where you borrowed them.  In the trade you get to keep the $10,000 difference between $20,000 and $10,000 as your profit.  This is a perfectly legal, ethical and well-architected trade.  The main difference in gold – is that in the futures pits, no one is looking for ‘physical delivery’ of the metal.  That is to say it’s all about the ‘cash settlement’ in lieu of delivery.

So last week, ‘someone’ decided to sell 100 tons (3.2M ounces) of gold in a single trade.  To put that into context, a large physical gold ‘trust’ – Sprott Physical Gold Trust (PHYS) – their entire holding is 1.6M ounces of gold.  Adding insult to injury, quickly following that 3.2M-ounce sell order came another 9.6M-ounce sell order for gold.  So in the span of 40 minutes, 14M ounces of gold were being sold on the ‘paper’ market.  The market responded by falling like a rock.

But let’s take a step back.  If you were a hedge fund that wanted to sell $24B worth of gold, you surely wouldn't dump it all on the market in one 40-minute session.  You would sell that over weeks if not months so that you didn't crash the price.  But this seller either didn't care about the price, or (something more evil), wanted the price to crash. 

Since most futures trading is not based on ever taking physical delivery, but rather is all accomplished through a ‘cash’ transaction – we now have a different situation to consider.  Given the sale of all that gold was most certainly accomplished without ever having to borrow the physical metal, the transaction would be called a “naked short".  Because the gold market (in comparison to the currency market) is relatively thin in volume, the price fall was breathtaking.  By flooding the system, and triggering a ton of self-defense selling algorithms, a buy back of gold could only really happen at the $1,440 level.  On the 14 million ounces of gold transaction, someone lost over 1 Billion dollars.  Not any single person or group of people could do that?  But your friendly ‘Central Banker’ could.

A sale of 14 million ounces of gold has one intention – to drop the price as fast and as hard as possible.  Why?  In order to systematically slow consumer demand for the metal – while allowing global Central Banks (China, India and Russia) to buy more for less.  As gold was hovering around $1,500 per ounce – all around the globe gold and silver (coins and bullion) were being purchased as fast as they were made.  The U.S. Mint ran out of Silver Eagles on two separate occasions.  Premiums (the difference between the spot price and the actual physical price) for physical gold were increasing.  The very same people that were proclaiming gold going to $3,000 per ounce a week ago, on Friday were proclaiming gold being worth $800 per ounce.  However, (this time) not everyone was a believer.  Factually, last week the U.S. Mint set a record by selling 63,500 ounces of gold in a single day.  I (like a lot of others) am looking at this price as a buying opportunity for the physical metal.   

The Market...

My heart certainly goes out to all of those in and around the Boston community this week.  Heading into Friday we had already seen the worst week of 2013, and the economic data and the earnings really weren't doing much to change all of that.  For example, IBM missed their estimates ‘big time’, and their stock experienced its worst drop in a decade.  A perfect example of why you never hold a stock over ‘earnings.’  For the most part, we sat on our hands this week.  Unless you're a real pro, it's hard to go short in a market like this, because at any second The Ben Bernanke could announce even more stimulus.  So, until the entire "up" trend is completely broken, we just sit on our hands instead of trying to go short. 

Friday ended slightly green.  The question however is not an easy one: "Is the selling over?"  It’s hard to say because of the situation.  The market’s averages still appear tired.  The XLF (the ETF that measures the financial industry) finally got back above it’s 50-day moving average on Friday – but the Small-Cap ETF (IWM) and the Semiconductor ETF (WMH) still remain far below their respective 50-day moving averages.  So the overall market is still slumped, but they have boosted the XLF to show some kind of strength.  Will that strength continue?  It feels like we have more downside to come before the next run up.  With that in mind, I personally won't be rushing out to buy anything.  I’m going to let them shake out all that needs to be shaken, and if the market wishes to push us back up and over the recent highs – we will certainly tag along.  I’ll need to see that in order to believe it.

Tips:

I was stopped out of NUAN last week for a $1.50 profit, as well as SPY for a $3 profit.

I’m watching ABT over 37.50, NKE over 61.31, BIG over 36.00 and BMY over 41.50.

My current short-term holds are currently only in the precious metals arena:

-       SIL – in at 24.51 (currently 13.98) – no stop yet

-       GLD (ETF for Gold) – in at 158.28, (currently 135.50) – no stop ($1,395.00 per physical ounce), AND

-       SLV (ETF for Silver) – in at 28.3 (currently 22.50) – no stop ($22.95 per physical ounce).

To follow me on Twitter and get my daily thoughts and trades – my handle is: taylorpamm. 

Please be safe out there! 

Disclaimer:

Expressed thoughts proffered within the BARRONS REPORT, a Private and free weekly economic newsletter, are those of noted entrepreneur, professor and author, RF Culbertson, contributing sources and those he interviews.  You can learn more and get your free subscription by visiting: <http://rfcfinancialnews.blogspot.com> .

Please write to <rfc@getabby.com> to inform me of any reproductions, including when and where copy will be reproduced. You may use in complete form or, if quoting in brief, reference .

If you'd like to view RF's actual stock trades - and see more of my thoughts - please feel free to sign up as a Twitter follower -  "taylorpamm" is my handle.

If you'd like to see RF in action - teaching people about investing - please feel free to view the TED talk that he gave on Fearless Investing: http://www.youtube.com/watch?v=K2Z9I_6ciH0

To unsubscribe please refer to the bottom of the email.

Views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest and is not in any way a testimony of, or associated with Mr. Culbertson's other firms or associations.  Mr. Culbertson and related parties are not registered and licensed brokers.  This message may contain information that is confidential or privileged and is intended only for the individual or entity named above and does not constitute an offer for or advice about any alternative investment product. Such advice can only be made when accompanied by a prospectus or similar offering document.  Past performance is not indicative of future performance. Please make sure to review important disclosures at the end of each article.

Note: Joining BARRONS REPORT is not an offering for any investment. It represents only the opinions of RF Culbertson and Associates.

PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS (INCLUDING HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS AND OTHER SPECULATIVE INVESTMENT PRACTICES MAY INCREASE RISK OF INVESTMENT LOSS; MAY NOT BE SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop.

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Opinions expressed in these reports may change without prior notice. Culbertson and/or the staff may or may not have investments in any funds cited above.

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

R.F. Culbertson

<mailto:rfc@getabby.com>

<http://rfcfinancialnews.blogspot.com>

This Week in Barrons - 4-7-13

This Week in Barrons – 4-7-2013

“It’s just a Job.”… Muhammad Ali

I remember when Muhammad Ali said: “It’s just a job.  Grass grows, birds fly, waves pound the sand.  I beat people up.”  Well, on Friday we received the monthly JOBS report, and everyone was expecting that our economy had created 200,000 jobs in the month of March.  When the number turned out to be 88,000 – everyone was shocked.  But wait – it gets worse – the real number was ‘negative.’  You see the Bureau of Labor and Statistics (BLS) has a “Birth/Death’ model, which (in it’s basic form) says that for every ‘X’ amount of people that lose their job, some lesser amount go out and open their own business and hire.  There are no tax returns, receipts, forms or real proof of this – just empirical guessing.  In March they said that the ‘Birth/Death’ model created 92k jobs.  So, if we take away the ‘Birth/Death’ numbers (92k) from our 88K job creation number – our real job creation for March was actually a negative 4,000 jobs.  [For those who may wish to follow this number – go to: www.bls.gov - and in the top right there's a search box – type in ‘birth death’ – it will deliver you a page of links – go to the first one that says ‘CES Net Birth/Death Model’ – and that will give you the ‘birth/death’ adjustments.]

The report also revealed that 663,000 people had dropped out of the workforce in March, bringing the total to 90 Million Americans who are no longer even looking for work.  This was the biggest monthly increase in people dropping out of the labor force since January 2012.  Adding insult to injury, the labor force participation rate plunged to 63.3% - its lowest level since 1979.  Therefore, the jobs report wasn't just poor; it wasn't just a hiccup; it is a horror show, and a continuing nightmare.  Oh – least I forget – the permanent disability roles soared to record highs as we added another 83,000 last month.  This brings U6 unemployment to slightly over 14%.

Moving on, I have told you (on occasion) that Obama and his henchmen are drooling over your IRA and 401K accounts.  They want them and are going to find a way to get them.  President Obama's budget (to be released next week), will ask Congress to limit how much wealthy individuals can keep in IRA’s and other retirement accounts.  A senior official said that the proposal would save the government over $9B over a decade, while also bringing more fairness to the tax code.  This official continued: “Wealthy taxpayers can currently accumulate many millions of dollars in these accounts, substantially more than is needed to fund reasonable levels of retirement saving.  Under the plan, a taxpayer's tax-preferred retirement account, like an IRA, could not finance more than $205,000 per year of retirement.”  So the plan is to limit how much we can all put away for our retirement.  Really?  So if you currently spend $240k a year in your retirement, the new plan won’t allow you to have that much in an IRA.  The thinking will start off by going after the rich, but it will be a very short time before the dollar amount line gets redrawn on what is acceptable for retirement.  It’s all sounding a little bit like Cyprus to me.

Many of you have written about gold and silver, and let me address those two precious metals in particular.  I always start by asking: Are the things that pushed gold to $1,900/ounce, and Silver to almost $50/ounce, still valid?  Gold and Silver basically just "sit there", and keep your wealth safe.  For example:  in 1920 you could buy a nicely made suit for an ounce of gold, and the same is true today.  Let’s examine a couple headlines because I think the same things that impacted us then – impact us now:

-       (Reuters)       N. Korea is both volatile and dangerous.  Hagel cites growing threat from nukes.  The standoff with South Korea escalates as North shuts border.  China voices serious concern.

-       (NY Times)   Oil tanker operator Frontline (FRO) says it is rejecting some cargoes as excess vessel supply continues to drive down charter rates.  Rates for the industry’s biggest ships have plunged 75% year over year.  In fact an average run today from Saudi Arabia to Japan looses $3,012/day. 

-       (NY Times)   Sub-Prime lending has returned to the auto business with a passion.  In 2012 (according to Standard & Poor’s), lenders sold $18.5 billion in securities backed by subprime auto loans, compared with $11.75 billion in 2011.  The pace has continued so far this year according to Deutsche Bank AG.

-       (Reuters)       The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit.  This is an effort that officials say will help power the economic recovery, but skeptics say could open the door to the risky lending practices that caused the housing crash in the first place.

-       (CNNMoney.com)    November 26, 2008 -- Gasoline prices declined for the 70th straight day, falling below the $1.87 per gallon mark, according to a national survey of credit card swipes at gasoline stations  $1.87?  In 2013 I'm paying $3.89 here in Pittsburgh.  That's an increase of 108% in 5 years!

(Reuters)       Thanks largely to the U.S. Federal Reserve; Jeffrey Nelson was able to put up a shotgun as down payment on a car.  Money was tight last year for the school-bus driver and neighborhood constable in Jasper, Alabama, a town of 14,000 people.  One of his cars had already been repossessed, and medical bills were piling up.  And though Nelson's credit history was an unhappy one, local car dealer Maloy Chrysler Dodge Jeep had no problem arranging a $10,294 loan from Sub-Prime lender Exeter Finance Corp so Nelson and his wife could buy a charcoal gray 2007 Suzuki Grand Vitara.  All the Nelsons had to do was to cover the $1,000 down payment.  For most of that amount, Maloy accepted Jeffrey's 12-gauge Mossberg & Sons shotgun, valued at about $700.  In the ensuing months, Nelson and his wife divorced, he moved into a mobile home, and (unable to cover mounting debts) he filed for personal bankruptcy.  His ex-wife, who assumed responsibility for the $324-a-month car payment, said that she would probably file for bankruptcy in a couple of months.  When they got the Exeter loan, Jeffrey, 44 years old, was happy "someone took a chance on us."  Now, he sees it as a contributor to his financial downfall.

Okay, so if we all agree that the main reasons for the gold and silver rise are still in effect, why on earth are gold and silver not increasing in value?  The banksters know the "real deal", and all across the world central banks are buying up gold.  China has been very active, and judging by the way the BRIC countries just shrugged off using the dollar for trade between them, the days of the US dollar being the world reserve currency are indeed limited.  So at the central bank level, they are in gold and silver accumulation mode.  But if they are buying gold, why would they send their minions out to mock it, disrespect it and push its price down?

-       #1 – With the price lower, they can buy more.  But that’s the ‘easy reason’ to figure out.

-       #2 – Gold has always been the safe haven and inflation fighter.  It definitely doesn’t look good when you're bailing out Cyprus by stealing customer deposits if gold and silver are soaring.  Don't forget the reason they're pushing the stock market higher is "perception of wealth".  People see the markets rise and "think" that the economy is doing well.  If they can get people thinking that "if " things were really bad gold would have gone higher, they have won the psychological game.

-       #3 – Over the past few years, to keep the gold price from increasing, the very central bankers that have been accumulating gold, have also been ‘leasing’ the gold to the bullion banks that sell it into the various markets.  As we look around the globe we see that no less than ALL of the recognized Central banks have forward leased between 25 and 35% of their gold.  They “lease it” / “rent it” to bullion banks.  Because it's not sold, they get to keep it on the balance sheets despite it physically not being there.  So the bullion banks rent it from the Central banks, and they in turn SELL it in order to meet demand.  Because most buyers do NOT take physical delivery of the asset(s), this leveraging effect keeps the price down on the gold and silver itself.

Now you may ask the question:  "If the central banks have rented it out, and the bullion banks have sold it into the market, isn't keeping the gold on the balance sheet as an asset a Ponzi scheme?"  Yes – it is.  As long as there's no tremendous rush by any one Central Bank to get their "leased" gold back, then it goes on and on.  But what happens if the Central bank of Venezuela says "I want our gold back."  Uh Oh.  Now there's a problem. Because some portion of that reserve currency gold has been leased out.  Now the calls have to go out to the bullion bank "get the gold back".  Well they can't just "get it back" – they need to take the next round of leased gold from some other country and satisfy the Venezuelans demands for the physical metal.  Okay, problem averted.  But what happens when Germany demands their gold to come home?  And Switzerland?  And New Zealand?  The result (thus far) is that Germany has allowed the world 7 years to deliver it – because the gold isn't there.  And if Germany said: "No, we want it now."  Gold would soar to $2,500 overnight.

The way gold is dealt with by the Central bank is basically the same as any fractional banking.  They only keep a "fraction" of the deposit on hand the rest is loaned out.  All is fine until everyone wants their gold back at the same time.  I tend to think that every day we get closer and closer to a gold panic.  Right now, the Central bankers are being "gentlemanly" with each other and giving ample time for the bullion banks to get their act together and raise the physical metals.  But it is my guess that as all these insane printing schemes are found to be death spirals, Europe and the US and Japan and other places go into hyperinflation, and gold will push higher.  Also, if any one of the major Central bank Countries panics and demands their gold back immediately, there's going to be a "gold war" for possession.  At that point the price of gold will increase dramatically.  Keep an eye on China.  They want their currency to be either the new global reserve, or at least a major part of it, and they’ve got a lot of gold to back it.

So, is gold and silver done?  I don’t think so.  It is depressing to see how well the Central banks have managed to cap its price.  My guess is that when the dust settles, gold will be well over $2,500, and silver between $70 and $100.  So in my mind, gold and silver are still worth holding.

The Market:

I have run out of superlatives to use for this market.  Words like: resilient, strong, controlled, manipulated, and bankster driven.  I am my own worst enemy, because I try and use logic and reason to understand things.  A common logical argument that I often have with myself goes like this:  "If the economy is a fraud, and companies are increasing earnings per share by either tricky accounting schemes and/or buying back shares – then how are stocks going up?  Stocks are supposed to go up because of organic growth, sales, and revenues, coupled with a good cost structure.  Then this market should be shorted".  But then the other argument says:  “Markets go up because there are more buyers than sellers.  Buy the darn market you idiot.  Bernanke's only got ONE thing he can point to if he leaves his position next year, and that is the stock market.  He can't create jobs.  He can't create growth.  He can print money.  And money will find its way to the market.  He will not let it roll over."  I continually realize that Bernanke Bucks are going to trump everything for a while.  Logic, reasoning, and fundamentals are currently worthless.  

Heading into Friday's jobs report, we had the perfect set up for a market correction.  And when a market is trading at 14,500 a correction is more like 800 points.  Coming into Friday we had no less than 5 horrid economic reports behind us.  The economy is creaking and groaning, and a poor jobs report should have pushed it over the correction edge.  We dipped 171 points after the open, but by the close were down a measly 40 points.

So despite the market being perfectly set up for a pull back, they've papered it over.  They defended the S&P support at 1540, and by the close both the Financials and the Russell small caps had both managed to get back up and over their 50-day averages.  While I'm fully aware of why Bernanke won't let a major market "crash" occur, I'm really surprised they won't let a normal every day correction take place.  All we can do is hold our nose and take positions.  Yeah, it stinks like 5-day old fish, and that's why we hold our nose.  Everyone on the planet is now pretty much aware that this market isn't acting normally and is piling in until the market implodes.  That implosion could be Monday, or next February – and is solely dependent upon The Ben Bernanke and his Banksters.

We're heading into earnings season.  Earnings will be made to LOOK good – but they won’t BE good.  Will the market use that as the excuse to sell?  Ever since the market ignored the PMI, the ISM, the bad housing sales, and the lousy jobs numbers – I don’t know exactly what to think.  I’m currently leaning long, but I am worried that the light that I’m seeing in the tunnel – is not the end of the tunnel, but rather that of an oncoming train.

Tips:

Last week I sold out of both COST and SNDK for a $2/share profit, and am sitting with one position.  For next week, like my friend DS – I’m looking for a re-entry point for LNG (a natural gas play). 

My current short-term holds are performing nicely (with gold and silver still lagging):

-       NUAN – in 19.10 (currently 20.48) – stop at entry,

-       SIL – in at 24.51 (currently 17.19) – no stop yet

-       GLD (ETF for Gold) – in at 158.28, (currently 153.00) – no stop ($1,575.40 per physical ounce), AND

-       SLV (ETF for Silver) – in at 28.3 (currently 26.43) – no stop ($27.20 per physical ounce).

To follow me on Twitter and get my daily thoughts and trades – my handle is: taylorpamm. 

Please be safe out there! 

Disclaimer:

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