RF's Financial News

RF's Financial News

Sunday, April 13, 2014

This Week in Barrons - 4-13-201

This Week in Barrons – 4-13-2014

“Somewhere between Brave and Stupid…”  












I had the pleasure on Friday evening to eat dinner with an old friend, and he asked me: “So what should I invest in?”  After giving him my correlated assets talk (about bonds, the yen, oil, gold and stocks no longer moving as they should), he politely looked at me and asked me the same question – again.  I honestly couldn’t help myself but answer with: Gold and Silver.  He then asked me:  “So why do they remain 30% off their highs?”  And that’s when I felt “somewhere between brave and stupid.” 

Gold and Silver (after hitting their highs in 2011) have been beaten down and kept in some kind of dungeon.  Considering all of the ills of this world, inflation, and instability – does it make sense that gold and silver can't move up?  It does if you understand some of the rationale behind why both precious metals remain ‘capped’.

With Silver, the two most common reasons for its ‘cap’ are:
-       Most of it’s demand is industrial.  With China slowing, and the remainder of the world crippled with their lousy economies, silver demand has been reduced.
-       Silver hasn't been thought of as a form of money since we stopped using it in coinage; therefore, there’s no ‘investment’ demand as alternative currency.

Allow me to address both of those concerns.  In terms of demand, something quite spectacular is occurring in the energy world.  The dream of solar energy actually being price-competitive with hydrocarbon fuels is very near.  The newer technologies have been able to ‘regionally’ reduce the price of solar energy to compete with gas and coal on a kilowatt per hour cost basis.  Because of that, demand for new high tech solar is increasing exponentially, and these solar technologies use more and more silver for their critical electrical connections because of it’s super efficiency.

Along with the rising energy demand, silver is increasingly being used as a medicinal remedy.  Silver has tremendous anti-biological properties, and has been found to be more effective against the most serious of bacterium than even our more high-powered antibiotics.  The demand for silver infused drugs has exploded; therefore, while silver demand in standard industry (including China) may fade, that demand is being replaced by energy and medicine.

In terms of silver supply, there are very few true ‘silver mines’.  90% of all the mined silver is a by-product of looking for other metals like copper and zinc.  As demand for copper, zinc or any of the other industrial metals fall, mines will be closed.  And since silver is found mostly as a co-inhabitant of those same ‘other’ mines, the supply of mined silver will also decrease.

What about Silver as a currency?  Well, of course Wall Street doesn't think Silver is currency – they can't make it out of thin air like they can dollar bills by fractional banking.  It has been a form of wealth and money for thousands of years.  Even in the Bible people talked of land being worth ‘400 pieces of silver’.  I guess the thought of it being worth: ‘400 Federal Reserve notes’ escaped them.

So, if demand is level, supply is falling, and if Silver is still some ‘form’ of currency – why is the price capped?  Simple, Silver (being such a small market) has become the single most manipulated commodity on the planet.  If you thought LIBOR was a scandal, the naked shorting of silver (by J.P. Morgan (JPM) in particular) makes LIBOR look like a kids game.  JPM systematically worked the ETF's, the COMEX, and the miners to drive the price of ‘paper’ silver lower, while the ‘real’ ratio of physical demand to supply continues to increase.

In Gold, the situation is even more bizarre.  When Gold hit its high in 2011, the entire world (simultaneously) became ‘disgusted’ with the incessant devaluing of the U.S. dollar – the ‘world’s global reserve currency’.  As one Chinese finance minister said: “What good is the dollar as the global reserve currency, if they're devaluing it by 40% every year?”  So, around the globe countries decided that they wanted gold, and not U.S. dollars.  Unfortunately, the FED’s business is U.S. dollars and U.S. power – through regulation of our money supply.  If the world doesn’t want U.S. dollars, then they don’t want U.S. Treasuries, and then we can't keep rates low or fund our Government.

Knowing that, our government held talks with the Chinese and agreed on an exchange rate for gold and U.S. Treasuries – as long as the Chinese continued to purchase more U.S. Treasuries.  Currently, however the U.S. has somewhat boxed itself into a corner.  The Chinese want absolutely nothing to do with the U.S. dollar or the Federal Reserve.  They would like their own currency to rank as a global reserve, and they have used the attacks on gold to amass large amounts of it.  Honestly, it was the FED's only way out of a bad situation, and the Chinese used it to their advantage.

So are gold and silver destined to ‘live somewhere between brave and stupid’ and go higher?  If I’m correct, China is going to assert itself as one of the big players in a new global reserve currency, and it’s Gold holdings will play a large part in that.  With talks of a new global reserve, Silver will stop being manipulated, first by JPM and then by the FED.  Unfortunately there are ‘no rules’ when negotiating a new global reserve currency. 
-       Maybe Russia and China are pushed to a point that they speed up the ‘reset’ of the global reserve process.
-       Maybe the currency wars continue and everyone starts dumping U.S. dollars and treasuries.
-       Maybe the world agrees to ignore the U.S. dollar, and buy energy in any currency.
-       Maybe a lot of things, but in the end – Gold and Silver go higher.

Silver will NOT be a part of any new currency, but should revert to the fundamentals of supply and demand which should be between $70 and $100 per ounce (currently at $20/ounce).  Gold, however, is a wildcard.  Under normal conditions it should be around $2,400 per ounce.  But, if China continues on it’s course, then gold could easily be valuded between $4,500 and $7,000 per ounce.  And that’s what I recommended at the dinner.















The Market....

Is it here?  After 30+ months are we finally going to have a true, 10% correction in the markets?   It certainly feels like it.  But, we’ve been in this position so many times, that I feel like the ‘boy who cried wolf’.  Over the past few years, we've had no less than 11 set-ups where the market should have put in such a correction.  The news flow was ripe, the technicals were ripe, and yet the FED took their funny money and drove the market higher.

Here is where (I think) the supporting evidence allows us to reach a different conclusion.  We’ve had many 2% to 4% hiccups in the past.  For example: on January 7th the DOW cratered 7% - from a high of 16,560 – all the way down to 15,356 on February 3rd.  It then (of course) rebounded to set new, all-time highs in the first days of April.

In just a couple of months we've hit an all-time high, dropped a quick 7%, rebounded to new all-time highs, and now we're dropping in ‘free fall’ again.  In other words, the speed and the ferocity of the pops and drops are becoming exaggerated and closer together.  Often, when a market becomes this volatile (with it’s frequency and amplitude), it usually mark a trend change.

If you remember back a couple of months, I did a commentary about the FED as it started the QE Tapering program.  I remarked that it was very odd that the FED would be ‘tapering’ when clearly the economy was barely scraping by.  At that time I suggested that if by the summer we hadn’t see a reverse in course and the FED stopping it’s taper and starting putting money back into the system – then a major shift has indeed occurred.  The most recent FED stance to any market weakness has been to slash rates and print money.  This FED is now slashing the printing of money and threatening rate increases starting next year.

This coming week will produce a lot more bank earnings reports.  JPM’s report last week was a complete disaster.  Wells Fargo was better – which rescued the bank panic temporarily.  But, if the bank reports continue to be poor – it will drag the sector down sharply.  This market usually keys off of the financials.  So, if the financials are flat to rising, then the market should level out; however, if the financials are declining then the market will head lower and everyone along with it.

Thus far we’ve only seen a 4% dip in the S&P and 3.6% drop in the DOW.  Most of the damage has been done to the NASDAQ and to the ‘high-fliers’.  For next week, I will be watching:
-       The YEN (FXY) – if it moves higher it will be tough for the S&P to move higher,
-       The Treasuries (TLT) – if bonds move higher, it’s tough for stocks to ‘catch a bid’,
-       Gold (GLD) and Oil (USO) – if money moves into these benchmark commodities, then stocks should move lower,
-       And Financials (XLF) – if the financials are moving lower (even slightly) – stocks should follow their lead.

Let’s not try and ‘catch a falling knife’ just yet.  There will be plenty of time to play this correction once we see that the FED is allowing it to play out.  Personally – I’m sitting in cash, or at minimum covering what stocks I’m playing by selling ‘covered calls’.  I see no reason to be ‘brave or stupid’ right here.  If you go short (buy PUT options) – and this is just another in the FED’s long string of ‘head fakes’ – you’ll be burned.  If you load up on longs with a ‘buy the dip’ strategy, and this time the financials don’t produce – you’re going to scramble to sell back out.  Sometimes the best play – is not to play.


Tips:

This week the FDA pushed back it’s overall approval date for Mannkind Pharmaceuticals (MNKD) until June 15th.  However, I’m still holding a position in (MNKD), but simply for it’s 3 to 4% PER WEEK yield on it’s call options.  Last week I cashed in some USO options for a nice gain, and correspondingly purchased more June, $35 – USO – call options.  I also cashed in my TLT options last week for a nice profit – and will potentially purchase more early on in the week – if the market continues to sell-off.

My current short-term holds are:
-       MNKD – in @ $6.35 – currently ($6.51)
-       USO (Oil) – in @ $37.19 - (currently $37.18),
-       SIL (Silver) – in at 24.51 - (currently 12.81) – no stop,
-       GLD (ETF for Gold) – in at 158.28, (currently 126.93) – no stop ($1,318 per physical ounce), AND
-       SLV (ETF for Silver) – in at 28.3 (currently 19.19) – no stop ($20.00 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, R.F. 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 Mr. Culbertson at: <rfc@culbertsons.com> to inform him of any reproductions, including when and where copy will be reproduced. You may use in complete form or, if quoting in brief, reference <rfcfinancialnews.blogspot.com>.

If you'd like to view RF's actual stock trades - and see more of his thoughts - please feel free to sign up as a Twitter follower -  "taylorpamm" is the 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
<http://rfcfinancialnews.blogspot.com>



Sunday, April 6, 2014

This Week in Barrons - 4-6-2014

This Week in Barrons – 4-6-2014

Just Deal with It











Disaster is a word used to describe a multitude of situations, such as airplane crashes, mudslides, hurricanes, mass shootings, industrial accidents, and the list goes on.  But what about an economic disaster?  What if (for a few weeks/months) banks were closed, credit cards didn’t work, ATM's were shut off, and there was no ‘normal’ way to purchase things – nationwide.  The good part of an economic disaster is you would still have your place of residence.  However, you still need to decide (for advance) for yourself what level of preparedness you're willing to do: water storage, home generator, propane grill, matches, flashlights, candles, first aid kit, canned goods, etc.

Let’s imagine that we get a derivative cascade that ripples around the globe, so that banks are forced to shut down in order to stop hemorrhaging cash.  With luck the government would force power and water companies to continue to provide; therefore, our biggest concern would be food.  Do you at least have enough in home supplies to survive for 3 weeks of no grocery store?  If not, that’s easily remedied with both canned and dry goods.

The reason for this rant is that history shows us: the people who have not prepared will seek out those who have, and try and take.  Let’s assume (if this happens) that it will be a month or two until things return to normal.  Unfortunately, (and this came as quite a shock to me) the first mistake people make is to allow others to know that they ‘have prepared’.  Once word gets out that you ‘have prepared’, others will come to ‘take’.  Therefore, your very first line of defense is to: ‘Act like Everyone else.’  You want to: look hungry, complain, and act nervous and scared.

So, Job #1 in protecting your home and your family in a serious multi-month disaster situation is to: Keep the Secret.  You should interact with the neighbors as much as everyone else does, but make sure they understand that you're in the same boat as them.  As long as you appear to be ‘like them’, you've decreased your chances of being a target by well over 50%.


The Market:

What a difference a day makes, and that day was Friday.  The first half of last week the stock market roared higher – without a care in the world.  The market gained over 250 DOW points, and CNBC was giddy with delight.  But on Thursday, the market couldn't hold it, and ended the day unchanged from the day before.

Friday we received the latest Non-Farm Payroll Report.  Estimates were for a creation of approximately 200,000 jobs, but there was quite a bit of buzz on Wall Street for job creation to exceed 250,000 and in some cases 300,000 jobs.  The announced number was 192,000 jobs created.  Inside the report, part-time workers accounted for 15% of the jobs created, and the Bureau of Labor and Statistic's Birth/Death model accounted for 40% (75,000) of the total 192,000 jobs.  [FYI: The Birth/Death model attempts to guess at the number of small businesses started due to the large number of unemployed in the workforce; therefore, this number is basically ‘pure fiction.’]

OK, so the number was lousy.  For a short while (on Friday) we popped higher.  But, the euphoria didn’t last, and we began to fade.  The real ‘fun’ started around 11 am, when the market started a marked and notable retreat, with real selling volume behind it.  By 3 pm the market was down 177 DOW points, and over 110 on the NASDAQ.  Those same 10am cheerleaders looked dumbfounded.  The only reason for the sell off was Attorney General Eric Holder saying: “Due to Michael Lewis’s book on high frequency trading – the Justice Department would be looking into allegations of a rigged market.”

So if I believe the experts, the market sold off in ‘panic mode’ because ‘give guns to drug cartels’ Eric may investigate the stock market? 
-       The same Eric Holder that can’t seem to find a way to prosecute the financial ponzi schemes propagated by our criminal banisters?
-       The same Eric Holder that can’t see any issues with money laundering, and naked shorting of our precious metals by our largest financial institutions?
-       And the same Eric Holder that when asked said: “What corruption in the IRS?"

Personally, I'd rather believe it was the market’s way of sending a message to Mr. Holder saying: “Don't do anything crazy, otherwise you’ll get this sell off every day!” 

The first thing I do when I see a selloff of this nature is to examine the correlated assets such as bonds, gold, oil and the yen.  As of yet, none of those correlated assets have broken through any key levels of resistance/support such as the various moving averages.  Therefore, at this moment, I’m viewing Friday as an exhausted ‘blow off top’ as the market continues to try to establish an all-time DOW closing high.

Mind you, that’s just a guess.  In the past 5 years there have been dozens of reasons why this market should have reversed lower, and each one was met with increased buying and a continued grind higher.  This year alone we’ve seen:  the annexation of the Ukraine, huge slides in the Baltic Dry Index, lousy earnings, banks being slapped with billions in fines, and yet the market continues to push higher on the back of the Fed's printing press.  It's hard for me to believe that it’s run has finally come to an end. 

Heck, we still have an issue with QE.  According to our own Fed, they are going to reduce QE to $0 by the fall of 2014.  The purpose of QE is to purchase all of the remaining U.S. Treasuries that no one else wants in order to keep interest rates low.  Well, after October, if the Fed won’t use QE to purchase the Treasuries, and other nations don’t want our Treasuries, who will purchase them – and keep our interest rates low?  In the most recent Treasury auction, Belgium stepped up to buy all of the remaining Treasuries.  Now, obviously our Fed is quietly shuffling money to countries like Belgium in order to complete our Treasury transactions.  But, what other deals has our Fed made in order to maintain their level of ‘indirect’ QE involvement – while they’re reducing QE to $0?

There’s a major change in the wind.  Russia and China are truly becoming BFF’s (best friends forever).  Neither one of them particularly likes what the U.S. has done economically or militarily for the past 40 years.  But the bottom line is this – we’re BROKE and we need to sell our Treasuries.  Not only do we need to sell our Treasuries, but we need to borrow the funds just to pay the interest on the payments that we already owe.  The money needs to come from somewhere, otherwise, our house of cards collapses.

I can’t find any data to support Friday being any more than a one-day selloff.  For months, corporate ‘insiders’ have been selling their stock at an enormous pace.  For the past two months, mutual funds have experienced significant outflows.  Whenever you have corporations borrowing money to buy-back stock, and you find those same ‘insiders’ (that are doing the stock buy-backs) furiously selling their own inflated shares – this will NOT end well.  ‘Insiders’ want out (with as much money as they can get).  They are content leaving companies and their shareholders holding a bag of billions in debt.  As to whether Friday was finally the start of a slow grind lower, we will know shortly.











Tips:

For all of you that were with us last week, and bought into MannKind Pharmaceuticals – MNKD, (a diabetes drug company based upon an insulin inhaling regimen) – Congratulations!  On Tuesday evening (after the markets closed) The FDA advance committee voted 13-1 on MNKD – Type 1 Diabetes approval, and 14-0 on MNKD – Type 2 Diabetes approval.  These approvals will need to be cemented by the FDA itself on April 15th – so we’re not quite out of the woods yet.  But the stock went from $4 to approximately $9 overnight.  Congrats to all of you on the double.

Now, if you’re still in MNKD, or if you wish to purchase more shares – a ‘clever’ way to do that could be the following:
-       To purchase more shares you could:  ‘Sell-to-Open’ the current – May 2nd, $6.50 – ‘Put contract’ for: $0.90.  This commits you to purchasing the stock on May 2nd at $6.50, but also allows you to collect a $0.90 premium on each share.  This then lowers your cost basis of each share of stock by $0.90, from the current $6.85 to $5.95 per share.  If you’re already interested in purchasing shares of MNKD, this could represent an attractive alternative to paying today’s $6.87 per share price.  Also because the $6.50 strike represents an approximate 5% discount to the current trading price of the stock, there is a 63% possibility that the ‘Put contracts’ would expire worthless.  If they expire worthless, you would pocket the entire $0.90 per share premium – a 13% monthly / a 157% annualized return.
-       If you’re still in MNKD you could:  ‘Sell-to-Open’ the current – May 2nd, $7.00 – ‘Call contract’ for: $0.98/share.  If you have existing shares in MNKD at it’s current $6.87/share level, then this ‘Covered Call’ would be committing you to sell the stock at $7.00 – on May 2nd.  But you would also collect the additional $0.98 per share premium, driving your total return to 18.61% if the stock gets called away on the May 2nd expiration date.  Considering that the $7.00 strike represents a 2% premium to the stock’s current trading price, there is a 44% chance that the covered call contract would expire worthless, in which case you would keep both your shares of stock and the premium collected – producing a monthly return of 14% - annualized to 171%.

My current short-term holds are:
-       MNKD – in @ $5.13 – currently ($6.87)
-       USO (Oil) – in @ $34.51 - (currently $36.10),
-       UCO (Oil) – in @ $28.75 – (currently $34.26),
-       TLT (Bonds) – in @ $107.10 – (currently $108.51),
-       SIL (Silver) – in at 24.51 - (currently 12.89) – no stop,
-       GLD (ETF for Gold) – in at 158.28, (currently 125.59) – no stop ($1,303 per physical ounce), AND
-       SLV (ETF for Silver) – in at 28.3 (currently 19.18) – no stop ($20.00 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, R.F. 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 Mr. Culbertson at: <rfc@culbertsons.com> to inform him of any reproductions, including when and where copy will be reproduced. You may use in complete form or, if quoting in brief, reference <rfcfinancialnews.blogspot.com>.

If you'd like to view RF's actual stock trades - and see more of his thoughts - please feel free to sign up as a Twitter follower -  "taylorpamm" is the 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
<http://rfcfinancialnews.blogspot.com>