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/