This Week in Barrons - 06.14.09

This Week in Barrons – 06_14_09:

Thoughts:
WASHINGTON (AP) - The No. 2 Republican in the House on Thursday compared President Barack Obama's plans for the auto industry to the policies of Russian Prime Minister Vladimir Putin, saying the White House has stripped credit holders of rights and given them to Democratic allies: "'Set aside the rule of law, let's strip secured creditors, bondholders, of their rights. Take them away outside of the bankruptcy process and give them to the political cronies and the auto workers' unions," Rep. Eric Cantor, R-Va., said in an interview with The Associated Press. "It's almost like looking at Putin's Russia," added Canton, the GOP's House whip. "You want to reward your political friends at the expense of the certainty of law?"

- According to the Center for Responsible Lending a new foreclosure starts every 13 seconds, equaling nearly 6,500 a day – the number of new foreclosure starts for the first five months of 2009 has reached one million
- One in 9 Americans are using federal food stamps to help buy groceries as the country's deep recession continues
- One out of every 6 dollars of American Income is some form of Government handout
- And then there’s Jim Cramer – who’s explaining how all the bad news is really ‘good news in disguise.’ For example: last week we learned that for the very FIRST time, Prime Borrowers defaulted on their loans more than Subprime Borrowers. The foreclosure rate on houses that carried prime loans spiked off the charts. So in my mind, I figured that even people with good credit and a down payment are getting so squeezed (or unemployed) that they can't afford to keep their homes. But according to Jim Cramer, this is a good sign - because those people DID put down a "down payment", so the banks are eager to take those homes back because they have value. It shows that banks are becoming stronger, and well lead to more lending and a reawakening in spending. HUH??

Our elected officials, and our Central bank are doing everything in their power to get people to spend money they don't have on things they don't need. They know there's nothing that's going to stop the depression from enveloping the nation and most of the world. The best they can hope for is that it happens in slow motion, versus an all out economic crash that hits like a tsunami all at once. However, once we do hit bottom, we're going to come out of this stronger. We are in a depression. It's going to get worse, much worse.

But as the retail sales number hit and it rose 0.5%. You could hear the cheers, the Kazoo's blowing on the exchange floor. The headlines went out over Reuters and Dow Jones news: “The consumer's not dead, he's getting ready to spend again!” Unfortunately, retail sales are not reported by units sold, but rather are reported by total dollars spent. So if you sold 10 widgets at $5 each one month ($50), and next month sold 5 widgets at $20 each ($100) – you would see a 100% increase in retail sales. Well the problem is that unless you live inside a refinery, gasoline has roared higher, gaining upwards of 50% in the last few months. And guess what - gasoline sales are included in the retail sales report. So it wasn't like we actually sold a lot more widgets last month, we just paid a lot more for the widgets we purchased – due to the huge increase in the cost of gasoline.

It’s these absolute distortions of the truth, these mis-directions of the facts that bother me. Retail sales were not strong, they were boosted by a huge jump in gasoline prices, and despite what Cramer says, rising gasoline prices are NOT good for our economy.

And then there are the ‘Bond’ sales this week. One morning Bond futures ‘soared’, and everyone asked why? CNBC came on saying that this is all “good news because foreigners were still willing to buy our treasuries.” Yet when you look over the report: To lure sovereign investors to buy our paper they had to jack interest rates up to 3.99% for the 10 year note, and 4.67% on the 30 year note. This was the biggest jump since May of 2007. Even then (if you connect the dots) it seems like our old buddies the FED came in and bought up about 18% of the auction. Think about that: the FED prints money out of thin air, then uses it to buy treasuries which is instantly a debt to the US, and requires we pay interest on it. Once again, only Jim Cramer could wrap "good news" around this.

So, with interest rates cracking 4% on the ten year, inflation is roaring and rates will go higher, possibly MUCH higher. This is why there was an all out attack on Gold this week. Right now, Germany and Dubai want their gold, but delivery seems a bit ‘slow.’ In fact, physical delivery demand is soaring. This has got to come to a head at some point, but for now realize that the central banks have been waging war on gold trying to suppress it, while physical delivery demand has been soaring for many months. Huge dislocations are taking place, and pretty soon we're going to see that resolve itself. If just 30% of the longs decided that they wanted physical delivery – the price would jump to $1,250. We're on record saying gold will hit $1,500 soon. We still believe it.

Lastly – since so many acres are delegated to producing an ethanol crop, the wheat, corn, bean crops were downsized. Now with the recent cooling of the heartlands, planting is behind schedule, and the yield is going to suffer. Well, for investment purposes keep an eye on agriculture where prices will rise as supply falls.

The Market:
Market? Well to be brutally honest, the market is really beginning to concern me. We see the plunge patrol team at work every single day saving the market from a roll over, and we have to ask, how long can they keep it up? My feeling is that I don't think the current rally is over and that higher prices are coming later in the summer. But in the very near term, I'm concerned about a good-sized drop out. I'm going to play very cautiously here this week and maybe into next. Yes we're long several stocks – and yes we’re up over 30% for the year. But there's a pretty good chance that not doing much in the near term will prove to be a decent idea. I could easily be proven wrong and we continue higher, the power of the PPT (Plunge Patrol Team) has been enormous lately. But if we do roll over for a bit, we'll lock in some more gains and wait to buy back in, because this is NOT the time to short the market for any length of time.

TIPS:
- we’re holding the GDX (a basket of gold mining stocks) with No Stop
- we’ve held SLW (silver) since the 3’s – our Stop is set for $9.50
- we’re holding NGD (a gold miner) from $2.59
- we’re holding MOO (agricultural business ETF) – from $32
- we’re hold XLK (a technology (minus healthcare) ETF) – from $17
- we’re holding IPI (a potash hold – again in the agricultural theme) – from $32
- we’re thinking about:
o DBA another agricultural name if > $28
o MOO more of it if > $39
o All commodities are doing well and another basket = GSG over $32 looks tempting
o I see more money going into the safety of utilities and even drugs – so AES (a utility stock) looks buyable over $10.80
o Finally – CHINA was once interesting at $80 – for speculation money – it’s now at $1.66 – so CHINA >$1.80 may be interesting.

- Now realize if the market rolls over – these roll over with it.

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 - 06.07.09

This Week in Barrons – 06_07_09:

This week’s letter will be slightly shorter – as my oldest son is graduating High School today – and I wouldn’t miss it for the world!

Thoughts:

"I wish to tell the U.S. government: Don't be complacent and think there isn't any alternative for China to buy your bills and bonds. The Euro is an alternative. And there are lots of raw materials we can still buy. Some people say the Euro is very weak. Okay, weak is good, we'll buy very cheap" - Yu Yongding (China's former Central Bank advisor)

Look at the commodity space – coal is up – copper is up – iron ore up – lumber up – gold up – silver (really up) – oil is up – and the list continues – mostly up!

China has one thing that we don’t – money. Crushing deficits are not affecting China – because they aren't running a $1.8 Trillion deficit. They aren't swimming in a national debt of $12.5 Trillion dollars. They don't have future liabilities of $99 Trillion as Richard Fisher of the Dallas FED recently just told us we have. And, as we continue to print more money – it lowers the value of the money already in circulation. With China sitting on a large pile of dollar denominated holdings (that are falling on a daily basis) – they first begin to yell at the Americans for letting things get out of control. And then, they begin to swap those depreciating dollars for "stuff" – hard stuff – stuff that you can make bridges and roads out of, burn in your power plants, and store in your vaults that won't lose value. The combination of dollar inflation from printing so many of them, and China's decision to decide to swap out of them in favor of hard goods has sent commodity prices soaring. Even the shipping industry (which had been left for dead) has put on a heck of a show recently as it takes lots of big ships to move hard good raw commodities from one area of the world to another.

Can this continue – yes – just look at oil. All over the globe falling asset prices, coupled with rising unemployment and sour economic fundamentals, forced people to cut back on travel and energy use. The result is that right now we're swimming in black goo. We've got untold millions of barrels floating around the high seas with no port to dock in and unload it. Yet despite that, oil has gone from 40 to 68 dollars. Why – doesn’t supply and demand work any more? Sure it does – it just so happens that oil is priced on the world market in dollars – as the dollar falls, it simply takes more of them to buy the same amount of oil. The purpose of the stimulus and “printing money” is to devalue the dollar. That way you get to pay back your debts with devalued money. So with inflation being around for any foreseeable future - it's absolutely essential that you have the number one and number two inflation hedges, that being gold and silver.

The point behind all this of course is that you should own some gold, and some silver. But while gold and silver are the king and queen of the value party (while the inflation is roaring) the other hard good commodities will stay in play. China is basically trying to get out of holding dollars, without plunging the value of them.

The Market:
Each and every day, anyone with a logical thinking mind wonders "When's the rug pull going to come?" Nothing about the market is ever easy, but we’ve been playing this game long enough to know how to follow the bigger trends. It's our guess that "overall" the market is destined to go higher. But along the way we should get at least one, if not two scary pull downs that keep people honest. Currently we’re up against the DOW’s 200 day moving average – a very important average – and I think we’ll remain a little flat – then run up to about 9K and then, yank the rug and send us down for several hundred points.

At some point - we are going to take a smack down, and it could end up being in the 8 to 10% arena. If that indeed were to happen here in the next few weeks, it would be another buying opportunity because this market hasn't finished doing it's business – because I think the DOW 10k+ is in the cards before we roll over into another massive bear market later in the year and all through 2010.

Bottom line - the "big" dips are still buyable. Last year our single biggest source of income was riding long term puts lower, some of them returning 400% and more for us. We feel another similar opportunity awaits us for next year.

TIPS:
Currently I like:
- IPI for fertilizer and growing crops
- MOO for commodities and growing crops
- SLW / PAAS for silver (the metal)
- NGD a gold mining company
- FSYS an alternative fuel systems company
- GDX the basket of gold miners
- GLD the basket for gold (the metal)
- XLK the basket of technology excluding health-care
- Look @ TIE – Titanium Metal investment over $11

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 - 5.31.2009

This Week in Barrons – 05_31_09:

Thoughts:
Without people buying things they don't need with money they don't have, the true economic activity of this country is going to be considerably less than almost anyone imagines

Isn't this something - just two days after Obama came out and said America has "no more money" and that the country was swimming in debt, the average Joe tells the confidence board he's feeling pretty good despite:
- 36 banks have going bankrupt already this year
- Bank stress tests suggesting 10 of 19 banks need 87 billion more dollars
- Obama revising his budget higher by 90 billion, creating a deficit that's 400% HIGHER than anything we've ever seen
- The national Case-Shiller home price index reported that U.S. home prices fell a record 19.1% (year over year) – and continue to fall.
- GM and Chrysler have gone / are going bankrupt
- AND in a speech at the Kennedy School of Government, Richard Risher – President of the Dallas Fed said “the very deep hole [our political leaders] have dug in incurring unfunded liabilities of retirement and health-care obligations, we at the Dallas Fed believe total over $99 trillion”!!!

Let us not forget:
- when America changed (about 40 years ago) from the manufacturing capital of the world, to the “consumer” capital – and without ‘the Average Joe’ buying stuff à we're doomed.
- The Average Joe’s credit card balance is over $10,000, his house fell in value (AGAIN) and he may not have a job - tomorrow.
- After years of having our Armed Forces pay giant bonuses, give college grants, and beg young folks to come into the service, they are now bulging with people, so many that they are closing recruiting stations. It seems that so many young folks are struggling to find a job that they figure a 2 or 4 year stint with Uncle Sam is a better option, they're getting paid and probably learning a skill.
- ALSO older folks are signing up for Social Security earlier, instead of working into their golden years. The Social Security system is reporting a major surge in early retirement claims that could have implications for the financial security of millions of baby boomers. Currently claims have been running 25% ahead of last year. Why would this be? As people saw their homes implode and their 401K's implode, with little prospect of getting a good job, they decided that they'd sign up at 62 instead of 66. Fully knowing that by signing up early, they are getting a full 25% less than if they waited till 66. So why do it? Because people NEED THE MONEY NOW!

The consumer confidence numbers are propaganda – so don’t drink the kool-aid and don’t get lazy about your money. This is your typical ‘dead cat bounce’ – it could last month – but let’s be prepared for the next shoe to fall.

The Market:
So now that we're back to DOW 8500, a key level and the S&P is above 900 – it’s our view that except for sharp fast pull downs, the market is probably destined to go higher. Not because it wants to, but because it has become Job #2 at the FED to buy futures at key moments. So, for now we feel it's safe to "lean long" and buy the dips. Just know that one day the music will stop and there's simply not enough chairs. Anyone not buying gold, silver and specific mining stocks is going to regret it terribly one day.

Consider the following:
- 12.2% of ALL mortgages are delinquent.
- HALF of all the delinquent homes are EMPTY.
- PRIME mortgages are failing faster than subprime
- ALT -A and Pick a pay loans are going to reset this year and next at higher rates.
- Federal revenue from taxes fell 34% year over year (So Obama’s deficit projections are going to be far worse than previously anticipated)
- 48 out of 50 of our states are in serious budget shortfalls as they too are getting less revenues.
- Continuing unemployment claims have hit an all time high for 18 consecutive weeks – each week adding 650K+ people to the roles
- Inflation – for every new dollar the FED prints - it lowers the value of all the other dollars in circulation. As the deficits rise, as the States go "bankrupt", as more and more bailouts are requested, the FED will need to print more dollars. The consequences are: (a) commodities will indeed continue higher, (b) people will continue to dump bonds, and when bonds are ‘dumped’ – (c ) interest rates start to rise – which will (d) eliminate future home buyers from entering the market.
- Inflation – as interest rates rise that will cause more foreclosures from the Alt-A and Pick-A-Pay mortgages that will reset in late 2009 thru 2010.
- Printing more dollars – causes inflation – will causes the dollar to fall – oil is priced in dollars – which causes gasoline prices will rise – which will hurt the economy yet again.
- The Chinese have modified their investing – from buying longer term treasuries to shorter term treasuries – and also to buying gold – lots and lots of gold.

TIPS:
But again – fair warning – this is a Bear Market (“suckers”) Rally. It is designed to suck in the most amount of people before it rolls back over, and the next time it does there will be no stopping it. We will have a date with DOW 4500 in the next two years. Gold will be higher, much higher. Silver will be higher. Interest rates will be higher. I like:
- IPI for commodities and growing crops
- MOO for commodities and growing crops
- SLW / PAAS for silver (the metal)
- NGD for gold mining
- FSYS
- GDX the basket of gold miners
- GLD for gold (the metal)
- XLK the basket of technology excluding health-care

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 – 05_24_09:
Thoughts:
Before we start on this Memorial day, let’s all give thanks to all the fine brave men and women who have slugged it out from the Hedgerows of France, through the jungles of South Asia, to the biting desert winds of Iraq. We thank you!

That being said: Without people buying things they don't need with money they don't have, the true economic activity of this country is going to be considerably less than almost anyone imagines.

“Unemployment” will begin to consume us, and this time ‘unemployment’ may NOT be the lagging indicator that it once was. In past recessions companies would lay off workers attempting to lower operating costs. So, the economy begins to slide, companies would lay-off, and the FED would cut rates and pump money. People would take advantage of the low interest rates and easy credit by borrowing and consuming slightly more. This increased demand on goods and services would cause an increase in production, and this increased demand would then bring workers back to work. So ‘normally’ the data shows that during this transition period – the economy does increase – BEFORE the uemployment picture improves. This is why everyone talks of unemployment as being a lagging indicator.

Unfortunately recent years of easy credit have left the consumer strapped with too much debt. Combine these debt loads, with the crash in Real Estate and in the economy itself, (toss in the fact that banks aren't lending as freely as they used to) and you have a situation where the lower interest rates and printing money by the Trillions doesn’t have the same effect. In reality – consumer credit is virtually frozen except for very high credit scores. Commercial credit IS frozen (i.e. banks aren’t lending to build more strip malls and offices). So unlike in previous times when people would take on more debt in order to get the economy going, this time (a) the credit isn’t available, (b) there’s fear in the minds of the consumer because their main personal asset has been catastrophically reduced in value, (c ) in response to fear savings rates have increased, and this combination eliminates the ability to create jobs by creating more business.

That is why (this time) the unemployment figure is NOT a lagging indicator, but rather a real time snapshot of what's going on in the economy.

- Potentially the ONLY avenue left to improve the consumer’s mind-set and get him purchasing again is via the value of his 401k (i.e. improve the value of the Stock Market – and the consumer could be spending again!)
- Another way out of a recession is WAR. On this Memorial Day I remember a quote by Major General Smedley D. Butler: "War is a racket brought upon us by profit seeking madmen.” To date, $832.2 billion dollars have been spent to fight the wars in Iraq and Afghanistan.
- Virtually every Friday night for the past 25 weeks we've had a bank failure and the Government has had to rush in and prop it up. Yet on Thursday the biggest bank in Florida, in fact the biggest banking failure of 2009 hit the wires, but this one was very different. There was NO bailout. In fact, Blackstone and Carlyle (two very large investment houses – B&C) were already lined up to take over the bank. Why no FDIC, why no bail out? Simple – B&C have information and contacts that allowed them to set up ahead of time and swoop in, picking up the best assets – and sending the bad assets, well back on the shoulders of the taxpayer. And truth be told – on Friday night two more Illinois Banks failed – bringing the total to 36 so far this year. Remember we said that the FED will hand pick who succeeds and who fails, and "non-team players" are destined to fail.
- Real spending on equipment and software dropped markedly in the first quarter, with declines about as steep and widespread as in the fourth quarter of 2008. Orders and shipments of nondefense capital goods excluding aircraft fell in March, turning negative again after having been flat in February. The fundamental determinants of equipment and software investment stayed weak in the first quarter: Business output continued to drop sharply, and credit availability was still tight. Despite the significant cuts in production in recent quarters, inventories remained sizable early in the year
- The dollar just hit a new 2009 low.
- Gold keeps inching higher.
- April housing starts fell to all time record lows.
- Potentially 600K more homes are sitting on the sidelines ("shadow housing") that will come to market in terms of foreclosures, shortly.
- Entering 2010, the “Pick-A-Pay”, and “Alt-A” loans will be resetting, and for many people that have been making the minimum payments during their "intro" period, they'll see jumps of up to 50%.

The Market:
Right now the market is digesting an incredible run, tacking some 36% on the S&P. By all means it should roll over and crash, but so many are now convinced that the FED has it all right and we'll be getting out of this soon, that they want in, not out. In our view, any reasonable dip will end up being bought. The market is probably destined to move higher over the next few months. Right now we're simply awaiting it to retake 900 on the S&P and 8500 on the DOW. If it can overtake both those levels, the next stop will be higher, in fact I can still see DOW 10K in our future.

But again – fair warning – this is a Bear Market (“suckers”) Rally. It is designed to suck in the most amount of people before it rolls back over, and the next time it does there will be no stopping it. We will have a date with DOW 4500 in the next two years. Gold will be higher, much higher. Silver will be higher. Interest rates will be higher.
- Stay long stocks over S&P 900, and DOW 8500.
- Sit on your hands under those levels.
- Buy gold – and try to move to the physical metal because the ETF can be manipulated.
- For the short term – I still like MOO, IPI, and XLK – again if over 900 and 8500 on the DOW

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

Please celebrate Memorial Day. Until next week – be safe.

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

This Week in Barrons – 05_17_09:
"For decades I've heard stories and rumors about manipulation. I've always brushed those rumors aside. But, this is a different world, and the nation is literally fighting for its life. People ask me do you really believe the government would really manipulate the markets? My answer you bet I do, they're willing to do absolutely anything in their struggle to get the US economy back to normal again." - 88 Year old Newsletter writer Richard Russel, made famous via the DOW Theory letters.

Thoughts:
The question is NOT whether we are going to come out of this recession soon – or whether we are going to return to "normal" or just see lower growth. The Question IS. Will the coming depression be sharp, painful and fast, or long and grinding? Yes I know:
- consumer sentiment is higher
- some of the nasty economic readings are "not accelerating" to the down side
- everyone wants to believe that the worst is past us and we are going to be okay soon – unfortunately that’s not in the cards.
- Chrysler and GM closed 2,000 dealerships (roughly 120,000 jobs – good jobs) – with more to come.
- But what about the trickle down → the advertising dollars on newspaper and local TV ads – the local coffee and lunch shops – the local charities – the suppliers of office equipment.
- And what about that job loss number that was hovering around 600k+ job losses per month – is that going down by this move?
- And what about the commercial property that they sit on – Commercial Real Estate is already on the ropes – and what banks are tied into those properties?
- Nothing has been done about the trillions in toxic derivatives that banks are holding. The ‘Mark to Fantasy’ model simply means that banks can lie about their value longer - it doesn't make them go away.
- What about Uncollectible credit-card debt rising to 8.82% - in February, the most in the 20 years that Moody's Investors Service Inc. has kept records.
- What about 101 companies in the Standard and Poor 500 eliminating their 401K contribution matches
- What about 480 trucking companies (7% of the nations trucking business) went out of business in the first quarter of 2009.

All along you always knew there'd be troubles here and there, politicians doing silly things, the occasional war we shouldn't be in, but through most of it I had a decent feeling about my fellow man. But now, seeing how our economy has been destroyed, while people we trusted who should have known better, simply let the greed take over, it shakes my beliefs in the moral fabric. It's degenerated to the point where instead of feeling that basically people are good and well intentioned, I'm beginning to think that man might be evolving to be a bit more evil at the core than I want to believe – with the end game being a centralized governing body over global finance. You see rich folks don't like having Government in their lives – but poor folks need Government in their lives. So what if the ‘game plan’ was to make more and more people broke, and thus dependant upon government. This economic crash wasn't by accident – it wasn’t a some good ideas gone sour – not was it silly greed gone wild – but rather it

"But if we are really heading for a massive depression, why is the market doing so well, and some of the economic numbers looking better?"
- the economic numbers have never gone in a straight line neither up nor down – there is always a counter trend blip in the opposite direction for a short period of time
- the "market" usually does things that don't make a tremendous amount of sense in the here and now. For instance why did the market gain 105% in 1933, as we were in the grips of the Great Depression, before rolling down to new lows? You need a longer view in order to have it all make sense.

Currently Banks, Insurance companies, Auto companies, Real estate companies, Manufacturers of all persuasions, and a host of other Industries need capital. They can't borrow it, and most already have debt loads they can't service. The "market" rising right now makes no sense if compared to the economic situation of the day – but if a rising market helps draw private investors into these capital starved companies, it allows the bankers and Wall Street to "live another day". With the help of the Presidents Working Group on Capital Markets, and some well placed futures buying from the major institutions (Goldman, JPM, and Citi) a rise was manufactured that caught the fund managers short, and then the fund managers and hedge funds had to scramble to "get in". And that becomes slightly self-sustaining, as they fear missing the run up more than getting clobbered again. Then, as the ‘sometimes misleading’ economic reports to look better than they possibly could, it "gives hope" to more people, and those people decide to "get in" before the market leaves them behind.

For example: A Friday Headline: “Led by a large decline in energy prices, U.S. consumer prices were unchanged in April after seasonal adjustments and have fallen .7% in the past 12 months, the largest decline in 54 years , the labor department reported Friday.” Excuse me – prices are falling where again? Oil was up $10 / barrel - Gasoline (according to AAA) was up 24 cents / gallon - Food prices are up - Medical costs are up - Education is up. BUT – the "government’s seasonal adjustments" to these figures were ENORMOUS - allowing the government to post the above headline. Therefore - to the average person – “things are getting better.”

Oh and what about the retraining for ‘better jobs’ in this world economy: "A Labor Department audit found that only 1 in 5 who participated in programs for displaced workers found jobs for which they had been retrained; nearly 40% ended up working part time or for less than they had earned before; 28% had not yet found any work at the end of their training."

The Market:
In the here and now, we see the market stumbling a bit – and louder are coming the calls to retest the lows. Yet I think the probability of that happening right now is very low. Yes we could still get a "correction" but it's not going to be as deep as everyone thinks. Why? Because everyone is looking for this big deep retrenchment, so they can hop in at a cheaper price, and when the bulk of the investing world is expecting something to happen, it will not happen. Everyone will try and "get in ahead" of the next guy, and it will automatically short circuit itself. Could we fall a total of 8 - 10% → maybe → but right now, we can't even seem to manage a 5% pull back, let alone 10. The market won’t do what everyone wants it to do, but it will do what it wants to do – which is keep inching higher, trying to prove to the world that the healing is upon us and all will be well. Just realize that even if I'm right and we move ever higher into and through the summer, it's the ultimate suckers rally. We'll want to take the ride, but we will want to step off and go short when it's over. Don't sit there and "buy and hold" forever, you'll get crushed. Take this rally for what it is, and then when it tops out – get out.

Tips:
We sold the last remaining shares of FAS at 12.73 → up 400%.
We sold the last UYM at 19.70 → up 59%.
We sold the last BUCY at 27.77 → up 40%.
We sold the last GMXR at 17.24 → 72%.

Looking forward:
- Inflation is roaring no matter what Uncle Sam says, and tangible assets (think commodities like iron, agri, coal) will do well.
- Technology will become more important as struggling companies replace workers with machines.
- Remember that a rising market lifts all boats, and a falling market exposes the fragile the most. Watch the market for signs of the trend, and pick your spots.

Remember the Blog http://rfcfinancialnews.blogspot.com/. Be careful and talk to you next week.

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

This Week in Barrons – 05_10_09:
"For decades I've heard stories and rumors about manipulation. I've always brushed those rumors aside. But, this is a different world, and the nation is literally fighting for its life. People ask me do you really believe the government would really manipulate the markets? My answer you bet I do, they're willing to do absolutely anything in their struggle to get the US economy back to normal again." - 88 Year old Newsletter writer Richard Russel, made famous via the DOW Theory letters.

Thoughts:
The question is NOT whether we are going to come out of this recession soon – or whether we are going to return to "normal" or just see lower growth. The Question IS. Will the coming depression be sharp, painful and fast, or long and grinding? Yes I know:
- consumer sentiment is higher
- some of the nasty economic readings are "not accelerating" to the down side
- everyone wants to believe that the worst is past us and we are going to be okay soon – unfortunately that’s not in the cards.
- Chrysler and GM closed 2,000 dealerships (roughly 120,000 jobs – good jobs) – with more to come.
- But what about the trickle down → the advertising dollars on newspaper and local TV ads – the local coffee and lunch shops – the local charities – the suppliers of office equipment.
- And what about that job loss number that was hovering around 600k+ job losses per month – is that going down by this move?
- And what about the commercial property that they sit on – Commercial Real Estate is already on the ropes – and what banks are tied into those properties?
- Nothing has been done about the trillions in toxic derivatives that banks are holding. The ‘Mark to Fantasy’ model simply means that banks can lie about their value longer - it doesn't make them go away.
- What about Uncollectible credit-card debt rising to 8.82% - in February, the most in the 20 years that Moody's Investors Service Inc. has kept records.
- What about 101 companies in the Standard and Poor 500 eliminating their 401K contribution matches
- What about 480 trucking companies (7% of the nations trucking business) went out of business in the first quarter of 2009.

All along you always knew there'd be troubles here and there, politicians doing silly things, the occasional war we shouldn't be in, but through most of it I had a decent feeling about my fellow man. But now, seeing how our economy has been destroyed, while people we trusted who should have known better, simply let the greed take over, it shakes my beliefs in the moral fabric. It's degenerated to the point where instead of feeling that basically people are good and well intentioned, I'm beginning to think that man might be evolving to be a bit more evil at the core than I want to believe – with the end game being a centralized governing body over global finance. You see rich folks don't like having Government in their lives – but poor folks need Government in their lives. So what if the ‘game plan’ was to make more and more people broke, and thus dependant upon government. This economic crash wasn't by accident – it wasn’t a some good ideas gone sour – not was it silly greed gone wild – but rather it

"But if we are really heading for a massive depression, why is the market doing so well, and some of the economic numbers looking better?"
- the economic numbers have never gone in a straight line neither up nor down – there is always a counter trend blip in the opposite direction for a short period of time
- the "market" usually does things that don't make a tremendous amount of sense in the here and now. For instance why did the market gain 105% in 1933, as we were in the grips of the Great Depression, before rolling down to new lows? You need a longer view in order to have it all make sense.

Currently Banks, Insurance companies, Auto companies, Real estate companies, Manufacturers of all persuasions, and a host of other Industries need capital. They can't borrow it, and most already have debt loads they can't service. The "market" rising right now makes no sense if compared to the economic situation of the day – but if a rising market helps draw private investors into these capital starved companies, it allows the bankers and Wall Street to "live another day". With the help of the Presidents Working Group on Capital Markets, and some well placed futures buying from the major institutions (Goldman, JPM, and Citi) a rise was manufactured that caught the fund managers short, and then the fund managers and hedge funds had to scramble to "get in". And that becomes slightly self-sustaining, as they fear missing the run up more than getting clobbered again. Then, as the ‘sometimes misleading’ economic reports to look better than they possibly could, it "gives hope" to more people, and those people decide to "get in" before the market leaves them behind.

For example: A Friday Headline: “Led by a large decline in energy prices, U.S. consumer prices were unchanged in April after seasonal adjustments and have fallen .7% in the past 12 months, the largest decline in 54 years , the labor department reported Friday.” Excuse me – prices are falling where again? Oil was up $10 / barrel - Gasoline (according to AAA) was up 24 cents / gallon - Food prices are up - Medical costs are up - Education is up. BUT – the "government’s seasonal adjustments" to these figures were ENORMOUS - allowing the government to post the above headline. Therefore - to the average person – “things are getting better.”

Oh and what about the retraining for ‘better jobs’ in this world economy: "A Labor Department audit found that only 1 in 5 who participated in programs for displaced workers found jobs for which they had been retrained; nearly 40% ended up working part time or for less than they had earned before; 28% had not yet found any work at the end of their training."

The Market:
In the here and now, we see the market stumbling a bit – and louder are coming the calls to retest the lows. Yet I think the probability of that happening right now is very low. Yes we could still get a "correction" but it's not going to be as deep as everyone thinks. Why? Because everyone is looking for this big deep retrenchment, so they can hop in at a cheaper price, and when the bulk of the investing world is expecting something to happen, it will not happen. Everyone will try and "get in ahead" of the next guy, and it will automatically short circuit itself. Could we fall a total of 8 - 10% → maybe → but right now, we can't even seem to manage a 5% pull back, let alone 10. The market won’t do what everyone wants it to do, but it will do what it wants to do – which is keep inching higher, trying to prove to the world that the healing is upon us and all will be well. Just realize that even if I'm right and we move ever higher into and through the summer, it's the ultimate suckers rally. We'll want to take the ride, but we will want to step off and go short when it's over. Don't sit there and "buy and hold" forever, you'll get crushed. Take this rally for what it is, and then when it tops out – get out.

Tips:
We sold the last remaining shares of FAS at 12.73 → up 400%.
We sold the last UYM at 19.70 → up 59%.
We sold the last BUCY at 27.77 → up 40%.
We sold the last GMXR at 17.24 → 72%.

Looking forward:
- Inflation is roaring no matter what Uncle Sam says, and tangible assets (think commodities like iron, agri, coal) will do well.
- Technology will become more important as struggling companies replace workers with machines.
- Remember that a rising market lifts all boats, and a falling market exposes the fragile the most. Watch the market for signs of the trend, and pick your spots.

Remember the Blog http://rfcfinancialnews.blogspot.com/. Be careful and talk to you next week.

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

This Week in Barrons – 05_10_09: Before we start let me begin today by wishing all the Mom’s out there - a very Happy Mothers Day! Being a mom is ‘by far’ the toughest job out there – it only starts with 24/7/365. My hat’s off and my sincerest thanks to all of you!

Thoughts:
On Friday the official release of the Jobs Report told us that 539,000 people were let go in April, and the unemployment rate rose to 8.9%. This brought out everyone telling us that: 1) the RATE of job cuts is slowing, 2) the economy is bottoming, 3) because unemployment is a lagging indicator and this means that the economy is in recovery mode, and the ‘topper’ 4) the unemployment rate inching a bit higher is a good thing as more people realize the recovery is taking place and are now actively seeking work. Honestly – NONE of these people should work on Wall Street – but they all do.

Let’s really examine the report:
- 13.7 million people are unemployed, a level not seen since 1948.
- Capacity utilization at our nations manufacturing plants fell to 69.3%, a level not seen since they started measuring it in 1967.
- Included in the jobs number was 66,000 people hired by Uncle Sam for the sole purpose of taking the 2010 consensus, which is only a temporary job. So adding 66,000 to 539,000 – we’re once again above 600,000.
- The hours worked fell to 33.2, the single lowest measurement on record.
- The rate of temporary employment, which employers use to "test the waters" fell, meaning they don't even want to hire someone even knowing they are only going to be around for a while.
- The unemployment rate rose to the 1983 level of 8.9%.

Now let’s further examine this number. Remember in weeks past – we talked about the unemployment number being only a small piece of the total unemployment number. The government reports the U3 figure – however looking at some other figures – U6 (for example) is the measure that includes people who are working part-time but want full-time work, as well as the "marginally attached" (i.e. people not actively looking, because there are no jobs in their area, but want and are available for a job and have looked for work sometime in the recent past.) When you measure unemployment like that the unemployment rate is 15.8% - and in over 25 states, it's actually over 20%.

There is even a “Birth/Death" component of the unemployment number = U3. That is to say – to Uncle Sam - for every company that lets employees go, some of those employees will go out, open a business and hire people. With absolutely NO proof of any of that actually happening, Uncle Sam takes a guess at what that number is, and in this release it added 226,000 NEW jobs due to that ‘guess.’ So 539,000 jobs lost – add the amount of temporary census takers of 66,00 and then add 226,000 due to the “Birth/Death” component – you’re suddenly over 800,000 jobs lost. Therefore in my world – the jobs number didn’t show me anything – really – other than a deteriorating economy.
So what about the "stress tests" that Wall Street found to be so comforting? Honestly – how can our banking system be "solid" when 10 of 19 need billions more to survive? OK – but what about the future projections – what about the trillions in toxic sludge that is "still there" – and what about ‘Mark to Fantasy’? Recent Real Estate actions show sales going at roughly 60 cents on the dollar – but the banks have marked it ‘dollar to dollar’ – humm – that’s going to be a problem. The FED has made it clear that they will hand select whom they will put on life support for eternity, while letting little guys roll over so the can be "absorbed". Remember – we’ve done EVERYTHING the FED has asked – over 12 Trillion in bail-out funds → basically our entire GDP → and is that unemployment report the recovery?

Will history repeat itself? Back in 1920 – BEFORE the ‘Great Depression” and following World War I, the war excesses in credit and debt had come back to bite us hard. Unemployment was soaring, production was crashing and the people were broke. Like Obama today, Warren J. Harding started his Presidency in the face of a massive economic collapse. Yet Warren didn't open the floodgates – he was quite brilliant – he basically told the people: "Folks, we're screwed. We lived like drunken sailors from too much credit and too much debt. We face horrid inflation, job losses and tough times. We're going to have to buckle down, tough it out, and pay for the mistakes of the past. It won't be pleasant, and you're all going to have to sacrifice. We have to man up to the problems, face them down, charge them off and start fresh. We don't need any wild new concepts, no untried policies. What we need to do is take our medicine and work through it." Warren let bloated businesses fail. He cut back social program spending and infrastructure spending. He reigned in credit, and stood on principles of living within your means. Well guess what – in less than a single year, the economy had flushed itself, the free market rewarded the strong, and disbanded the weak and after a brief period of pain, the economy was on the road to recovery. In fact, it was one of the shortest lived economic downturns of it's type ever seen. Of course that isn’t being talked about because when President’s like Jackson or Harding actually do the ‘right thing’ it becomes an abomination to the banks, and the banks do any and all things they can to keep you in the dark about how things really work.

The Market:
The market has put on one of the most impressive shows it's had in 70 years. Nine (9) weeks of almost straight up has caused everyone to breath a little easier, and feel a little better. People are beginning to believe the hype that the FED has got it right and soon we'll all be okay again. Their 401k’s are going up instead of down. And honestly - $12Trillion in stimulus and non-stop propaganda does indeed have that effect. We’ve amassed massive gains – and even when the market "guru's" said that the run was over 3 weeks ago and we would be testing the bottom again – we disagreed, suggesting that the market would continue higher. Not because of earnings (they stink), or economic improvement, we based our belief on the market’s goal of taking as much money as possible from the largest amount of people at any one time. So, when everyone was shouting to retest the lows, and many went short – the most probable action was for the market to soar even higher, confounding and confusing the masses, and rewarding the few.

Tips:
Right now the "call" is becoming much harder, because once all the naysayers were proven wrong, they had to scramble and get in at all cost. Then they had to change their tune from "this is a bear market bounce" to "this is a raging bull market!" Frankly I have two problems trying to decipher if we are going higher in the short term or not. The long term is easy, once all this fallacy implodes we will see a DOW of 4500. Honestly – we are so overdue for a smack-down that puts the fear of God in all the late arrivals, that it keeps me in a state of nervousness. All throughout history bear market bounces have been punctuated with major sharp reversals that keep people in fear of buying stock, then the market confounds them by quickly recovering and moving higher.

We’ve had a pause but no smack-down. Granted, sometimes a pause is all you get as wave after wave of people try to catch up move their money out of CD's and savings accounts into the market, creating overwhelming demand. But even so, 9 weeks without a scary sell off is very significant to me. There has to be one brewing and we can only guess at this point – but I can advise you that the ‘smack-down’ will be buyable. I would continue to "lean long" but don't bet the ranch. If we were to get a sharp sudden downdraft of 400 or 500 points I would probably be a major buyer, because I then believe it would reverse and rush back up. But without that happening, each day higher is simply stretching the rubber band.

Please celebrate Mother’s Day - show Mom how much you love her. They're great people and deserve a day of rest and praise.

R.F. Culbertson
rfc@getabby.com