This Week in Barrons - 3-17-13

This Week in Barrons – 3-17-2013

History continues to repeat itself … again, and again, and again!

Allow me to explore two elements this week: energy and housing. 

The key to our success in the US (for so long) was cheap energy.  Through new technology, the US now holds more oil and gas than almost any other nation.  If we were allowed to drill and refine it (in the amounts we "could" produce), we could easily get gasoline down to $1 a gallon.  We could take 40% right off the top of your electricity bill.  This power position could allow us to return to the good old days.  China and Vietnam would continue to have lower wages, but our new cost of power could serve to lower production costs enough that once again – we could compete.  We have so much natural gas that we could export it to Europe and Japan and reap tremendous profits.  Imagine if:

-       We were (really) allowed to drill for oil and gas,

-       We were allowed to build a new refinery,

-       We transformed the existing liquid natural gas (LNG) terminals to export instead of just import natural gas, and

-       We transformed the closed military bases (many of which are near coasts) into LNG ports that could ship around the world.

In terms of a recovery, I think our economy has another choice.  (1) We can print money forever, but we will eventually implode.  (2) We can stop printing money, and we will quickly implode.  (3) Or we can harvest our natural resources (correctly), solve our debt problems, put Americans back to work, and enjoy the economic success we had years ago.  My only question is – will ‘the powers that be’ allow this to occur?  We are sitting on 200 years worth of natural resources that could deliver us complete energy independence within 8 - 10 years.  Bottom line:  I do not believe The Ben Bernanke and his band of Central bankers can manage a true recovery, any more than he could avoid the 2008 melt down.  But cheap energy does offer us a solution to all of our political issues, if we can get out of our own way.

Consider the jobs report last Friday.  Everyone screamed and cheered because we created 236K jobs.  Unfortunately, (according to the Household Survey) the number of full-time jobs actually declined, but part-time workers rose by 102,000.  [Part-time jobs are those where the employee works less than a 40-hour workweek, and for which the employer does not have to pay health care.]  But the most surprising development was that the number of multiple jobholders rose by a record 340,000.  So if more people got ANOTHER job, how many actual people got new jobs?

Also it was reported that retail sales increased dramatically.  Unfortunately the largest component of the retail sales report was the enormous rise in gasoline sales.  Gasoline sales are measured in dollars spent, and not on units sold.  So all the report really told us was that the cost of gasoline went up in February by a lot.  Imagine – we can solve the problems in the economy, put people back to work, pay our debts and finance our Social programs, simply by harvesting the fuel that’s beneath our feet.

Secondly, as some of you know, I enjoy following the real estate market – particularly in the Sarasota, Florida area.  It’s become clear that someone is purchasing houses.  I know, I'm the guy that says – with 48 million people on food stamps, and unemployment much higher than what we’re being told – there is no housing recovery going on.  So, how are these houses being sold?  Enter round two of the fleecing of America.  On Thursday I saw this news blurb: “Blackstone has invested $3.5 billion to buy 20,000 single-family rental homes since last year, making the New York-based company the largest investor of its type in the U.S.  The firm is rushing to acquire properties as housing prices recover and as demand for rentals increases among people who can't qualify for a mortgage or don't want to own.”

That’s a lot of homes, and if Blackstone is involved, dozens of other investment firms are also scooping up mid-sized homes and instantly renting them out.  But financial institutions make lousy landlords.   Ah-hah, but they are taking the rental payments and packaging them into "rental backed securities" that they are selling as investments.  This appeared in Reuters: “Blackstone is preparing a first-of-its-kind securitization of REO-to-rental properties.  This comes a week after the private equity giant got an increased bank loan from Deutsche Bank and others to expand its significant holdings of single-family homes.  At least 20 banks and investors looked at participating in the loan, and some passed because their charters would not allow them to participate.  Blackstone is the largest asset manager in the sector, and demand for a securitization is thought to be so strong that any deal could go forward without needing credit ratings.”

Oh my, did you catch the last line – ‘without needing credit ratings.’  Didn't we see this movie 5 years ago?  Didn't we see financial institutions bundle supposedly AAA rated securities and sell them around the globe, knowing full well they were full of folks that had no sustainable means of paying their mortgages?  Now they’re going to repeat the entire cycle with rental backed securities?  But it gets worse, with packaged mortgages they at least needed ratings.  With these rental securities, there is so much demand that they won't need ratings.  So we’re going to see ‘round two’ where we sell securities based on someone's ability or willingness to pay their rent?  What if we see more job losses, or the economy, stalls, or people just stop paying?  Won't the securities become worthless like the mortgaged backed ones did?  This can’t be new – can it?

It’s not.  One of the first entrants in the REO-To-Rental space, Och Ziff (a $31 billion hedge fund) after a year is now looking to cash out.  They purchased 300 foreclosed homes in northern California (at less than $100,000 apiece).  After pouring tens of thousands of dollars into each home for renovations before renting, they are seeing returns less than expected and wish to exit the business.  I wonder what happens when that entire rental inventory comes back into the market as home sales?  What happens when they convert these rental payments into "securities" but the renters turn squatter after being laid off, or take a pay cut?  Did we learn our lesson?  I suspect we're seeing another learning experience coming here shortly.

The Market:

The last two weeks of run up has been one of the stranger things that I've seen in a long time.  Even the staunchest bears – Richard Russell of DOW Theory fame, has thrown in the towel and decided to take a chance on the market because it was going up despite all the negatives.

We were up 10 days in a row, made an all time DOW high, and are within an inch of the all time S&P high.  But in a perverse sort of way, it has done so despite everyone with a working brain cell realizing it's doing it for the wrong reason.  I've been leaning long but keeping our finger near the sell button.  I've taken profits on things as they've risen, often selling half the position and allowing the other half to ride higher.  But make no mistake, I've seen movies like this before and although the plots aren't all the same, the ending is.  This will end badly.  But until it does, I will make hay while the sun is shining.

Friday they couldn't pull off the 11th up day in a row.  But to call a 25-point DOW drop the start of something other than a pause is a bit of a stretch.  Time will tell if they'll finally use it as an excuse to do some profit taking.  The fun part of trying to guess the market's next move is when you get a situation like we have right now - do the ‘market movers’ continue the move higher, or have they sucked enough late comers to the party that they're willing to shear some of those sheep now?

I tend to think we might be in pause mode for a few days now.  On Wednesday the Feds will have their FOMC meeting, and then at 2:30 The Ben Bernanke will do his live presentation with Q&A about the economy.  Everyone will worry over whether he mentions the stronger economic numbers, and removing the punch bowl.  But The Ben Bernanke knows full well that the employment numbers were massaged.  He knows that the Government through all the FHA programs, and the REO-to own programs is subsidizing housing.  He knows that if rates really rise, things will get ugly quickly.  He might talk about tightening, but that day is a long way off.

So a likely scenario is a pause here for Monday and Tuesday and then Wednesday (right ahead of the close) we soar higher and resume the "all-time" attack on the S&P highs.  That's my 2 cents.

Tips:

Last week I sold Starbucks (SBUX) for $1.

On Friday (via Twitter) I said that I liked National Oilwell Varco (NOV) over 70, and Coach (COH) over 52 on a rebound.

My current short-term holds are recovering nicely:

-       DE – in at 89.39 (currently 92.26) – stop at 91.00,

-       NOV – in at 70.05 (currently 70.57) – stop at entry,

-       WPX – in at 16.45 (currently 16.82) – stop at entry,

-       SNDK – in at 52.19 (currently 55.14) – stop at 54.50,

-       IRM – in at 35.32 (currently 36.39) – stop at 35.80,

-       SIL – in at 24.51 (currently 18.11) – no stop yet

-       GLD (ETF for Gold) – in at 158.28, (currently 154.01) – no stop ($1,592.50 per physical ounce), AND

-       SLV (ETF for Silver) – in at 28.3 (currently 27.82) – no stop ($28.81 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 - 3-10-13

This Week in Barrons – 3-10-2013

"We all know this going to end badly, but in the meantime we can make some money" - Jim Cramer 3/5/2013

Jim Cramer said this, echoing Stanley Drukenmiller (famed investor) telling the morning crew on CNBC how bizarre things have gotten.  This has to be one of the most honest things Jim’s ever said.  And in the past week, quite a few people are looking around and asking: “My neighbors still don’t have real jobs, but the stock marketing is reaching all time highs.  How can that be?”  Considering the economic reports are dismal at best and horrid at worst, how can the market keep moving up?

The economy is in a spiral wormhole.  That is to say, if the Fed does not continually shoot juice into the system, our economy will go right down the toilet.  And to The Ben Bernanke’s credit, he’s made it clear that he will use "every manner possible, both conventional and non-conventional" to keep the economy from a deflationary depression.  Since they have admitted to us they will pull out all the stops, and do things that are NOT in their charter, it becomes a bit easier to understand why the stock market can do things (in the short term) that defy logic.

The money the Fed prints out of thin air is a lifeline.  It is like a heroin shot to a junkie.  It does not create demand.  It does not create fundamental economic soundness.  And (often) it chases away real investment.  This is why after years of bailouts, quantitative easing, and every manner of Fed maneuvering, we still have unemployment hovering at unacceptable levels and wages stagnant.  Monetary stimulus keeps things afloat, but it's not real growth.  And the second it stops so does the economy.

A short history lesson:  45 years ago the U.S. economy was an engineering and manufacturing powerhouse.  We could churn out more product of higher quality than anyone else in the world.  We exported that product the world over, and our country became rich.  But the ‘powers that be’ wanted a more global government, and (in a nutshell) they changed things.  It is NOT an accident when the largest manufacturing powerhouse in the world falls apart.  It is NOT an accident when the world's largest creditor nation is now the world's largest debtor.  We were changed into a consumption society.  Instead of becoming richer by exporting goods around the globe and taking in the profits, we are currently a service-focused society.  And now that the 45-year experiment in fiat currency is a failure, those same ‘powers that be’ have absolutely no choice but to continue to print, monetize and debase our currency.  Just last week The Ben Bernanke calmed and reassured Congress by telling them that he has no intention of pulling back the punch bowl.  That statement alone pushed us up and over the ‘all time highs’ on the DOW.  

But the issue with being a consumption society is that we need people to consume.  If people think that the economy is crumbling, they won't spend their money, and instead they will try and save it.  Which is exactly what they SHOULD do, but if people don’t spend – our economy falls apart.  So despite the truth, there is a necessity to continue the illusion that things are lovely in order that people spend money they really don't have, on things they really don't need.  

This gets more interesting with ‘The Wealth Effect.’  In 1999 several of us at CMU were thinking – Is the stock market a reflection of the economy or is the economy a reflection of the stock market?  Studies have confirmed that a rising stock market makes people feel better, wealthier, and spend more (The Wealth Effect); therefore, wouldn’t it make sense that causing the stock market to go up – would naturally help us avoid a recession / depression?  Factually, most Americans own their stocks in 401k plans – yet 97% of the 401k plans have no ability to ‘go short’ in the market.  So the only way Americans can make money in the market – is to have the stock market go up.  

Finally, let’s consider zero interest rates.  Does anyone really think that interest rates are at ZERO in order to stimulate the housing industry?  Rates are at zero to force ‘savers’ to put their money into ‘risk assets.’  It is sickening that folks saved all their lives and built positions of cash that should be returning them 6+%, and instead they’re getting 1%.  Inflation is eating them alive.  Even foreign governments and pension funds (that were happy getting 4 or 5% in our Treasuries), are now forced to buy dividend paying stocks.  And then, whenever the market finally does roll over and fall, the guru's will call for a ban on short selling.

And if anything (ever) does go wrong – well - after the market crash of ‘87, President Reagan created the "President’s Working Group on Capital Markets".  These are the big wheels of finance such as the treasury secretary, and the heads of the major investment banks.  Their charter allows them to find ways to improve the economy.  For the past several years, this group (affectionately referred to as the Plunge Patrol Team) buys billions of dollars worth of market futures whenever they want the market to rise.

So we are all witness to the single largest transfer of wealth this planet has ever encountered.  Remember the phrase, “Too Big to Jail.”  Attorney General Eric Holder, the top U.S. law-enforcement official, finally admitted this week that bank executives truly are above the law and may commit crimes with virtual impunity.  Appearing before the Senate Judiciary Committee, Holder acknowledged under questioning by Republican Chuck Grassley of Iowa, that the megabanks are too big to jail.  “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them,” Holder said. 

Remember Jim Cramer: “We all know this going to end badly, but in the meantime we can make some money.”

The Market:

The market has gone up for 8 of the past 9 sessions – for approximately 600 points.  During that time we went ahead and punched through the all time highs of October 2007.  We ignored the vaunted sequestration.  We sidestepped Rand Paul's filibuster.  I don’t think anything can stop this train. 

After living thru the market "melt up" of 1999 – 2000, I never thought that I would see another one in my lifetime, but this run-up is eerily similar.

-       Back then companies with no earnings were gaining 50 points a week.  This time a Country with no earnings, savings and a debt load that is impossible to deal with, is gaining 50 points a day.

-       Back then Jim Cramer was telling us that it was a ‘brave new world’ where earnings didn’t matter.  Today Jim Cramer is telling us that the impending doom doesn't matter, so let’s make some money.

Is there a pattern here? 

On Friday I sold some of my short-term holdings.  It might turn out to be a stupid maneuver, but my feeling was that they were probably going to keep the market green on Friday in order to shout about how wonderful everything is over the weekend.  Then on Monday (after 6 up sessions) they begin to skim a little profit off the top.  Heck, even in the tech mania bubble we'd at least get pullbacks, and we’re sorely overdue for one now.

But what is the target of this particular bull run.  Since the DOW has punched through the last all time high, it has nothing to prove.  The S&P still hasn't hit its all time high of 1,565, but it seems fairly certain that we'll get those last 14 S&P points.  But what happens when both set all time highs, do we just continue higher?  After all, we are witness to a Central Banker with a printing press – who is using it to the tune of $85 Billion per MONTH.  On that alone, there’s no reason that this market can’t go up another 2, 3, or 4 THOUSAND points.  But:

-       What if more Cities in the US (like Detroit) start to implode?

-       What if global currency activities push rates up?

-       What if The Ben Bernanke increases his money printing from $85 Billion to $100 Billion to reign in these rates?

-       Isn't it at least theoretically possible that the market continues to go up, and up, and up beyond anyone's imagination?

This is going to end badly, but in the meantime, virtually anything could happen.  We could certainly go up for the next two years with just the tiniest of 4% corrections now and again.  Or the velocity of money could increase and inflation could break out.  Only two things will stop this market: (a) when The Ben Bernanke lets off the gas pedal, or (b) when Inflation breaks out and begins its push for "hyper".

I think we may get a little down ‘wiggle’ on Monday, but I suspect any dip will get bought and we'll see that S&P high within a few weeks.  We are all forced to lean long into this, despite knowing we're doing it for all the wrong reasons.

Tips:

The past week we sold out of HFC (+2.00), AXP (+1.50), and ADSK (+0.40).  I’m watching SNDK over 52.10, CMI over 120.00, COST over 104.00, CLF over 25.00, and JOY over 63.00.

My current short-term holds are slim indeed and mostly underwater:

-       DE – in at 89.39 (currently 90.63) – stop at entry

-       SBUX – in at 56.99 (currently 58.61) – stop at 57.50

-       SIL – in at 24.51 (currently 18.24) – no stop yet

-       GLD (ETF for Gold) – in at 158.28, (currently 152.57) – no stop ($1,576.60 per physical ounce), AND

-       SLV (ETF for Silver) – in at 28.3 (currently 27.99) – no stop ($28.90 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 - 3-3-2013

This Week in Barrons – 3-3-2013

Those feared words, “The U.S. Government is here to Help”

A friend of mine – Paul M. (got me thinking) and some CMU students asked me:  “Who ends up suffering due to the skyrocketing costs of higher education?”

Factually:

-       An average 4-year college education costs over $100,000.

-       60% of students incur student loan debt – averaging over $27,000.

-       Professional degree loan debt is an additional $100,000, with Doctors incurring over $200,000 in additional debt.

-       State Universities can’t keep with infrastructure, and (in many cases) have raised tuition over 80% in the past 3 years.

Combine this with the housing bubble of 2008 (28% of current mortgages are still underwater), and this gives us millions of new college graduates either unemployed or underemployed, 60% carrying student loan debt, and their parents with their largest asset virtually worthless.  But don’t worry, the U.S. Government is here to help – with the Affordable Care Act (Obamacare). 

The main reason Obamacare is going to hurt our young people is that it will make them purchase health insurance, even when the odds of them using it are low.  Currently 27% of 27 to 34 year olds do not carry health insurance.  After January 1, 2014 – they will ALL have to, or pay a fine/tax.  Obamacare is built on the premise that our young people are needed to purchase insurance and NOT use it – so that their premiums will be available to pay for the care of others (often much, much older).  The ONLY flaw in the plan is that our young people don’t have the money (unemployed or underemployed).  A single, 25 year-old making $23,00 a year would need to pay 6.3% of their income ($1,449) to Obamacare.  This is $120 a month that they don’t have and won’t use. 

Adding insult to injury:

-       Approximately 60% of all personal bankruptcies in the United States are related to medical bills.  And approximately 41% of all working age Americans have medical bill problems.

-       According to the Association of American Medical Colleges, the U.S. is currently experiencing a shortage of at least 13,000 doctors, that will grow to a 130,000 doctor shortage in 10 years.  Not counting the fact that 40% of all doctors are over the age of 55. 

-       U.S. ambulance industry makes more money each year than the movie industry.

-       Approximately 10% of all U.S. employers plan to drop health coverage completely when the major provisions of Obamacare go into effect in 2014.

-       16,000 new IRS agents are being hired to help oversee the implementation of Obamacare,

-       Currently there are more than 56 Million Americans on Medicaid, and under Obamacare 16 Million additional will be added.

-       Currently there are more than 50 Million Americans on Medicare, and Obamacare will add an additional 23 Million by 2025.

The only nice ending to this is to potentially invest in medical facility REITS (Real Estate Investment Trusts) or other medical investments that pay a high dividend. 

The Market...

“I know that it is painful.  Anytime you buy something and it loses 10, 15, or 20% of its value, it makes you mad and then you question yourself.  But always ask yourself the same basic question: ‘What has changed?’   If the answer is nothing, then the only thing I can logically surmise is that while holding gold through this big dip is painful, I have to think that in the end, it is the right thing to do.”

I wrote this in Barrons, of October 2006.  In May of 2006, I was looking like a genius as gold hit $725 an ounce (up from $300).  But by October it was trading at $560 – a drop of 22%.  The story was a simple one.  There was a housing bubble, a credit bubble and a debt bubble all brewing, and Gold was the only thing that made sense to own at the time.  I bought MORE gold, and the rest is history.

Today is much different than 2006, and the reasons for owning gold are bigger than they were in 2006.  Gold is the ‘anti-currency’ and the ultimate ‘money’.  Money is a storage of value for our production.  In order to store value, you need to be: rare, portable, divisible (make change), accepted universally as a medium of exchange, fungible – meaning it needs to possess the same value everywhere, and stand the test of time as a storage agent (it can’t be worth less next week).

So if Gold it's not dead, why is it struggling?  First off, has anything changed? Nope.  On Tuesday The Ben Bernanke told the banking committee that he was going to keep QE in effect for a long time.  But if The Ben Bernanke is destroying our currency, shouldn't gold be going up?  Yes it should be, and it is my bet that it will again.  But with the advent of Gold ETF’s, we’ve allowed Central bankers (via paper currency) to manipulate the price of the metal to make it look like there's no inflation.  The same Central banks that are using the paper market to drive metal prices lower, are then using the physical market to BUY the metal itself.

So what happens?  Either the illegal naked shorting, forward leasing, paper derivatives win the day and gold goes back down, or the physical demand outstrips supply, and coupled with the Central bank’s currency printing; prices rise in spite of the illegal activities.  In 2006 I sided with the idea that nothing had changed and economic disaster was in the wings.  Here in 2013 I suggest that we're still facing an economic disaster, coupled with a deranged Federal Reserve, who prints trillions as though it has no downside to it.  While nothing is ever written in stone, and no investment is without risk, when the head of the biggest central bank on earth says he's going to keep printing currency, and we see Japan wanting in on the game, and we see Draghi in Europe suggesting that the ECB has a lot more to give, then I have no choice but to go with logic.  I'm a buyer of metals on this dip.

Does the stock market deserve to be at All Time Highs?  Nope – on Friday alone:

-       We had the sequester looming.

-       The PMI numbers out of China were horrible.

-       U.S. incomes dropped the most in 20 years.

-       U.S. disposable income after taxes took the biggest plunge since 1959.

-       AND U.S. GDP came in with virtually 0 growth!

I think the only thing that will stop this lunacy is if the velocity of money increases to the point where we finally get a huge surge of inflation.  That would short circuit everything, and we would spiral downward quickly.  As long as Bernanke is willing to dole out free money, and the banks aren't pumping it into the economy, this game of an ever-rising stock market stays intact.

In the next several days (with everyone and his brother looking for all time highs), the market could easily pull off a correction instead.  So I’m still uncertain as to the direction of this market.  My guess is that we take out the all time high, just so they can say they did, and then we finally roll over for a while.  One tool you can use to try and decipher this mess is the XLF – the exchange traded fund (ETF) for the financial community.  In rough terms, the market really can't go anywhere without the financials and the XLF is their barometer.  If the XLF were to break up and over 18, then the rally would be intact.  If the XLF were to fall below 17, one could surmise we were finally going to get our overdue correction.

Because of all this slop and chop, trying to get brave and go "too long" or get short – well, I think it best to just to let this congestion pass.

Tips:

The past week we sold out of SPN (+1.00), PTEN (+4.00), MS (+3.50), and SPY (+9.00). 

My current short-term holds are slim indeed and mostly underwater:

-       SIL – in at 24.51 (currently 18.25) – no stop yet

-       GLD (ETF for Gold) – in at 158.28, (currently 152.58) – no stop ($1,571.90 per physical ounce), AND

-       SLV (ETF for Silver) – in at 28.3 (currently 27.65) – no stop ($28.45 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>