RF's Financial News

Sunday, June 16, 2013

This Week in Barrons - 6-16-13

This Week in Barrons – 6-16-2013

America Waking Up…

First - Happy Father’s Day. In my view, being a ‘dad’ is the second toughest job – runner-up to being a ‘mom.’

What I’ve seen over the years, is that often one person’s ‘conspiracy’ is tomorrow’s ‘news.’ On Thursday the CNBC anchor personnel were ‘shocked’ to find out that some of the high frequency trading desks receive economic information before that same information is released to the public – for a special fee. So the ‘big money folks’ are hyper trading on information that we ‘common folk’ are not able to see at the same time – this comes as a shock to who?

The public is also finding it a bit scary that the NSA is privy to every single thing that they have ever done electronically. The IRS has shown that it has the ability to fight anyone that says things that go against ‘The State.’ And given the IRS budget is virtually limitless, if they target you or your organization – you (most likely) will be out of money before you ever get your day in court.

But (the other day) I did see a ray of hope. While shopping, the cashier asked the lady standing in line in front of me: "Can I have your phone number please?" The woman replied: "No! I see what you’re doing now. You guys can track my purchases by matching my phone number with these items. Then you can share that information with everyone else to see if it all makes sense. No thanks, I'm not doing any of that any more." She had seen the light. Will she stick to it? Who knows, but at least one light bulb turned on.

Another light bulb turned on this week when the national media declared: “Yes, the stock market is all about the Fed policy, not the economy". The media this week finally had to admit that after 6 years of stimulus and bailing out banks, it’s not the economy leading the stock market, but rather the stock market attempting to lead the economy. I personally can't imagine how people actually believed that the economy was recovering. No matter how hard I would try and explain what was truly taking place, every week I would get mail telling me that I was wrong. But now, it seems a light bulb has turned on with our national media.

I’m glad the light bulb turned on, but I fear that the media has only done its mea culpa because it ran out of excuses and ways to explain the dichotomy. The media saw overwhelming unemployment, falling corporate profits, manipulations and frauds on one hand, and on the other hand a stock market that continued to climb higher. Last week seemed to be a ‘coming together’ on the fact that ‘the recovery’ is nothing more than Central banks around the world printing money like madmen. What interests me however, is that people are beginning to wake up to the idea that this entire rally could be fake.

Here is where the deep confusion will set in. Everyone is finally starting to believe that this is a rally manufactured by the Fed, and it will end at some point, and when it does – it probably won't be pretty. However, nobody knows what to do about it. Believe me, I understand the frustration. Just when people started believing that maybe gold and silver were the right things to buy, the Central Banks attacked the metals, sending them down hard, and scaring people away. It is going to take a strong leap of faith for those who are just waking up to the world’s economic disaster to believe in gold and silver. The good news is that these attacks were NOT by accident. Central bankers have done everything in their power to keep people away from saving, and to keep people buying everything except precious metals.

Factually:

- The metals are down in the paper futures markets; however, the demand for the metals is still rising.

- All around the globe people are paying fantastic premiums over the stated price for gold and silver. For example: if the daily quote for gold is $1,375 / ounce – a normal premium for physical gold would be between 2 and 4%. Currently, physical gold premiums have risen to between 7 and 9.5%. So what is the real price of gold? In Asia, the minimum price of physical gold is $1,475 (a 7% premium over the spot price of $1,375).

- With prices being down, demand for the physical metals is strong. However, at this rate Gold stores will be ‘out of (reasonably priced) deliverable gold’ in the not too distant future. What happens then?

- Gold is still flowing from West to East – with China increasing it’s holdings. As it continues to become difficult to deliver the physical metal – the paper prices will become irrelevant and at that point I believe a new Index of Gold will appear. This new Gold Index will reflect the ‘real physical price’ not a Central Banker driven nightmare.

The Market:

This week we put in the classic bounce off of the 50-day moving averages. We were down three days in a row, touched the 50-day moving averages, the trading bots kicked in, and boom up we went. Unfortunately Friday could not hold the gains, and here we sit at 15,070 on the DOW and 1,627 on the S&P.

I’m nervous about the DOW closing below 15,130. If we would have cleared and held 15,250 – we could have talked about a classic ‘W’ shaped rebound. A classic ‘W’ is where a stock or index comes down, then bounces, then comes down again and finally bounces back up. When the right side of the ‘W’ surpasses the high of the middle of the ‘W’ (in this case 15,250) – it is often a strong buy signal. Unfortunately we were down triple digits on Friday, and therefore, need to defend the 50-day moving averages – again on Monday.

I need ‘trends’ in order to play – and right now – until we break under the 50-day moving average (around 14,950) or over 15,250 – we’re in no man’s land. I’m sitting tight. You can try day-trading the market, taking some SPY or DIA's, but I would keep incredibly tight stops on any trades – as this market could easily move in any direction.

If we fail the 50-day moving average and plunge under 14,950, then all bets are off and we'll probably be looking at a quick pull-down – taking the S&P down to the 1,600 level which is the intermediate trend line of support.

So, I'll be a buyer of the DIA's and the SPY if the DOW moves over 15,250, and/or the S&P moves over 1,650.

Tips:

This week we sold out of ABX flat – otherwise we did very little except tread water.

My current short-term holds are:

- MUX at 2.68 (currently 2.10) – stop at 1.60

- SIL – in at 24.51 (currently 13.60) – no stop yet

- GLD (ETF for Gold) – in at 158.28, (currently 134.55) – no stop ($1,387.30 per physical ounce), AND

- SLV (ETF for Silver) – in at 28.3 (currently 21.30) – no stop ($21.95 per physical ounce).

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

Please be safe out there!

Disclaimer:

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

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

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>

Sunday, June 9, 2013

This Week in Barrons - 6-9-13

This Week in Barrons – 6-9-2013

To Taper or NOT To Taper?

Factually:
-       Mortgage applications fell by another 11% this week, after falling 8.8% the week before.
-       Applications to refinance homes dropped 15%, the fourth straight decline to the lowest level in more than a year.
-       Rates for a 30-year home mortgage rose to 3.91% last week, up from 3.35% at the start of May, while 15-year rates also increased to 3.03% from 2.56%.
-       The jobs report on Friday showed that we added 175,000 new jobs to the economy last month, and the unemployment rate increased to 7.6%.
-       Retailers, the hospitality industry and temporary-help agencies (the lowest paying industries) accounted for 96,300, or 55%, of the 175,000 jobs added in May. The hospitality industry added 43,000 workers last month, paying $13.45/hr., the lowest of any of the 10 major employment categories. Retailers added 27,700 jobs in May, paying $16.63/hr., and temporary help accounted for 25,600 jobs paying $15.74/hr.
-       In contrast, manufacturing (which pays $24.22/hr.) lost 8,000 jobs.
-       There were 7.9 million people working part-time in May who would have preferred full-time work but couldn’t get it. (The norm is 4.4 million.)
-       Real hourly compensation fell by 9.1% - the largest recorded decline in history.

I failed to mention that the Bureau of Labor and Statistics added 205,000 jobs to the report under the ‘birth / death’ model; therefore, on a pure head-count basis – we lost 30,000 jobs last month (205,000 – 175,000 = 30,000 net jobs lost.)

But if you could have ‘picked’ the perfect jobs report – this was it. The report raised the unemployment level a tad, keeping the Fed from Tapering, but it left people to interpret that it only ticked up because people felt so good that they went out looking for work again. The report allows both sides to continue arguing about whether the Fed would or wouldn’t Taper off Quantitative Easing (QE). My only problem is that the Taper Talk will get louder. The jobs number wasn't out ten seconds when CNBC was saying that everything is setting up for a September pull back in QE. I'm afraid we'll hear more of this type of chatter, causing a lot of up and down chop over the weeks to come.

I received a particularly well-written email this week from a reader who vehemently disagreed with me on my stance on gold and silver. Allow me to present – potentially – a personal bias that I have for the metal(s).

Before the advent of electronic watches, a good mechanical watch was a masterpiece of technology.   My dad gave me a Hamilton Watch – made in Lancaster, PA for my graduation present – and I have it to this day. I came to realize that the mechanical watch is truly a lost art. Unfortunately the majority of people would rather buy a battery powered Seiko, than a mechanical work of art. So it is with this ‘awe’ of exacting craftsmanship, and beauty that I come looking at gold and silver. I try to do my best to separate the emotional admiration that I have for the metal itself, from the logical side that influences investing in it.

Consider this, the entire world’s above ground availability of silver (1B to 1.5B ounces) – at $22 an ounce – could be purchased for approximately $30B. We will come back to this calculation, but suffice it to say that there just isn't an unlimited amount of silver lying around. I’d like to focus on (a) the supply, and (b) the reasons for owning metals.

Gold’s main purpose is to ‘be pretty’ and make the most gorgeous jewelry. My e-mail writer asked me: “Why is gold better than say tree bark or seashells?” My main difference is that you can’t ‘grow’ or ‘manipulate’ it through other means. Our global society has decided that Gold works perfectly as money. For over 5,000 years man has been judging his wealth by the amount of gold and silver he owns. There have always been other elements like cattle and land but the real "wealth" was usually boiled down to the metals. And, it was uncannily universal. Dollar bills, Yen, Krona, Yuan’s, Peso's, and all other replica's of money are NOT money – they are currency. So, people purchase Gold usually for just one of two reasons: (a) jewelry, or (b) to store value.

But silver is different. It is used in electrical circuits, solar, aerospace, medicine, etc. Silver is in demand, not just for jewelry but for real business applications as well. It’s not uncommon for silver to be mined, put into a business application, and then discarded to the junkyard. Going back to where we started, for $30B someone could purchase every ounce of silver. A very wealthy person – such as Bill Gates – could spend half their net worth on buying the entire silver market. What that logically tells me is that the price of silver is too low. What would you do if you needed silver for high-end radar, defense assemblies for the U.S. Navy – and there was none to be purchased?

Silver is simply too cheap. Not because of the ‘gold/silver’ ratio – but because someone like China could purchase all of it, in one evening, with one keystroke. It just doesn't belong at $22, and I am firmly convinced that it won't stay there. Gold deserves to be where it is because it wards off the inflation that everyone tells me doesn’t exist. I can buy the same amount of food, gasoline, clothing in 2013 that I could buy in 2003 with the same half-ounce of gold. In 2003 the base price of a BMW 325i was about $28,000, and today it is about $35,000. In 2003 gold was about $350 an ounce, and today it is about $1,384. Gold has kept my buying power, and for me that is all it is designed to do. Silver, on the other hand, belongs considerably higher. There isn't that much of it. It costs more each day to mine. And more and more people want it. While I sounds like a broken record, I'm still thinking that in the not too distant future, it will see $70 an ounce. I’m starting to scale more into silver at the $22 level, and will continue to add on the dips to average into a nice entry price.

Gold, Silver, agriculture, and select Real Estate are about the only things I see as being substantially "safe" in this era of central bankers gone wild. To think that the printing of all of this currency ends so perfectly and they engineer the ultimate recovery is just too much of a fairy tale for me. So, allow me to be the dinosaur and continue to bulk up on the money of historians. If Gold and Silver end up being completely wrong, I'll obviously pay the price for the mistake. But I’ve been in it for over ten years, and so far so good.

The Market:

Is the Fed really going to "taper" in the near term – of course not. They may change the description of their games and find a different way to monetize the debt, but they will definitely need to continue to print money. Honestly, they have no choice. Well – they could do the right thing and stop all of it completely. They could just let the chips fall, the banks fail and let us go through the major purge that is so desperately overdue, but there is virtually no chance of that.

To quote Bill Gross of Pimco: “When I see wages flat versus 0.2 percent last month, and see the work week flat, and see unemployment going up, I see GDP in the U.S. of 1 to 2 percent, these employment problems are structural in nature. They are due to globalization, demographics, and to technology, the race against the machine. From a monetary standpoint you recognize that at some point the quantitative easing and the low interest rates are distorting capital markets which are critical to the economy going forward.” This comes on the heels of Gross’s funds suffering the first client withdrawals since May of 2011, as investors sold debt in anticipation of central banks eventually scaling back their unprecedented asset purchases. The Pimco Total Return Fund (PTTRX) – the world’s largest (and one of the best performing) mutual funds with $293B in assets is currently trailing 89% of its peers as it declined 2.1%.

You could see this pull back coming a mile away. The set up was the strongest I've seen in the dozen or so that have developed since November 2012. Not only did we have the technicals line up, the stochastics roll over and the Bollinger bands in overbought territory; moreover, this time we also had horrid economic data, along with taper talk, Japan going crazy and lousy employment data. With all that being said, the trend lines for the DOW and S&P are still intact. On Thursday we touched the 50-day moving averages of the DOW (14,960) and the S&P (1604) and then put in a ‘Vee’ shaped recovery.

But the market reaction to the jobs report is somewhat confounding.
-       Due to the run-up on Friday, it’s telling us that there is NOT going to be a taper of the QE.
-       But on the other hand, we see gold and the commodities getting sold, which would make sense if the Fed WAS going to "Taper" off their QE.

I think I’m going to have to lean long into this. While I don't have any ambition towards buying into stocks when they're already up 200 points on a Friday, I’ll have to hunt around and try and find some set ups that haven't broken down.

The Fed can't tell the world that they're failing and that QE didn't work, so they will just invent some other program to replace it. They will say it isn't QE. They will tell you that they're decreasing their buying, but they’ll just shuffle it around some more. The numbers tell me that they can't really end printing money. If normal, every day people aren't buying homes at 3.5%, can they buy them at 5%?

I think next week we will see them hold the line here. While you can make the case that the market is still set up for more of a pull down (and frankly it should), the economic numbers prove that Bernanke will continue to print and that's the only reason we're "up" in the first place. If the market fades, you might consider picking up some shares of the TZA - which is an inverse ETF. As the market fades, it goes up. If it moves over 33.25 it might be a good hedge in the short term.

I think you need to remain cautious. Not only are the transports and utilities sucking wind, our housing market dying, but we also have Japan imploding. That's truly a lot to ignore.

Tips:

This week we ended our consecutive ‘Up’ Tuesday streak at 20 Tuesdays in a row. But this week I did add MUX to the short-term holds.

My current short-term holds are:
-       MUX at 2.68 (currently 2.44) – stop at 1.60
-       ABX @ 20.20 (currently 20.30) – stop at entry,
-         SIL – in at 24.51 (currently 14.06) – no stop yet
-         GLD (ETF for Gold) – in at 158.28, (currently 133.60) – no stop ($1,383 per physical ounce), AND
-         SLV (ETF for Silver) – in at 28.3 (currently 20.94) – no stop ($21.73 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: .

Please write to 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:
Until next week – be safe.

R.F. Culbertson

Sunday, June 2, 2013

This Week in Barrons - 6-2-2013

This Week in Barrons – 6-2-2013

Are We Healed?

Factually:

- The initial jobless claims rose by 10K to 354K, which is really bad. But if the jobs picture stinks, it keeps The Ben Bernanke's foot on the gas, and that's all Wall Street wants.

- Last month’s viewership of CNBC fell to levels not seen since 2005.

- The Case Schiller housing index showed that home values in some areas had risen over 20% YOY (year over year).

- Consumer confidence came in at 76.2 beating the estimates of 71 quite handily.

- The Richmond Fed manufacturing index came in at -2 (contracting), and the wages dropped to a one year low, new orders fell to below January levels, employment went negative, and the workweek contracted.

- The Dallas Fed reported a manufacturing index of -10.5 (worse than expected) for a state that we all thought was booming – yes?

- And 48 million Americans are still on food stamps.

When economic reports start to show something that resembles economic growth, I lift my eyebrows and ponder the idea that some form of healing is taking place. But let’s look inside housing figures because unemployment is still raging, and most of the jobs that were created were in services, hospitality, and food delivery. I’m wondering how someone working for $10.50 an hour has the money to buy a $200K home? If a bank needs 20% down, then our $10.50 an hour worker would have to put every single penny of his income into a savings account for over two years. And assuming that people on food stamps cannot purchase a house, this means that an additional 15.2% of the U.S. population is automatically excluded from the housing market. Ah – but the key to housing seems to be investment money. For example, Blackrock is buying 20,000 homes at a clip. It doesn't take long to buy every single $100k to $190k house in an area if ONE investor is buying 20,000 of them.

Now, housing serves two purposes, and they do not necessarily coincide. (1) For someone looking to enjoy their life, raise a family, and feel good about building equity in an asset – buying a home makes a lot of sense. You get the mortgage deduction. You have a bit of security. And you build equity in the asset itself. All that said, housing is an investment unequaled in the history of building wealth. One of my favorite lines has always been: “A good way to get rich is to own many homes and let someone else pay for them (via rent).” And then because of inflation, you can sell them (as you need to) in order to create a nice income stream. So housing can be a home, or it can be a true investment.

However, when housing is gaining 20% a year (and in certain areas we’re hearing of bidding wars again), at what point does the word ‘bubble’ resurface? Interestingly, what the TV reporters didn't tell you was that if you take out the ‘distressed’ sales (foreclosures, short sales, etc.) the rise in housing prices was only 5% YOY. However, I am puzzled to explain how lumber prices have fallen 30% off their highs? What are they building all these homes with? And this week we heard that the mortgage applications fell 8.8% - after falling 9.8% last month. So how are houses selling fairly well?

This week Carrington came out and told us that they were ending their ‘buying of houses and turning them into rentals’ campaign – because they are not getting the return that they expected for the 25,000 rentals that they have accumulated. Over at Colony American Homes, they have purchased 9,950 houses for over a $1Billion to rehab and rent out, but have only found tenants for 51% of those rentals. Goldman Sachs estimates that investors have purchased approximately 14 million ‘leased’ single-family residences that are worth an estimated $2.8 Trillion. If all these investors decide that they would rather sell their houses (than try and rent them profitably), we are going to see a wave of homes come to market that rivals the 2008 foreclosure mess.

So, are we healed? We know the Fed has placed over $3+ Trillion dollars with banks, trying to make them whole, and hoping that it would all trickle down via loans. Unfortunately banks are not machines, and banks have done what is best for banks – not necessarily what is best for the economy. Pour in a little greed and manipulation, and you get a very different outcome than what may have been planned. Bankers got rich, and small pockets of the economy received a stimulus. However, the overall effect has been more of a distortion than anything else. Never before have the 1% gotten so rich, while the 99% continue to struggle to eat.

The talk now is that the Fed is going to "taper" off its QE. Along with that discussion, there is talk that someone else is going to get selected to run the Fed as The Ben Bernanke may soon step down. The analysts are saying that if the Fed tapers, it is bullish for everything – because it shows that the economy is firing well enough to take off on its own. I tend to think that there is some real whistling past the graveyard going on here. If $3 Trillion in Fed money has the Dallas manufacturing index at a minus 10.5 after almost 6 years, how is cutting QE going to fix it? If durable goods are selling slowing with interest rates at historic lows, how will higher interest rates spur sales? If 48 million people are on food stamps now, how does reducing Fed money get them off food stamps? If all these so called housing sales grind to a halt because investors are choking on them, how does that help the economy?

Today, my youngest son will graduate from high school. I want desperately to believe he's got a shot at a tremendous career, and a bountiful life. I want him to have all the things that I've been blessed with. I want to believe that the Fed has solved the problems, the economy is really fixed, and great opportunities lie at his feet. But alas, I feel we're in a decade of long struggle, and there are going to be a lot more dislocations to deal with. I feel he's got a lot of wind in his face as he embarks on his move into college and his ultimate career path.

The economy is not healed. Housing is being driven by speculation first, desperation second. Manufacturing is limping along, while handouts grow exponentially. Companies are buying back stock for their short-term gains, and ignoring the process of establishing long-term expansion and renewal. If the Fed does try and pull back from its QE programs, there's no growth to fill the void, and things will get ugly very quickly. I truly wish it wasn’t so.

The Market...

We came into the Holiday shortened week on Tuesday, and they made it 20 consecutive ‘up’ Tuesdays in a row. On Tuesday the market was up 200 points early – so we sold our DIA calls for a gambler’s profit.

One of the long running adages of the market is that you're best off to sell in May and "go away". Meaning, that for the most part the market does most of its gains between October and April. This has indeed been historically accurate, but like most things it isn't 100%. And this May did not keep to the script, as it ended the month up from where it started. But this May is so completely dislocated from historical norms that you can't pin any type of age-old adage to it. And honestly, you can't really look at the entire year with anything but skepticism. We've simply seen too many bizarre market moves that defy reality. We haven't had a 10% correction in months. 20 Tuesdays in a row have been up, accumulating almost 78% of all the market gains.

Last week I started "feeling" that something was changing. Maybe it was the insanity that is Japan, as their bond market has been halted a dozen times for strange imbalances. Or maybe it is the increasing drumbeat of "QE tapering" that TV is trying to scare into me. Maybe it is the fact that the lies are so deep, and the disconnects so wide, that people are becoming fearful. Even someone with a grade school education can’t reconcile soaring housing prices – linked with lumber and iron ore prices down 30%. The math just doesn’t add up.

Lately, the most ink is being spilled over QE, and the market’s reaction to “removing the punch bowl.” TV is trying to convince me that it will be fine, no worries. They say the economy is improving to the point where tapering off is a good thing. But those of us in the real world simply ask the obvious: if we are posting such horrific economic numbers while enjoying the Fed pushing $85 Billion a month into the system, how is this going to stand on its own when/if it is removed? I content that it cannot.

Calling any form of a "top" in this market has been suicide. Just when we set up for a picture book correction, they rush in and force it higher, burning the shorts to death. Yet we know that nothing can just go straight up for ever. It might seem that way, but even Japan’s famous run from 9,000 to 45,000 ended in a two decade long struggle that brought it down to 9,000 again. The only question is: When?

I am not calling a top here. I'm honestly scared to even consider the word "correction", since they've short-circuited every correction since November of 2012. But all that said we are once again set up for a meaningful pull back. The stochastics are rolling over, and the transports and the utility sector are hanging by a thread. If this were any other period of time, you could look at the data and declare: "We are in for a 10% correction". But today, it’s all about The Ben Bernanke.

For example, in the entire month of June, there will only be two days without POMO (Permanent Open Market Operations). In other words, the Fed is going to inject billions of dollars into the system virtually every single day of June. Can we really get a normal 10% correction with that kind of stimulus going on in the background? Thus far the answer has been no.

I think this is a good time to sit on your hands and do a lot of nothing. While they might rescue this correction and push us right back up, I need to see the S&P get over 1675 for a clear break to new highs. Between here (S&P at 1630) and there, virtually anything could happen. We could chop sideways, or actually fall through 1620 and go down and visit the 50-day moving average down at 1600.

Safety right now is key. Keep your powder dry and wait to play another day.

Tips:

We sold out of our DIA Calls on Tuesday at the open – for a nice 67% gain. Wow – 67% over a holiday weekend. You have to love the 20^th consecutive up Tuesday! This week I did take:

- C @ 53.03 (currently 51.95) – sold out flat,

- XLF @ 20.20 (currently 19.80) – sold out flat, and

- CCJ @ 21.80 (currently 21.72) – sold out flat.