RF's Financial News

RF's Financial News

Sunday, June 30, 2013

This Week in Barrons - 6-30-13


This Week in Barrons – 6-30-2013

This Time it could be Different.

During a question and answer session a week ago, The Ben Bernanke hinted that he wouldn't mind seeing QE start to taper off later in the year, and maybe end in 2014.  While he didn't make a single actual move, the markets all around the world reacted violently.  I personally do NOT believe QE will end.  If the mere mention of it ending tosses the market around for hundreds of points, and pushes bond yields up so fast (the likes of which we’ve never seen before) – what would happen if they really did end it?  The results would be catastrophic.  The ‘wealth effect’ would be gone.  The ‘wealth effect’ comes from seeing asset prices rice, and realizing (if you own those types of assets) that you are implicitly wealthier than before.  The ‘wealth effect’ causes people to feel better and therefore, spend money on things that they don’t need – with (potentially) money that they don’t have.

Can you imagine what would happen if the Fed stopped pushing $85B per month into the economy?  To quote Peter Schiff:  “Although Bernanke dodged the question in his press conference, the Fed has broken the normal market for mortgage backed securities (MBS).  While it's true that the Fed only owns 14% of all outstanding MBS’s, it is by far the largest purchaser of newly issued mortgage debt.  If the Fed were no longer buying, there are not enough private buyers to soak up the issuance.  Those who do remain would certainly expect higher yields.  To put it bluntly, rates would increase dramatically if there would be any mortgage market at all.”  The ‘wealth effect’ would then work in reverse: spending, confidence and home prices will fall, foreclosures and unemployment will rise, and we will be in a recession even before the Fed begins to taper.

Ah, but remember those words ‘budget deficit?’  Well if we are spending a huge amount each year to service our debts in a ‘zero interest rate policy’ world, how are we going to service them with rates increasing dramatically?  Our national debt would soar once again.  The Fed has built an economy based on the Fed.  Our Federal Reserve System has gone from hiding in the shadows, to being our masters.  In the 60's and even into the late 70's, you based your investing on the economic growth of the economy and the individual companies that were sharing in that growth.  You watched corporate expenses and profits and you loaned them your money because you felt that they'd use it wisely, and return both a dividend and possibly some capital appreciation.  Today that notion is as old fashioned as curing you with leeches.  Today we don’t care about earnings, revenues, or marking assets to market; but rather all we care about is the Federal Reserve and if they will keep rates artificially low. 

Which brings up the question: What is the Fed's next move?  What ever it is, it has to be a change from what they're doing because the current path simply isn’t working.  But let’s not forget, the Fed doesn't work in a vacuum, but rather works with other Central bankers from other nations on a total agenda.  So, what is that agenda?  I think Gold is telling us that agenda.  I know this will sound somewhat cloak and dagger – but as the title suggests – this time it could be different.  This time we're not talking about a few trillion dollars in debt between a few nations.  This time we are talking hundreds of trillions in debts, and inflating the money simply won’t catch-up with all the debts that need to be paid.  There needs to be a bigger, bolder plan. 

My guess is that when Asia gets enough gold to make a stand with their currency, they're going to call for a global ‘reset’.  I think that all of the major currencies and nations will be called upon to enter into some form of Bretton Woods type of plan - where everyone resigns debts and we all issue a new global reserve currency.  It appears that this currency will require some metal backing.  If you think about it like that, you can make some sense out of the incredible attacks on Gold.  In the 30's when they wanted to re-price dollars, they passed a law making it mandatory that everyone turn in their gold.  It was the largest confiscation of wealth on record.  Well, instead of having people turn in their gold – what if they get all that they need by reducing the paper price and chasing people away from investing in it?  We’re seeing a massive move of gold to Asia.  It feels like this coordinated attack on the metals is being done to allow the Asians the opportunity to amass enough gold that when they pull the plug on dollars, everyone can meet at the table with enough physical gold that a new standard can be issued.  I think the agenda is to allow the major nations the ability to obtain the physical metal, and then cut free of the current system of reserve dollars. 

I might be crazy, but no amount of money printing is going to cure the debts.  The EU is all but bankrupt.  The US cannot mathematically pay off its debts.  China is slowly admitting to building several unsustainable bubbles.  Japan is a nightmare.  But it’s different this time.  This isn't one nation struggling – like Argentina.  These are the major economies of the planet dying in debt.  No amount of inflating the money supply will take away the ills of the world’s current overactive debt problem.  Gold’s message is that nations need to obtain it.

But there is one catch – there is not enough physical gold to be purchased.  When gold was rising in price – people were buying it.  When gold is falling in price – people are buying it.  Why does it take 7 years to give back Germany's gold?  They first must find enough of it to ‘give back’.  So this time could be different.  We could be looking at a global currency reset.  How it all plays out – I’m not certain, but it is the most logical path. 

The Market....

Ever since Bernanke chatted about wanting to taper QE this year, and end QE next year – just about everything has sold off.  I’ve consistently said that they can’t end QE because if they do, we crash.  But what if the debts are so enormous and the possibility of inflating our way out so impossible – that once all the nations have enough gold, they will:
-       Back away from the stimulus.
-       Let things crash.
-       Rebuild from the ashes.
-       Write off the debts.
-       And introduce a new global reserve currency? 

That is a hard pill to swallow.  All Central bankers have ever known is to continue to print more money, and to inflate away problems.  But since this isn't just one single country, and the debts aren't just a few trillion, can it actually be that they're going to give up?  Is that why The Ben Bernanke is so hot on the idea of him leaving?  He made his life’s work about what the depression experts did wrong, and he said that he could solve a similar situation.  Maybe he just wants out before they do indeed yank the plug on the whole darn system. 

If that is the ‘final solution’, then we are in a whole new ball game.  Don't get me wrong; I’m not there – yet.  I think it is something to ponder, and dissect into its component parts.  But if that becomes the case:
-       We would become deflationary.
-       Economic activity would slow to a crawl.
-       Prices would crash because no one would buy anything.
-       Stocks would fall below 2008 levels.
-       It would be the "Greater Depression".

If however they are going to continue on the printing press bandwagon, then the situation remains relatively the same.  They continue to print, stocks hold up or even rise, and the distortions become even larger.

Stocks have entered what looks to be their first significant correction since November of last year.  From the May highs we've drifted sideways and down, and the volume on the down days far exceeds the volume on the up days.  At our lowest point we had about a 6.2% correction – the deepest of the year.  We then ran back up and tried to get over the 50-day moving averages in the big indexes, but it wasn't to be.  Thursday’s close was not above them, and Friday slid back another 115 DOW points.  Last week I thought that we'd rally back up, test the 50-day moving averages, and if we failed to break through them, we would drift down again.  If I'm right about that scenario, what should happen is that we fade back down and re-test the 14,650 area.  If that area doesn't hold, we could see a real 10% pull back (something new this year) and a long way down.

In a very strange twist, the only sector showing incredible strength on Friday was the gold and silver miners.  All in all, the key word (especially for the “long only” investor) is to please be careful.  This market could easily break in either direction.  Earnings season is fast approaching, and it isn't going to be pretty.  They will have to do a lot of spin to try and make these upcoming earnings look acceptable.  In any event, listen for the Fed heads talking about QE, and try not to get too involved long or short.  Volatility will rule the week. 

Tips:

My current short-term holds are:
-       SIL – in at 24.51 (currently 11.72) – no stop
-       GLD (ETF for Gold) – in at 158.28, (currently 119.21) – no stop ($1,223.80 per physical ounce), AND
-       SLV (ETF for Silver) – in at 28.3 (currently 19.07) – no stop ($19.50 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>

Monday, June 24, 2013

This week in Barrons - 6-23-13 - Congrats to all the 2013 NU Grads ...


This Week in Barrons – 6-23-2013

Trouble, Trouble, Toil & Trouble:

There’s a certain humility that comes over you after you spend 3 days on a university campus – away from all the world’s hustle and bustle – and focused solely on celebrating the Class of 2013 at Northwestern University.  I’m truly humbled by their intellect – and sincerely apologize for the financial ‘mess’ that we’ve left them.  But none the less, Congratulations to the Class of 2013.

Financially, I'd venture to say that just about everyone knows what happened on Wednesday.  Without actually saying the words, The Ben Bernanke hinted that he would like to see a tapering off of the Quantitative Easing (QE) by late this year.  That caused a 400+ point drop in the stock markets over the next two days.  I received an email from someone that summed it up quite nicely: "It would seem that if the market fell 440 points in two days over the mere mention of tapering, I believe your are right that when they ‘actually taper’ we will have all hell to pay". 

But it wasn't just stocks that were getting hammered.  Gold, silver, copper, lumber, bonds, swaps – virtually everything was getting hit.  The unwinding of an out of control policy – that tried to keep interest rates at 0 for too long – isn’t pretty and will cause issues we currently don’t understand.  This unwinding could easily become truly catastrophic. The world is in a massive debt bubble and the Central banks are now officially losing control.  And according to Donald Trump, the stage is now set for a possible collapse that dwarfs 2008.  Speed is the real issue right now.  If the wheels come off slowly (as has been the case in Europe), they will continue to plug the holes by printing more cash, and kick the can down the road.  But, if a chain reaction were to occur, where derivatives start to default, that could freeze up the entire banking system – circa 2008.

I'm on record as saying the Fed won't stop printing.  There have only been two choices: (a) continue to print and ‘inflate-away’ our debts, or (b) stop printing and have the economy go into a recession/depression.  We either take the pain, allow business to fail, banks to go belly-up, endure a year or two of a horrible economy, or print money to keep the wheels turning.  I think the Fed will continue to print. 

If The Ben Bernanke wants to step down in January, he could cut a bit of stimulus on his watch, and then his replacement could make a determination that we are just too early for less stimulus and jack it back up – potentially higher.  Why do I think The Ben Bernanke won't stop printing?  His entire career is based upon knowing what the Central bank did during the Great Depression was wrong.  He told everyone that he had tricks and gimmicks and could solve any depression.  He would look very bad if he quit printing and the economy imploded on him.  Similarly, his replacement isn't going to want a world depression on his or her watch, and the only way to ward that off is to print more and more.  Therefore, in my opinion, a year from now we will still have QE (in some form) and it will potentially be larger than it is today. 

Which makes things even more bizarre when we look at what happened to commodities this week.  On Thursday Gold was down $90 an ounce.  Yet (once again) demand for the physical metal went through the roof.  Understand, there must be quite an agenda behind debasing the commodities, because you just don’t ‘naked short’ the precious metal market (time and time again) – just because it’s a fun thing to do.  The agenda must include migrating gold from west to east.  China has seen what many different dynasties have done for money, and know that gold has gotten them through all of it.   China wants all the gold it can get because (in my opinion) they would like the Yuan to be part of the global currency reserve, and would like gold to back some percentage of it.  But that creates a problem for the European central banks, and they will need gold to be a part of their currency as well. 

We currently have Central banks being quite aggressive about their gold purchases.  Therefore it makes sense for them to drive the paper price lower, and potentially drive buyers into other risk assets such as currency or stocks.  Along with attacking the prices, there are other ways to keep the physical metal out of people’s hands:
-       FedEx has stopped delivering precious metals to individuals in the UK and Germany.
-       On May 23, France passed a law prohibiting their postal service from delivering gold to the public.
-       And the Chicago Mercantile Exchange (CME) just increased margin requirements on Gold by a whopping 25%.

So, where are we?
-       We have The Ben Bernanke winking and nodding that QE is going to start to taper.
-       We have the market in panic model. 
-       Gold and silver were sold off on the upside down belief that there will be less Fed inspired inflation.
-       Interest rates are soaring with mortgages costing 3.5% a couple weeks ago to 4.12% this Thursday.  If the economy is to return on the back of housing, then higher interest rates will let housing die on the vine.

If indeed the Fed was to stop QE, who would buy the treasuries that Japan and China don't purchase, and at what interest rate?  My guess is that we will begin to hear about a new Government program to make you buy bonds for your retirement fund (like they are making us buy Obamacare).  Last week $13.6 Billion came out of the bond markets.  People are frightened about Benghazi, the IRS, the NSA, Afghanistan, Iran, Syria, employment, debt, higher taxes, Obamacare – and the list goes on. The single element that people were able to feel better about has been the stock market and now that is scaring the hell out of them.  That 5% correction could have repercussions.  People can't hide in gold or silver, Bonds are plunging, stocks got whacked – they don't know what to do.  I certainly understand that, and there is something ‘different’ about his market downturn. 

I wanted to end on a positive note, but it is hard.  The pieces of the puzzle are coming together faster and faster, and the picture they create is one of deep economic trouble ahead.  One thing I suggest is that for the next several months – consider putting 6 months worth of living expenses (in case) in a good home safe.  Why – because if a cascade of crazy stuff happens one night, starting in Japan and spreading across Europe and into the US, I could easily see a banking system shut-down (for several days) as they would try and sort out all of the derivative nightmares.   This is a pretty good time to really be cautious.  Sorry – it just feels that way. 

The Market:

After a 400+ point drop, we only managed to claw back some 40 points on Friday.  That means a lot of the money simply wasn't willing to jump back into the market just yet.  So the Fed supported things, but this time they didn't really "buy the dip".

Historically June is the worst market month.  After 7 months of "up", we’ve had our first really big plunge, and it was overdue.  I've said for two weeks that this time ‘feels different’, almost like they're losing control all across the globe.  When they're selling virtually everything from commodities to stocks to bonds, it is hard to decipher where the buyers are going to pop up next. 

We're only down about 5% from the all time highs set in May.  A typical correction is between 8 - 10%, and thus far they haven't been willing to let that happen.  A lot of profit has been made, and no one is going to want all to slip away.  And if you hadn’t noticed, the market volume on Thursday was the HIGHEST volume of the year – and it was ALL to the downside.   

My guess is that we have a bit more work to do on the downside before all the players decide to come back in.  The only reason it doesn't feel like we are just heading down for good is because of all The Ben Bernanke bluster.  I don't think this Fed inspired market run is over yet, although obviously it is looking fragile.   Patience is the key.  We need to let the market come to us.  Right now with everything from the DOW to the S&P to the XLF (the banking ETF) are all at or below their 50 day moving averages.  Too many days like that, and the market mood will turn negative instead of profit taking & buy-the-dip. 

All that said, if we were to fail Friday's S&P low of 1577, and end the day there – then it would seem apparent that the overall direction is going to be considerably further down – and going short a little there would probably be nicely profitable. 

There's no question about this – this is not your every day shake out.  A lot of damage has been done, and folks are scared.  Volatility will soar in the next few days.  If you can't be ‘trading-wise’ nimble, then I don’t see a reason to play right now.  There is a lot of gold and silver technical jargon being spoken, but frankly I don’t believe any of it any more.  The precious metals are being systematically attacked in a way never seen before.  This isn't a normal market function.  Over in Asia, they once again lined up for hours to buy physical gold.  This is a fight to the death between the folks that want the metal versus the Central banks.  It is truly an ugly fight, and I just continue to nibble away on the dips.  The way the global economic picture looks, I can think of nothing better to do. Not just in the U.S. but all around the world.  People will be selling everything to raise cash.  When it all falls at the same time, (stocks, bonds, & gold) you know there's some underlying panic.  I want to buy some of that panic.

Good luck out there. Be careful.  Don't jump the gun long or short.  Buckle your seatbelt because we're going for quite the ride. 

Tips:

This week we sold out of MUX – otherwise we did very little.

My current short-term holds are:
-       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 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