GDP - Report is Bad, Reality Worse

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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The U.S. government released the fourth quarter GDP figures today. The report showed a 3.8% annualized decline in the economy, which would be the worst showing in 26 years if it were true. It is not. This report continues the unbroken chain of fantasy that has emanated from the U.S. commerce department recently (the Inflation and Employment reports are the U.S. government's other great works of fiction). Even the internal figures in the GDP report show that the economy is in much worse shape than the top line number indicates. The lie was so outrageous this time that even the ever credulous mass media included statements in its reporting about the likelihood of the number being revised downward when 'new' data becomes available (or when the embarrassment of so many people laughing at the report becomes so great that the government is forced to publish a somewhat more realistic number - don't expect the truth under any circumstances however).

The first place to look for manipulation in every GDP report is in the inflation figure used to adjust the nominal figure to get the reported or 'real' number (growth caused by inflation is not actual growth and that is why this adjustment has to be made, this adjustment is the GDP deflator). According to the U.S. government, prices FELL by 5.5% in the U.S. in the fourth quarter of 2008. The government also claimed that the prices rose only 1.2% in the second quarter of 2008 (a time when gas prices were heading above $4.00 a gallon, food prices were soaring, and the government's own PPI report indicated inflation of around 13%, yet somehow the GDP statiticians couldn't find any inflation that quarter). If a more realistic inflation figure had been used, GDP for the fourth quarter may have declined 8% or 9% - a depression level drop.

The bigger decline in GDP is supported by looking at the individual components of business and consumer spending. Spending by businesses on equipment and software fell at a whopping 27.8% annualized pace, the most since 1958. Hard hit homebuilders slashed spending by 23.6%, even deeper than the 16% annualized cut in the prior three months. While internal U.S. economic conditions were bad, there was no relief from exports either. U.S. exports, whose alledged growth earlier in 2008 helped produce better GDP figures, turned negative. Exports plunged at a rate of 19.7%, the most since the deep recession of 1974. Despite these horrendous conditions, the GDP report also claimed businesses increased inventories substantially (which adds to current GDP growth, but would subtract from it in the future). just taking out this supposed inventory increase, U.S. GDP would have contracted by 5.1% instead of 3.8% last quarter.

The consumer component of the GDP equation didn't look any better either. U.S. consumers cut back spending on durable goods (items expected to last a year or more such as cars, appliances, furniture, etc) by a huge 22.4%, the largest amount since 1987. Spending on non-durables (which includes most necessities such as food and clothing) fell by 7.1%. A decline of that magnitude has not been seen since 1950. Despite these very large declines, the GDP report stated that consumer spending fell by only 3.5% in total (on the surface it doesn't seem possible that you could get this number from the component parts).

Despite the Credit Crisis which had ravaged the economy in 2008, the U.S. government claims that the American economy grew (yes, grew) by 1.3% in 2008. This is down from 2.0% growth in 2007. Anyone who believes this number, probably also thinks that pigs can fly. Obviously, the Commerce Department in Washington is trying to statistically prove that this can happen, although it doesn't seem to be possible anywhere else in the country.

NEXT: Negative Outlook for the Market from January Barometer

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Government Wants to Play Good Bank, Bad Bank

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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The buzz on the wires yesterday was talk that the Obama administration is considering a good bank, bad bank policy. This would entail the government becoming the bad bank (like somehow that hasn't already happened) by buying up most, if not all, the toxic assets in the banking system. For anyone who missed it, this was the original intent of the biggest waste of government money of all time TARP program (Troubled Asset Relief Program). The Federal Reserve has also been doing this is various ways as well. Yesterday's reports said that the federal government would take on an (additional) trillion dollars in bad debt. As usual, the downside risk of major inflation that would result from implementing this policy was ignored by the media.

There was plenty of other 'good' news for the market to rally on as well. The House passed an $819 billion stimulus bill (it still has to be approved by the Senate). The bill would cut taxes at bottom instead of the top of the income structure (the most effective way to stimulate the economy), provide billions of dollars for infrastructure projects, help states balance their budgets, and provide relief to people who've lost their jobs or homes. Getting in touch with their Herbert Hoover roots, every Republican in the House voted against it. Just as a reminder, all the Republican leadership supported TARP and provided the votes from the rank and file to insure its passage.

The Fed also held up its end of the bargain yesterday as it two day meeting ended. To no ones surprise, it announced that it was keeping its zero interest rate policy in place. The Fed also reiterated that it will continue to buy mortgage-backed securities and other assets. The stock market rallied on this and all the other highly inflationary news and and as been the case for many months, the U.S. dollar counter intuitively rallied (only counter intuitive if you don't assume the government is manipulating it behind the scenes). Beaten down financial stocks led the way up.

Wells Fargo was one of the biggest winners, rising 30%. It only lost $2.55 billion last quarter.... or so it claims. Those results didn't include its Wachovia purchase, which would have increased Wells Fargo's loss by $11.2 billion (based on the reported figures, the reality is actually much worse). The bank took a whopping $37.2 billion in credit write downs at Wachovia. Even without the Wachovia losses, Wells Fargo still lost 79 cents a share. Analysts were completely off the mark as they have continually been since the Credit Crisis began and were expecting a 33 cent gain. While this should have tanked the stock, it didn't. Wells announced it was keeping its dividend and wouldn't need any more TARP funds (which is has been using to pay its dividend), so the stock shot up. Whoever said Disney was the king of fantasy, never looked at the U.S. banking system.

NEXT: GDP - Report is Bad, Reality Worse

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

The Latest From Davos Switzerland

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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The invitation only annual World Economic Forum - a meeting of world leaders, central bank heads, economists from big financial firms, and billionaire investors - is currently taking place at Davos, Switzerland. In an opening forum, the people who pull the strings of the global economy and stock markets came to the following conclusions (long after they have been obvious to everyone else):

1. The world is facing unprecedented economic challenges.
2. Fiscal packages may not be enough to restore economic growth.
3. The multilateral financial system needs strengthening.

Fortunately, George Soros gave an early talk that had somewhat more substance than the above long-on-platitudes and short-on-specifics comments. At the same time, Nouriel Roubini who is in Switzerland, but possibly not at the conference, released a purposely well-timed statement about just how costly it would be to fix the banking system.

Soros stated that the current crisis has the potential to be worse than the one during the Great Depression in the 1930s. According to his calculations, the global banking system in developed countries still needs an additional $1.5 trillion to be rescued. Furthermore, the only way to pay for this is with money creation, or in other words - inflation. Nouriel Roubini now says that he estimates the total global bank losses from the Credit Crisis will be $3.6 trillion, far higher than his original estimates (and mine as well, last July at a talk at St. Johns University, I estimated $2 trillion, which was double the consensus at the time). Roubini further stated the biggest U.S. banks are insolvent (New York Investing first said Citibank was insolvent at the end of 2007).

Expect some talk about the two approaches to fixing failed banking systems. These are the Japanese model and the Swedish model. The Japanese reacted to their failed banking system in the 1990s by propping up as many failed institutions for as long as possible and the consequence was economic and stock market stagnation that has now lasted almost two decades. The Swedes had a banking collapse in the mid-90s and took that opposite approach. They took swift and drastic action, which was painful in the short term, but proved highly successful and their economy revived quickly. So far, the United States has come closest to the failed Japanese model in dealing with the banking crisis. The political will to step on some very rich and powerful vested interests has been lacking as has the willingness to admit that top U.S. banks such as Citibank and Bank of America are insolvent.

One person that is not yet at Davos is Federal Reserve chair Ben Bernanke. He is busy keeping fed funds rates at zero at the Fed meeting in Washington. The meeting ends today and presumably he will be jetting off to Switzerland shortly thereafter. Expect the quality of debate at Davos to suffer accordingly.

NEXT: Government Wants to Play Good Bank, Bad Bank

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

The Canary in the Coal Mine, the Foxes Guarding the Chicken Coup

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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The government in Iceland collapsed yesterday. Severe economic decline combined with rising prices (a combination that the U.S. press constantly says can't exist together, but which reality indicates can) did the present administration in. The government received sweeping powers, which included potentially unlimited control of every business in the country, in an attempt to fix it. This approach never worked in communist countries and certainly wasn't going to work in Iceland either. Government policies in Iceland, just as in other developed economies, made the financial crisis possible. Since it was the government that allowed the economy to get beyond repair, it is not surprising the same government couldn't fix it.

The key to solving the Credit Crisis is to stop rewarding people for failure and instead punish them for it. Leaving the foxes in charge of the chicken coop is a guarantee that nothing will be fixed. A new study came out this morning showing that at least 90% of the top executives at banks and brokers that are receiving U.S. government bail out money are still at work. The very same people who made the bad decisions that have destroyed the financial system are being rewarded for doing so. In many cases, they are still receiving bonuses, paid by the U.S. taxpayer, for their 'excellent' performance. Why should anything get better under such circumstances? The newly appointed Treasury Secretary, tax cheat Timothy Geithner, is a strong advocate of government bailouts, so don't expect much change on that front. Based on his own personal behavior, he also obviously thinks there should be one set of rules for the people in charge and another for everyone else. How effective is he going to be in showing the corrupt and incompetent Wall Street elites the door?

Under such circumstances, it is not surprising that consumer confidence hit a new all time low of 37.7 in January. The present situations index, which measures how consumers feel about the current economy, declined further to only 29.9. The gloomy mood of consumers is translating to lower retail sales in the last many months and will create increased unemployment and bankruptcies in the retail sector in the not too distant future. Consumers are not only being hit by the threat of unemployment, but the two major pillars of wealth in the economy, the stock market and home prices, have pulled the rug out from under them. Just today, the Case Shiller home price index for November declined 18.2% year over year. A separate report a few days ago indicated house prices in California had dropped 38%.

While tiny Iceland can be bailed out by the World Bank, who is going to bail out Great Britain or the U.S.? The collapse phase of the Credit Crisis showed up first in Iceland because its small economy doesn't have the same degree of buffers and interdependencies that protect larger economies (at least in the short term). Iceland looks like the canary in the coal mine that expires first when exposed to toxic gas and warns the bigger miners to get out before the same thing happens to them. In our current economic situation, the bigger miners are just not taking the appropriate action to save themselves.

NEXT: The Latest from Davos Switzerland

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Unemployment Everywhere

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

Just the morning alone the following job cuts were announced:
1. Caterpillar profit falls 32% in Q4, to cut 20,000 jobs.
2. Sprint to eliminate 8,000 jobs.
3. Phillips to cut 6,000 jobs after first loss in 5 years.
4. Home Depot to close Expo and Design business and cut 5,000 jobs.

These companies represent a range of industries showing the current recession/depression is having its impact almost everywhere. The one exception in the news today was McDonald's. Although the headlines said its earning were down, this was only a quirk resulting from tax payments. McDonald's is actually planning on opening 1000 news outlets in the next year, although not necessarily in the U.S. (most reporting failed to mentioned this), since its big growth areas are overseas. Nevertheless, for the moment the very low-paid jobs at McDonald's seem secure. This can not be said about much of the rest of the retail industry (the biggest private sector employer) however. Expect massive job cuts and store closings starting this spring.

The people responsible for the Credit Crisis are still mostly employed (and getting big bonuses as well). One of the recent exceptions in John Thain, the recently fired CEO of the financial cesspool Merrill Lynch. In a leaked memo, Thain claims that Bank of America CEO Ken Lewis knew about $4 billion in accelerated bonus payments to Merrill executives (apparently paid for with taxpayer money from TARP) and Merrill's Q4 losses (something a mentally challenged 5 year old with vision and hearing problems could have figured out, but not the CEO of one the biggest banks in the world). As discussed in this blog several days ago, Ken Lewis extorted the U.S. government to pony up more TARP funds because of these 'unanticipated' issues cropping up and threatened to KO the Merrill takeover if it didn't. John Thain will probably be remembered for his $35,000 toilet - an especially appropriate symbol for where most of U.S taxpayer Wall Street bailout money has gone.

There was 'good' news reported (never confuse reported from the mass media and reality) overseas this morning. Barclay's stock was up as much as 75% because of a big buffer in equity capital and reserves (something that Fannie Mae, Freddie Mac, Bear Stearn's and Lehman also claimed .... just before they went under). I can't say this is not true in Barclay's case because the UK government may have pumped enough money into the bank to make this possible. What I can say, is that traders never learn and can be duped over and over and over again with misinformation from the mass media which it will report over and over and over again and never question no matter how absurd it is.

NEXT: The Canary in the Coal Mine, Foxes Guarding the Chicken Coop

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Britain Points the Way to U.S. Economic Future

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

As of today, Great Britain is officially in recession, joining the U.S., Japan and Germany. Britain's GDP shrank 1.5% in Q4 2008, after shrinking 0.6% in Q3 2008. Those are at least the official figures, it is quite probable that the actual ones are even worse. Notable declines took place in the banking, retail, and manufacturing sectors (just like in the U.S.). The FTSE fell below 4000 and the pound dropped to 1.35 per U.S. dollar, a 23 year low, on the news.

Great Britain was once the premier economy in the world. The British pound was once the world's reserve currency. A rigid class system which guaranteed entitlement to those on top - similar to contemporary Wall Street in the United States - followed by socialist practices that offered entitlement to those on the bottom have over time eroded the country's economic dynamism. Early in the 20th century the capitalist free for all and innovation friendly U.S. began to assume economic preeminence after World War I. U.S. currency dominance was made official at Breton Woods in 1944 toward the end of World War II.

One of the most shocking stories in the history of technology illustrates quite clearly how Britain and U.S. attitudes differed in mid-century and why the U.S. became the post World War II economic powerhouse that it did. Both Britain and the U.S. developed early electronic computers for war time use. At the end of the war, the British government destroyed even the plans for the computers fearing they would fall into the hands of the Russians. The U.S. made the plans publicly available by publishing them, engendering one of the biggest growth industries of all time. The lesson of openness and transparency is currently being lost in the U.S. however with the Federal Reserve and Treasury engaging in significant and frequently secret manipulation of the financial system. In the long term this is only going to prove to be disastrous - although the short term results have been horrendous enough as is.

The response of the British prime minister, Gordon Brown, to the current British recession is that it is a result of global events. In case anyone has forgotten, Gordon Brown was the Chancellor of the Exchequer (equivalent to U.S. Treasury Secretary), who took the decision to sell half of British gold reserves in 1999 , when gold was around $260 an ounce, to buy among other things, U.S. dollars. Brown also has presided over a subprime crisis, 125% housing loans to people who could never pay them back were common, that is much worse than in the U.S. Unfortunately, while Gordon Brown is one of the most economically incompetent officials ever to run a major economy, he has plenty of company on the world stage these days. George Bush is certainly in the running for a close second. Many Japanese leaders in the last 25 years would be up there as well. Because economic idiocracies are common place in the world today, drastic action will be required to fix things. If the U.S. doesn't take appropriate action soon, it will be following Britain down the path of long term economic and currency decline.

NEXT: Unemployment Everywhere

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Volatility is Back

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

The market was up yesterday almost completely erasing the large losses from the day before. The beaten down financial stocks led the way up as if insolvent banks and brokers are now suddenly doing better. Well they're not, but their stocks were doing better in what is obviously a short covering rally that was pushed to the max by media reports of insider buying (more accurately portrayed as insider manipulation of the media, with full cooperation of the media itself).

The Dow was up 3.5% to close at 8228, above the psychological important level 8000. Nasdaq was up 4.6%. IBM reported (please note the use of the word reported as opposed to had) good earnings. Bank stocks were the big gainers however and this was true in Europe as well as the U.S. Both Citigroup and Bank of America were up 31%, not so difficult when you are selling in the single digits (the low single digits in Citi's case). Bank of New York was up 24%. And Tuesday's poster child for stock market disaster, State Street, managed a 15% rally. The rallies were more muted in Europe however. Barclays, which has lost half its value since the beginning of the year, was up 5% and Bank of Scotland only 9%. In Germany, Deutsche Bank was up 10% and Commerzbank 13%. Belgium's bailout baby, KBC, was still falling though after already losing 70% in the last three weeks and receiving a two billion euro cash injection.

The rally in bank stocks started out as the usual dead cat (or more appropriately dead bank) bounce. It really got going when news hits the wires about top management buying their own beaten down financial shares. Anyone who might think this was a case of blatant manipulation would have a lot of evidence on their side. When was the last time you saw a blaring headline, 'Insiders Dumping Bank Stocks', especially if it happened the day before? Lot's of luck in finding that one. Yet, yesterday's news trumpeted, Bank of America and JP Morgan insiders buying their stock. You would have had to read well into any article however to find out that in the case of JP Morgan, the buying took place last Friday before the stock was pounded down even more on Tuesday. As for the insight of bank management insiders, these were the people who brought us the current Credit Crisis and didn't see it coming. The head of Bank of America thought it was a brilliant move for the bank to buy Countrywide Financial and later on agreed to buy Merrill Lynch, two purchases that are destroying the bank. Now, we should assume his judgement has suddenly sharpened. Yeahhh ..... that can happen!

The earnings of financials are so bad they are disproportionately responsible for dragging down the earnings of the S&P 500. For Q4 of 2008, a 20% drop in corporate earnings is now expected. Before earnings season began a 15% drop was projected, but results have been worse than orginally thought. Wall Street analysts have once again underestimated how bad things are, just as Wall Street economists have done with the economic figures. I have never heard of anyone on Wall Street being fired for being continually and consistently inaccurate. In fact, it seems to be the ticket to getting to the top there. Something to think about for anyone who relies on insider purchases to indicate banks are turning around.

NEXT: Britain Points the Way to U.S. Economic Future

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Banking Bloodbath Covers Wall Street in Red

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

The bloodletting on financial stocks was almost relentless in U.S. trading yesterday. Trouble began in Europe the day before with the collapse of Royal Bank of Scotland stock, a collapse which took place despite (and some are now saying because of) a second bailout of the banking system by British authorities. The U.S. markets were closed for the Martin Luther King holiday, but when they reopened banks and brokers were cut to pieces. It was not a propitious beginning for the new Presidency.

Action in the market overall was ugly Tuesday and while financials led the way down, selling wasn't isolated to just that sector. While the Dow was down 4.0% and closed below the psychologically key support level of 8000, the technology laden Nasdaq suffered even more. The Nasdaq's 5.8% loss was a crash level drop. While the rest of the market fell apart, the gold ETF GLD gapped up sharply for the second day in the row, showing incredibly strong technical strength. As it has done throughout history, gold was shining once again in the midst of a crisis.

To say the drop in some financial stocks was a crash would actually be understating the situation. State Street was cut in half with a 50% drop. PNC was down 41%. Even though Bank of America was down 'only' 29% it hit yet another yearly low and without additional intervention (it was bailed out only a few days ago) the stock looks like it is headed toward oblivion . Citi, down 20% on the day, also managed to hit a yearly low and dropped below $3. The detailed action in the financials below:

State Street down 50 percent to 21.46.
PNC down 41 percent to 22.00.
Bank of America down 29 percent to 5.10.
Wells Fargo down 24 percent to 14.03.
Suntrust Banks down 24 percent to 15.07.
Citigroup down 20 percent to 2.80.
JPMorgan Chase down 20 percent to 18.09.
Goldman Sachs down 19 percent to 59.20.
Deutsche Bank down 19 percent to 21.00.
U.S. Bancorp down 16 percent to 15.34.
Morgan Stanley down 16 percent to 13.10.
UBS down 16 percent to 10.00.
Credit Suisse down18 percent to 19.76.
HSBC down 15 percent to 33.83.

Some recovery is taking place today in the banks and brokers because of Geithner's statements about more banking bailouts. Of course, that approach hasn't worked well so far. However, nothing succeeds like failure in recent U.S. economic policy.

NEXT: Volatility is Back

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Inauguration Day 2009 - Looking for a New Beginning

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

President Obama hit all the right notes in his inauguration speech today. His spot on rhetoric needs to now be followed up with matching action ... and that won't be easy. The global financial system is in disarray. As far as economic policy is concerned, the concrete plans of the new administration look like more of the same, albeit with a different focus from the previous administration on who gets the bailout funds. There isn't yet any indication that the groundwork for a new economic structure, the only viable long term solution, is going to be put down. Until that happens, economic policy will essentially be an attempt to hold up a flawed model that is collapsing because it is permeated with rot.

We were reminded of the global aspects of the Credit Crisis yesterday with events coming out of Britain. The Royal Bank of Scotland was down 67% in Monday's trading as the British government upped its stake from 58% to 70% ownership. Some commentary in the press worried about full nationalization, as if 70% government ownership wasn't close enough. The bank lost $41 billion this year, the most ever for a British corporation. The British government announced a more comprehensive second round of bailouts for the banking system, following the first round which took place only a couple of months ago. Not only does it appear that there is no such thing as a single bailout for an insolvent financial company, but the same holds true for an insolvent financial system.

While average people poured into the nations capital and crowded the streets and Washington Mall, the well connected were having a different Inauguration experience. In an contrast worthy of the waning days of Versailles, images of the bejeweled and elegantly appointed rich and powerful partying in Washington's balls can be contrasted with the state of California delaying payments to the aged, blind and disabled because its coffers are bare. The state also has indefinitely delayed tax refunds to individuals and businesses that overpaid their 2008 taxes. In theory, the government can't just take your money in the U.S, but this might just prove to be in theory. California officials claim the state is facing insolvency within weeks.

All Americans should be happy that the U.S. is finally moving beyond race as a barrier to full participation in U.S. political system and should look forward to the day when an East or South Asian, Latino, non-Christian, or a Gay or Lesbian candidate can be a serious contender for the presidency. Successful systems only continue to be successful because the most talented rise to the top and getting rid of discrimination is the only way to insure that this happens. The talented at the top seems to have been a lacking in Wall Street for some time now and this is one reason things have gone so terribly wrong with our financial system.

NEXT: Banking Bloodbath Covers Wall Street in Red

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Bank(rupt) of America Gets Government Bailout

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

This morning, only hours after getting another major infusion of bailout cash from the U.S. government, Bank of America reported its first quarterly loss in 17 years. The latest bailout became necessary because Bank of America's government arranged takeover of money- hemorrhaging Merrill Lynch (this took place after Bank of America's takeover of money- hemorrhaging Countrywide Financial). This time, it is at least being admitted that taxpayers are getting stuck with the loss. Things were so bad, that the government didn't even try to lie about. The Fed and Treasury weren't just busy with Bank of America last night either, but put the final touches on the latest scheme to keep Citigroup afloat.

While Citigroup has been struggling for survival for some time now, Bank of America was one of the few big banks and brokers that seemed t0 be getting along well enough despite the Credit Crisis. The loss of $1.79 billion, or 48 cents per share it reported today is small compared to the fourth-quarter net loss of $8.29 billion, or $1.72 per share, for Citigroup (its fifth quarterly loss in a row, but better than the $1.99 loss in the fourth quarter of 2007). However, Bank America's proposed acquisition Merrill Lynch lost a whopping $15.31 billion, or $9.62 per share, last quarter and things looked bad enough to potentially drag both companies into oblivion. Bank of America management claimed it didn't realize that Merrill's loses would be so high (makes you wonder just how accurate their loan analysis is - no wonder they thought sub-prime borrowers were good credit risks) threatened to KO the deal if the government didn't pay up.

The Treasury coughed up another $20 billion of TARP funds immediately. To this, they added a rescue package with the government agreeing to share in losses on $118 billion in residential and commercial mortgages, derivatives and corporate debt. Bank America will absorb the first $10 billion of losses, the government the next $10 billion, and the government 90 percent of the rest. Why taxpayers should get stuck paying off this debt is beyond me. Even worse, there will probably be more to pay down the road.

The Treasury was also busy coming up with a new idea for saving the beyond insolvent Citigroup. After more than a half-dozen bailouts since late 2007, the bank is still at risk of crumbling . The latest scheme is to split it into two businesses, Citicorp and Citi Holdings. Citicorp, will focus on traditional banking, while Citi Holdings will be the dumping ground for the company's riskier assets. CitiHoldings will account for $850 billion of Citigroup's $1.95 trillion in assets including CitiMortgage and CitiFinancial. It will also be in charge of Citi's 49 percent stake in the joint brokerage with Morgan Stanley, and the pool of about $300 billion in mortgages and other risky assets that the U.S. government agreed to backstop late last year. Citi's new structure is an almost complete reversal of the financial supermarket approach it adopted in the late 1990s and which everyone on Wall Street thought was one of the best ideas ever (so much for that). The company isn't out of the woods yet either. The fourth quarter earnings report showed that credit deterioration was severe from North America to Europe to Latin America to Asia.

NEXT: Inaguaration Day 2009 - Looking for a New Beginning

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

The Real Deflation is Taking Place in Bank Stocks

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

PPI came out this morning and the U.S. government is now claiming that there has been wholesale price deflation in 2008. At least this is what the headline number indicates. Core inflation wasn't as benign, rising the most since 1988. The media is of course now hyping the headline number, which it downplays when it indicates inflation and ignoring the core number which gets a lot of attention when it's the better number (the advantage of having two numbers, one is likely to look better). The prices that are really dropping are assets, not those that are consumer related, with bank stocks yesterday taking a real hit.

According to the BLS wholesale prices in the U.S. fell by 1.9 percent in December. The yearly drop of 0.9% compares with a rise of 6.2% in 2007. As has been pointed out repeatedly in this blog, recent drops in the PPI are due almost exclusively to declining energy prices. These led the price declines last month, with energy prices overall going down 9.3% and gasoline dropping by a record 25.7%. For a change, food prices also fell, or at least the reports indicates a 1. 5% drop for the month (there was no drop for 2008, nor have U.S. food prices fallen year over year in the last four decades). Core inflation told a very different story however. It was up 0.2% in December and 4.3% in 2008. The last time it was higher was 20 years ago.

Mainstream media reporting on the PPI, as has been the case recently, has indicated the risks of consumer price deflation because of the headline numbers. The media usually reassures the public that economists (almost all of whom missed the Credit Crisis, the recession and are usually wrong in almost all of their predictions) have "confidence that the Federal Reserve (which has totally and completely mishandled the Credit Crisis since its inception) has the tools needed to keep deflation from becoming a problem". The media usually follows this up with 'isn't it great that the Fed had the foresight to cut interest rates to zero'. Certainly, you can not argue that what the Fed is doing will keep the threat of deflation away. Central Bank monetary policies that have given rise to hyperinflation in the past are usually very effective in preventing prices from falling.

While there is no actual deflation going on in consumer prices as the mass media would have you believe, assets prices are indeed deflating (the two are not interchangeable) because of the collapsing financial system. That collapse is by no means done. Bank America actually hit a new yearly low in aftermarket trading yesterday. Citigroup fell over 20% into the 4's (its yearly low is just above 3, a price that large cap financial stocks trade at only if they are on the verge of oblivion). Wells Fargo was also down quite a bit. The charts for JP Morgan, Goldman Sachs and Morgan Stanley are not looking particularly healthy either. Even after the U.S. government has pumped almost an unlimited amount of money into these companies, they are faltering again. As we have said in the New York Investing meetup over and over, "there is no such thing as a single bailout for an insolvent financial institution". We'll just have to see what the government does next.

NEXT: Bank(rupt) of America Gets Government Bailout

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Retail Sales Plummet, More Trouble in Banks

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

Retail sales dropped 2.7% in December, far more than Wall Street's prediction of 1.2% (just another example of how to this day Wall Street is continually underestimating the impact of the Credit Crisis on the economy). For the year, retail sales were down 0.1%, the first drop since the series has been reported by the government. Since retail sales have accounted for approximately 72% of the U.S. economic activity in recent years, whether or not they rise or fall has a strong impact on GDP. Since the Credit Crisis is by no means over yet, clearly indicated by today's news about Citibank, HSBC and Deutsche Bank, retail sales are likely to continue to be weak into the foreseeable future.

The drop in retail sales in December was a record sixth drop in a row. Virtually all areas of retail sales showed declines. Auto sales fell by 0.7 percent and are down 22.4 percent year over year. Excluding autos, retail sales were down 3.1%, the most ever since the report has been published. Retail sales did not drop during the recession of 2001, the only recession in history where this unlikely condition took place (this was only possible because of vast consumer credit expansion at that time which we are now paying for with the current Credit Crisis). When interpreting retail sales figures, it is important to realize that they are not adjusted for inflation. Gasoline sales dropped by 15.9% in December, but this is the result of falling oil prices, not a big decline in actual sales. While some of the drop in the December report took place because of lower prices, most of it did not. On the other hand, much of the gain reported in retail sales in the last several years has been a consequence of price rises and not a better economy.

The Credit Crisis backdrop is not likely to improve any time soon either. Three international banks made the news today. Deutsche Bank announced it expected a $6.4 billion loss for the fourth quarter. A brokerage report cited the need for global bank HSBC to raise up to $30 billion in new capital, citing 57% of its loan exposure was in the troubled UK and US markets. Finally in a deal between the dead and the dying, Citigroup and Morgan Stanley are creating a new business entity consisting of Citigroup's Smith Barney's unit and Morgan Stanley's wealth management (some would say mismanagement) business. Morgan Stanley gets a controlling interest and Citigroup gets $2.7 billion in desperately needed cash.

For many years, Citibank was the largest bank in the United States. If the U.S. government hadn't bailed it out both behind the scenes and more publicly in November 2008, it would possibly already be out of business. Citigroup was created by a merger of Citibank and Traveler's Insurance in 1998. This was hailed as a brilliant move by Wall Street. Only four years later Citigroup spun off Travelers Insurance (many things Wall Street considers brilliant fall apart within a few years or so). Ten years later the financial supermarket approach that Citibank built itself on is disintegrating, much like the entire global banking system.


NEXT: The Real Deflation is Taking Place in Bank Stocks

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

U.S. Trade Deficit - There's Good News and Bad News

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

The U.S. Trade Deficit dropped by a whopping 29% in November, one of the biggest drops in history, if not the biggest. Much of the 'improvement' was accounted for by price changes in imports (the numbers are not adjusted for inflation or deflation as is the case for most U.S. government economic reports) Nevertheless, both imports and exports declined significantly, indicating a shrinking global economy. Imports of course dropped much more than exports and this took place because of falling oil prices.

Oil prices (the U.S. is a major oil importer) have the biggest influence by far in determining the U.S. Trade Deficit. The trade deficit overall dropped 29% and oil imports dropped by a similar amount. Based on the average price for a barrel of oil used in the report, oil prices dropped 27% during the month, although the report itself states that 'petroleum prices' fell 32%. Imports of industrial supplies, the category in the report that includes petroleum products and natural gas, fell by 25%. Based on these figures it looks like a little less oil is being consumed by the U.S., but not much. Almost the entire change is merely a change in pricing.

On the flip side of the equation, imports were also falling in November, but that decline seems somewhat more related to an actual drop in trade than a drop in prices. U.S. exports of industrial supplies, capital goods, autos, consumer goods, and food and feed all fell. The one significant rise was in the aircraft category, which jumped 7.1%. This was caused by a strike in Boeing ending and should be assumed to be a one-time event. Drops in imports and exports of services were approximately equivalent.

The average price of a barrel of oil used for the November report was $66.72 a barrel and oil has fallen much lower since then. 'Improvements' in the U.S. Trade Deficit are likely for the next few months because of this. As the price of oil gets to its cost of production, the 'improvements' will disappear however. When the price of oil rises again, the 'improvements' will reverse. The drop in U.S. exports is actually the much bigger story. It was a collapse in U.S. exports that was a key marker of the Great Depression in the 1930s.

NEXT:

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

The January 8th Meeting of the New York Investing meetup

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

The New York Investing meetup monthly meeting on January 8th had a record turnout of 200 people. The first talk was our view for the stock market in 2009. This was followed up by an excellent talk by Jeff Glenn on manipulation in the gold and silver markets. The final talk was on the latest scandals, including Madoff, Dryer, and Saytam compter, recent economic figures and then a review of some Saint Louis Fed charts that clearly show the financial sytem is in serious trouble.

While the indicators for the U.S. stock market were highly negative in the beginning of 2008, they were essentially neutral for 2009. A comparison was made of the charts for the major stock indices at the beginning of 2008 and 2009. In 2008 there was a large drop, while in 2009 almost everything went sideways. One way of interpreting this is that the market will move in an overall sideways pattern this year, albeit with possible big moves up and down. This does not mean the market can't go lower, it most certainly can. Our long term prediction is that it will. The Dow still has not hit major support at 7200 and this could happen even in the earlier part of this year. Lower lows are also possible. A flat market for the year can include the scenario of significant selling and recovery toward the opening price at the end of the year.

Jeff Glenn's talk on gold and silver manipulation helped clarify how central governments try to control the price of gold and silver through leasing. How much gold the U.S. actually owns is not really known, since there has been no audit since 1955. A lot of government action seems to take place with precious metals, but there is little transparency. Investors should ask themselves, "Why the need for secrecy?" Jeff also stated that he thought it very possible that gold could skyrocket one day because of a sudden revaluation by the government. I agree that this is indeed a realistic possibility. You will need to own gold and silver before this day arrives if it does occur.

The final talk was on the Madoff scandal and how incredible it was the SEC missed this obvious scam that seems to have gone on for decades. We also reviewed the accusations of major security fraud against Drier, the head of one of the largest New York law firms, and how Satyam Com hid its declining sales by lying about it cash holdings (something that is almost impossible to do because it requires multiple parties outside the company to be involved with the fraud). After that we warned the employment report and the GDP figures this month would be ugly. We wrapped up by showing updated charts on the Monetary Base and Banking Reserves from the St. Louis Fed.

Our next general meeting will be February 3rd and we will be having a guest lecture on investing in art.

NEXT: The U.S. Trade Deficit - There's Good News and Bad News

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Eonomics Reports - From Very Bad to Even Worse

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

The jobs report this morning was as bad as expected. The stench of economic decay emanating from the figures was unfortunately magnified by a number of other recently released economic indicators. Several days ago, Consumer Confidence for December came in at 38 - an all-time low. Yesterday, many retailers released their same store holiday sales and they were the worst in at least four decades. Lost in today's news about U.S. employment was the Wholesale Inventory report which showed a record decline in sales that blew away the previous record, set only one month ago. While the jobs report was bad enough on the surface, things are even worse than the headline numbers indicate.

The BLS reported that the U.S lost 524,000 jobs in December and the unemployment rate went up to 7.2%. Job losses for November and October were revised upward to 584,000 and 423,000 respectively. The BLS has constantly revised the monthly job losses higher in the two months following their initial release all year long (the press doesn't emphasize or even acknowledge that this takes place). Without further revisions to November and December figures, the total job losses for 2008 is 2.6 million. This figure was last exceeded in 1945, when the U.S. was transitioning from a war time to peace time economy.

In total, 11.1 million people were unemployed in December. This figure does not include part-time workers who can't find full-time work, nor discouraged workers that have just given up looking for a job (the U.S. unemployment rate would be 13.5% if both categories were included). While full-time employment is falling, part-time workers grew to 8 million from 7.3 million in November. As usual, only three categories gained jobs -government, education (which is mostly government) and health care (apparently people are becoming increasingly sick because of the economy). Even though governments at all levels in the U.S are in retrenchment mode, they have continually hired more and more workers all year long according to the BLS. If you extrapolate this trend into the long term, you will see that eventually government will employ 100% of the American labor force. For some reason this makes me suspicious.

Looking at business conditions from the wholesale perspective, an even gloomier picture emerges. Wholesale inventories (goods held by distributors who buy from manufacturers and sell to retailers) fell 0.6% in November and sales fell by a depression level 7.1%. The decline in sales shattered the old record of a 4.5% drop, which was just set in October. Wholesale inventories make up about 25 percent of all business stockpiles. They are a leading indicator of future retail business - and a double digit decline in just two months does not augur well for the economy next spring

NEXT: The January 8th Meeting of the New York Investing meetup

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Early Year Trading Signal Goes Neutral

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

The market had a sharp sell off yesterday where essentially every stock group got hit. The major averages moved right back to where they started the year, making the early year trading indicator neutral. Still there were important messages within the internal trading patterns that can be used as a guide for investing . While things don't look horrendously bad as they did in the beginning of 2008, there is no cause for optimism just yet. As of now, 2009 looks more likely to be a year of ups and downs in a bigger sideways trading pattern. Nevertheless, investors should look closely at the market for signs of trend change around the beginnings of each of the next three quarters.

Oil which took the lead on the way up, was the hardest hit yesterday, with the ETF dropping 12.5% on the day. Silver was second, falling 4.3%. The small-cap Russel 2000 had the biggest loss among the indices, ending down 3.4%. Nasdaq, the S&P 500 and the Dow followed with losses of 3.2%, 3.0% and 2.8% respectively. GLD was down 2.8%. The Dow ended 2008 at 8776 and ended the fourth trading day of 2009 at 8770; the S&P 500, 903 and 907; the Nasdaq 1577 and 1599; and the Russell 2000, 499 and 497. If you had slept through the first 4 days, you wouldn't have known anything had happened.

Despite energy being hard hit yesterday, energy stocks garnered the most investor interest in the beginning of the year. Agriculture performed almost as well. Mining was next and the Aerospace group was fourth. The top three groups are all inflation sensitive. On the downside, no group can compare with Savings and Loans. Not surprisingly, Banks were next to the bottom. They were followed by Computer Software, Utility stocks, and Semiconductors. Anyone tempted to bottom fish among these group should follow the highly cyclical semiconductors. While they are strongly impacted by the economy, they also tend to do well in higher inflation environments. When the economy turns (and no one right now knows when that will be), these stocks will do particularly well.

All in all, investors should be watching oil and looking to pick it up or energy related stocks on pull backs. The bottom in oil may still be a ways off, but a lot of buying interest has now been established at the prices reached in December. Mining and agricultural plays should also be kept on the radar. Keep in mind that there is always money to made in the stock market - as long as you know where to look.

NEXT: Economic Reports - From Very Bad to Even Worse

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Seesaw Market Action Continues on Day Three of 2009

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

After rising on the first and falling on the second trading day of the year, U.S. markets rallied on the third. The seesaw action indicates that the big money is still ambivalent about whether or not to put money into the stock market. Nevertheless, certain sectors of the market are seeing major buying committments, with energy being the top performer by far. Mining and Agricultural stocks have also done quite well. All three groups are inflation plays. On the flip side, industry groups strongly impacted by recession and the Credit Crisis remain investing pariahs. Market players lack of interest in these stocks indicate they do not forsee that the current recession will be over soon, nor that the financial system is yet on its way to recovery.

While the market rallied yesterday, it was nothing to write home about. The Dow was up 0.7% and the S&P500 0.8%. Nasdaq did much better, rising 1.5% and small caps did the best of all with the Russell 2000 rising 1.9%. While trading volume rose on the day, it was still below average for the Dow (trading volume below average indicates lack of enthusiasm for the move). For a third consecutive day, the only really outstanding volume was in oil.

While energy stocks once again did well, they were only the second best perfoming group yesterday. Mining stocks moved to the number one position. Double digit gains have been seen in the big international miners so far this year making them some of the biggest winners in the market. Overall, a higher percentage of energy related stocks have done well though. Joining these group toward the top of the list were Agriculture, Tranportation, and Chemicals.

As usual, the bottom position was held by Savings and Loans. There seems to be absolutely no buying interest in this group . Next to the bottom were the safe-haven Utilities, which are apparently not considered so safe at the moment (this group is usually held up by their high dividends, although these could become insignificant during a period of high inflation). Just above Utilities were Consumer, Food/Beverage, Retail and Medical stocks. Consumer and Retail stocks are deeply impacted by recession so it makes sense for them to be on this list. Food/Beverage and Medical stocks are usually safe-havens in a recession. The big money doesn't seem interested in putting any more money into these sectors however.

As of this writing the fourth trading day of the year looks like it will be down. If so, it will only add to the apparent lack of interest on trader's part in putting money into stocks in 2009. Without that, the fuel needed for an overall sustainable rally will just not be there.

NEXT: Early Year Trading Signal Goes Neutral

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Sellers Return for Second Day of Trading

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

Traders returned from their holiday vacations on Monday and the usual beginning of the year buying was more than matched by selling. All the major stock indices were down on the day as trading volume, while still low, rose from Friday's anemic levels. Oil and energy related stocks were once again the big winners as they were on the first trading day of the year and those gains were made on another day of high volume.

While the market went down yesterday, the selling wasn't relentless as it was in the beginning of 2008. The Dow and Nasdaq were both down 0.9%, while the S&P500 dropped only 0.5%. Small caps had the smallest loss, just as they had the smallest gain the day before. The Russell 2000 being down only 0.2%. There just doesn't seem to be much interest in small caps one way or the other.

Oil and energy related stocks not only performed the best for a second day in a row, but were way ahead of every other industry group. The ETF Oil was up almost 5%. A large percentage of energy related stocks had significant moves up, even though the market as a whole was dropping. While major money is clearly flowing into this sector, this does not mean you need to rush out and buy into it. Oil looks like it is only in the first stage of its bottoming process. The big money is drawing a line in the sand however and telegraphing quite clearly that it will be picking energy stocks up on price drops. The second best performing stock group on Monday was another inflation related sector, Agriculture.

The worst performing groups were most of the same Credit Crisis and recession impacted groups that did poorly on Friday. Savings and Loans were once again at the bottom and shared that space with Real Estate, Office Products, and (somewhat surprisingly) Food and Beverages. Semiconductors and Computer Software were only slightly less bearish. Retail, Consumer Products, Apparel, and Media Companies rounded out the list of groups with the least buying interest.

After two more days of trading, there will be a more complete picture of where investing money is flowing into and out of in what is the most importing trading period for the market all year. In 2008, the picture was clearly ugly and this was the basis of the New York Investing meetup predicting that it would be a bad year for U.S. stocks. So far, the picture for 2009 looks like it will be more nuanced.

NEXT: Seesaw Market Action Continues on Day Three of 2009

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

What We Learned From the First Trading Day of 2009

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

January 2nd was a good year for the markets throughout the world. Volume was low however since many traders took a four day weekend and this almost certainly reduced selling. While we can't look at the results as a complete picture, the first day does provide us with a good sense of what people are buying. While this is very useful information, you need to make sure selling pressure isn't overwhelming the buying interest. Under such circumstances, the areas of the market that were doing the best and worst are most likely to provide useful information.

All the U.S. indices rallied on Friday. The Nasdaq led the way, rising 55.18 points or 3.4%. The S&P was just slightly behind, going up 28.55 points or 3.1%. The Dow with its 258.30 rally was up 2.9%. Noticeably lagging were small cap stocks. The Russell 2000 rose only 6.39 points or 1.2%. Trading volume on the Dow was well below average. Nasdaq volume was low. Low volume was also seen in GLD, which was down slightly on the day. SLV which was slightly up, rose on somewhat above average volume. OIL though won the prize going up 8% on volume that was well above average.

Examining purchasing in individuals stocks, Energy related stocks had the highest percentage of buying interest by far of all industry groups. They were followed by Metals/Steel, Machinery,
Mining, and Aerospace stocks. The list of stocks that investors were scooping up could be best summed up as commodity related and infrastructure plays (the Obama administration is working on a one trillion dollar spending package which will benefit these companies).

And what stocks did investors shun like the plague? At the very top of that list was Savings and Loans. Office products were in essentially just as bad shape. Slightly better were Banks, Semiconductors, Insurance, and Computer Hardware in that order. The industries most lacking in buying interest could best be summed up as financial and those that produce products that are used for business operations - or perhaps, those that are part of the Credit Crisis and those most impacted by recession.

NEXT: Sellers Return for Second Day of Trading

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

The Market Backdrop for 2009 - the Big Picture

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

Let's recap what took place in took place in the market in 2008. It was a year of huge price variation. Below the price ranges of the major indices and commodity ETFs:


DJIA ----------- 7392.77 low---13338.23 high
SP500 -----------741.02 low --- 1471.77 high
Nasdaq ---------1295.48 low--- 2661.50 high
Russel 2000 ------371.30 low ----768.46 high
Oil (the ETF) -----19.38 low ------88.15 high
GLD --------------66.00 low-----100.44 high
SLV----------------8.45 low------20.73 high

The end of the year is always a good time to look at the big picture for the indices as well. As we have mentioned in this blog several times, the 200 month simple moving average is a key support level that it rarely violated. The last two times this has happened was in the mid 1970s, when it occurred for around 6 months and in the first half of the 1930s, when it lasted for a few years. At the end of 2008, all the major indices violated their 200-month moving averages in the last 3 months of the year. The Dow Jones and Russell 2000 have not closed below it on a monthly basis however, while the S&P 500 and Nasdaq have had 3 closes below this line. For the market to indicate that it is becoming healthy again, the indices need to move above the 200-month moving average and stay above it as happened in the 1970s (even then it still took many years before a major bull market began again).

The monthly charts also indicate that at the very least some sideways consolidation is necessary for awhile before any longer lasting move up is likely to take place. There can be tradeable rallies in this sideways pattern, which lasted around 8 months in 2002/2003. The indices also have a tendency to double or triple bottom and this is particularly true for the S&P 500. If you look at a longer term chart, you will see a double S&P bottom so far in 2002 and 2008 (and a double top in 2000 and 2007). The S&P making a triple bottom (and even a triple top in the future) is something that should be considered.

Best of luck with your trading in 2009.

NEXT: What We Learned from the First Trading Day of 2009

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.