Tuesday, March 10, 2009

Stocks - the Good, the Bad and the Ugly

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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U.S. stocks gapped up today with the indices up 4% or more as I write this. Many individual stocks are up over 10%. While almost everything is up right now (except for gold and silver which are looking ugly at the moment), some of the rallies are more sustainable than others. In many cases, insolvent financial companies are up the most. Only for really short term traders do they offer opportunity however. Natural resource stocks on the other hand have real long term potential.

The oversold condition of the market is so extreme that it may be at historical levels. Under such circumstances, any little piece of news can ignite a sudden rally. Such bear market rallies are explosive and can last for weeks or even months. They are very tradeable and you can make a lot of money, but you have to get out and take your profits because the market is likely to go right back to where the rally started of even lower.

The news that started the rally today was Citigroup claiming it made a profit the first two months of this year. Indeed if the government pumps enough money into any given company it will eventually become profitable, no matter how insolvent it might be. This was followed up by a statement by Fed Chair Bernanke that major U.S. banks would not be allowed to fail (no matter how incompetent their management is and no matter how much it costs the taxpayer - he left that part out). Bad financials are bad investments though no matter what the government does.

Natural resource stocks are where the good values are to found in the market right now. They own tangible assets that will not only maintain their worth, but will increase substantially in an inflationary environment. They have had incredible sell offs that have sent them to major bargain prices. Other than oil, which made a double bottom on the charts in December and February and is in a seasonally strong period until the summer, a number of non-precious metal stocks seemed to have bottomed last fall. Like oil, they have not hit new lows with the market. Such relative strength is impressive and should not be ignored.

NEXT: Analysis of Tuesday's Market Action

Daryl Montgomery
Organizer,New York Investing meetup

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.

1 comment:

Trevor Gauntlett said...

Great post and look to the future! As always I enjoy your commentary about current events.

Keep up the great work!