Thursday, June 18, 2009

Building a BRIC House; Nat Gas and Market Update

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 BRIC (Brazil, Russia, India, China) countries had their first ever summit yesterday. Much of the discussion centered around how they can diversify their assets out of the U.S. dollar - BRIC countries hold nearly one-third of overseas U.S. debt - without creating too much disruption. It would be more appropriate to state this as they are trying to find a way to dump their dollar holdings without causing the dollar to drop too much while they are doing so. They are considering buying each others debt. Whatever happens, they will be certainly be buying less U.S. debt in the future and you should assume they are slowly selling off their current holdings.

The implications for the U.S are dire. For the last three decades we have been dependent on borrowing money from foreign countries to fund out twin trade and budget deficits. While the trade deficit has improved somewhat with the recent collapse in oil prices (it's still very large), our budget deficit in 2009 is going to come in more than four times the previous record. Foreign sources were probably already tapped out before the Credit Crisis caused U.S. borrowing needs to balloon and now they are diminishing their lending instead. This will only force the U.S. to print more and more new money to cover its spending needs. This is the path Weimar Germany followed and it is what lead to their hyperinflation.

The trade-weighted dollar was at 80.23 this morning, still holding above its 78.33 break down level. Light sweet crude was as high as 71.73, but then fell back to around the 71 level. The Natural Gas storage report came out this morning and gas in storage increased by 114 bcfs, while expectations were for an increase of only 110 bcfs. UNG sold off 40 cents in the two minutes following the release of the data. I am not interested in buying though until it can get to around the 15 level. As of yesterday, the Dow has closed below its 200-day moving average three days in a row. So far today, it hit this line from below and bounced down. The S&P 500 and Russell 2000 have held above theirs. A break and close below for the S&P and Russell would be significant.

For some commentary from a Bloomberg reporter about the U.S. treasury bond smuggling case out of Italy and that was reported in this blog on Monday, please click below (if the URL doesn't work, try putting it into a browser):
Whatever the truth is behind this caper, it is worthy of a James Bond novel.

NEXT: Quadruple Witching Today; Fraud Update

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.

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