Friday, September 25, 2009

So Much for That Recovery

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 G20 meeting ends today and precious metals should be under pressure and the dollar should continue to rally. Traders are worried that some rumblings about supporting the U.S. dollar may come out of the meeting, although the Japanese Finance minister recently said he was uninterested in intervening to drive the Yen down. While something could be said, the likelihood that anything would be done in the near-term is less than nil. Currency intervention is expensive and the printing presses of the major central banks are already booked full-time to support government economic stimulus programs.

The much ballyhooed impending U.S. economic recovery seems to be crumbling. While this only means more government stimulus and money printing, gold and silver are selling off instead of skyrocketing on the news (no that doesn't make any sense). The U.S. Durable Goods report came out this morning and it was down 2.4% in August. A drop of 48% in highly volatile aircraft orders was mostly responsible for the decline , as was the 98% increase in aircraft orders last month that lead to the rise in July. Autos were still up 0.4% last month with the impact of the Cash for Clunkers program waning. Core capital goods, which are the key to what is really going on in the economy, were down 0.4% in August. They dropped by 1.3% in July. So far, there doesn't seem to be any solid evidence of a sustainable recovery in manufacturing.

The bad durable goods numbers followed a 2.7% drop in existing home sales in August that was announced yesterday. That report indicated that 31% of U.S. house sales were 'distressed' (foreclosures for example) and that sales were concentrated in the low end of the market. Well that sounds like a description of a healthy housing market doesn't it? As if the banking system didn't have enough trouble from residential real estate, worse news today came from a report on large bank loans (these are loans over $20 million). Of these, 22.3% are 'troubled'. That is up from 13.4% last year. As a reminder, the U.S. banking system is supposed to have been 'stabilized' according to the Federal Reserve.

While things may look bad in the U.S., they seem to be worse in Japan. Japan is an export based economy and exports there fell 36% in August. Car shipments were down 50% and steel down 43%. GDP was positive last quarter and Japan supposedly exited its most recent recession (one of many in the last two decades)...well, maybe not. The stock of Japan's largest brokerage house, Nomura, plunged 16% last night on the news that it was issuing more stock. This is the second new stock issue in 6 months. Japan has been 'stabilizing' it financial sector for 19 years now. The U.S. looks like it is heading toward long-term 'stabilization' as well.

NEXT: Precious Metals Watch

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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