Tuesday, March 31, 2009

Next Few Trading Days Are Important

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:

Money moves around at the beginning of a quarter. Look for shifts in the next few days. You want to observe whether money is flowing into the market overall or are people taking money out and selling. If the market goes up, the big money has become more confident and the rally is going to continue for awhile. It is even more important to note which sectors have money moving into them and which sectors are selling off. The three most bullish sectors of the recent rally have been financials, basic materials and technology. You would like to know if this is continuing or are other sectors getting more fund inflows.

The news backdrop may color the picture somewhat however. The G20 meeting is on Thursday and the possibility of fireworks exists. The Jobs Report is coming out Friday and the consensus is that it will be quite ugly. While this may seem like it will be negative for the market, it may not be. When people are expecting the worse, even something slightly better can be considered bullish and make stocks go up. And as we have stated many times in this blog, the U.S. government is not beyond manipulating its economic statistics to make them look better. The market, at least up to this point, takes these reports at face value no matter how absurd they might seem. The latest incarnation of this behavior has been in the seasonal adjustment figures which have recently been quite sizable and always in the direction of making things look better.

The market was filled with panic selling yesterday. I usually look at this behavior as an opportunity to buy and I did pick up some commodity stocks that had big sell offs. So far, yesterday looks like just another typical Wall Street shake down. Investors who got in at good prices are scared out of the market, those that haven't are frightened away. The big money buys the stocks the small money is selling. Take a look at the press coverage yesterday and you will see that it is overwhelmingly negative and one-sided. Many important facts are left out. This is not the coverage you typically see when the market is going to have a serious sell off. Media pundits tell you to get into the market to catch the next move up when the market is actually turning down. Wall Street is busy selling at that point - and they want you to buy.

The market is filled with bargains right now. If you concentrate on buying stocks in the commodity sector and beaten down stocks in industries that deal with the production or movement of tangible goods that are necessities or pervasive, you will make money. This is where you will get your biggest bang for the buck when inflation hits. And don't worry, expect the mainstream media to inform you in a year or two that this is what you should have been doing in early spring 2009.

NEXT: Surgery Done by a Bull in a China Shop

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.





Monday, March 30, 2009

Government Thinks It Knows Best, Market Disagrees

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:

If the Obama administration is trying to crash the U.S. stock market they are doing an excellent job. If not, they should all take a class in PR 101. The U.S. government announced that it is displeased with the progress the automakers have made with their restructuring plans (like somehow the government knows how to run an auto company), got the CEO of GM to resign, and is threatening to withhold bailout money from them and force them into bankruptcy. This would be devastating to the economies of the politically important swing states of Michigan and Ohio and for this reason it is not likely to happen. Nevertheless, all investors are paying this morning for this political cat and mouse game, with both the Dow and Nasdaq selling off around 4% as I write this. A crash level drop of 5% is a real possibility at the moment.

When the automakers received their first bailout in the fall, this blog stated it was only a stopgap measure to tide them over until after the election and a new bailout would be needed then. This has indeed happened right on schedule. While we constantly say, there is no such thing as a single bailout for an insolvent financial institution, the same is obviously true in many other industries as well. There is also no question that the automakers have been some of the worse run companies in the U.S. for decades, at least until the banks and brokers took the lead in this respect in the 2000s. Bailouts almost always have long term negative consequences, but this has not stopped the U.S. from establishing a de facto 'too big to fail policy' and it now seems to be moving toward state directed corporate socialism. Government management is an oxymoron if ever there was one. This is out of the frying pan into the fire economics.

Also weighing on the market is the upcoming G20 summit. Other countries, being led by Germany, are not interested in printing an endless stream of new money for economic stimulus plans and the BRIC countries want an alternative reserve currency. A coordinated policy for global stimulus is not likely to result from the meeting later this week as was hoped for by the Obama administration. This leaves the U.S. and Britain, the big money printers, holding the bag. Consequently, both are likely to have to print more money in the future. The BRIC (Brazil, Russia, India and China) countries want to establish a new reserve currency, at first consisting of a blend of dollars, euros, yen and pounds. No immediate policy shift will officially take place at the summit, but this likely represents a sea change in international currency policy. Both pieces of news are devastating for the U.S. dollar, which somehow ignored reality this morning and rallied strongly.

While it would be nice to do so, investors can't ignore politics. Deep down, there is really very little difference in a number of respects from the current administration and the last administration. Spending huge amounts of taxpayer money on bailouts was and is part of the agenda. If the spending can't fully be funded with taxpayer money (and this was a reality from the beginning), any amount of money necessary will be printed to cover the costs. The dollar will eventually lose a lot of its value because of this and there will be a lot of inflation. The Bush administration though was at least aware of the sensitivities of the stock market, while the Obama administration seems oblivious at best. The drop this morning, taking place during a nascent rally, is not the first time the current administration has stuck its foot in it and it probably won't be the last.

NEXT: Next Few Trading Days Are Important

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.








Friday, March 27, 2009

In the Eye of the Financial Hurricane

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:

There is some effort to talk down the current rally by the media today (assume the shorts have planted the stories). This doesn't mean the rally is going to end at the moment however. The momentum is very strong and doesn't seem to be have been dissipated yet, so no need to rush out and sell anything. The rally will end however and be followed by a sharp drop, possibly to lower lows. The current rally is very much a Bear Market rally and these differ in a number of ways from the beginning of a new Bull Market.

The money has been very easy in this rally and that is a common marker of Bear Market rallies. Prices move up very fast and seemingly without restraint. In contrast, beginnings of new Bull Markets are usually a struggle. It took about 10 months to put in the base at the bottom in 2002 and 2003 (the current bottom has had about a 5 month base put in so far). The market did not just shoot straight up out of that base. The bulls and bears battled for control on almost a daily basis with the bulls being able to only gradually move the market up. That type of constant give and take allows rallies to last a long time - about 10 months in 2003/2004. The current move up is almost effortless and because of that it can burn itself out pretty quickly.

The current rally has also been led by the biggest losers of the downturn - the financials. This is typical of bear market rallies, which are mostly short covering affairs. Once enough of the shorts close out and prices rise a lot, new short positions are put on that drive prices back down. The only thing that has made the financials more valuable is that the government is willing to put more taxpayer money into their coffers. Their value is no longer determined by economic forces, but corporate welfare payments. Not exactly an enticing long term economic model for investors.

There are three things for the current rally that need to be watched closely - resistance, earnings season, and April 15th. All the major indices are about to enter a strong band of resistance. For the Nasdaq, this starts at 1600 and goes to around 1650. The Dow has strong resistance at 8300, with with more resistance around 9000. For the S&P 500, there is resistance between 870 to 940. These are levels where the rally is likely to run out of steam. Another limiting factor to the rally is that first quarter earnings season starts around April 7th. Rallies into earnings usually mean a sell off after - and sometimes even during. As for April 15th, people frequently sell investments to pay their taxes and the market tends to dip then for that reason (although the dip can be temporary). So in figuring out when to sell, watch resistance and watch the calendar.

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.





Thursday, March 26, 2009

No Longer Gilt Edged - the Inflation Implications

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:

Yesterday, a regular government bond auction in Britain failed for the first time since 1995. There were more 45-year gilts for sale than buyers willing to purchase them. The British government is only printing money to buy its bonds in the 5 to 25 year range and it is now obvious the printing presses are going to have to be reved up to expand this program if Britain wants to fund its various bailout and stimulus packages. Meanwhile the U.S. bond auction yesterday was a 'success', although in order to insure that success the Fed had to purchase a higher amount of bonds than was previously thought necessary. The inflation implications of more money printing did not escape the market's attention with almost every commodity rallying strongly this morning.

The commodity rally took place even though the economic news was gloomy across the board. U.S. fourth quarter 2008 GDP was revised further downward to a drop of 6.3%. Businesses and consumers are both cutting spending and unemployment roles are swelling weekly. The mainstream press has continually told investors that commodity prices can't pick up until demand increases and this will require the economy to start picking up. They have been continually wrong. Commodities are all inflation hedges and the big money is well aware of this. Even the most cursory examination of the charts indicates many commodities bottomed last fall and their prices have been moving up since then. You should ask yourself why doesn't the press just report this simple factual information?

This blog has covered the mainstream media's misreporting of the oil market in detail many times. Headlines for the weekly supply picture from Cushing, Oklahoma were uniformly bearish yesterday. Oil in storage increased 3.3 million barrels, instead of the 1+ million increase that had been predicted and was more than 15% higher from the same time last year. As usual the press quoted 'experts' indicating demand has to pick up or the current rally will falter (as opposed to the previous reporting that stated that demand has to pick up or there wouldn't be a rally). Oil indeed sold off on this bearish news. What the press didn't report or buried at the bottom of its coverage was that demand for gasoline has actually risen for the last four weeks (even though the press will tell you this is not possible during a recession - the facts sometimes get in the way of the story the media wants to tell you). Gasoline in storage is actually more than 5% below year ago levels and the beginning of the heavy usage summer driving season is only two months away.

Investors should all keep in mind that commodities are inflation hedges and the U.S. and Britain are admitting they are printing new money. This doesn't mean that they just started printing additional money, but that the money printing is so out of control that it can't be hidden any more. There is no time in history where the money supply hasn't been expanded beyond the economic growth rate and inflation hasn't resulted. The inflation this time is going to be considerable. If you haven't done so already, you should be adjusting your portfolio accordingly. By the time the mainstream media tells you to do so (they are currently telling you the deflation is your big worry), it will already be too late.

NEXT: In the Eye of the Financial Hurricane

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.





Wednesday, March 25, 2009

'Good' News Drives Market Higher

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 rally continues today and is likely to do so for awhile because the momentum is on the upside. The mainstream media is doing its best to help continue the rally with the usual bullish hype. Today's bullish stories include a 3.4% rise in durable goods, the first after a six month record decline. U.S. mortgage applications are also up on the lowest mortgage rates since records have been kept. Such 'minor' bad news as Japan's exports falling 49%, with the biggest drops in exports to the U.S., and China calling for a new reserve currency to replace the dollar have been mostly ignored by the market.

The durable goods report is being interpreted as indicating the economy is improving. You can only believe this as long as you don't look beyond the headline number (most traders don't by the way, they just react immediately without getting the details). The big rise in durable goods was led by military aircraft and parts which were up 32.4% - this is 100% the result of government demand and not likely to be repeated. Heavy machinery was the next big gainer and was up 13.5% - not exactly a consumer item. Computers were up 10.1% and this would partially be accounted for by consumer purchases, although businesses are the major buyers of computers. Fabricated metal products were the only other item with a significant gain being up 1.5%. Autos and auto parts are still in heavy decline, but there was a little noticed $5 billion government bailout of the auto parts industry a few days ago that will act to prop up the industry.

The Japanese trade numbers for February gainsay any rosy interpretation for the U.S. economy that could be garnered from the Durable Goods report. While Japanese exports overall declined 49%, the biggest drop was exports to the U.S., with exports dropping 58%. Next biggest was the EU countries where exports dropped 55%. The drop in exports to China was less than 40%. While these numbers indicate a collapsing global economy, the collapse is by no means even. The U.S. is doing the worst and Europe is a close second, but Asia is holding up somewhat better.

The Chinese released a proposal a couple of days ago to replace the U.S. dollar as the world reserve currency with a Special Drawing Rights (SDR) linked currency system. Russia supports the idea. The U.S. dollar losing its reserve currency status would be devastating to the U.S. Reserve currency status keeps the value of the dollar much higher than it would be otherwise. The impact would be extremely inflationary since we would have to pay higher prices for all imports. Nevertheless, Treasury Secretary Geithner remarked this morning that the U.S. was "quite open" to the Chinese proposal. The dollar dropped like a rock for a short time thereafter. In case you have yet to realize that Geithner isn't exactly the most brilliant Treasury Secretary that the U.S. has ever had, this should remove all doubt. Someone should also tell China that a globally neutral currency has already existed for the last 5000 years - it's called gold.

The final piece of 'good' news today was U.S. mortgage applications were up 32%. Unfortunately, 79% of those application were refinancings for already existing mortgages. New purchases were only a small part of this number. Average mortgage rates fell to a record low of 4.63% last week. U.S. policy is doing its best to try to get housing prices back up to economically absurd and unsustainable levels (doing so the first time only led to the current Credit Crisis that has threatened the stability of the world financial system). The only way this can be accomplished is to create enough inflation so nominal house prices stay the same or go up. This will cause even bigger economic problems, so you should assume that this is one area where government policy will be 'successful'.

NEXT: No Longer Gilt Edged - the Inflation Implications

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.





Tuesday, March 24, 2009

Print Enough Money, Everything Goes Up

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 stock market continued its Bear Market rally yesterday with a massive up day. The rally was impressive by almost any measure except volume, which was below average most of the day and just hit average at the close. Breadth (stocks going up versus those going down), was 41 to 1 and this was possibly a record. Small caps led the way with the Russell 2000 up 8.4%. The S&P 500 was next with a rise of 7.1% followed by the Nasdaq which gained 6.8%. The Dow was up 6.4%. If anything, yesterday's market action could be described as a crash on the upside. Panic buying was very clearly taking place in the last half hour.

If you read this blog regularly you will remember that we warned of a spectacular bear market rally more than once within the last several weeks. While yesterday was extreme even for a bear market rally, it was quite predictable. The market was severely oversold, possibly the most in history. At some point everyone who wants to sell has done so and then the only direction to go is up because there are no more sellers left. You need to close out any shorts once you see the market turn and ride the rally up. Don't stay at the party too long however. Once you have made nice profits, you need to book them.

While the media has been hyping this as the beginning of a new Bull Market, there is no reason to believe that it is. Financials have led the market up and they are just as worthless today and they were last month. Short covering is driving their rally, not long-term position taking. New Bull Markets are not led by the most beaten down group from the previous Bull Market, but Bear Market rallies are. You would also like to see a move like yesterday's right off the bottom (not after two weeks of rally) on very high volume. The picture is just not quite right.

Stocks will be going up in the long term however. If the central banks print enough money (and they are busy doing this at a breakneck pace), the price of everything goes up. The most important determinant of stock prices is liquidity (you can think of this as excessive money creation) and this trumps everything else including bad economic numbers, lower earnings, and a bleak outlook for this that and the other thing. As an example, the biggest stock market rally globally in 2006 was in Zimbabwe even though the economy there was collapsing (they were the top money printers in the world however). If you stay focused on what really matters, you can make a lot of money in this environment. Just don't expect to hear about what you should be doing from the mainstream media. They will invariably steer you in the wrong direction.

NEXT: Good News Drives Market Higher

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.





Monday, March 23, 2009

Making a Silk Purse Out of a Sow's Ear

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. Treasury revealed its latest plan to rescue the collapsing financial system today. I have lost count of which number rescue initiative this is since there have been so many in the last year and a half. The need for a another new plan indicates the lack of success of all the previous plans that were supposed to fix things. Despite spending trillions of dollars so far, the government has not managed to get control of the problem - and for good reason. Essentially, all the government programs are geared toward making worthless assets worth something. If this is the goal, Harry Potter should be running the Treasury department instead of Timothy Geithner.

The latest idea is to take $75 to $100 billion (multiply this number many times) from the Troubled Asset Relief Program, aka TARP, and combine this with capital from private investors to buy up the toxic assets that are owned by the banks. Treasury claims that private investors participating in the new program could lose their entire investment in some cases and the taxpayer could share in profits (my guess is the chances of either are minuscule). The FDIC, which is close to being insolvent itself, will provide a guarantee for this public-private investment funding. It was not mentioned how the FDIC would be bailed out if any significant amount of these asset purchases went bad.

Under the Treasury plan, private-sector participants will compete to establish a price. Treasury claims that the public-private partnership is superior to a "bad bank" approach because because under the "bad bank" approach taxpayers would take on all the risk, and government could overpay for the assets (as if these two things aren't happening in their alternative approach). Treasury said that it expected a "broad array" of investors to participate in the program, including insurance firms (even though this industry itself is about to need a bailout - participating in this program should help push it over the edge). Treasury also claims that its new plan is designed "to make the most of taxpayer resources." This of course begs the question: What were the previous plans designed to do?

The ultimate goal of the latest, greatest, newest, improved government financial rescue package is to get banks lending again. As with all the other failed rescue packages, this is being done indirectly by attempting to solve some related issue and presuming that this will somehow magically jump start lending (the cause effect connection between the two is usually missing). The new plan is trying to restart trading in 'legacy securities'. The market itself has valued these as worthless and indicated that these are inherently non-viable financial instruments. Nevertheless, the government thinks it knows more than the market and insists on pouring more and more money into this financial black hole. Even though every previous attempt has failed, it is always hopeful that the next one will work. As I have said many time, nothing succeeds like failure in Washington. Where is Harry Potter when we need him?

NEXT: Print Enough Money, Everything Goes Up

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.






Friday, March 20, 2009

Commodities Rumble, Financials Tumble

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:

Alcoa was one of the biggest movers in the market yesterday. At one point it was up over 20%. It was also the stock that I pounded the table to buy at Tuesday night's class on Technical Analysis. Our February choice, DXO, is up over 50%. Basically every stock I mentioned during the class had a good to huge rally. Even FCX, used to illustrate a number of technical points and well advanced in its rally would have made you good money. It was in the upper 34's on Wednesday morning, but over 42 at its high yesterday (there are better bargains in the market at this point). Even a Canadian Royalty Trust that I only mentioned in passing that I had purchased, went up nicely. A couple of attentive attendees took the hint. Coal stocks across the board had terrific rallies. We spent a lot of time looking at coal in the class. While I wasn't sure steel had bottomed, it rallied sharply nevertheless. No one apparently picked up on the shipping company that I made a gratuitous remark about, probably because I didn't state that I owned it. It was up 28% yesterday.

What wasn't up yesterday were financials. Citigroup was down 26% at its low, but closed down 16%. It is planning a reverse split. Wells Fargo was down 10% and Regions Financial down 12%. Broker, Morgan Stanley was down 13%. Insurance companies were clobbered (watch this space for a future bailout). Prudential was down 25% and Met Life, 12%. While you can make good money day trading financials, their long term picture is down while the long term picture for commodities is up. You can no more walk away while holding these positions than you could leave a big pile of chips unattended at the gambling tables in Vegas or Atlantic City. Of course you would eventually not have that pile of chips anyway since gambling, unlike investing, is ultimately a losing activity.

While the precious metals rallied yesterday, beaten down silver did much better than gold. Both were significantly down on Wednesday morning and shot up like rockets after the Fed announcement. It looks like a lot of traders were stopped out of both during the drop. I've seen this Wall Street racket played repeatedly over the years. Manipulators drive down the stock price driving the small players out and then a sudden reversal takes place and it shoots up to the sky. The inside players get the stock cheap and makes big profits, while the small investor is left holding the bag . Only if you have a accurate big picture of what is going on can you protect yourself from this type of shake down.

Oil continued its rally yesterday, closing at 51.61. This was the highest close since December 1st and represents a very significant breakout. Next resistance for the futures contract around $57. Natural gas finally joined the party and was up 42 cents to $4.10. This is a rally right off the bottom. Probably best to wait for some pull back from the initial rally if you want to buy. Gasoline and even heating oil had significant rallies yesterday as well. Oil has now rallied from the high 33's to over 52 in a month. During this entire time, the mainstream financial media has published one story after another about how oil can't rally until the economy improves and how oil can't rally because demand is declining. Nevertheless, oil has rallied sharply. Apparently the smart money doesn't pay any attention to the media, nor should you if you want to join the big money some day.

NEXT: Making a Silk Purse Out of a Sow's Ear

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.





Thursday, March 19, 2009

Invest Now for the Coming Inflation

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 Federal Reserve finally fessed up yesterday, announcing it was going to print new money to buy U.S. Treasury bonds. While my initial reaction was, 'so what else is new?', the public has not previously been officially informed of the massive inflationary policies that the Fed is implementing. While Bernanke did admit that the Fed was printing money to pay for the bailouts (how else could they have been paid for?) in his 60 Minutes interview, the markets didn't react to his statements on Monday... but they did yesterday. The dollar dropped like a rock, gold shot straight up and interest rates plummeted. Financials had the biggest rally on the good news that worthless government paper was going to be used to purchase their worthless debt paper (for some reason this seems like some sort of scam to me), although all metals and oil went up as well.

In yesterday's announcement the Fed said it will buy $300 billion of U.S treasuries (mostly in the 2 to 10 year range), $750 billion in Mortgage Backed Securities (MBSs) from Fannie Mae and Freddie Mac (both bailouts are black holes for government money), and increase purchase of Fannie Mae and Freddie Mac debt to $200 billion. The Fed signalled it would increase its balance sheet to $4 trillion. It was $900 billion last year and $2 trillion more recently. Take these numbers with a grain of salt, they are on balance sheet only (think Enron accounting). To increase its balance sheet the Fed must print new money. Even without knowing this, it is obvious that new money was being printed for some time now. To pay for all the bailouts, there has been huge new issuance of treasury bonds. Even though this created a big increase in supply, interest rates went down indicating that demand for U.S. treasuries was increasing even faster. Where do you think all of this extra demand came from?

The reaction to the Fed's announcement is a prelude to the future. The dollar tanked almost 3% in minutes, something that previously would have been a major move in a month. Gold which had been selling down and traded as low as $889 reversed course and rallied $57, also in minutes. Silver which traded as low as the 11.75 went up a dollar - and is still a major bargain. Oil which was also selling off Wednesday morning, reversed and closed up. It traded as high as $51.65 a barrel overnight, which is a breakout that confirms that a double bottom was made last December and February. All other metals and coal went up as well and you should consider them to be good inflation hedges too. It is possible that even steel stocks put in a bottom because of the Fed's move.

You should be adding to your commodity positions at this point. Consider buying commodities that you don't already own or have large postions in. If you already own enough oil, you might want to buy some more silver for instance. You might want to consider picking up some base metals and coal, if you already own a lot of gold. While, gold, silver and oil are the foundation for inflation investing, any tangible asset that has a useful function and a limited supply that can't be increased significantly is also a good choice.

NEXT: Commodities Rumble, Financials Tumble

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.





Wednesday, March 18, 2009

What happened to Deflation?

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 CPI for February was out this morning and it was up 0.4%. Producer prices were up yesterday as well. Both were up in January too. Where did the deflation go that the mainstream media was warning us about over and over and over again at the end of last year and the beginning of this year? It seems to have been chased back to whatever part of Fantasy Land it came from by rising oil prices. The CPI report this morning did indeed indicate that two-thirds of the price increase was caused by more expensive gasoline.

While the official government inflation figures (not actual inflation, never confuse the two) were hoovering around zero levels at the end of last year, this blog pointed out that it was due to falling oil prices. Core inflation, which excludes food and energy, never got anywhere near zero. It was also clear to us that oil prices couldn't fall much further because they were too close to production costs and the next move would have to be up. While light sweet crude double bottomed in December and February, gasoline prices bottomed in December and have been going up since then. U.S. gasoline demand actually went up at least three weeks in a row recently. This is happening even though there is a severe recession (really depression) and demand is supposed to be dropping sharply or at least the media constantly tells us this. Since it isn't, this indicates prices have become too depressed and need to go up.

Oil has indeed moved up nicely since it February 18th low in the high 33's. The NYMEX contract closed at $49.16 yesterday. There is resistance just above $50.00, so prices should get stuck at that level before they can break higher. Surmounting this level will confirm that oil put in a double bottom at 33. Our oil tracking stock DXO had a significant breakout by closing at 2.71, 20 cents above its 50-day moving average. DXO actually traded above its 50-day five out of the six previous trading days, but couldn't close above it. Finally, the bulls gathered enough muscle to push it over. You should expect this line to be tested in the future.

Oil is in its seasonally strong period and should be bullish until at least June and possibly into the summer. The move is not going to be straight up however. Expect lots of volatility along the way. The weekly storage reports from Cushing, Oklahoma (one is due out today) can always cause sudden moves up and down.

NEXT: Invest Now for the Coming Inflation

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.





Tuesday, March 17, 2009

When Bad News is Good News and Vice-a-Versa

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. government claims that construction on new homes and apartments jumped 22% in January. Why not 222% or 2222% or the future inflation rate of 222,222%? If you are going to publish fantastic figures you might as well go for some big splashy number that indicates every existing house in the U.S. had its land subdivided and an extra house was built on it. Well, maybe people wouldn't believe that one (although the mainstream media would publish it as if it were true). Somewhat more realistic is the PPI report released today which indicates February wholesale prices went up 0.1% after a 0.8% rise in January. Dropping oil prices are still lowering the numbers, although even with much cheaper oil, the coming big deflation that the media reported all last fall and this winter has yet to show up. Oil prices have already begun inching back up and even the highly manipulated government figures are likely to soon be showing that inflation is rising again.

Oil acted quite bullish yesterday. Even though OPEC refused to cut it production quotas at its Sunday meeting, oil prices were essentially unaffected. While oil went down about 3% in Asian trading after the meeting, it recovered its losses by the close in New York. Nymex light sweet crude is trading at 47.50 a barrel as I write this, almost as high as its gotten since the double bottom made in the high 33's on February 18th. When an investment doesn't go down on what should be bearish news, what will make it go down? The market is telling you that the selling is done (this works quite well for analyst downgrades by the way, if a stock goes up on a downgrade there are no sellers left). DXO, which New York Investing said was a good purchase on the evening of February 17th is hitting its highest high since that date today.

Sometimes assets do indeed go down on bad news, but don't hit new lows. This is also bullish. You should be watching Alcoa (AA), which had horrendous news yesterday. While the dividend cut was expected by any rational person, the issuing of new stock and convertibles is dilutive for current shareholders. AA's yearly low was 4.97 reached on March 6th and it has not been breached yet in today's trading with the low so far being 5.37. AA is not the first metal stock to cut its dividend, reduce capital spending, etc., etc. Freeport McMoran Copper and Gold (FCX) did so last December 3rd and the stock bottomed 2 days later at 15.70. It has gotten over 38.00 since then. When really bad news comes out, you need to ask yourself what else could happen. If there is nothing worse, how can the investment go down further? Unlike FCX, AA does have one additional risk and that is it could be thrown out of the Dow Jones Industrial Average.

The stock market is filled with beaten down stocks at the moment. To find the real bargains you need to determine if the company will still be in business tomorrow. In some cases, the answer to that is no (think financials and anything related to them). In others like FCX, which is the lowest cost copper producer in the world, the demise of the company would mean the disappearance of an entire essential industry. If the industry isn't going to disappear, the lowest cost producer will still be around. You should find out who these companies are for every commodity.

NEXT: What Happened to Deflation?

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.





Monday, March 16, 2009

Today's Economic Lunacy

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:

If ever there was ever any doubt that lunatics are running the economic asylum, we received more than enough confirmation of it today. Fed chairman Ben Bernanke expressed confidence that the current recession (actually depression) could end in 2009. It has been revealed that much of the AIG bailout money went to pay other banks and brokers who were also receiving bailout money and for executive bonuses. OPEC caved into pressure from the West not to cut oil production because it would hurt the world economy, as if this could somehow undo all the damage the Central Bankers were doing.

Fed Chair Ben Bernanke made his remarks about the recession on 60 Minutes (they should have resurrected the 1960's classic show, 'The Twilight Zone', for his commentary). While media headlines this morning blared that Bernanke said the recession would be ending in 2009, he actually added the important caveat that this would only happen if the banking system is stabilized. A realistic assessment of the chances of that happening can not be found in most press coverage. Bernanke further stated (try not to laugh) the largest U.S. banks are solvent and "they are not going to fail". The large U.S. banks are of course insolvent, although it is true that they are not going to fail because the government will pump an infinite amount of money into them if necessary to prevent this from happening. U.S. taxpayers should not worry about this however. Bernanke assured us last night that the bailout aid is not coming directly from tax funds and is "more akin to printing money than it is borrowing." Isn't that the approach the Weimar Germany and Zimbabwe took?

Government money printing is bad enough as is, but the news out of AIG over the weekend shows just how much of this is going to waste (hey, don't worry, they can always print more... and they will). Of the $170 billion that AIG received in government bailout funds, $105 billion went to pay other banks, including many foreign banks. Many of the U.S. banks were already receiving other government bailout money as is. As for the foreign banks, why is the U.S. bailing them out? Adding insult to injury, AIG is also using its bailout money to also pay executive bonuses. It claims that it is legally obligated to do so. Personally, I would like to see those contracts that state government money must be used to pay these bonuses. I think this problem could easily be solved if the people running AIG spent some time with Bernie Madoff in his new home.

Since the ordinary rules of basic economics are being ignored everywhere else, why should they apply to oil production. At its meeting on Sunday, OPEC did not cut production quotas again, but instead said it would aim to enforce the already existing cuts. In the last several months OPEC has announced a 4.2 billion reduction in quotas and it is estimated there has been 80% compliance. They are now trying to get the extra 20% or 800,000 barrels a day. Oil production is being cut elsewhere as well, including the U.S., and this is happening because it simply isn't profitable to produce oil under $40 a barrel in many places. And no amount of wishing, hoping and jawboning is going to make this happen. The rules of economics always win in the end. Someone should tell Ben Bernanke.

The New York Investing meetup is having its second class in Technical Analysis on Tuesday. If you are in the New York area, you should be attending (space is limited and by invitation only to members of the group, if you didn't get an invitation email me through the website).

NEXT: When Bad News is Good News and Vice-a-Versa

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.





Friday, March 13, 2009

Market Will Reward Real Value Going Forward

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:

Stocks rallied again yesterday and are doing so again this morning. Deconstructing this rally can provide investors with a lot of useful information going forward. While much of what it is taking place so far is short covering, some of that can turn into sustainable price increases and some of it can't. The market is also showing a clear preference for value over growth and hard assets over future promises, which makes perfect sense in a down economy with impending inflation.

The biggest up moves have been seen in the financial stocks. Many of them have massive short positions and in such cases any little piece of news can cause a big rally. It is also quite easy to have a big percentage gain if your company's stock was as low as 97 cents as Citigroup was. A move to 1.85 (the price as I write this) means a rally of over 85%. In the very short term, the big money is in the financials (if you trade them, watch them like a hawk). Nothing has really changed in their underlying value however. Many are still essentially insolvent, even if they haven't been fully nationalized yet like AIG, FNM, and FRE. Interestingly, bankrupt AIG, Fannie and Freddie are still trading and are in the pennies. They have not participated in the rally. You can expect many of the financials to come right back down and at some point to stay there.

Commodity stocks have also had nice rallies in many cases, but nothing like the financials. The represent extreme value and the possibility of sustainable action in long term (many of them actually bottomed sometime between last October and December and made a bullish divergence with the rest of market by not going to new lows in the recent sell off). In most cases they own large deposits of oil or metals, as opposed to worthless pieces of paper. These will not only maintain their value, but increase it at rates faster than inflation. In contrast to these hard asset stocks are growth stocks, which frequently have very limited real assets but are valued based on their future business. These are the stars in long term bull markets (think tech stocks in the 1990s), but are put on the back burner in long term bear markets. The IBD 100 is good proxy for this group. It has underperformed the market indices in this rally and this is not surprising. The days of easy money in this group are not likely to return soon.

Like all rallies off the bottom, the first down move will be important. Minimally, you don't want to see the recent lows broken and you would like to see the low of the first down move put in by next Friday and then a rally follow that. If the market breaks the lows from last week, a drop to the next major support levels is likely. This will almost certainly happen in the future, but doesn't have to happen right now. Long down moves in bear markets are frequently interupted by nice rallies on the upside.

NEXT: Today's Economic Lunacy

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.





Thursday, March 12, 2009

How Media Manipulates Investors to do the Wrong Thing

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 anyone who reads this blog knows that we have watching oil closely for quite awhile now and recommended buying DXO on the evening of February 17th. Oil double bottomed the next day. Did all the media investing pundits tell you to start buying at that point like the New York Investing meetup did? No, not at all. All of these geniuses missed it. So what happens when Wall Street misses the bottom, as it invariably does? Suddenly negative articles permeate the media about how dangerous it is to invest in that stock or asset... how its likely to go even lower yet... how you better get out in case you thought you timed it right. And while you're selling or staying on the sidelines the big money is picking up bargain goods behind the scenes. I have seen this ploy over and over and over again. You should be aware of it and make sure that you don't let yourself be shaken out of a profitable investment.

What is going on in the oil market right now is a quintessential example of how the media allows itself to be used by big money sources to misreport to the average investor what is really going on. There has been an unending drum beat in coverage of the oil markets about how demand is going down (while exaggerated, this is in and of itself a true statement), but with little or no mention of the supply side of the equation. We pointed out yesterday that a drop of 1.4 million a barrels a day globally is projected and sometimes in the same article you can find out that OPEC has cut 4.2 million barrels a day of production. Kindergarten economics tells you when supply drops much more than demand, price goes up. Not only is this simple analysis missing in media articles about the oil markets, the headline usually screams something about demand dropping for oil and how negative this is. I have seen this mindless idiocy echoed on comments on numerous investing sites. Many investors became irate when oil started going up and insisted manipulation was going on in the market because how could price go up when demand is going down? The average investor is indeed quite gullible (and knows nothing about economics).

Even when the mainstream media reports oil supply, it does so in a misleading way. The big supply news is always U.S. oil reserves in Cushing, Oklahoma (as if on one outside the United States uses any oil). Oil sold off sharply yesterday after a 'big' increase in supply was announced. 'Oil glut' and 'awash in oil' were phrases investors heard from the media. Oh really? Let's analyze just how big this 'oil glut' is (figures thanks to Bob Pascazio). U.S. oil inventories rose 700,000 barrels. Sounds like a lot if you don't know that there are 351.3 million barrels in storage. The increase in oil reserves was less than a 0.002%. The U.S. uses 833,000 barrels of oil an hour. So the 700,000 increase represents less than one hour more supply of oil. We have only a little over 17 days of usage in total storage. Even a minor disruption in supply and we would be out of oil before you knew it. Some glut!

This blog is being published late today because I wanted to see if suddenly oil went up today after all the negative press yesterday. DXO was mostly flat during the morning, but then started zooming in the afternoon. How surprising! Maybe all of those articles that appeared in the press yesterday saying OPEC isn't going to cut aren't true after all. The media not given investors the real story? Now I wonder who could benefit from that?

NEXT: Market Will Reward Real Value Going Forward

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.










Wednesday, March 11, 2009

Analysis of Tuesday's Market Action

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:

Stocks had a spectacular rally yesterday, with the Dow being up 5.8%, the S&P 500 6.4% and the Nasdaq and Russell 2000 7.1%. Many individual stocks did much better. Unfortunately the rally was lead by insolvent financials (Citi up 38% and Bank of America up 28%). Nothing has really changed to fix their problems and make them worth something. Many beaten down commodity stocks posted double digit gains as well and unlike financials these have real long term value. Inflation hedges, gold and silver declined while stocks went up and oil showed weakness in the afternoon. While the charts indicate a stock rally should be taking place right around this point, a test of the lows (with a lower low by no means out of the question) is likely again within about two weeks or so and after that a longer lasting rally is possible.

This rally will only be a Bear Market rally. Buy and hold for stocks is dead for the moment. This is not a bad thing however. It just requires a different investing mindset. Ignore the media pundits that continually point out that it's only a Bear Market rally as if somehow the money you make from it doesn't count. Bear Market rallies can provide you with the biggest profits in the shortest period of time - what more could an investor want? The biggest monthly rallies of all time in U.S. stocks were in fact in the 1930s during the Great Depression. The Dow was up 40% in April 1933 (it best month ever) and 35% in August 1932.

As we mentioned yesterday, a 'leaked' memo from Citigroup CEO Pandit set off the rally. This memo was reported to have said the Citi was 'profitable' for the first two months of the year. This seems to have been based on Citi having high revenue numbers (sales) in January and February - just as it did in every quarter where it had massive losses because of all the write downs it had to take. Just as changes in demand mean nothing unless you know changes in supply, revenues mean nothing unless you know expenses. It is amazing that traders fall for this blatant manipulation, but it works like a charm every time, which is why it continues.

The demand without supply argument has been the prevalent press coverage for the oil market for some time now. Oil dropped yesterday afternoon because the U.S. Energy Department cut its demand for global oil use by 1.4 million barrels a day for 2009 (rumors preceded the actual announcement). This has led to a lot more press today about falling demand for oil and how bearish this is. Traders sold oil down on this 'bad' news. Assuming that this agency has the slightest idea of what it is doing (I am not vouching for that), this was actually very bullish news. How can that be? Sometimes in the very same articles, which stated how negative the demand situation is, you could find that OPEC has cut production quotas by 4.2 million barrels a day (many discount this number to something lower). Let's see, demand is falling by 1.4 million barrels and supply is falling by a much larger 4.2 million barrels and the conclusion is that the price will go down. Did any of the financial reporters writing these articles pass Intro Economics? Doesn't look like it.

If you do have a longer term perspective, you will be better off buying commodity stocks. Since governments can't 'print' huge amounts of excess money without debasing their currency (another elementary idea from Intro Economics), lots of price inflation is inevitable and the value of tangible assets will be rising. Nice rallies took place in non-precious metal stocks yesterday, such as PCU, ZINC, AA and to a lesser extent FCX (as disclosure, I have held FCX for a couple of months now and bought some AA on Monday). Steel companies such as X also did spectacularly well. These are all strongly influenced by what is taking place in China and its desire to accumulate commodities for future use, so keep that in mind. The current economic situation is more than a bit iffy there, with bad trade numbers being released this morning.

While inflation hedges gold and silver weren't doing well yesterday, a report was released indicating confidence in U.S. sovereign debt has been deteriorating for the last year. Credit default swaps (CDSs are insurance for bonds) for U.S. treasuries are now being priced at seven times higher than they were twelve months ago. During the same period, CDSs for investment grade companies haven't even doubled. On the other hand, CDS rates for leading U.S. banks and brokers hit a record high this Monday. The big money players have little confidence in the U.S. financial system and are starting to question the viability of U.S. debt itself ... but don't worry, the U.S. government can always print more money to deal with the problem.

NEXT: How Media Manipulates Investors to do the Wrong Thing

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.





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.

Our Video Related to this Blog:

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
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.





Monday, March 9, 2009

Stocks Look for Bottom, Oil Rallies

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 is going up and down like a yo-yo today, alternating between negative and positive. Stocks are trying to find a bottom and will probably do so soon. No matter how negative the outlook is for the economy and earnings, stocks can only go so low before having a rebound because the selling gets exhausted. At this point media reports have gotten about as gloomy as they can get, with each person making a more negative price low projection than the last (Everyone is always about as bullish as they can get at a top also). While stocks grope for a bottom, oil looks like it found one last month.

On Friday the Dow hit a new low of 6443 and the S&P500 hit a new low of 667. Nasdaq broke its November low of 1295 (the last index to do so) and traded down to 1269 at one point. The close wasn't as bad because heavy buying came in at the end of a day. Professionals tend to trade at the close and their willingness to load up on stocks on a Friday is a bullish sign that indicates they think the risk of an upside surprise is becoming bigger than the risk of a downside one.

Oil is behaving particularly bullish. The near term futures were up 4.4% on Friday despite the horrendous jobs reports. For months the media pundits have been telling you that oil can't go up until the economy shows signs of recovery. The New York Investing meetup has maintained this is not the case, but you should focus on the supply picture instead. Supply has been dropping and the economic news has only gotten worse. In the last few weeks, oil has rallied from the $33 a barrel range to over $48 this morning. New York Investing recommended DXO (200% long NYMEX light sweet crude) at one of its classes on the evening of Feb 17th. You could have picked it up the next day at the bottom (and some people did). The position has been profitable ever since (almost 50% at its best) despite the horrendous market sell off.

The stock indices are sitting above important support levels. The Dow has a band of support between 5600 and 6200. The S&P 500 has a band of support between 600 and 630 or so. Nasdaq has support at 1240. The Russell 2000 at 325 and 300. Even the upper end of these prices might be enough for a bottom at the moment since the market is itching to rally. At the very least you might want to start picking up some of the many bargain stocks out there when the indices fall to these levels.

NEXT: Stocks - the Good, the Bad and the Ugly

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.





Friday, March 6, 2009

U.S Unemployment Reaches 15%

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 because you don't have a job in the U.S. doesn't mean the government considers you unemployed. The monthly Jobs Report was released today and the headline number was an unemployment rate of 8.1%. This is however the rosiest possible interpretation of the U.S. employment picture. While 12.5 million people were counted as unemployed, there were an additional 2.1 million 'marginally attached' workers (also known as discouraged workers) - people who looked for a job within the the last twelve months, but not in the last four weeks. These people are not considered to be unemployed. A much larger 8.6 million workers worked part time last month and are considered fully employed even though they may have worked as little as an hour a week and wanted to work full-time. If you consider the discouraged workers and involuntary part-time workers as unemployed, the U.S. unemployment rate is actually 15.0%.

This 15% is calculated using the government's own numbers. This is more than enough reason to think things might be even worse than what the government is telling us. Every employment report since the Credit Crisis began in the fall of 2007 has had two downward revisions after the initial numbers were released and these have frequently been substantial. As an example, December 2008 jobs losses were initially reported at 524,000. That was revised to 577,000 last month and in the current Jobs Report the losses have now been updated to 681,000. An additional loss of 151,000 jobs for January and December combined showed up in today's report for February employment. You should expect that the January numbers will be revised downward again next month (the numbers are revised for two months). The 651,000 loss reported today will almost certainly be larger in the April and May reports.

Looking inside the figures you would also note that three categories have gained jobs every month since the Credit Crisis began - health care, education, and government. Most education and many health care jobs are of course government related. While it is possible that employment in health care is increasing, considering the poor fiscal condition of state, local and the national government in the U.S., it is quite incredible that more and more people are working in education and directly for the government. Where is the money coming from to pay for these workers and what are they being hired to do?

In the 1930s Great Depression, U.S. unemployment is believed to have peaked around the 25% level (approximately the same rate that was reached because of the hyperinflation in Weimar Germany in the 1920s) . This is just a rough estimate because the data gathering infrastructure that exists today, didn't exist back then. If you see the alternative unemployment numbers reach 20% or so, it would be reasonable to assume that current economic conditions are as approximately bad as they were in the 1930s.

NEXT: Stocks Look for Bottom, Oil Rallies

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.





Thursday, March 5, 2009

Quantitative Easing Today, A $50 Cup of Coffee Tomorrow

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, the Bank of England (BOE) lowered interest rates (already at 300 year lows) to 0.5% and the European Central Bank (ECB) lowered them to 1.5%. Like the U.S. Fed, both central banks are worried about deflation, which is like someone in the Amazon worrying about the next blizzard. The Bank of England even announced it was embarking on a quantitative easing program (as if this is something new) that would purchase $106 billion of commercial paper and government bonds. British gilts soared on the news (interest rates went down) and inexplicably the pound rose and then more logically fell. Why someone would buy a currency, just after the issuing government announces it's embarking on a currency debasing program is something to ponder.

Quantitative easing is the creation of money out of thin air by a central bank, followed by its injection into the country's banking system. Central banks can accomplish this by using the new money to buy government bonds in the open market, lending the money to banks, or buying assets from banks in exchange for currency. It is not the only form of new money creation, just the most extreme. Quantitative easing causes government bond rates to go down. It should also lower the value of a country's currency.

The U.S Fed has effectively been using quantitative easing since late 2007. Note that government bond interest rates have gone down substantially during this time (and the U.S. dollar had a massive sell off from the fall of 2007 until spring of 2008). Records also indicate that only 20% of U.S. treasuries are in private hands. The rest are held by the Fed, its subsidiaries and foreign central banks. The U.S. government has essentially been printing money and then buying its own bonds with this newly printed money. According to many economic experts, including noble prize winners, this is somehow not going to lead to inflation.

The thinking (or lack thereof) of central bank heads on the deflation issue was demonstrated clearly in the rate cut announcements this morning. Both the ECB and BOE are worried about inflation rates falling below 2%. Trichet the ECB head, admitted that the a sharp drop in commodity prices was the cause of this 'deflation' (although official inflation rates in the Eurozone are still above 1%) and apparently he thinks commodity prices can continue falling below the cost of production and there won't be any reduction in supply (did he take economics 101?). This argument is used by the U.S. as well, along with the 'inflation can only happen if wages are rising' line of reasoning. That argument is false as well and is based on the interpretation of the mechanism of the course of inflation in the U.S. in the 1970s. Even if this wage rate argument was true, revised figures came out this morning showing U.S. wages actually rose sharply in Q4 2008, instead of falling as had originally been 'mistakenly' reported by the government.

Ultimately, inflation comes down to whether of not the value of a country's currency is maintained and all other issues are secondary. When countries issue money faster than justified by economic growth, whether in the form of actually printing it as hyperinflationary superstar Zimbabwe has done or by using the more sophisticated tricks of the U.S Fed, the value of that country's currency declines against hard assets and consumer prices rise. Only if the money does not flow into the greater economy because it gets stuck in banking system because you have continual recession/depression, can you avoid inflation. Either way you lose.

NEXT: U.S. Unemployment reaches 15%

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.





Wednesday, March 4, 2009

Stocks Looking for a Bottom, Oil More Bullish

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 had its March meeting last night and it was marked by controversy and intense audience reaction. Even during my first talk about the history of the Credit Crisis, two people walked out and one of them demanded their money back. While this was common a year and a half ago when we were one of the first groups to discuss the Credit Crisis and people continually left the group because they could just not believe what we were saying (almost everything we discussed at that time has since come true), it is surprising that there are still some people that want to live in denial... but there are. The second talk on Hyperinflation by Jeff Glenn was the real lightening rod for controversy however. This was indeed way over the top at certain points and one audience member attempted to shout Jeff down more than once. Other members of the audience then attempted to shout the heckler down. Fortunately, a riot didn't break out.

The market is attempting a rally as I write this, but it is probably not done on the downside in this move. The minimal requirement for this is that the Nasdaq fall to its November low of 1295. In the meetup last night we went over why a low in the month of March is likely because of the extreme oversold values of the RSI on the monthly charts. This line is below 20 for the Dow and S&P500 for February and is likely to reach the same level this month that the S&P 500 did at the market bottom in 1974. Just how oversold stocks are can be seen in a few eye popping statistics:

1. January and February marked the U.S. markets' worst first two months on record.
2. Last month marked the S&P's worst February since 1933, with the index posting a 10.9% monthly loss.
3. The Dow is down 38% in the past six months, its worst six-month return since 1932, when it plunged 41% (this was around the market bottom during the Great Depression).

Don't forget that big rallies invariably follow big drops.

The economic news is about as gloomy as it can get too and everyone is waiting to see just how bad the jobs report is going to be Friday (predictions are for around a 700,000 loss in jobs). Car sales came out yesterday and General Motors' sales fell 53 percent, Ford sales fell 48 percent and Chrysler's 44 percent year over year (the major Japanese automakers fared only slightly better). If the U.S. automakers are to survive, they will do so only with the help of continual government bailouts. Housing still isn't in good shape either, with a report this morning stating that that 20% of U.S. homeowners owe more on their mortgage than their home is worth and this number will go up substantially if house prices fall just another 5% (they are likely to fall much more than that).

While stocks may not be done on the downside, it looks like oil is. So far a double bottom has been put in on the near term futures in the 33 range in December and February. Nymex oil dropped below $40 a barrel yesterday, but popped back up above this level shortly thereafter just as it has done many times in the last two months. The market has repeatedly told us that it wants oil at 40 or above and we should be listening to it. At our introductory technical analysis seminar on Tuesday, February 17th, I recommended people start picking up DXO (200% long Nymex oil). At least one person got it a the very bottom price of 1.73 and several got it around 1.75. It went to 2.50 thereafter and provided quick short term profits for a few that cashed out. Others are holding out for bigger returns, which they will likely get.

NEXT: Quantitative Easing Today, A $50 Cup of Coffee Tomorrow

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.





Tuesday, March 3, 2009

Market Tumbles While Washington Fumbles

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:

If it doesn't seem to you that anyone is in charge in Washington, you're not hallucinating. While President Obama is busy worrying about lobbyists attacking his 2010 budget proposals and Treasury Secretary Geithner still fails to realize his job has something to do with the markets, U.S. stocks are tanking. The decline in financials, Citigroup was just above penny stock status at its low of 1.15 yesterday, is sending a clear message that Washington's piecemeal plan to deal with banks is ineffective. While the actions of the Bush administration failed to prevent further erosion of the financial system, the conclusion that the Obama administration seems to have come to is that if they do even less of the same ineffective things, this will solve the problem.

The action in U.S. stocks yesterday was brutal. The Dow was down 4.4% and traded below 7000 for the first time since 1997. The new low of 6737 is still well above a band of strong support that ranges from 5600 to 6200 or so. The S&P 500 was down even more, dropping 4.7% and traded briefly at 699, also for the first time since 1997. The Nasdaq held up better the other indices, falling only 4.0% and its close of 1322 is still above its November low of 1295. The small cap Russell 2000 was hit the worst of all with a crash level 5.4% plunge. It finally broke its November low by a couple of points.

The market drop is not isolated to the U.S. and is a resounding vote of no confidence in the handling of the Credit Crisis by world leaders. The sharp sell of in the U.S. was exacerbated by the S&P 500 breaking its November low last Friday. This confirmed that the S&P made a huge double top in 2000 and 2007. The neckline low set in 2002 was actually violated last November, but the markets rallied immediately. We were not so lucky this time. The next strong support for the S&P is in the 600 to 630 range. The S&P at 600 roughly translates to Dow 5600 and Nasdaq 1100 (the low set in 2002 was 1108). This would be a strong floor of support that the market would have trouble breaking.... certainly the first time.

In the near term, a rally can take at any point from here on in. The oversold level of the market is at extremes. What will set this rally off and what day it will start won't be known until it happens. You can assume that it will only be temporary as well. The ultimate low is way off in the future.

The monthly meeting of the New York Investing meetup is tonight at 6:45PM and it will be held at PS 41, 116 West 11th Street (at 6th Ave).

NEXT: Stocks Looking for a Bottom, Oil More Bullish

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.