Tuesday, June 30, 2009

Market Behavior Next Few Days Critical

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:

Healthy markets go up in the first four trading days of the month. This is even more of a truism when the month begins a new quarter. The quarter that begins on July 1 is also the beginning of the half year. Only the first trading days of the year in January are more critical in determining market direction. This January the market was basically flat, so the investing intent of the big players was indeterminate. The first few days of April saw heavy buying in an up market, confirming the rally that began in early March. The next few trading days should provide valuable information on whether or not the big players will keep supporting the current rally. If they don't, it's in trouble.

Yesterday was an up day with the Dow closing above its 200-day moving average for the first time in two weeks. Trading volume was anemic however, coming in well below average. Moves on low volume shouldn't be trusted. In the oil space, DXO also traded and closed above its 200-day moving average for the first time in months. Volume was also anemic. In contrast the Nasdaq has held above its 200-day for quite awhile now and unlike the Dow, its 50-day is also above the 200-day creating a bull pattern. The volume patterns for Nasdaq are also fairly bullish.

What isn't bullish are the technical indicators. The Nasdaq could easily hit a new high for the current rally in the next few days. If this takes place on low volume watch out. The technicals will not be hitting new highs creating negative divergences and possibly double negative divergences (a very bearish pattern). This would be particularly problematical if the new high was on July 3rd. The trading day before July 4th is almost always an up day, even in the worst of markets. Even in 2002, the Nasdaq was up 100 points that day. The volume was almost non-existent though, since the day before July 4th usually has the second lowest trading volume of the year (only the day after Thanksgiving is lower). In 2002, the big rally on the day before July 4th was followed by one of the ugliest sell offs ever. So a big rally that day indicates little about future market direction.

If the market rallies on Wednesday and next Monday and the volume picks up to above average levels, the market is acting in a healthy manner and the big players are still bullish. If it sells off on those days, but manages to rally on Thursday, this is a bearish pattern. Any drop on Thursday should be considered mega bearish. The monthly employment report will be released this Thursday instead of Friday this month, so watch for market reaction. The next few days should be interesting to say the least.

NEXT: Oil Storage, Stocks, and States

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, June 29, 2009

Watch the Dollar Itself and Not Media Coverage

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:

Significant news came out for the U.S. dollar around the market close on Friday, a time when many traders were already gone for the weekend. China once again wants the dollar dumped as the world reserve currency and replaced with Special Drawing Rights. These would consist of a basket of currencies. While the dollar would be part of this basket, its world role would be much diminished and demand for dollars would drop significantly. Its value would subsequently follow. This is at least the fourth time in the last several months China has brought this up and they obviously are not going to let it go. So, is this important story receiving major coverage this morning? Don't hold your breath for that to happen.

The trade-weight dollar of course fell on the news Friday and DXY, the ETF that tracks it, closed at 79.88. Any close below 78.33 could potentially cause a huge sell down. The dollar has managed to barely stay above this level for weeks now. You would never know it though if you just read media headlines. One after another after another has mentioned a big dollar rally, the strong dollar, and dollar going up. What price quotes the headline writers who wrote these were looking at, I have no idea. They are obviously not the ones that the rest of us watch.

The first two articles I saw this morning were, "Crude Oil Slips, as Stronger Dollar Weighs" and "Dollar Holds Gains". The trade-weighted dollar was down when I read these articles. Crude oil was of course up, although it fell as low as 68.36 overnight. It then rose to 69.74 just before U.S. stocks opened. The media also got their reporting on the U.S. bond market wrong too this morning with "Treasuries Gain Support From China, Month-End Buying". Treasuries were down shortly thereafter. While you shouldn't trust financial media headlines in general, there seems to have been a concerted effort to report the U.S. dollar is rallying lately even though nothing in the real world supports this story. Why is the U.S. mainstream media constantly pushing this pro-government viewpoint?

The U.S. dollar will eventually fall apart, although this is not going to happen all at once. It is likely to be a long drawn out process that lasts years. There could easily be more than one sharp drop that lasts only a few weeks or even days along the way. There will also be periods of stabilization and rallies, where you will hear the crisis is over, everything is better now, no need to worry anymore. Unless major long-term fundamental policy changes (like a balanced budget, an end to excess money printing, and/or backing the dollar with some hard asset) take place, any improvement in the value of the dollar will only be short term. In those times of temporary dollar improvement, just remember the following quote from Fed Reserve Chair Ben Bernanke, “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.” Yes, there is a free lunch - at least for the Fed. Unfortunately, everyone else will all be getting the bill in form of inflation. Personally, I have no intention of paying it.

NEXT: Market Behavior Next Few Days Critical

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, June 26, 2009

More Numbers that Just Don't Add 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:

More U.S. government statistics were out today. Income is up, spending is up and savings are up - all in the midst of the worse recession since the 1930s. It must be something in the water that makes this possible. Actually, it's more likely something is up in the little known government office for the adjustment of statistics to make them look better. There was a significant rally in the markets yesterday and it also had a peculiar look to it.

The mystery of rising incomes in the midst of a severe recession is explained by one-time stimulus checks mailed out last month by the federal government. Because of these income was up 1.4% on the month. But even without them the government claims incomes was up 0.2% for the month. Yes, unemployment is soaring, workers hours are being cut, business is declining and yet people are making more money. If this is what happens in recession, think of how well America could do if there was a depression! Real disposable income (income after taxes and inflation) is supposed to have been up 1.6% last month as well. Americans aren't spending all this new found loot however, spending was only up 0.3%. The savings rate climbed to 6.9%. As recently as April 2008 it was zero. Increased savings are a sign of lack of confidence in the economy. Why, I can't imagine. Clearly as the U.S. economy gets worse, people make more money.

The Commerce Department also released the PCE deflator today. This is the number to used as the inflation rate when they calculate the GDP. The lower the number the higher the GDP figure. The core PCE came in at 0.1% for the year. So there is NO inflation (I really have to find out where these people shop). Bonds rallied on this great news and the yield on the 10-year fell to 3.51%. If it drops down to the 3.00 level its probably a great shorting opportunity.

All asset classes seemed to have rallied yesterday, which is unusual. Even more unusual the Dow, Nasdaq and SP500 all went up the same percentage. I am not sure that I have ever seen this happen before, although it must have. Volume on the Nasdaq was slightly below average. Volume on the Dow was anemic. The Dow reclaimed its 50-day average, but stopped at the 200-day. It is trading between the two today.

NEXT: Watch the Dollar Itself and Not Media Coverage

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, June 25, 2009

Fed Knows Inflation is Coming; Oil Supply Slips Again

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 Fed statement yesterday afternoon didn't fail to disappoint - unless of course you expected intelligent insight and rational thinking about the economy. The Fed said "the pace of the economic contraction is slowing". In other words the economy is still getting worse, but it is getting worse at a slower rate. It did admit that "economic activity is likely to remain weak for a time". And this is why the Fed is as confident as it always is that "inflation will remain subdued for some time". So of course, it can print all the money its wants to and unlike every other time in history when this has happened and resulted in massive inflation, this time is different. I wonder if they sit around and chuckle when they write these statements.

To be fair the Fed did not say there would be no inflation and the 'some time' they mentioned could be the next two weeks. Whatever the time period is, it won't be that long. The Fed admitted it would be purchasing up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year, plus $300 billion of Treasury securities 'by autumn'. Those treasuries will almost certainly be longer dated paper, since China and Russia are lowering their purchases of these and moving to the short-end of the curve. Foreign governments also dumped their Fannie Mae and Freddie Mac debt, which is why the Fed now has to buy this worthless paper. But don't worry, the Fed "is monitoring the size and composition of its balance sheet". So how could they not know lots of inflation is on the way?

As has been the case since the Credit Crisis began almost two years ago, the U.S. dollar rallied on the news that the government is debasing the currency. The mainstream media was out in full force with articles trying to bull the dollar up (I wonder if they get a commission for this). Early in the day, headlines screamed "Dollar Gains Ground". I checked and the trade-weighted dollar was up 0.15, a normal insignificant intraday move. Right after the Fed's press release, "Dollar Rises After Fed Statement". It was barely up at the New York market close at 4:00PM. These reliable logic defying dollar rallies around Fed announcements can only be explained by some form of government manipulation of the currency markets.

The oil storage report came out yesterday and at first I thought the EIA reprinted last weeks numbers. Oil inventories fell 3.8 million barrels, below expectations just like last week. Gasoline inventories however rose 3.9 million barrels and this was way above expectations, also just like last week. Oil supply has fallen enough in the last six weeks that the media is no longer saying there is a glut (there never was, they were just saying this). They may soon be saying this about gasoline however. Oil closed yesterday at 68.67, little changed.

NEXT: More Numbers that Just Don't Add 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.






Wednesday, June 24, 2009

Technical Damage Continues; Fed Decision Today

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:

While stocks retreated only slightly yesterday, the drop was more significant than the numbers indicated. The market needed a rally to improve the technical picture, but is so weak it couldn't go up even a few points. The Dow closed below its 50-day moving average for a second day in a row and below its 200-day for the seventh day. The Russell 2000 instead of bouncing off of its 200-day moving average sank below this key support level. It broke support at its 50-day on Monday. The Nasdaq is the only index that still has an adequately healthy technical picture.

Despite press reports yesterday about the U.S. dollar rally and the potential negative consequences for gold, silver, and oil, the trade-weighted dollar dropped yesterday and closed at 79.89. This is not too far above its breakdown level of 78.33. A drop below that could send the dollar to around 72 pretty quickly. The much vaunted dollar rally that the press has been trumpeting was at its peak so far a 'huge' 3.6 cents off the bottom (you'll need to put your glasses on to see it). Examination of the DXY (the trade-weighted dollar ETF) chart, shows the 50-day moving average fell below the 200-day moving average in early June - a bearish sell signal. This negative news hasn't appeared in any articles I've seen about the dollar. When push comes to shove, the mainstream financial media doesn't like reality to interfere with the story it wants to tell the public. You need to keep that in mind.

While stocks and the dollar fell, light sweet crude rose yesterday and closed at 69.24. It is back below 69 this morning. The weekly storage report will be out today at 10:30AM New York time. Expect it to set the direction of oil prices for the next couple of days. Oil has suffered in the recent sell off, but isn't showing the technical damage of the stock indices. The exception is the drillers, which have really been devastated. Unless you think there won't be a need to drill for oil in the future, you should assume these are getting to major bargain prices.

The Federal Reserve has a two-day meeting this week and will be releasing an announcement around 2:30PM New York time. There is zero chance they will be tightening interest rates, although Bernanke made noises a few weeks ago about doing so this fall and draining liquidity from the international financial system was a major item of discussion at the recent G8 meeting. You would be justified in wondering what these people were smoking. It must have been some very powerful hallucinogen if they are seeing a sustainable economic recovery without continued government stimulus. The Fed's announcement today though could move the market one way or the other regardless of whether or not it makes any sense.

NEXT: Fed Knows Inflation is Coming; Oil Supply Slips Again

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, June 23, 2009

Stock Market Turns 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:

This blog advised getting out of the market early last week. Those who sold were quite happy they did yesterday. The main U.S. indices were down between 2.4% and 3.9%. Europe and Asia got hit as well, but were down somewhat less than the U.S. The media is sighting a World Bank report forecasting that the global economy would shrink 2.9% this year instead of the 1.7% they had previously predicted (who woke them up?). The markets were technically weak and were set up for a fall no matter what happened though.

The Dow, although the weakest of the U.S indices, had the smallest drop of 2.4%. The Dow had closed below its 200-day moving average all five days last week and then demonstrated further weakness by closing below its 50-day moving average yesterday. The 50-day is below the 200-day in a typical bear market pattern. The Nasdaq on the other hand has the 50-day above the 200-day in a typical bull market pattern and is the strongest of the major indices by far. It dropped 3.3% yesterday, but closed above its 50-day and 200-day, still a healthy picture in contrast to the sickly looking Dow.

The S&P 500 and the small cap Russell 2000 have a different picture altogether. Both have the 50-day close to the 200-day and are trying to change from a bear market to bull market pattern. The 50-day crossing the 200-day from below is usually considered a buy signal, but it is not working out in this case because the technical indicators are turning down. The 50-day had already slightly crossed the 200-day for the Russell 2000 and they are touching each other for the S&P. The Russell had the biggest drop yesterday, falling 3.9%. It closed below the 50-day and right on its 200-day. The S&P dropped 3.1% and closed just below the strong support offered by the joined 50-day, 200-day. Breaking strong support is never a good sign technically.

One of the worst hit groups yesterday was oil drillers. Take a look at PDS, often mentioned in this blog. The triple leveraged ETF for oil companies, ERX also had a large drop yesterday after already selling down for the previous seven days. Light sweet crude closed at 67.50 yesterday, but was as low as 66.37 in Asian trading last night. I am looking for oil to hit support in the 58-62 range. Oil companies started selling off before oil did and in all likelihood they will be rallying before oil hits bottom.

I will be briefly discussing the current state of the market at the Fundamental Class tonight. See our webite for details.

NEXT: Technical Damage Continues; Fed Decision Today

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, June 22, 2009

The Simple Arithmetic of Hyperinflation

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 inflation figures were out last week. According to official statistics, about as reliable as a pronouncement from Pinocchio, CPI fell 1.3% year over year. This was the biggest drop in 59 years. Core CPI was up 1.8% year over year, so no drop there. Core doesn't include energy and food prices, so the fall in oil prices from last year doesn't fully show up in it. The PPI figures had an even bigger annual drop. Mainstream news articles were filled with remarks about how great it is that the Federal Reserve has lowered interest rates to zero and flooded the economy with money to save us from deflation. I have no doubt that they will be very successful in this endeavor.

While there are still a lot of deflationists out there, I think even they could all agree that if a government has so much debt that its tax receipts could only cover interest payments on that debt, massive inflation would necessarily follow. This would happen because the government would need to constantly print a lot of new money to cover its regular expenses. Few outside sources would be willing to lend to that government. While this is an obvious worst case scenario, the inevitably of hyperinflation takes place somewhat before this situation is reached. Finding that exact inflection point depends on a lot of complicated mathematics involving a large number of factors and is subject to significant interpretation. For that reason, it is not possible to say that the U.S. has already reached it.

Examining the national budget figures for 2009, there is now $3.9 trillion in projected spending. Government receipts (mostly taxes) look like they will come in at $2.1 trillion. Only 53% of expenditures are covered. It is the decreasing coverage of government expenditures by tax receipts that led to the hyperinflation in Weimar Germany. The government had to print more and more money to keep itself running. Five years before their hyperinflation peaked, only 69% of the national budget was covered by taxes (yes, 16% more than is currently the case in the U.S.). Falling below 50% coverage seemed to have been the point of no return for the Weimar government.

What about interest payments on the national debt? In 2008, they were only $412 billion. This was during a time of multi-decade low interest rates that were close to zero for short term bills. Interest rates can't go any lower, but have a lot of room to go up. Everything else being equal, if we went back to the interest rates at the end of the 1970s, interest payments on the current debt would use up all tax receipts. Everything else will not be equal however. Every year the national debt is going to increase substantially and the interest rate needed to use up all tax receipts becomes lower and lower with time. Tax receipts need to rise enough to compensate for that. However, this would indicate a rapidly growing economy, that could easily raise interest rates more than enough to overwhelm the benefits of more taxes.

How can the U.S. government deal with this situation other than cutting the budget drastically (don't hold your breath for that one)? Since it is increasing the supply of government debt rapidly, it needs to increase demand even faster for its bonds. But foreign lenders are backing off. So the only solution is to print even more money, so it can buy even more of its own debt. Now that's going to help keep inflation under control!

NEXT: Stock Market Turns 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, June 19, 2009

Quadruple Witching Today; Fraud 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.

Our Video Related to this Blog:

Today is quadruple witching, the once every quarter event when equity options, index options, single stock futures and index futures expire. The market will tend to move either up or down to minimize the value of the expiring options. Reversals to undo those moves frequently take place early the next week. After four days of closing below its 200-day moving average, the Dow jumped above this resistance line this morning and it needs to close there today and stay above it next week for the market to be healthy. The US dollar is steady at 80.46 this morning, gold, silver and oil are up slightly.

The big news today is that Texas billionaire Allen Stanford had been indicted and arrested. Stanford is accused of running an $8 billion Ponzi scheme. The SEC first received complaints against Stanford in 2001. The ever on the ball SEC only took four years to launch an investigation. After 'only' four years after the investigation began in 2005, the SEC filed civil fraud charges against Stanford four months ago. It is rumored that Stanford has connections to the CIA.

While Stanford was being indicted, uber fraudster Bernie Madoff settled civil fraud charges with the SEC in his $65 billion Ponzi scheme (something the SEC supposedly failed to notice for a few decades). Even though Madoff has admitted guilt in criminal proceedings, the SEC allowed him to settle its charges against without admitting any wrongdoing! Legal experts were reported as being 'dumbfounded' by this move. Indeed it doesn't make any sense unless the SEC is trying to protect itself and its own involvement in the Madoff scam. Madoff sat on SEC committees. He will be sentenced on June 29th.

If the SEC doesn't find major frauds that can damage the entire financial system, what does it do? It spends its time catching dentists in New Jersey who get tips from their clients and buy a few thousand dollars in options. These small one time transgressions are essentially irrelevant, but make great publicity. The massive ongoing crimes are ignored. It also looks like the SEC may be participating in the criminal activities that it's supposed to be stopping. If it was closed down tomorrow, would investors be any less safe?

NEXT: The Simple Arithmetic of Hyperinflation

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, 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.

Our Video Related to this Blog:

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):
http://www.bloomberg.com/apps/news?pid=20601039&sid=a62_boqkurbI
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
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, June 17, 2009

Best to Step Aside and Watch the Market

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:

While the market drop yesterday didn't seem like anything out of the ordinary, the technicals were more damaged than the price drop indicated. Another down day today will give the market indices an even more negative tinge. The Dow (the weakest of the indices) fell and closed below its 200-day moving average yesterday and the S&P 500 and Russell 2000 are testing that line today. A close below their 200s at any point in the next few days would add even more negativity to the story that the technical indicators are telling. Oil also looks like it could have a strong pull back soon as well. Gold and silver have already begun a correction after hitting strong resistance. The U.S. dollar is trying to rally (with lots of help from the powers that be) and bonds are rallying as well.

It is interesting to note that when the dollar started to rally, almost all other asset classes sold off. My interpretation of this is that the rallies we have been seeing are dependent on the Fed and Treasury's massive liquidity injections into the financial system. Any threat to diminish those will damage stocks, precious metals, and oil - at least in the short term. It will help bonds and the dollar. The 10-year was trading at 3.65% this morning, well off from last weeks high of 4.00% (when bond prices go up, interest rates go down) and the trade-weighted dollar was at 80.84. The Fed independently, and then with central bankers from other countries, has made noises in the last week or two about withdrawing liquidity from the system. The markets are reacting, or perhaps more accurately, foolishly overreacting to this. There is no chance of this happening for a long, long time even though one Wall Street economist stated today the recession was over - and she meant the recession on the planet earth!

The EIA oil storage report came out this morning and the picture was mixed. Oil in storage dropped by 3.9 million barrels, but gasoline increased by a whopping 3.4 million barrels. Gasoline is the prime use for oil in the summer months and at least in the short term there is too much of it around. Light sweet crude had already traded as low as 69.28 a barrel early in the morning. I am still interested in owning oil, but not until it falls to around 60 or so (the charts will indicate where). There should be another rally into the summer after that. As for natural gas, it still looks like a good buy whenever it drops. This may or may not happen after its weekly storage report tomorrow, which comes out at 10:30AM New York time.

Trading is all about playing the probabilities. Stocks or commodities that have gone up for a long time and are close to major resistance points usually do not have a high probability of making you a lot more money. The change of falling prices become much higher than the chance of rising prices. At points like these, you should get out. More aggressive traders might want to even take on some short positions when this happens. ETFs are the best vehicle for doing this. Shorting individual stocks is much riskier and not for the inexperienced.

NEXT: Building a BRIC House; Nat Gas and Market Update

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, June 16, 2009

Market Rally at Key Juncture; Russians at it Again

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 is getting tired in here. Whether or not it can have one last gasp at this point will probably be decided today. The technical picture on the S&P 500 will turn decidedly negative if there is any significant sell off today. Conversely, a significant rally can turn it positive. Close to unchanged and we have to wait until tomorrow. I haven't been waiting to sell however and started doing so toward the end of last week. Most of my positions in DXO, ERX, and HWD are gone. My major energy position in now in UNG, which I plan on continuing to accumulate on major drops (this may no longer be at prices under 14, which may be a thing of the past for the moment). For those not paying attention, I sold AA long ago. I did pick up some NG and GDX yesterday however.

Like the market, oil is having trouble rallying at this point. Light sweet crude closed at 70.62, but was back above 72 again this morning. The weekly storage report comes out tomorrow and this will determine whether oil can make a run to 77 or have to fall back well into the 60s first. I will be a buyer again if it reaches the lower 60s.

The trade-weighted dollar was falling again today, but has managed to stay above 80. It once again moved on comments coming out of Russia. Last week they were selling their U.S. dollar holdings , the dollar sold off sharply. This weekend, they weren't selling their U.S. dollar holdings, the dollar had a big rally. Today, they are doing both. At a Russian/Chinese summit, the Russian president stated, "We must strengthen the international financial system not only by making the dollar strong, but also by creating other reserve currencies". Creating other reserve currencies would of course weaken the dollar considerably. Russia also wants to diversify its currency reserves by buying Chinese yuan, Brazilian reals and Indian rupees. Now I wonder what currency it would be selling so it could buy them?

Gold and silver had sell offs because of the dollar rally yesterday. Since this rally was based on fantasy, I am not currently taking it too seriously. How long the dollar can stay above its 78.33 breakdown point is anybody's guess, but it will get there evntually. The central banks that are major dollar holders are all probably trying to dump their dollars as discretely as possible at the moment. Don't expect them to advertise this on a big neon sign, even though Russia essentially did this last week. The reserve currency status of the dollar will also definitely be coming to an end sometime in the next several years as well. Few things are more certain.

NEXT: Best to Step Aside and Watch the Market

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, June 15, 2009

G8 Hot Air Inflates Dollar

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 G8 finance ministers met in Tokyo this weekend. Media headlines were blaring, 'Dollar Rises as G8 Looks to End Stimulus'. As usual media headlines have little to do with what actually happened. The ministers discussed a need to prepare strategies for winding down policy measures taken in response to the economic crisis. Note that it's just talk and the talk is about coming up with strategies (they don't exist yet). There is no 'doing' involved here, nor did the G8 come up with a timetable for implementing the strategies once they are created. It's not even clear that they have a timetable for coming up with the strategies. Not only is stimulus not being ended, but there is more than enough reason to believe it will be increased. The IMF managing director commenting on the meeting stated bluntly that the worst is not over yet.

The real goal of this meeting was to jawbone the U.S. dollar up. As reported in this blog the trade-weighted dollar has been hoovering around a breakdown level of 78.33. So far this morning it has been as high a s 80.89 in pre-market trading. At the meeting, the Russian finance minister backtracked on Russia's statement last week that it was cutting its U.S. bond holdings. He stated at the meeting that over the next year or more (the media did not quote this time period, but somehow gathered it from context) he "does not see any significant changes in our policy with regards to dollar denominated paper". He also said he didn't see the dollar losing its reserve currency status in the near future. The media did not report if the pained look on his face was the result of having both arms twisted behind his back.

The effect of the G8 comments was to sink Asian and European stocks markets. Most were down around 2%. Dollar denominated assets such as commodities were hit the hardest. Oil fell to around 70, but then went back up above 71. All this on the hint that maybe sort of kinda perhaps something will done at some unstated point in the future. In past major inflations, governments have always tried to tone down the money printing, but are forced to quickly reverse course because there is an immediate negative reaction when they do so. Looks like we're already falling into this pattern.

In a side note on 'money printing' is a bizarre story coming out of Italy that the U.S. media is ignoring. Italian authorities have seized $135 billion in U.S. treasury bonds from two individuals entering the country from Switzerland and carrying Japanese passports. Among the cache were 249 bonds with $500 million denominations. While this may seem absurd, the U.S. treasury did indeed issue bonds with $500 million denominations between 1955 and 1969. Even more amazing the authorities couldn't tell immediately whether or not the bonds were counterfeit! While it seems likely the bonds are phony, why would anyone bother counterfeiting bonds with denominations so high that only a central bank could buy them? This would also be the biggest counterfeiting operation in history. Whatever is going on, there is definitely more to this story.

NEXT: Market Rally at Key Juncture; Russians at it Again

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, June 12, 2009

Gold, Oil, Dollar 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.

Our Video Related to this Blog:

Gold and silver had sharp sell offs this morning, while the dollar rallied. If you believe the press reports (and in general, you shouldn't), gold and silver sold off because the dollar was rallying. The dollar was supposedly rallying because of bad figures on Eurozone industrial production. Are they likely to be worse than the U.S. production figures after GM's bankruptcy (production is being closed down during the summer)? Probably not. If you look, you will see despite the screaming headlines the dollar was not up that much. As of now, the trade-weighted dollar is trading at 80.07, up from yesterday's close of 79.36. The breakdown point is 78.33.

The drop in gold and silver is more than overdone. Gold closed strongly yesterday at $962. Optimism for the U.S. dollar is also being fueled because the treasury auction went well this week and there was supposedly heavy demand for long-term U.S. treasuries from foreign buyers (I had difficulty not laughing as I wrote that last statement). What outrageous claims will the government make next? For those not paying attention, interest rates on the 10-year bond hit 4% yesterday, double the low of 2%. Not exactly and indication that these bonds are experiencing increasing demand relative to supply (interest rates would be falling if this was true, looks to me like they doubled).

Oil was over 73 yesterday and I began taking some profits in ERX and to a lesser extent DXO. The oil rally has been going on four months now and seems to be losing steam as we approach major resistance around 77. Stocks are likely to get into trouble when the S&P gets to 1000. Resistance is very strong at that point. When you have large profits, its always a good idea to take some money off the table.

For those who don't want to hold U.S. dollars, there are a lot more options in ETFs than there used to be. While we have mentioned FXA and FXC (the Australian and Canadian dollar ETFs) previously, you can now buy New Zealand (BNZ) dollars as well. You can even buy emerging market currencies such as the Brazilian Real (BZF). For a more complex trade, you can consider DBV. This ETF is double long the three G20 currencies with the highest interest rate and simultaneously short the three currencies with the lowest interest rate.

NEXT: G8 Hot Air Inflates Dollar

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, June 11, 2009

Disaster Stalks the Dollar

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.


Gold and silver were down this morning, while the U.S. dollar was attempting a recovery. The trade-weighted dollar fell back below 80 though and the precious metals started to recover. It must be requiring superhuman efforts on the part of the central banks to prevent a major drop of the currency at this point after the body blow struck by the Russians yesterday. The natural gas storage report was mildly bullish today. Oil trade remains listless although light sweet crude was above 72 earlier today.

As usual, the mainstream media is not informing the public about a major financial story that it needs to know about. Russia is the third biggest purchaser of U.S. treasuries. Yesterday it said it is reducing its holdings by not buying new bonds when the current ones expired. Put this together with China altering its holdings of U.S. treasuries from long term to short term bonds and this spells major trouble for the U.S. When our budget deficits were hoovering around $400 billion a year, we managed through great efforts to get foreign governments to lend us enough to support our proliferate spending. This year's budget deficit will be around $1800 billion. It is estimated that only 53% of U.S. federal government expenditures will be covered by taxes (when this number fell to 69% in Weimar Germany, hyperinflation devastated the country only 5 years later - the U.S. in is much worse shape currently). To cover our budget deficit, we need to borrow or print money to make up the difference. Just as our borrowing needs are skyrocketing, foreign lending sources are drying up. It is inevitable that U.S. money printing will be ratcheting up soon.

The Russian story is even more significant however. All the foreign bond holders know there is a lot of inflation on the horizon, but most haven't acted yet. The situation is analogous to a crowded theatre where everyone smells smoke, but is ignoring it because they are busy watching the play. Suddenly someone jumps up out of their seat, runs toward the exit and shouts fire once they get there. Is everyone else going to just remain in their seats or will there be a stampede to the exits? This is the danger the dollar is now facing.

Oil is drifting up today and natural gas is doing well. The natural gas storage report was mildly bullish with expectations for an increase of 108.5 BCFs and the actual increase coming in at 106 BCFs. Oil is getting closer to its Fibonacci retracement around 77. A spike up to or above the level would be a good sell signal.

Our Video Related to this Blog:

NEXT: Gold, Oil, Dollar and Market Update

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, June 10, 2009

Oil Gases Up; Bear Bites Dollar

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.

Week after week after week this spring the media reported a glut in U.S. oil supply. This blog and the New York Investing meetup had to debunk this view of the state of the energy markets more than once. The supply report today once again confirms that the only glut that existed was in the imagination of reporters working for the big media outlets. Storage was way below expectations across the board for oil, gasoline and distillates. This has yet to happen in natural gas, but the market is in super contango just as the oil was in January and early February of this year. Indirectly bullish for oil and natural gas going forward was Russia's announcement today that it is reducing its U.S. Treasury holdings.

Expectations for the EIA's storage report was for a drop of 500,000 barrels of oil and an increase of 750,000 barrels of gasoline and 1.5 million barrels of distillates. Instead, oil in storage fell by 4.4 million barrels, gasoline fell by 1.6 million barrels and distillates fell by 300,000 barrels. This is the third oil report in the last four weeks that indicated a large drop in storage. The oil markets barely moved on this incredibly bullish report, although light sweet crude has been trading today around 71, above the key resistance point of 70.80.

Unlike oil, which has been rallying since mid-February, natural gas has been in the doldrums and is the worst performing commodity this year. This may be changing soon. Natural gas futures are in super contango - the distance future contract are priced well above the near term contract. The July contract is currently priced around $3.80, but the December contract is priced above $6 or more than 60% higher. Oil had the same behavior just before it bottomed and then went up for four straight months. Pay attention to this.

Although it is not getting much play so far, the most important news to come out this morning is that Russia plans to reduce its U.S. Treasury holdings. Along with China, Japan, and the Gulf Oil States, Russia is one the 4 biggest foreign holders of U.S debt. Russia says that it is not selling its U.S. bonds, but will just not replace them when they mature (you should read this as: Russia refuses to buy any more worthless U.S. debt and help us fund our deficit, so we are going to have to print even more money than we were planning). While this may sound like a minor change, it could devastating for the U.S. Dollar. Once one of the major debt holders starts bailing, there could be a stampede for the exits. Did the dollar nosedive on the news? Of course not, it actually went up afterwards. We will have to see just how long central bank intervention can forestall the market's gravitational effects.

Our Video Related to this Blog:

NEXT: Disaster Stalks the Dollar

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, June 9, 2009

Dollar and Gold, Power Struggle Continues

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. dollar turned around overnight and is now testing the 80.00 level. Gold rebounded to 960 and silver to 15.30. Oil is back in the mid 69's. Media reports are stating that traders are questioning whether the dollar rise in the last few days was justified. Considering that there is no fundamental reason for it, for once the media might be right (don't get too excited, it's just a random coincidence). While fundamentals don't explain the recent action in the dollar, gold, silver and oil, technicals do. Gold, silver, and oil all hit important resistance levels. At the same time, the U.S. dollar hit an important support point. A reversal should be expected when these things happen.

The key question is how far will the counter moves go and for how long. At this point, it is not possible to say. It could be anywhere from a few days to several weeks. The price move may be minimal or to any of the Fibonacci retracements of the most recent rally for gold and silver or for the recent sell off of the trade-weighted dollar. Oil is somewhat different story and is trying to still wrap up its rally from 33 by going to the 75-78 range. It needs to break above 70.80 first. Once it does, the mid-70's should be inevitable.

It is amazing the dollar can't rally today again such extremely weak currencies as the pound. Not only do the British have a worse sub-prime crisis than the U.S and are engaging in quantitative easing as well, but prime minister Brown is in danger of being ousted from his post (on second thought, that may be one for the pound). Yet, the market is selling off the dollar against the pound. The Euro is rallying as well, even though Standards and Poor's recently downgraded Ireland's credit rating and German industrial production came in below expectations last night. As bad as things are in Britain and the Eurozone, the market is saying they are worse in the U.S. (personally, I think the market may be on to something).

We will know that gold and silver have won the game when the trade-weighted dollar falls below 78.33. Gold should break above 1000 right around that point and silver above 16. Expect the Fed and world's central bankers to keep weighing in on behalf of the dollar though. There is a G8 meeting this weekend and this will be the perfect opportunity for more pro-dollar PR cheerleading efforts. We will have to see if they can outdo Bernanke's threat or raising interest rates by the fall. If they do, they will likely be laughed off the world stage.

NEXT: Oil Gasses Up; Bear Bites Dollar

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, June 8, 2009

The U.S. Dollar, Gold and Oil

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 trade-weighted dollar was rallying this morning when European trading opened and gold, silver and oil fell in tandem. Actually it would be more accurate to say that two of its major components the Euro and British Pound were selling off (the Canadian Dollar and Yen were up slightly) after the European Parliament election over the weekend. The British Labour Party received only 15% of the vote and Gordon Brown is now in even greater danger of being ousted from his leadership (or lack thereof) position. Across the pond in Canada a significant quantity of gold, silver and other precious metals is unaccounted for at the Royal Canadian Mint. In the energy markets, the struggle between oil bulls and bears continues to heat up.

The dollar's rise is off of a key support level at 78.33. If you look at a chart of the dollar, you see a very clear head and shoulders topping pattern. The neckline is at 79. Once the dollar reached this level, news reports that would help it reverse its downward momentum started gushing forth from the press. Most can be traced directly to the U.S. Treasury Department and the Federal Reserve. The Fed even intimated that it would start raising interest rates in the fall based on a projection of economic recovery starting then. While there is somewhat less than a zero chance of an increase in Fed Fund rates that soon, the dollar nevertheless rallied on the news.

The Canadian Mint story is something that has received scant if any attention in the U.S. press. Unlike Fort Knox, where the U.S. keeps its gold supply, the Canadian Mint is audited regularly. It has been at least 55 years since Fort Knox has been audited. There have been only a handful of reported thefts by employees at the Mint in the last 25 or so years. Most revealing is the case of a worker that supposedly stole only 85 ounces of gold in 1996. A charge of theft against the man was dropped for unexplained reasons and the mint was spared the humiliation of a trial that would have explained how the man snuck the gold past metal detectors, surveillance cameras and electronic sensors. Perhaps similar things don't happen at Fort Knox, it's not possible to say. It is much more likely that there is less gold there than reported because the U.S. government has sold off more of its gold than it publicly admits. Without an audit, we will never know.

Light sweet crude was as high as 70.32 at the end of last week and closed at 68.44 on Friday. It was at 67.59 in mid-day European trading this morning. The price dropped sharply mid-week, but it strongly rebounded on a Goldman Sachs report that oil would rally to 85 by the end of the year (somehow I suspect that Goldman has a big long oil position). I read this as Goldman will be selling its oil at the Fibonacci retracement around 77. It needs to set a somewhat higher target to be able to get out at that price. Smart traders will follow Goldman's lead and close out their long positions around that price as well.

NEXT: Dollar and Gold, Power Struggle Continues

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, June 5, 2009

Monthly Employment Report and the Market's Reaction

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 monthly Employment Report was released this morning and according to the U.S. government payrolls dropped by 345,000. While this number would have been considered highly negative before the recession began, it was the lowest since last September and this was the fourth decrease in as many months. While job losses were less than expected, the headline unemployment rate came in above expectations at 9.4%. It was up from 8.9% last month. A more realistic number, which takes into account discouraged workers, indicates that the unemployment rate was actually 16.4%.

While you should look at U.S. government employment statistics with a jaundiced eye, the current report does seem to indicate that a sea change has taken place. For the first time since the Credit Crisis began, job losses for the previous two months were revised downward instead of upward. The March numbers originally came in at 699,000, but are now 652,000 and April was 539,000 and is now 504,000. It looks like job losses peaked in January at 741,000. This was the most since 1949. This was also the first report in a long time where government jobs didn't supposedly increase. According to the report, education, health care, and leisure and hospitality added jobs in May.

U.S. stock futures immediately went up after the report was released and bonds fell with interest rates on the 10-year rising 18 basis points (a basis point is a hundredth of a percent). Oil shot above 70, getting at least as high as 70.32, but then lost its gains (70 is an important resistance point). The U.S. dollar went down and so did gold and silver (they should have moved in opposite directions).

At this point it looks like the worse declines of the recession, already the longest in post war history, are over. This doesn't mean that the recession is over, just that things are getting worse at a slower rate. When the jobs numbers start to actually show increases in employment month after month, that is how you will know the recession has finally ended - and that looks like it is still many months away.

NEXT: The U.S. Dollar, Gold, and Oil

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, June 4, 2009

Dollar Saga Continues; Commodities Take a Hit

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 sell off in the market yesterday was concentrated in commodities with sharp moves down in anything related to them. Most commodities, particularly those related to oil were at important overbought levels and needed to come down to take some pressure off before they could go to higher highs. A week or even two weeks of selling was compressed into a single day. While this is frightening to look at when it is happening, it is the slow gradual declines that are far more dangerous. Sharp declines create gaps that usually have to be filled and hit support levels very quickly so buyers are encouraged to come right back in. So far many commodity stocks simply sold back to their 10-day moving averages - normal behavior in an uptrend.

The stocks of commodity producers were far more damaged that the commodities themselves. Light sweet crude, which closed at 68.45 earlier in the week, closed at 66.12 yesterday. It's intraday low was 64.95. This drop is hardly remarkable after a six day major move up. In mid-morning European trading NYMEX oil was back up to 68.17 and you would never have known anything had happened if you had been away for the day on Wednesday. Oil started selling down again when the American market opened, so we will have to see what happens.

Gold fell as low as 960, but rebounded to 975 in Euro trading. Silver fell almost to 15.00, but was as high as 15.50. Gold is hoovering under the key 1000 level and silver is trying to break its resistance at 16. Silver was as high as 16.20 in overnight trading on Tuesday. Like oil, the precious complex was selling down on the trade-weighted dollar bouncing off major support at 78.33. The dollar was 79.90 in early trading this morning. The monetary authorities seemed to be pulling out all stops to save it from falling into the abyss. It remains to be seen how long they can be successful.

Bernanke was out with commentary on the economy yesterday. The news media headlined his remarks as "Bernanke Sees No Inflation in the Near Term" (what a convenient headline when the dollar is about to breakdown because of inflation concerns - must be coincidence). For those who don't remember, Bernanke also said in June 2007 that subprime mortgages weren't a risk to the financial system. One month later the subprime crisis blew up. While Bernanke may not be worried about inflation showing up in the next few weeks, his remarks were far more pessimistic than the headlines indicated. He did acknowledge that if the U.S. doesn't get its budget deficits under control there could be significant problems in the future. Of course, Bernanke could just stop engaging in easy money policies that help support the government's spending addiction. This won't happen because Bernanke would first have to face that he was co-dependent serial inflator. Maybe the world's central bankers should form a 12-step support group?

The June meeting of the New York Investing meetup will be held tonight June 4th, 6:45PM at PS 41, 116 West 11th Street. See the website (below my name) for details.

NEXT: Monthly Employment Report and the Market's Reaction

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, June 3, 2009

Market at a Key Juncture

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 Dow finally pierced and closed above its 200-day moving average yesterday, the last of the major indices to do so. This could be a possible end to the rally that began in early March, but we don't know for sure yet. The trade-weighted U.S. dollar hit major long-term support overnight and has so far managed to bounce off of it. Gold reached as high as 990, once again bumping up against its major resistance at a 1000. Oil has traded well above 68 and is close to important resistance at 70. At least a short term reversal of trends is possible for all of these markets. It will take awhile though to determine if this will turn into something bigger.

In many ways the dollar is key to all the other markets. The trade-weighted dollar fell as low as 78.40 last night and made a double bottom on the short term charts. Major support is at 78.33, which was the low point of a large reverse head and shoulder bottom pattern made between 1991 and 1993. This support was broken in 2007 and the dollar then fell to around the 72 area. The dollar traded as low as 79 at the end of last year before recovering. What saved the dollar from the precipice last night was 'unnamed sources' telling Reuters that "a downgrade in the U.S. sovereign credit rating would not discourage Asian central banks from buying U.S. treasuries." Now I wonder who could have planted that story at such a convenient time? You should also be wondering are these Asian central bankers really that dumb or should they be suing Reuters for libel?

The short term key to whether or not stocks can hold their gains and go higher is whether or not the Nasdaq can hold above its 200-day moving average. Nasdaq was the first to break through this key resistance and has been leading the market up since the bottom. The Dow is the market laggard, although its position might improve in a few days when major losers GM and Citigroup are removed from the index and replaced by Cisco and Travelers. The Nasdaq 200 line is currently at 1684 and still falling. Nasdaq is holding above 1800 this morning.

At this point, whether or not gold can finally make the break above the magic 1000 level will be determined by how the dollar holds up. If the dollar breaks below 78, gold will be breaking above a 1000 and will rally until the dollar fall is broken. Expect major government manipulation behind the scenes to try to prevent this scenario. If they fail here, they will try for a reversal lower down. A weak dollar will also boost oil to higher levels, although a good hurricane could do the same.

NEXT: Dollar Sage Continues; Commodities Take a Hit

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, June 2, 2009

So Far This Doesn't Look Like a Top

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 S&P 500 broke through its 200-day moving average yesterday following the Nasdaq's successful breakout last week. The Dow only managed to pierce this line and then it bounced down. If all the averages can break through and hold above the 200, this rally will continue to have legs. The next key test will be if the 50-day moving averages can cross the 200 days. This is the classical confirmation that a bull market has begun. This is at least a couple of weeks off. A failed cross of the 50-day is not out of the question, so we will have to wait and see. Oil continued its impressive rally yesterday, rising for the 6th day in the row. Rallies like the one we are currently seeing should make you start to think of selling if you got in at the bottom. It all depends on the technical picture of course and your investing time horizon.

I sold Nova Gold (NG) this morning because it had gone up too far, too fast. The price was way above the 10-day moving average (use 20% above as a rule of thumb for overextension) and the RSI had gone above 80 on the daily charts and had stayed at the level for several days (this is mega-bullish blow off behavior and is not sustainable). On the other hand, Harry Winston (HWD) just broke and closed above its 200-day moving average yesterday, which indicates a likely continuation of its bullish pattern. It is not overextended from its 10-day, so I am willing to keep it for the moment.

Many oil stocks are getting overdone however. The rally which has taken place since the beginning of last week has taken oil up quite a bit in a short period of time. At this point, it looks like the resistance around 70 could cause a temporary sell off before a further rise to the 75-78 area. I might be taking some profits today or Wednesday morning with the intention of buying back lower. For investors who can't pay attention to the market closely, it is best to leave well enough alone until oil gets into the mid 70s. Even then, I think higher highs will be in store for oil during the summer.

One thing I have been accumulating is Natural Gas (UNG). Gas can rally into the October/ November time frame and there is potentially a lot of profit to be made there, since it is barely off of its bottom. I have held onto all of my silver, which is around its resistance of 16 today. Gold is pushing for the key 1000 level. I have no intention of selling any of it until the breakout and move up to around 1200 level. Watch the trade-weighted dollar. It is in the high 78's right now and a breakdown below 78 will be bullish for all commodities and will definitely set off the gold rally.

NEXT: Market at Key Juncture

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, June 1, 2009

GM Bankruptcy End of an Era; Oil Rally Continues

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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GM will declare bankruptcy this morning, striking a major blow to the prestige of American manufacturing. This is one more step, and a major one at that, in the end of the economic dominance of the U.S. In the future, historians will look back and cite this as a key event that represented a turning point and a significant failure in U.S. policy. GM is the largest industrial bankruptcy in American history. The new 'improved' GM that emerges from bankruptcy will be a socialized company with the federal government owning 60%. The government will be paying for its stake with $30 billion of newly printed money under the TARP program.

GM's bankruptcy is not an isolated event, but will be taking down a host of associated companies and this will have ripple effects throughout the economy. Two parts suppliers already filed for bankruptcy on Friday. The first major dealership, Chevrolet-Saturn, of Harlem, declared bankruptcy this morning, expect many more to follow. The problems are not limited to the U.S. either. There are apparently over 100 Japanese companies that have significant exposure to GM. There could be quite a few in other countries as well (I am sure they will all be delighted to do business with U.S. manufacturing firms in the future). The company will cut 21,000 employees or 34% of its work force during a time of rapidly rising unemployment, reduce dealerships by 2600 and close 11 manufacturing facilities.

Markets in Asia last night and Europe this morning were rallying. U.S. stock futures are up a the moment in the pre-market. Oil broke over $68 a barrel last night, breaking through resistance at 67. It was recently trading at 67.69 in mid-morning European trading. Once oil can hold above 67, the next stop is chart resistance at 70, which was the top during hurricane Katrina. Gold was as high as 988 and silver was in the 15.80s pre-market, both close to major breakout points. Silver is overextended on the technicals however, so it should have trouble getting to and staying above 16 at the moment. The trade-weighted U.S. dollar was priced at 78.79 this morning and is in danger of a major breakdown. There should be at attempt on the part of the authorities to try to save it, which might work for awhile and cause a temporary pause in the rise of gold and silver. It will be interesting to see how this plays out.

Markets which are bullish tend to go up the first few trading days of the month (and down when they are they are bearish). While oil, gold and silver look like they are in good shape, so do stocks for the moment. Nasdaq traded convincingly above its 200-day moving average four days last week (as this blog predicted it would). The Dow and S&P are both about to hit this line though and this will lead to stickiness at the very least. A failure of the stock rally is possible at this point, but that is by no means definite. The next week or two will be a key period for all markets which should tell us a lot.

NEXT: So Far This Doesn't Look Like a Top

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.