Does Money Printing Cause Deflation or 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.

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There were $18 billion in U.S. Treasuries available for sale today and the Fed bought $7 billion of them. Increasing government debt is in and of itself inflationary. Buying that debt with freshly printed money is mega-inflationary. You would never know it from market trading today however. Oil prices dropped 4% after being down 3.5% last week. Gold was at a two week low and the trade-weighted U.S. dollar was up around 80.42 in recent trading (its break down level is 78.33). Commodity prices are supposedly trading on the bad economy and of course there is no need to worry about inflation - at least not for the next few minutes (after that, you had better worry).

The market was down most of the day, but a late day rally let the Dow close up 44 points. The S&P closed up 2, the Nasdaq down 9, and the Russell 2000 was down 3. The S&P 500 bounced off it's 200-day moving average and the Russell 2000 stayed just above its 200-day. The Nasdaq bounced off its 50-day moving average. The Dow traded well below both its 200-day and 50-day moving averages. The RSIs on the daily charts for all the indices are below 50, which is bearish. The other technical indicators don't look much better.

The media claims today's trading is because the economy is bad (so the Dow, the S&P 500 and the dollar go up - that makes a lot of sense). Vice President Biden apparently made some remarks on the weekend talk shows about how the administration didn't realize how weak the economy was. How this is news to anyone is beyond me. The Obama administration has a level of economic obliviousness that is truly astounding. This has been obvious from almost the very beginning when Obama announced the Treasury Secretary Geithner would be detailing a plan the next day to restore the financial system and Geithner then came up with no specifics at all in his press conference. The market tanked that day in case you've forgotten. Obama's plan to give the Federal Reserve more regulatory authority over the banks even though the Fed is only a quasi governmental entity that is partially owned by the banks was another real winning idea. The U.S. economy is basically being run by a bunch of 5-year olds. The only difference from the last administration is that the current 5-year olds are Democrats, while the previous 5-year olds were Republicans.

Oil is selling off for seasonal reasons and look for it to hold at one of the Fibonacci retracements, which are around $58, $53 and $48. It will be a bargain again possibly relatively soon. Oil, gold, silver and all commodities go up when there is inflation. The Fed is buying almost 40% of all treasuries for sale with money just out of the printing presses and there's not going to be inflation? Not on the planet earth. It is only a matter of time. Expect more stimulus and more bailouts from the government as far at the eye can see. Put California at the top of the list, its debt was downgraded to BBB by Fitch just a few minutes ago.

NEXT: First Four Trading Day Review

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.

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.