Behind the Market Drop and Why it Could Get Much Worse

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

After a sharp rise since last October, the market looks like it is set up for one of its usual spring downturns. Without continued liquidity injections from the major central banks, it won't be able to break through the wall of resistance it's currently facing, nor will there be much support to hold it up.

As has been the case for months, trouble in Greece is currently roiling international markets. The bond swap deal reached as part of the latest bailout settlement isn't going well. With a March 8th deadline looming, Bloomberg is reporting that private investors holding around 20% of Greek government debt have so far agreed to participate. The Greek government has set a threshold of 75% for the deal to go through. While the mainstream media has consistently cheer leaded the success of every bailout deal, the market has never been convinced. Yields on one-year Greek government bonds have been on a strong upward trajectory since last summer and were over 1000% today.

The eurozone debt crisis has resulted in a great deal of liquidity being poured into the market by the Europeans. The  ECB pumped approximately half a trillion euros via LTROs (long-term refinancing operations) last fall. The rise in global stock markets can be traced from this event. At the same time, the Bank of England was on its second round of quantitative easing and examination of the U.S. Federal Reserve balance sheet shows what looks like the beginning of QE3. The monetary base in the United States was also moving straight up the chart last fall and earlier this year. No matter where you looked, liquidity was flowing into the system. Since stock markets respond immediately to extra liquidity, a powerful global rise in markets took place.

The problem with liquidity-driven markets is that if the liquidity dries up, they can wither like a plant that has been denied water. The constant supply of liquidity always has to slow down because eventually the liquidity will flow into the mainstream economy and turn into ugly inflation. The big liquidity pump that started last fall seems to be falling to slow trickle lately and markets are quite vulnerable once this happens. A failure of the Greek bailout deal (and government bond yields indicate that the market expects this to happen), would cause a massive negative liquidity event that would be on the scale of the Lehman default in 2008. It might even be worse.

At the same time liquidity issues are impacting the market, stock prices are stuck at resistance and the technical indicators are deteriorating. The S&P 500 is at its high that it reached earlier in 2011. The Dow Industrials are also at last year's resistance. Only the Nasdaq has managed to break through because of a small number of stocks like Apple Computer (AAPL) -- which is clearly exhibiting bubble-like action.


Recent news indicates deteriorating economies outside the United States. The economy within the U.S. is only being held up by massive government spending with budget deficits of $1.3 trillion last years and projected to be $1.3 trillion again for 2012. This is all borrowed or newly printed money. How big would the U.S. GDP be without these continual massive injections of government pseudo-cash?  Inflation is also clearly showing up in the ISM Manufacturing and Non-Manufacturing (Services) reports. The Prices component is the highest one for both. Prices for services (80% of the U.S. economy) have been rising for 31 months in a row and are listed as accelerating in February.


Stocks usually have a selloff in March or April. This year they are especially vulnerable. There will almost certainly be some type of drop. How big remains to be seen. The possibility for major selling should be kept in mind by investors.

Disclosure: None

Daryl Montgomery
Author: "Inflation Investing - A Guide for the 2010s"
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. There is no intention to endorse the purchase or sale of any security.

Stocks Weaken With the Economy

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


U.S. stocks are in sell off mode this morning with all major indices trading below their 200-day moving averages. If current trends continue, the Dow and S&P 500 will give a bear market trading signal next week.

Problems in Europe continue to be a drag on the markets. The prices of Greek debt credit default swaps (CDSs), a type of bond insurance, are rising rapidly again. Experts say they are now indicating a 57% chance of default. Meanwhile, strikes are planned throughout France because the government is trying to raise the retirement age to 62. Investors should assume that EU attempts to reduce the socialist gravy train will be fought tooth and nail by the populace everywhere on the continent. Good news came out of Australia however. Prime minister Kevin Rudd was forced out because of his unpopular 40% super-tax on the mining industry (a key part of the Australian economy).  Australia doesn't have the debt problems that exist in the U.S. and Europe.

In the U.S., the economic numbers continue to be less than impressive. After the disastrous New Homes Sales report yesterday indicated a 33% drop in sales in just one month, the Durable Goods report showed a 1.1% decline in May. Weekly claims fell to 457,000, still well within recession levels, and this got some positive commentary from the cheerleading section of the press. The stock market didn't seem impressed however. While weekly claims have been much better this year than the depression levels they were at early in 2009, they have yet to indicate that the U.S. has recovered from the recession that began in December 2007.

The technical picture for stocks turned south again this Wednesday with the Dow and S&P 500 falling and closing below their 200-day moving averages. The tech heavy Nasdaq dropped below its 200-day yesterday, but managed to close just above it. It looks like it will close below it today. The small cap Russell 2000 is trading below its 200-day today for the first time since earlier this month. The 50-day moving averages for all the indices are still above their respective 200-days in a typical bull market pattern. The 50-days are all falling however and in the case of the Dow and S&P 500, it looks they will be crossing below their 200-days next week. This is a classic bear market signal.  Investors should be watching this carefully.

Disclosure: None

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.

Quadruple Witching Tops Off Weekly Trading

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


Friday was a quarterly quadruple witching day with stock options, options on futures, single stock futures and index futures all expiring. While volatilty frequently takes place on expiration days, this one was uneventful. Expirations can move markets starting days before however, with prices tending to move in the opposite direction of their recent trends during the week of expiration.

The week of June 14th was bullish for U.S. stocks, the euro, oil and gold. The euro gained 2.7% on an oversold rebound. Gold hit a record high, with GLD closing up 2.5% on the week. There was little difference though between gold's performance and that of the major U.S. stock indices. The Dow rose 2.3% on the week, the S&P 500 2.4%, the tech heavy Nasdaq 3.0% and the small cap Russell 2000 3.2%. Oil was a much bigger winner than gold, gaining 5.2% from last Friday's close. The one notable loser was economically sensitive copper, which dropped 1.5% in the last five days.

The euro, stocks, gold, oil and copper have very different technical pictures. On the daily charts, the euro looks very bearish, with its simple 50-day moving average well below its 200-day. The euro is moving up because of 'regression toward the mean'. It went down too far in too short a period of time, so it is trying to return to a trendline. The trade-weighted U.S. dollar has a mirror image picture. It has gone up too far, too fast and is coming down for that reason. Many oil ETFs/ETNs, including OIL also have their 50-day trading below their 200-day, but it is not nearly as pronounced as is the case for the euro.

U.S. stock indices are still in a bullish pattern with their 50-days above their 200-days, but the 50-days have been fallen particularly for the Dow and the S&P 500. The Russell 2000 is in the best shape of the indices. All of the indices are trading above their 200-days, but below their 50-days. The Dow and S&P 500 spent 18 days in a row below their 200-days in the last month though. Stocks can be characterized as clinging to a bullish pattern. In contrast, Gold is unquestionably bullish, trading above both its 200-day and 50-day and its 50-day is well above its 200-day. Next week could be critical for whether or not gold's rally continues based on patterns forming in its technical indicators.

Copper is changing from a bullish to bearish trading pattern. It's 50-day is touching its 200-day and will fall below it on Monday. This is a classic bear signal. Since copper trades with the economy, its behavior is supporting the possibility of a global slowdown and a double-dip recession in the United. Investors should watch copper closely. If it continues its bearish trading pattern, assume a recession could show up as early as this fall.

 Disclosure: None

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.

Stocks Trying to Trade Against Negative News

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


Stocks have been attempting a recovery in the last few days for technical reasons. While they have managed to hold up despite a wave of damaging economic reports, some weakness is showing up in today's trading. Nevertheless, the market's performance has been impressive.

The S&P 500 and Dow Jones Industrial Average spent 18 days in a row trading either fully or partially below their simple 200-day moving averages. On Tuesday, they both managed to close above their respective 200-days and above the neckline of a possible double bottom. This was technically quite bullish. The S&P 500 fell below its 200-day for a while in morning trade today, which is a sign of weakness however. The Dow managed to hold at that line. The S&P has been trading below its simple 50-day moving average since May 5th and the Dow has been below its 50-day since the flash crash on May 6th. The 50-days for both indices are still above their 200-days. The 50-days falling below the 200-days would be a significant bear market signal. We are not there yet.

The news today did not indicate either a healthy economy or financial system. Weekly jobless claims increased 12,000 to 472,000. Anything around 400,000 or above is evidence of a recession. The Philadelphia Manufacturing Index dropped from 21.4 in April to 8.0 in May. It turns out that 90 banks missed their TARP payments on May 17th and many of them are trying to alter their repayment schedules. Spain managed to sell its full compliment of bonds in its auction, but had to pay very high rates to get them out the door. Spain looks like it will be the epicenter of the next crisis to erupt in the eurozone.

The future economic picture is not looking good. The most disturbing aspect of this is that government spending, the traditional Keynesian solution, just doesn't seem to be working this time. The U.S. federal government borrowed $1.42 trillion in fiscal year 2009 (ending on September 30th) to pump up the economy and the GDP during that time fell from $14.547 trillion to $14.178 trillion. This year the feds are on track to borrow $1.6 trillion. Will the GDP increase by $1.6 trillion?  It's not likely. In order to do so, it would have to be over $15.84 trillion by this September. The most recent figure is $14.60 trillion. So for every dollar of borrowing, we are not getting anywhere close to a dollar of GDP growth, but we do get more debt that we have to pay interest on from now until forever. In the long run this is a losing game. In the short run, things don't look so good either.

Disclosure: None

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.

June Begins With Continued Market Weakness

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


After a sharp drop on the open, U.S. stocks mounted a rally and remained positive for most of the day. Selling toward the close, a classic bear-trading pattern, clocked the rally however. Small caps were hit particularly hard.

Healthy markets are strong in the beginning of the month. Trading days before major holidays, like Memorial Day, also tend to be positive. Last Friday was a down day however as was the first of June. Bull markets also tend to be weaker in the morning and stronger at the close, when professionals control the market. The market's attempt to follow this pattern failed miserably yesterday. It was also not the first time lately that strong selling occurred toward the end of trading.

The Dow Jones Industrial Average dropped 1.1% or 113 points. It barely held the key 10,000 level, with the low of the day at 10,014. As of June 1st, the Dow has spent time below its 200-day simple moving average for eight days in a row, as has the S&P 500. The S&P was hit harder than the Dow, falling 1.8% or 19 points. Nasdaq, which tends to be more volatile, lost only 1.6% or 35 points. Nasdaq had been trading completely above its 200-day at the end of May, but closed a tinge below it yesterday (this can only be considered bearish). Small caps experienced the biggest damage by far though, with a loss of 3.2% or 21 points on the Russell 2000. Nevertheless, the Russell held above its 200-day line and is still technically in the best shape of all the major U.S. stock indices.

The euro (FXE), which has been the driver for market behavior for months now, moved mostly with the markets yesterday.  Sharp selling on the open and quick recovery just like stocks, but then a slow fade for the rest of the trading day. The euro's loss of momentum was an early warning that stocks would be doing the same later on. The euro closed at 122.03 with an intraday low of 121.51. Its low in the sell off so far has been 121.27. There is support around the 120 level. The trade-weighted U.S. dollar on the other hand has resistance around 88 and closed just above 86.75. During the 2008 Credit Crisis, the euro spent seven weeks around the 125 level and then had an explosive relief rally. We should be seeing just such a rally again sometime during the summer. It will likely fade right back to the low after a number of weeks, as was the case in early 2009. This time the euro may even go lower.

Disclosure: None

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.

Stocks Rally in Short Term Reversal

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


After hitting a lower low on the open, U.S. stocks reversed their sharp downturn in late afternoon trade yesterday. The rally so far is an expected oversold bounce.  There is no reason yet to think that it will turn into something more significant.

Technicals, not fundamentals are driving stocks at the moment. Tuesday's action was an attempt to resolve an oversold condition from Friday the 14th. Seven trading days later, the major indices - the Dow Jones Industrial Average, the S&P 500, the Nasdaq and the Russell 2000 were all substantially lower. They were also well above their respective 200-day moving averages on the 14th, but all were below their 200-days yesterday.

The 200-day is the key dividing line between bullish and bearish behavior. With the exception of the small cap Russell 2000 (which is holding up best in the sell off), the major indices have violated their support at the 200-day twice in the recent sell off. The first time was during the odd crash on May 6th. Many considered the intra-day drop below the 200-day then to be a mere fluke. In the last five trading days though, the Dow, S&P, and Nasdaq have again traded below the key 200-day line at least part of the day. 

Stocks are also trading to try to fill gaps (a price range where no trading took place) in the charts. This usually occurs within a few days, although weeks and even months are possible time frames. There was a large down gap in trading on May 20th and another one before that on May 14th. The market will want to rise in the near term to at least fill the gap on the 20th. Yesterday's gap down was a short-term exhaustion gap (a gap after many down days or up days) and the markets moved up to trade into the empty space that had been left on the charts.

Technical factors are moving the market up at the moment, but once they get resolved, stocks are likely to head down again. The fundamental problems that emanate from the eurozone have not been fixed. For a major bottom to be put in, some dramatic event like a Greek default or Greece being removed from the euro currency union would be a good signal for a bigger rally. A much larger bailout, such as $5 trillion instead of a mere $1 trillion would pump up stocks as well. This is what reversed the markets during the Credit Crisis and the central bankers and treasury departments of the world will almost certainly attempt their tried and true money printing solution again. The only question is when they will do it.

Disclosure: No positions

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.

Why Popular Market Indicators May be Giving False Signals

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


Market indicators based on percent of stocks above their 50-day moving average and the number of advancing versus declining stocks are flashing bullish buy signals. While these have supposedly worked well in the past, the underlying conditions that led to their success may not exist in today's market. If so, these indicators could be dangerously misleading.

Ned Davis from Ned Davis Research has recently declared the market is experiencing a 'breadth thrust'. This takes place when more than 90% of stocks are trading over their 50-day moving average. This indicates extreme bullishness in the market. This indicator could be a valuable buy signal to investors if it takes place after a significant market low. The indicator did indeed give a buy signal on May 4, 2009 and again on September 16, 2009. The returns have been considerable from these buys. Another buy signal was given on April 5, 2010. After more than a year of rallying and the Dow Jones Industrial Average up around 70% from low to high, this signal is now more likely to indicate a seriously overbought market with few investors left to buy. This indicator has only flashed 12 buy signals since 1967, three of which took place within the past year. The good returns from the two signals in 2009 have in all likelihood made the overall profit potential of following this indicator look a lot better than it was previously and this should be taken into account when examining claims as to this indicators past performance.

Dan Sullivan from The Chartist is also bullish. He bases his outlook on advances versus declines in the market being greater than two to one. His indicator gave three buy signals in 2009. There have only been 18 such buy signals in the last 60 years. The only other years with multiple buy signals were 1962, 1975 and 1982. The Dow was down 11% in 1962. As for 1975, it followed a major two-year bear market in 1973 and 1974 that almost cut the Dow in half. The Dow rose 32% in 1975 and closed at 852. Six years later in 1981, it ended the year at 875 or an additional 3% higher. In 1982, an 18-year secular bull market began, so this was a good call. However, what made it a good call was the market finally broke out after going sideways and down for 16 years. The most analogous situation to today's rally was 1975. The Dow should have rallied in 2009 from its deeply oversold condition and it has, but that rally can't be infinite.

Investors should not blindly follow market indicators, especially when media reports usually give information that is limited to only what is taking place right now. To accurately decide the value of a current buy or sell signal, it is necessary to know how and why it worked in the past. Close examination may indicate the indicator didn't work as well as claimed or that it works only under certain conditions like the Fed lowering interest rates or immediately after a major sell off. As is always the case, investors who want to make money in the markets need to think for themselves.

Disclosure: Not relevant.

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.

Why the Stock Market May Be Topping

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


Markets hit tops or bottoms when almost everyone shares the same opinion. Current conditions in the U.S. stock market are reaching an excess of bullishness and this indicates a top could be forming. Investors should proceed with caution.

When it comes to market opinion, the majority is usually right and investors should generally move with predominant view in the short term. However, when majority opinion starts to become overwhelming - say less than 20% of investors are bullish or bearish - then herd behavior has taken over and its time to think about stepping aside. At extremes there is no one left to buy or sell, so there is no more fuel left to propel the market in the direction that it has been going. The U.S. stock market has probably already reached that state.

News media coverage is one of the best gauges of whether or not a market has overreached. When it starts to become too positive or negative, the end of the trend is usually near. News coverage for the recent market rally has indeed become extremely positive. When the Dow Jones Industrial Average closed above 11,000 yesterday (April 12th), it got a lot of glowing press reports. This new high for the rally was hit on volume that was below average - an indication of a lack of enthusiasm from market participants. Declining volume has been a serious problem for the rally for a long time now and will eventually do it in.

The dollar has had a significant sell off from around 82 to 80 in the last few days because of the Greek bailout. Money has flowed out of Europe during the crisis and into North America, helping to drive up the U.S. stock market as well as the dollar. A resolution to the crisis will reverse this flow and be bearish for U.S. assets. In reality, the problems in Greece are not over. While a bond auction held yesterday was quite successful in terms of selling the bonds, the interest rates Greece paid were very high - more than double the rates from the January 12th auction for similar debt. Greece's problem wasn't selling its bonds, but the high rate of interest it had to pay on those bonds. So far, the bailout doesn't seem to have fixed the actual problem. While money may no longer be flowing out of Europe, it may not be quite ready to return there just yet. When it does, the U.S. stock market will drop.

Yale professor Robert Shiller has just released an updated version of his historical PE chart for the S&P500. The current level, just below 22, is around the long-term market peak in 1966 and is higher than the PE before the 1987 crash. It is well below the 30 level reached in 1929 and the 44 level reached in 2000 though. Investors should assume that the current 22 number understates the actual PE ratio. Changes in accounting rules during the Credit Crisis have made corporate earnings much higher than they would have been, especially for the financials. The New York State Comptroller's office reported that Wall Street's earnings were three times larger in 2009 than they were in 2007, which itself was an all time record year for earnings. Investors should wonder how earnings could triple from historical highs during the worse economic downturn since the Great Depression. Disneyland accounting along with the federal government transferring money from the U.S. treasury into the coffers of bailout recipients is the answer.

As always, investors should pay close attention to the VIX, the S&P volatility index. A low number indicates investors have become too complacent and the market is likely to start selling off. The VIX fell to 15.23 yesterday and is testing levels last seen in May 2008 and October 2007. The 2003 to 2007 bull market peaked in October 2007 and stocks fell off a cliff in the fall of 2008. Investors were extremely optimistic during the 2007 VIX low, as they always are during a market top.

Disclosure: Long 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.

Do Conditions Exist for a Fall Stock Market Crash?

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


Market crashes don't take place overnight. They result from excesses that build up because the market has failed to neutralize them with intermittent bouts of selling. Stock prices always correct and if they don't do so by smaller amounts every now and then, they will correct by bigger amounts later on. While crashes almost always take place in the fall, the possibility that one might occur at that time can usually be ascertained by the condition of the market in the preceding spring.

When there is going to be trouble in the fall, the market should already be showing frothiness around March and April. This condition is currently being met. U.S. stocks have been in rally mode for over a year now without any significant correction. Sentiment indicators are starting to indicate too much bullishness and too much complacency. The most recent Investor's Intelligence poll found less than 20% of investors are bearish. This is a low number. Market Harmonics put/call volume ratio for equities has fallen to multi-year lows and is well into extreme bulllish territory. The VIX (the volatility index for the S&P 500) made a new yearly low of 15.32 today, April 12th, and this is also quite low. All of the aforementioned are contrary indicators and the lower the numbers, the more bearish it is for stock prices going forward.

While the market could certainly be characterized as overbought, the technical indicators I use don't indicate that it is severely overbought just yet, especially on the intermediate-term charts. The stock market indices got to incredibly oversold levels in the fall of 2008 and spring of 2009 and they are still working off this condition. One of the most amazing aspects of the current rally is the lack of volume support for the Dow Jones Industrial Average. Volume peaked at the bottom in March 2009 and has been in a long, slow decline since then. Declining volume on a rally indicates buyers are losing interest. For a rally to hold up for more than a year given this condition is truly amazing.

Some selling in stocks could start any time in the next few weeks, but this would probably not indicate the end of the rally. A break in a market that is already frothy can be patched up and the market can then go even higher. When that happens there is risk of much greater selling a few months down the road. Abundant liquidity is always necessary for this to occur. That exists today just as it did in 1929 and 1987. Other underlying conditions are different however. While the 1987 market was supported by falling interest rates and lower commodity prices, current conditions are just the opposite. Now longer-term interest rates are changing trend and are going to higher levels. Commodity prices,with the notable exception of a number of food commodities, are also going higher. These are negatives in the long run for stock prices. There is also political risk to the markets later this year because U.S. capital gains rates will be raised in 2011. Ironically, the higher the market goes now, the bigger investors' profits will be and the more likely they will sell before the end of the year.

The easiest way for investors to check up on the rally is to watch the VIX. While anything at the 15 level is pretty low, the VIX fell slightly below 10 in late 2006 and early 2007. Macro economic and market conditions are not as supportive now as they were at that time though, so it should not be assumed that these same ultra-low levels will be reached again. The VIX tends to bottom several months before a major stock market sell off as well. It bottomed in May in 2008 for instance and the S&P 500 low for the year was in November. Investors who think the VIX has bottomed can buy the ETNs, VXX or VXZ. This is the same as shorting the market, but is a simpler way of doing it.

Disclosure: Long oil

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This article is not intended to endorse the purchase or sale of any security.

U.S. Stock Market in the First Quarter of 2010

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


Today is quadruple witching, a once every quarter event that takes place on the third Friday of March, June, September and December. On these dates, contracts for stock index options, stock index futures, stock options and single stock futures all expire. While media reports usually focus on volatility during the expiration date, far more important is the trading that takes place in the proceeding weeks. Prices will tend to move to minimize the value of outstanding options due to hedging, if not for other reasons. A negative outlook in February seems to have led to a nice rally in U.S. stocks during March.

Stocks started the year off with a mildly bullish tone and hit a peak in mid-January. The Nasdaq and Dow Transports hit a high on January 11th, the Dow Jones Industrial Average on January 14th and the S&P 500 and Russell 2000 on January 19th. All the indices sold off into February on news of reductions in liquidity from the U.S. Fed and restrictions on bank lending in China. The moves withdrew very little money from the global financial system however. The world's markets are still awash in liquidity. The U.S. dollar was also rallying during this time and since the stock market rally began in March 2009, the dollar and stocks have tended to move in opposite directions.

Stocks then started rallying off their February lows in a stronger dollar environment. This pattern first became evident recently in December 2009 when the trade-weighted dollar rallied strongly and so did stocks during the month. It would perhaps be more accurate to say the euro experienced significant weakness during these periods because of the crisis in Greece (the euro represents over half of the trade-weighted dollar). December represented a shift in trading patterns for the U.S. dollar and stocks for the current the rally.  Investors should note if the strong-dollar strong-stock pattern continues. While it was common in the 1990s, the opposite has been the case for much of the 2000s.

All the major indices hit new current year price highs recently. The Russell 2000 was the first on March 2nd, followed by the Nasdaq on March 5th, and the S&P 500 on March 12th. The Dow Transports hit a new high on March 10th before the Industrials hit a new high on March 17th. New highs are of course generally bullish.  Small caps have been doing best in the rally. This indicates higher risk tolerance on the part of investors and is also something that happens in inflationary environments. Small caps outperformed during the second half of the high-inflation 1970s following the deep recession of 1973 to 1975.

U.S. stocks can continue to do well as long as liquidity is being pumped into the financial system. Liquidity is the driver of prices and not the economy as the mainstream media constantly reports. Liquidity shows up first in the markets and later on in the economy if everything works according to plan. The Japanese in the 1990s and 2000s found that this Keynesian style plan didn't always work however. If things get too bad because too many excesses have built up in the financial system, the liquidity fix is no longer effective. U.S. investors also need to realize that money has flowed out of Europe and into the U.S. and a resolution of the Greek crisis will cause funds to flow out of the U.S. and back into Europe. Moreover, actions the Chinese take can also impact U.S. stock prices. China raising interest rates would be a negative for U.S. markets. Revaluing its currency upward would also shake things up.

Disclosure: None

NEXT: Who Really Benefits From the U.S. Healthcare Bill

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.

Stocks Experience Irrational Exuberance on Employment Report

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


U.S. stocks rallied strongly on Friday because of the February employment report. In what could only be described as the latest episode of the emperor has no clothes or more appropriately the emperor's people have no jobs, the Dow Jones was up 122 points (1.2%), the S&P 500 up 16 points (1.4%), the Nasdaq up 34 points (1.5%) and the small-cap Russell 2000 up 14 points (2.1%). Oil rallied close to 2% and gold was flat on the day. Bonds sold off. One major media outlet after another trumpeted the reported loss of 36,000 jobs as good news in their Friday and weekend coverage, as did the politicos in Washington. Wall Street was jubilant.

The media clearly wants to tell the story of a recovering economy and will be doing so even if there isn't any evidence to back that viewpoint up. The story of course is coming directly from the U.S. government during a congressional election year. The government writes detailed press releases for each economic report and in those it presents the rosiest scenario possible. It is not going to go out of its way to point out any bad news, but spins the story to make our political leaders look good. Analyzing the numerous detailed and at times poorly laid out charts in the economic reports is a time consuming and difficult process, but is the only way to find out what is really going on.  For those who are interested, the next time there is a major economic news release, look at the time stamp (the moment of publication) on the articles from the major news services. I have seen time stamps of 8:30AM for a news release that took place at 8:30AM. This is merely a reprint of the government's best of all possible worlds press release. This is the only news that most media outlets report.

Looking at the details and footnotes of February's employment report painted an ugly picture of the U.S. job situation. In addition to the 1.2 million census workers that seem to have been placed in the Business and Professional Services category over the last several months, instead of the Government category where they belong, the seasonal adjustments were substantial and made the headline numbers much better than the real numbers. The actual unemployment rate (known as U-3 in the report) was 10.4%, but this became the reported 9.7% through the magic of adjustment. The unemployment rate that takes into account forced part timers and some discouraged workers (known as U-6 in the report) was actually 17.9%, but this became a still whopping 16.8% for seasonal reasons. Does this sound like good news?

For those who want to see the numbers themselves, Table A-15 (yes, there are a lot of tables) of the February Non-Farm Payrolls report can be found at: http://www.bls.gov/news.release/empsit.t15.htm.

The snowstorms in the East during February were specifically used to imply that the employment numbers were actually much better than they appeared. The BLS in its press release said it couldn't calculate their impact (as if it has never snowed in the United States previously). The spin coming from Wall Street was that there must have been huge job losses, which could have taken place in construction, and this meant the 36,000 job loss number would have been a gain otherwise. This is completely implausible. It could only have happened if there were a lot of workers that were going to be working during that time (there weren't, construction employment has fallen severely over the last two years) and couldn't because of the weather and that the numbers didn't already account for this problem through seasonal adjustments (they did). Furthermore, snow removal is frequently done by temporarily employed workers and this would have added substantially to the employment numbers, not subtracted from them. Moreover, it is unlikely anyone fell off the employment rolls as far as the government was concerned because of the snowstorms. Any regular worker who got paid for at least one-hour during the two-week survey period was considered to be employed.

Job losses in the U.S. have been a regular occurrence for the last couple of years. The only exception recently was in November 2009, when the numbers became positive because of after the fact adjustments. While job losses are bad, small job gains are also bad. The U.S. needs to create up to 200,000 additional jobs each year to employ people entering the labor force. Things will really have turned around when that happen and the jobs are from private industry and not the government. Wall Street's reaction to the February employment report indicates more than snow was being shoveled recently.

Disclosure: None

NEXT: Watch What China Does and Not What It Says

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.

Commodities Versus Stocks: A Decade Performance Review

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

The French saying, 'the more things change, the more they remain the same' is an excellent description of the performance of the Dow Jones Industrial Average in the first decade of the twenty-first century. The Dow closed at 11,497.12 on December 31, 1999. It will close out 2009 at almost the same price. This lack of progress has been seen before between 1966 and 1982 when the Dow kept reaching the 1000 level, but couldn't break through it. While the Dow ultimately went sideways during the last decade, the S&P 500 was down approximately 23% and the tech heavy Nasdaq fell about 44%. So much for buy and hold. The small cap Russell 2000 was up 24%, but this was minimal compared to the money that could have been earned in commodities. Many emerging stock markets outperformed both the U.S. markets and commodities.

The CRB (Commodity Research Bureau) index, a broad basket of commodities, ended 1999 just above 200. It will close out 2009 around 490 for a decade gain of 141%. Copper, the leading industrial metal, was up 276%, substantially outperforming the overall sector. Oil traded at $26 a barrel at the end of the 1990s and closed out the 2000s around $79.00 for an approximate gain of 204% . Gold, the most inflation-sensitive commodity, was up approximately 279%. Silver rose around 220%.

It is easiest for investors to use ETFs and ETNs to get exposure to commodities, since these trade as stocks. There is no need to get involved directly with futures. DBC, GCC, GSG, DJP, and RJI offer exposure to a basket of various commodities. DBB offers a means to invest in industrial metals and JJC to invest in copper. Aggressive investors can buy BDD, a leveraged industrial metal ETF. Gold ETFs include GLD, IAU and SGOL and DGP, which offers an approximate 200% exposure to the movement in price of gold. For silver, SLV, DBS and leveraged ETF AGQ are good choices. Oil exposure can be gotten through OIL, DBO, USO, and USL.

While U.S. stocks were mostly flat to down in ten years of trading, a number of emerging stock markets had major rallies during that time. The Ukrainian PFTS Index was up around 900%. Two Russian indices, the RTS and MICEX, were up in the 700% range. The Lima General Index in Peru was up over 800%. While these may be seen as too risky by many investors, stocks on the more mainstream Hang Seng Index in Hong Kong were up over 500% on growth in China. Emerging markets definitely offered the stock investor much more opportunity for profit between 2000 and 2009 than did the American stock market.

It is not easy or even possible for the average investor to get exposure to many of these smaller countries however. Broad exposure to emerging markets can be obtained by buying EEM and VWO. EWH can be used to track the Hong Kong market. Investors should consider the big four emerging markets the BRIC countries are likely to continue to do well in the next decade - Brazil, China, India, and Russia. EWB, FXI, IFN, and RSX respectively can be used to invest in these markets. Commodity heavy markets such as Australia (EWA) and Canada (EWC) have the potential to do much better than the U.S. stock market in the next decade as well.

It should be kept in mind that markets are cyclical, so good performance in one decade doesn't necessarily mean a repeat performance in the next. Long-term trends in the market tend to last about 20 years though and the commodity rally has only lasted for half that time. So there is a good chance that commodities will outperform again in the decade ahead. The biggest gains are usually toward the end of a long move up. This doesn't mean that commodities will go up every year, there will certainly be periods where significant drops take place as happened in the second half of 2008. Only gold managed managed to still be up for the year back then. As of 2009, gold was the most consistently profitable asset during the first decade of the 2000s, having gone up nine years in a row. While buy and hold wouldn't have worked for U.S. stocks after 1999, it worked quite well for gold and a number of other commodity plays.

Disclosure: Long gold, silver.

NEXT: Blog Wrap Up for 2009

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.

Markets Roller Coaster Ride Powered by Media Hype

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

Our Video Related to this Blog:

Yesterday, stocks in the U.S. went on an a roller coaster ride that saw a steady significant move up, followed by an almost vertical descent (which included a 30 point drop in the Dow in just one minute), then a gradual climb back up into a positive close. The European Central Bank seems to have continued interfering in the currency markets (in one way or the other) by supporting the euro behind the scenes and this is what caused the intraday drop in the stocks. One asset though managed to stay in positive territory and gain technical strength yesterday - gold. More hairpin turns and sharp up and down moves should be expected for awhile. The mainstream media seems intent on publishing stories that will keep the volatility going.

Spot gold closed at $1060.60 (up $14.60) at the 5:15PM end of Globex trading yesterday. It broke through the $1050 resistance level and stayed above it all day. Gold traded as high as $1064.00. It then got as high as $1066 overnight on news that the IMF sold 200 metric tons of its gold to India (the price of course dropped the moment New York trading opened). The IMF board voted to sell 403.3 metric tons of its 3,217 tonne gold holdings on Sept 18th after telling the market multiple times over two years (each time driving the price of gold down) that it was going to do this. It was widely believed China would buy the entire amount of the IMF gold for sale using this as an opportunity to get rid of some of its massive dollar reserves. China stupidly didn't do this however. It might buy the remaining 200 tonnes of IMF gold or any number of Gulf oil states could. In general, gold is leaving the central banks for Europe and moving to the central banks of Asia.

Gold went up yesterday in U.S. trading because of inflation concerns. The ISM Manufacturing report for October came in at 55.7, up from 52.6 in September (above 50 indicates expansion). The strongest of the 10 components of the report? - Prices Paid, which is an inflation indicator. This number came in at 65.0, up from 63. 5. It was the highest number in the September report as well. While inflation was the biggest news in this report, I saw no mainstream media article that even mentioned it, let alone headlined it. Instead stories like "Dollar Falls After Strong Factory Data" appeared and claimed the dollar was going down because of heightened risk appetite, the current fantasy the media has spun to take investor's attention away from inflation. This article did hint at inflation though in the 18th paragraph (most people don't read to the end of articles), when it mentioned that a flood of liquidity from central banks might have something to do with the way the market is reacting.

Media coverage reached even lower levels this morning. The glaring headline, "U.S. Stock Futures Drop Sharply", could be found many places online. When I clicked on a major financial website's version, an article with a different headline appeared, " U.S. Stock Futures Off Lows ....". People who didn't click wouldn't know the news had changed though. Traders frequently only see headlines. What was the 'sharp drop' in futures? The Dow was down 61 points, the S&P 500 down 7 points and Nasdaq down 7 points - completely ordinary meaningless moves.

There is risk for stocks today because the euro had a sharp drop overnight after the Australian central bank raised rates by a quarter of a point to 3.5%. Australia was the first central bank to start raising rates last month, which is one reason the Australian dollar is so strong. This move should be more threatening to the U.S. dollar than the euro however, but the trade-weighted dollar is rallying on the euro sell off. Ironically, this could damage U.S. stocks the most because if you check you will see their best correlation has been to movements in the euro since last March (the euro represents over 50% of the trade-weighted dollar). Gold seems to have been hardly impacted by the currency move at all. Traditionally gold and the euro should be moving together and the stock currency relationship should be more tangential.

As if the first two days of the week aren't exciting enough, the end of the week will see the U.S. monthly employment report. I would also like to remind everyone that this is the beginning of the month and the first four days of trading should be positive. At the moment it's hard to say if the bears or bulls will win out. It is easier to predict a lot of volatility, which is a classic sign of a top.

NEXT: Gold Rockets 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.

Global Stock Markets Weaken

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:

Both the Nasdaq and Dow were down 2% yesterday. The S&P 500 and Russell 2000 were down 2.3% and 2.5% respectively. Euro markets were also down yesterday after the route in the Chinese market Sunday night. While the Nikkei held up on election news, it was down 2.4% last night. Global markets have been rising together for the last 6 months and now seem to be selling off in tandem as well. China led the world's stock markets up and seems to be leading them down.

As expected, the ISM Manufacturing report yesterday came in above 50, which indicates expansion. It was the first time in 19 months above this level. The 52.9 reading was up from 48.9 in July. The new orders component was up 10% and was responsible for much of the rise. As has been pointed out in this blog, the Cash for Clunkers program is behind much of the recent burst in U.S. manufacturing activity. Recovery is only meaningful if it takes place without government stimulus however. Otherwise the economy falls right back down as happened in Japan repeatedly in the 1990s and 2000s and seems to be happening in the UK right now. The glowing bullish AP coverage of this report at least also stated "as long as consumers remain hamstrung by weak pay and job losses and wary of ramping up spending, the economy might not be able to sustain a recovery". Oh really?

Weak pay is the operative word. The Productivity Report today had productivity up 6.6% last quarter, the most in several years. While the rah-rah-rah media gave the usual bullish spin to the news, it is actually quite bleak. The big rise took place because labor costs fell so much. They were down 5.9% in Q2 after being down 5.0% in Q1. This means a lot less money is going into the average consumer's pocket. At the same time credit availability is also being cut. So how are consumers going to increase spending? Retailers are currently reporting that back to school sales are weak as should be expected. So much for 72% of the American economy doing well.

The dollar was up yesterday as has been the case since March when stocks sold off. It closed at 78.76, above its 78.33 breakdown level. It was below that key point part of the day. Gold was mostly flat yesterday, but was trading at $965 this morning. Silver is above $15. Gold is trying to get back to its $1000 breakout level and may do so soon.

NEXT: Inflation News Sends Gold Soaring

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.

U.S. Dollar,Stocks,Bernanke and Natural Gas

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 fell below its breakdown point again on Friday. DXY, the ETF for the trade-weighted dollar, closed at 78.01 and spent much of the day trading in the 77 range. This is the second time the dollar has traded below the key breakdown point of 78.33. Last time it was below this price for 5 days. It's inability to stay above this level is a sign of weakness. Gold of course rallied and was as high as $957 during the day. It is once again trying to get back to the important $1000 breakout level.

As the dollar fell, stocks rallied. This has been a typical pattern since this March. In the larger scheme of things it is unusual however. For the first time since this phase of the rally began in July, volume was noticeably above average (average volume has been declining during the entire rally however). The rally has looked sickly so far because volume started out light and continually fell - a very negative pattern. It seems that if stocks rally, the U.S. dollar has to sell off and vice-a-versa. Something has to give soon.

What fueled the rally on Friday was existing home sales supposedly being up 7% and bullish comments by Ben Bernanke about how the recession is ending. The home sales figures are of course suspicious, but no amount of fantasy has managed to disturb the market rally so far. Bernanke, who has continually been wrong in his pronouncements on the Credit Crisis and recession is also being believed by the market for no apparent reason. Bernanke was incredibly self-congratulatory in his speech, giving the major central bankers full credit for saving the world from global recession. The proof that this has happened is minimal to say the least and exists mostly in manipulated government statistics that lack any credibility. Lost in the coverage was the failure of four more U.S. banks on Friday, including one with $13 billion in assets. So far this year 81 U.S. banks have failed, compared to 3 in 2007.

Natural gas is staying at its impossible price levels. The near-term futures contract fell as low as $2.75 toward the close on Friday. UNG was down 1.4%, while GAZ was up 1.3%. Their price movements should be almost identical and certainly they shouldn't move in opposite directions. But that is only true in reality, something which the market has become completely detached from.

NEXT: Bernanke Reappointed, Court Order and FDIC

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's Ugly 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:

While selling began in the U.S. on Friday, it didn't have a lot of momentum until the Asian markets opened Sunday night. Japan, Hong Kong and China were down between 3% to 5%. Last night the recovery in the East was anemic. The Nikkei was barely up and the Hang Sang was up less than 1%. The major Euro markets were all up around half a percent today. U.S. stocks are rallying as of now, but how they close is the key. The U.S. dollar is selling off and nothing significant has changed for it . It is still in a precarious state.

Basically the only thing that rallied yesterday was the U.S. dollar. Everything else sold off. This has been the common pattern since March. It doesn't make any sense based on the media story of what is going on in the markets and the economy. U.S. stocks should rally if the dollar is rallying. The opposite only occurs in inflationary environments.

The technicals on the index charts have weakened considerably in the last few weeks. The RSI on the daily charts even fell below 50 for the Nasdaq yesterday. The S&P hit 50. The Dow stayed just above it. Bouncing off this level and rallying is an almost automatic market reaction and this is happening today. We will have to see how long this lasts. The MACD is still relatively strong, so this will probably keep the market from falling apart at the moment. The DMI patterns can only be described as twisted looking. They are indicating that the uptrend is endangered.

The market seems to be in a topping pattern, but this can last awhile. As we head into the seasonal week period of September and October, the risk of a major sell off for stocks becomes greater.

NEXT: Stock Market Gappy, Inflation Worries Surface

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.

First Four Trading Days Review

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 message from the markets has been quite clear in the last four trading days. The big money is negative and taking its money out. All indices had significant drops today, leaving the first of the quarter indicator highly negative. Technicals deteriorated even further. About the only thing that was up today was the U.S. dollar, although bonds rallied after today's auction was over. The dollar and bonds should be tanking big time. Oil went down even more and the reason for its decline, natural gas and other commodities has now become clear.

The Dow closed down 161 points today, even further below its 50-day and 200-day moving averages. The 50-day is below the 200-day and both are declining, a typical bear pattern. Nasdaq, the strongest of the averages pierced its 50-day today, closing down 41 points. The S&P fell 18 points and broke and closed below its 200-day today after breaking below its 50-day last Thursday. The Russell 2000 fell 10 points and managed to hold just above its 200-day. All and all, a pretty ugly situation.

Light Sweet crude closed at 62.93, but was even lower during the day. Oil has dropped 12% since last Wednesday. While the media is claiming its because it was overpriced and the economy is bad, this is not the reason (as usual, if the press reports it, you should first assume the explanation is wrong). What has happened is CFTC (Commodity Futures Trading Commission) says it wants to crack down on rampant speculation in the energy markets, by imposing position limits for commodities of finite supply (which is every commodity). The commission is planning hearings and is also considering raising margin requirements. One of the major implications of this proposal is that ETFs will have quotas imposed on them. The big money players presumably had the news before the public and shorted into it. Will the CTFC investigate this? Don't hold your breath. The people who are supposed to be stopped from speculating are the small investors like yourself, not the big insiders.

A quote from the CFTC news, "The government's use of free markets via auctions to help find prices for hard-to-sell assets in the financial sector shows how adept supply and demand are at setting values. But when it comes to commodities that people, industries, economies and nations depend on, the susceptibility of free markets to manipulation can prove dangerous". Free markets are indeed dangerous to a government that doesn't like the prices they set because it continually overinflates its currency. So we must save the free markets by destroying them! Huh???

It is interesting that this attempt to control rampant speculation in oil is taking place one year exactly after oil peaked at $147 a barrel and while it is now trading in the 60s. Something doesn't seem to make sense with this picture. This move is effectively an attempt to create price controls on commodities (by a government that is constantly telling us that there is deflation and a big risk of prices falling). The only things price controls are effective in creating is big shortages and black markets. They ultimately cause prices to go higher than they would have. When you can't get any gas for your car two years from now you'll at least know why.

NEXT: Commodity Shortage Disaster in the Making

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.

So Far, So Bad

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 is tanking today. A sell off the last trading day before July 4th is statistically unlikely and should be considered bearish in and of itself. We will have to wait until the close next Tuesday to see if the first four trading days of the quarter were net down and are also providing a bear signal. Stocks started off strong on Wednesday, but faded as the day progressed. The Dow was up only 57 points at the end, but managed to close above its 200-day moving average for only the second time in almost three weeks. Volume was unusually low for the first day of a quarter. The Dow is below both its 200-day and 50-day as I write this and a close below both key levels at the end of a week can only be interpreted as negative.

The monthly employment report was released this morning and set the tone for trading. A loss of 325,000 jobs was predicted by analysts, but the number came in way above expectations at 467,000. The official unemployment rate was 9.5%. If discouraged and involuntary part-time workers are factored in, unemployment would have been 16.5%. Only education and health care were supposedly hiring last month.

While bad economic news is negative for a currency, somehow the U.S. dollar went up on this news. The mainstream media has indeed been reporting the dollar rise and explaining it as safe haven buying. If you are puzzled by this, you should be, especially since gold is going down at the same time. No one in their right mind would load up on a currency with a weak economy as a safe haven play. It is more likely the invisible hand of the U.S. Treasury lifting the dollar today. Don't expect the media to ever report that though.

All the major U.S. stock indices are down over 2% in afternoon trading. Oil is performing even worse. The commodity hit a low of $66.54 in today's trading and was just over 67 at the close of NYMEX trading. Natural gas futures are barely down, although UNG is dropping big time. The cause of the disconnect is not clear. The reason for any drop whatsoever is even less clear, since the storage report this morning was very bullish. Analysts expected a build up of 82 billion cubic feet, but the increase was only 70 billion.

I guess we will just have to wait until next week to see how things play out.

NEXT: Does Money Printing Cause Deflation or 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.

Oil storage, Stocks and States

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 opened strongly this morning. How they close and on what volume will be significant. The economic news, although negative is being reported in a positive light this morning. The fiscal crisis in California, and a number of other states, is being mostly ignored. It's likely everyone is assuming they will find some way to carry on. The oil storage report this week was a repeat of last weeks.

Yesterday, the Dow once again closed below its 200-day moving average. Intraday, it fell below the 50-day, but managed to rise to close above it. So far today, it is well above it for only the second time in the last two weeks. China hit a new yearly high last night and European stocks were up nicely today, especially commodity plays linked to Chinese growth prospects. Japan, Australia and New Zealand were down, although the rest of Asia was up. Gold has traded up nicely and silver decently today. The trade-weighted dollar is weak, last trading at 79.69, still just above its break down level of 78.33.

Oil peaked today in mid-day European trading, where it reached at least 71.50. Selling came in strongly after the storage report. Crude supplies were down another 3.7 million barrels last week. In the last two months they have dropped sharply. Gasoline and distillates were both up however, gasoline by 2.3 million barrels and distillates by 2.9 million barrels. Even if oil in storage is in short supply, it won't matter for awhile because there is more than enough gasoline, diesel and heating oil around at the moment. The last quote I saw for oil was 69.35.

In economic news, the ISM Manufacturing report came in at 44.8, better than last months 42.8. Any number below 50 indicates that manufacturing activity is contracting. Nevertheless the mainstream media reported big improvements in manufacturing data. This was the 17th month in a row that the manufacturing sector of the U.S. economy has shrunk. Housing data today was contradictory. The government reported that its home purchase index was down 21.9% year over year based on mortgage applications. The less reliable real estate PR organization NAR reported that pending home sales were up however based on signed contracts. Guess which news item got the most attention from the media.

NEXT: So far, so Bad

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.

More Numbers that Just Don't Add Up

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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.