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.

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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.

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.

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.