S&P 500 Joins Global Bear Market

 

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 opened October with almost all assets declining everywhere. The S&P 500 entered bear territory on Tuesday.  Few assets other than treasuries and the U.S. dollar are doing well, as is typical during a credit crisis.

The big talk on Monday, the first trading day of October, was about the S&P 500 making a new closing low for the year. The intraday low was only slightly lower than the previous one in early August, so peak to trough the index was off 19.8%. The big drop on the opening on Tuesday created a 20% loss, putting the S&P 500 officially in a bear market.

The small cap Russell 2000 already entered bear territory on August 8th. The Russell had another mini-crash on Monday, dropping 5.4% on the day. That was its fourth mini-crash since August. Mini-crashes are common during credit crises, but not at other times.

The selling on Tuesday first showed up in Asia with the Hang Seng in Hong Kong losing 3.4% to close at 16,250 and South Korea's KOPSI dropping 3.6%.  The ugliness then spread to Europe with the German DAX, the French CAC-40 and the UK FTSE down more than 3% during the  trading day. U.S. stocks opened then opened lower with the Dow losing more than 200 points in early trading.

As usual in Europe, banks were at the epicenter of the market quake. Franco-Belgium bank Dexia was down 22% at one point. Deutsche Bank (DB) was down more than 6% in Frankfurt after announcing it would miss its profit target for the current year.  American banks have not avoided the carnage affecting financial stocks elsewhere; just take a look at Bank of America (BAC) and Morgan Stanley (MS), both trading at two-year lows.

While the behavior of banking stocks makes it clear that a credit crisis is taking place, falling commodity prices clearly indicate that the global economy is turning down. Copper prices fell as low as $3.01 a pound early Tuesday. Copper sold for well over $4.00 at its high in February and dropped sharply throughout September. Oil is also indicating weakness, with WTI crude closing at $77.61 on Monday. It traded as low as the $75 range on Tuesday. Oil is heading into a period of seasonal weakness and this is likely to exaggerate any price drops. Next strong support is around $70 a barrel.

Money continues to move into safe haven treasuries. The 10-year yield was as low as 1.725 before selling began in the bond market. The U.S. dollar index traded just under 80 at its high. The euro, which moves opposite to the dollar, hit a low of 1.31.62 Tuesday. Further weakness should be expected until there is some resolution to the debt crises in the EU.

 In bear markets, the bigger trend is down, but this is frequently accompanied by huge volatility. This is what has taken place since August and until there is a good reason that the trend should change, investors should expect that prices will be moving lower.

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.

A Terrible Third Quarter Will Be Followed by a Bad Fourth

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 third quarter of 2011 had the biggest drop and most volatility for stocks since 2008.  The fourth quarter may not be much better since the cause of the problem is a new credit crisis and an emerging global recession. Both will continue to be a drag on the market.

Except for small cap stocks, the U.S. markets did somewhat better than many overseas markets during the quarter. The Hang Seng in Hong Kong was down 25.7%, the CAC-40 in France fell 25.6% and the DAX in Germany dropped 25.0%. Only the Russell 2000 in the U.S. was lower by a comparable amount, falling 24.1% from its May 31st close. These indices are all in deep bear territory. Not much better was the Bovespa in Brazil. It lost 19.0% in the third quarter. The Brazilian market peaked in November 2010 and it too is in a bear market.

While the bigger cap U.S. indices weren't down as much, they were severely damaged nevertheless. The S&P 500 was lower by 15.9%, the Nasdaq by 14.8% and the Dow industrials by 13.2%. This was just the drop during the quarter. U.S. stocks in general peaked on May 2nd. From its high back then to its low in the third quarter, the S&P 500 dropped 19.6%. A bear market is defined as a loss of 20%.

Volatility returned to the markets with a vengeance in the third quarter. The VIX index reached a high of 48.00, not much below its peak in the 2000 to 2002 mega-bear, but well off its Credit Crisis peak around 90. Mini-crashes returned to the market, with both the Nasdaq and Russell 2000 experiencing drops equal to or greater than 5% on three different days.  There were four consecutive days in August when the Dow was up or down by 400 points or more. A volatile market is prone to selling and  markets usually need to calm down before they can bottom.

Just as was the case during the Credit Crisis year of 2008, only two major assets were up in the third quarter — treasuries and gold. The 10-year hit an all-time low yield of 1.71% (bond prices go up when yields fall). This was well below the previous low that took place because of the Great Depression in the 1930s. While the price of gold fell by 15% at the end of the quarter, it rallied from the beginning until its peak on September 6th. It wound up rising 5.8% (as measured by GLD) from its closing price on May 31st. Its companion precious metal, silver, had a quarterly drop of 23.1%.

There is no reason to think that the market will bottom until problems in Europe come to some stable resolution. Greece admitted over the weekend that it would not be meeting the budget targets that were part of the terms of the first bailout. Global markets are once again selling off, as if this was somehow surprising news — Greece has misrepresented its financial number repeatedly, it would only be surprising if they turned out to be accurate. Greece may still get its next tranche of bailout money, since the EU has shown over and over again that its standards for the currency union are meaningless. Eventually though Greece will default because too much bailout money will be needed to keep it afloat. Even at that point, Spain and Italy will have to be reckoned with.

The other issue facing the markets is a global economic downturn. While a case can be made that the post-Credit Crisis economy never got out of recession (the unemployment rate and consumer confidence remained at recession levels for instance), the important question is whether or not economic activity is declining now. Last week, even the ECRI (Economic Cycle Research Institute) admitted the U.S. economy was heading down. Since a credit crisis can make an economic decline much worse, this doesn't bode well for the markets in the upcoming months.
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.

Global Markets Slip on Greece

 

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 in Asia, Europe and North America are falling as contagion from the Greek debt crisis continues to impact markets worldwide. Until there is some resolution, investors should expect this to continue along with intermittent sharp moves up due to central bank liquidity injections.  

Trouble began in Asia last night with the Hang Seng in Hong Kong falling 537 points or 2.8%. It closed at 18,918, well below the critical 20,000 support level. The Indian Sensex was down 188 points or 1.1% to 16,745. It has been leading Asian markets down and is trading on top of a very large gap made in May 2009. The Nikkei in Japan managed to buck the trend and close up 195 points to 8864 or 2.3%. It has been mostly trading below key support at 10,000 since March when the Tohoku earthquake struck. All three markets are in a technically bearish trading pattern.

No part of the globe can escape what is happening in Europe. EU finance ministers said Friday they would delay authorizing a new installment of emergency funds for Greece until October. Greece is still on its first €110 billion bailout, but the final payments have yet to be made. A second bailout has yet to be fully approved, although the terms have been set.  Greece's fiscal situation continues to deteriorate rapidly despite all the funding it has received from the EU and the IMF.  The bailout money is life support for Greece. If the plug is pulled, the patient defaults.

German stocks have been hit the hardest by the Greek crisis and have fallen well into bear market territory. After rallying from a severely oversold level last week, the DAX was down 157 points or 2.8% on Monday. The French CAC-40 was down 91 points or 3.0%. The British FTSE was down 108 points or 2.0%. UK stocks have been less affected by events in Greece (the UK is not part of the eurozone). As is the case in Asia, all major European markets are in a technically bearish trading pattern.

U.S. stocks have actually held up somewhat better than most other markets. The S&P 500 and small cap Russell 200 have the same negative technical picture found elsewhere, but the Dow Industrials and Nasdaq have so far held just above it. In early afternoon trade, the Dow was down 205 points or 1.8%, the S&P 500 21 points or 1.7%, the Nasdaq 30 points or 1.2%, and the Russell 2000 14 points or 2.0%. A report released in the morning indicated that U.S. investors have pulled more money out of equity funds since April than they did during the five months after Lehman Brothers collapsed. The real history making news however was in the bond market, where the two-year treasury hit an all-time low yield of 0.1491% -- a sign of a global credit crisis if ever there was one.

Investors should expect more market drama from the unfolding Greek tragedy in the coming weeks and months. Unless Germany and France are willing to commit to unlimited bailouts, Greece will eventually default.  Only then will we know how this affects Ireland, Portugal, Spain and Italy and the euro itself.  Stocks are vulnerable to more volatility and downside until this occurs.  

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.

Markets Trading Like They Did During Credit Crisis

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 are selling off globally. Commodities are down, but gold is holding up the best. Money is pouring into the perceived safe havens, the U.S. dollar and treasuries. Is it the late fall of 2008 or late spring of 2010?

Without further information, you can't answer that question. There is a global financial crisis occurring now because of the problems with the euro. There was a global financial crisis in 2008 because of the collapse of the prices of derivatives related to subprime mortgages. The problems with subprime debt had begun the year before and started impacting stocks in July 2007. Stocks were already in an advanced bear market sell off by the fall of 2008. The current euro crisis is only a few months old and U.S. stocks are only in a correction so far (loss of over 10% versus loss of over 20% for a bear market).

The current stock market sell off is worldwide as it was in 2008. It goes without saying the stocks in the eurozone are suffering, but technical damage can be found in major markets everywhere. The Dow Jones has broken key support at 10,000 twice already. The Nikkei gave up its significant 10,000 level a while ago, closing at 9521 last night. The Hang Seng has fallen below important support at 20,000, dropping to 19,378. In the UK, the FTSE is barely holding above 5,000 today.

The trade-weighted dollar (DXY) was as high as 88.71 in New York this morning (June 7th). This is higher than its peak in November 2008, but not as high as the top in March 2009. There was a major sell off in the middle, with the euro (FXE) having a sharp rally. Something similar is likely to happen early this summer. The dollar is very overbought and the euro is very oversold. The euro has traded as low as 1.1878 today. It may pop back up to the 120 support level and if not, there is stronger support around 115. The dollar is already hitting major resistance, so the set up for a short-term reversal looks like it is taking place.

As would be expected, U.S. treasuries have rallied strongly during the euro crisis. It is highly unlikely that they will get to the extremely low levels they did in 2008. As treasuries rally, interest rates go down of course. Interest rates on the 10-year fell to around 2.00% in December 2008. They were at 3.18% this morning. There is strong chart support at and just above the 3.00% level. So not much more of a treasury rally, interest rate sell off should be expected for now.

Currently gold has recaptured its safe haven status. It was selling off with the euro between last December and this February. Then it started rallying with the U.S. dollar, although it usually trades opposite to the dollar. Gold sold down in the fall of 2008. Central bank leasing was responsible for this. The big banks and large hedge funds leased gold at a small price and then sold it on the market to raise desperately needed cash. This is not happening at the moment to a significant enough degree that it can offset buying elsewhere. Ironically, a sharp relief rally in the euro could be short-term bearish for gold. Despite the selling in the fall of 2008, gold still closed the year up along with the U.S. dollar and U.S. treasuries. Almost every other asset closed down. It's still too early to tell if 2010 will end the same way.   

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.

Desert Bubble Bursts, Blows Sand in Market's Face

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.

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America was on holiday for Thanksgiving, but London unexpectedly joined it with a halt in trading for over three hours on Thursday. The LSE (London Stock Exchange) computer system just simply stopped functioning. It couldn't have come at a worse time. Major selling was taking place before the trading halt because Dubai's state-owned Dubai World announced a 6-month 'standstill' for payment of its massive debt. While the mainstream financial media described this action as a potential default, failure to make debt payments in a timely fashion is a default, period. If it walks like a duck and quacks like a duck, it's a duck. It is estimated that Dubai World has $60 billion in foreign debt outstanding with British and European banks holding two-thirds of that. The ever alert U.S. rating agencies Moody's and S&P promptly downgraded Dubai World's debt, once again giving the appearance that they are the last to know when a financial problem exists.

Dubai's problems were already known during Asian trading on Thursday ( Wednesday night in New York) and the Shanghai market dropped 3.6% and the Hang Seng in Hong Kong was down 1.8%. Things got worse in Europe Thanksgiving day. The unexpected technical problems on the LSE (not the first time this happened by the way) caused worry to turn to panic. This is a typical reaction to traders when they can't access a market and there is some bad news floating around. They will sell down other markets which are open and when the closed market reopens, there is a bigger drop than there would have been. Banks stock were particularly crushed on Thursday, bringing back memories of last years Credit Crisis. Royal Bank of Scotland was down 7.6%, Barclay's down 6.7%, ING down 6.4%, Deutsche Bank down 5.7%, and Standard Chartered down 5.7%. The FTSE in England was down 3.2%, the DAX in Germany down 3.3% and the CAC-40 in France down 3.4%

Credit default swaps (insurance on bonds) rates rose precipitously throughout the Gulf region - another blast from the Credit Crisis past. The problems in Dubai have been brewing for a long time and it is hardly the only place in the world where there are financial problems remaining. It is merely the first new blow up. Dubai's faith was sealed with the general global collapse in 2008. The government has been stonewalling its creditors ever since, assuring them everything was fine. Earlier this month, the ruler finally told Dubai's critics to shut up. In February, Dubai received a $10 billion bailout from the UAE central bank. On Wednesday, another $5 billion was forthcoming.

Predictably, money moved into the U.S. dollar as markets reacted to the latest crisis. Considering the the trade-weighted dollar plunged on Wednesday, falling as low as 74.23, a rally was not unexpected as is. The yen hit a 14-year high against the dollar and rumors are rife that the Bank of Japan might intervene to drive the yen down, like the Swiss central bank did on Thursday when it sold francs against the dollar. Spot gold managed to eke out another all time high by a couple of points in early overseas trading Thursday after its strong rally on Wednesday. It then fell as low as $1180, but then bounced back up to $1190.

Stocks in Asia got clocked again in Friday trading. The Nikkei in Japan was down 3.4%, closing at 9082. For those who haven't been paying attention, the Nikkei broke key support at 10,000 a while ago - the weakest stocks market usually sell down first. Shanghai was down 2.4%. Hong Kong and South Korea had the biggest damage though, falling 4.8% and 4.7% respectively. Traditionally, a one drop of 5% or more is considered a crash. .

The global market contagion moved to New York this morning. The Nasdaq gapped down 58 points or 2.7% and the S&P 500 was down 25 points or 2.3%. The Dow, which takes a long time to open when there is major news, was down around 200 points or 2.0% on the first print. The dollar was as high as 75.58 today so far. Oil got hit more than any other asset and was down 5% at one point falling as low as $72.39 a barrel. Gold plummeted to $1139 around 2AM New York time, but has already traded as high as $1178 today. All the major European markets gapped down strongly, but turned positive for the first time around 7:30AM. They will close up nicely.
U.S. markets close early today and volume is incredibly light which allows for large moves in either direction. Monday is the key day to see if there is going to be any long-term impact from the Dubai fallout.

Disclosure: Long gold.

NEXT: Dubai Default Damages Denial

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.

Stock Market Gappy, Inflation Worries Surface

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:

Global market weakness started again in Asia last night. At one point, the Shanghai market was down more than 5%, but recovered slightly to close down 4.3%. So far this month Shanghai is down almost 20%. Hong Kong was down 1.7% and the Nikkei in Japan was down 0.8%. This was a greater amount that their dead cat bounces on Tuesday. Europe was down strongly this morning and the U.S. markets gapped down again, just like they did on Monday. Strong buying came in immediately to fill the gap. The gap on Monday was partially filled in Tuesday's trading.

Since the market has had a long rise and has been flat for a few weeks now, a gap down where the gap is not filled would be a breakaway gap (or more appropriately a breakdown gap). This is the only type of gap that doesn't have to be filled. The breakdown gap establishes a new ceiling for trading and indicates the beginning of a longer sell off. This hasn't happened yet, but there were two almosts in the last three days. The VIX (volatility index) had its third spike up on the open in three days. When the VIX goes up, stocks go down. The dollar was just above 79.00 recently, still keeping above its 78.33 breakdown level.

A survey of fund managers by Merrill Lynch indicates fund manager optimism is at its highest level in 6 years. This is a contrary indicator. Fund managers love buying at the top and selling at the bottom, which is why as much as 85% of mutual funds fail to beat the S&P 500 in any given year. This doesn't mean the market is going down next week however. Within the next few months though is quite possible.

There are some important articles out today about inflation. One states the Fed has no exit strategy from its stimulus programs (in fact, it is extending them). The one getting the most attention though is an Op-Ed piece by Warren Buffet in the New York Times, entitled "The Greenback Effect". Buffett very gently points out that printing money can cause inflation and there could be trouble on the horizon for the U.S. While the New York Investing meetup has been pointing this out for the last two years, this reality-based view is not supported by the government, Wall Street or the mainstream media. Buffet deserves credit for stating the obvious.

NEXT: Oil Up; Retail, Employment and Economy Down

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.

Japan Climbs Out of Recession...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:

Japan's second quarter GDP figures were released last night and indicated the economy grew by 3.6% on an annual basis. This was after a 14.2% decline in the first quarter. What caused the turnaround? 'Government stimulus measures' as usual were cited and a big increase in export growth. Internal demand remains incredibly weak. Japan joins Germany and France, which also climbed out of recession thanks to government stimulus measures. The United States, the king of government stimulus measures, is predicted to join them in the third quarter.

This is not the first time Japan has 'recovered' from or avoided recession thanks to government stimulus measures. This also happened in 1993, 1997, 1998, 1999, 2001, 2004 and now after the 2008/2009 recession. Japan is very good at recovering from recession. The only problem is that it is even better at falling into recession. Insolvency of the banking system - the current problem in the U.S. is almost identical - is what has caused the two-decade economic nightmare. Residential real estate in Tokyo lost 90% of its value from the bubble top. Top A level commercial properties declined 99%. So far the stock market had a 18 year sell-off there after bottoming last October (assuming it doesn't go lower again). The Nikkei fell 3.1% last night. Hong Kong was down 3.6% and Shanghai down 5.8%. Apparently the good news wasn't good enough.

Problems in the market began last Friday, when U.S. Consumer Confidence suddenly dropped. Economists had predicted it would be going up. Imagine, consumers are becoming less confident even though unemployment is likely to be a major problem for at least another year (by economists own admission) and their income is likely to continue to fall. Who could have predicted that not having a job or money would make consumers less confident? Certainly not U.S. economists. And how are consumers going to increase their spending under such circumstances? Obviously they aren't going to. So much for the 72% of the U.S. GDP (based on 2008) that consumer spending is responsible for getting better. Nevertheless, I have little doubt that U.S. GDP will be positive next quarter - although people who insist on dealing with reality will have trouble understanding how this occurred.

The stock market was buoyed when second quarter U.S. GDP was released a couple of weeks ago. It was a major surprise that the decline was only 1.0%. What caused this better performance? Nothing involved with consumer spending or industrial production (although there were claims that the auto industry was doing better - try not to laugh). Government stimulus measures were the key. Federal government expenditures were up 10.9% in the quarter and state expenditures were up 2.4%. How state expenditures were up when at least 20 states are facing major budgetary problems is not clear. Like Japan though, as long as the U.S. keeps up the government stimulus measures, it will be good at climbing out of recession. It will probably be able to do so over and over and over again in the next decade or two.

NEXT: Monday's Ugly Market Action

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


This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

The Bull Heard Around the World

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:

Almost every market throughout the world rallied on April 1st. In the morning (New York time) things didn't look promising. While most Asian markets had closed up nicely, all European bourses were down well into their trading day. Stocks in New York then gapped down sharply. Within a relatively short time, both New York and Europe reversed and then closed with good numbers. Today has been even more bullish. In Asia, the Hang Seng rose over 1000 points, closing up over 7%. The Nikkei went up over 4%. The Dax in Germany closed up more than 6%.

The European rally was helped by the ECB cutting interest rates by 25 basis points to 1.25%. They are also considering buying up toxic assets which the Fed in the U.S. has been doing for sometime now. At the G20 meeting in London, France and Germany pursued stronger financial regulation aimed at tax havens, hedge funds and rating agencies. European leaders said they had no need for stimulus plans because their more generous welfare systems kick in automatically with benefits for more people as the economy deteriorates. Obama kept emphasizing that 'we are all in this together'.

Meanwhile in the U.S., the financial accounting standards board FASB gave companies more leeway when valuing assets and reporting losses, providing a potential boost to battered banks' balance sheets. The mark to market system, will now be replaced with a mark to fantasy system. FASB made its move because of pressure from Capitol Hill. Our elected representatives are demanding rules that help companies mislead investors. In case you had any doubt whose side they are on, it should be pretty obvious with this action. If this was actually something that worked, Enron would managed to have avoided imploding and still be in business because it lied about its financial numbers. The banks may be able to carry on however since they have an apparently unlimited supply of freshly minted federal money available for continually bailing them out. Of course, like every other free lunch program the Feds have come up with, the costs for this one will be heavy indeed.

Money has flowed into stocks globally in the last two days and this indicates the big money is supporting the current rally - at least for awhile. The media has been filled with reports in the last week about how the rally was going to end any moment and investors had better get out. When it comes to deciding whether or not to listen to some know nothing windbag media pundit or the market, always chose the market. There is still a lot of danger in the financial system however with a lot more blow ups awaiting us. Enjoy the party while it lasts, but don't stay too long. The U.S. Employment Report tomorrow may trim the sails of this rally temporarily.

NEXT: U.S. Unemployment Rises to 15.6%

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.

Herbert Hoover Policy - Working Just as Well Today as in the 1930s

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:

Congressional Republicans got in touch with their Herbert Hoover roots last night when they defeated the proposed $14 billion auto bailout. Republicans wanted wage concessions from union workers, even though they failed to be as specific in reigning in multi-million dollar banker and broker salaries when the $700 billion Wall Street welfare bill (TARP) was passed. Fiscal conservative when it is convenient, Republican Senator Grassley, stated "I think it would appear that the people who voted against this are carrying out the will of the voters as expressed through the phone calls to our offices". While calls against TARP to congressional offices ran up to 100 to 1 against the bill, a large number of Senate Republicans saw no need to carry out the will of the people in that case. Senator Grassley was among that group.

While I am generally opposed to bailouts, I am 100% opposed to hypocrisy and governmental stupidity. You can make a case for bailing out no one and you can make a case for bailing out everyone, but bailing out some companies and industries and not others produces the worst results at the highest taxpayer cost. Ultimately the U.S auto companies will be bailed out, either immediately through funds released from TARP by President Bush (the White House released a statement this morning saying it was thinking about it) or when the new congress meets in January. The justification for putting Wall Street on the dole for $700 billion and refusing $14 billion dollars for the car makers is simply not going to fly.

Ironically, the most negative reaction to the failed auto bailout bill took place in Asia overnight. Both the Nikkei in Japan and the Hang Seng in Hong Kong had crash level drops of 5.6% and 5.4% respectively. Japanese and Korean auto stocks were the most pummelled, falling around 10%. The Yen rallied strongly against the dollar reaching 88 to 1 range at one point. Oil (light sweet crude) fell to the $46 range, still well above its low of $40.50 reached several days ago. European indices was spared the full carnage because an announcement of a new $267 billion economic stimulus plan for the 27 country eurozone was released in the morning their time. While U.S. stock futures were way down before the opening, the selling was muted (not accidentally I might point out) by the White House's conveniently timed statement on the possible use of TARP funds to bail out the auto makers.

While the Herbert Hoover administration actually implemented a number of programs to deal with the collapsing U.S. economy in the early 1930s, these programs were spotty and inconsistent. Hoover himself frequently chose denial over reality in dealing with the unfolding depression, even going so far as to give a press conference in June 1930 announcing that the depression was over (it was actually just beginning). The U.S. congress seems determined to follow in his footsteps.

NEXT: Indecent Exposure - Madoff Caught Swimming Naked

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.

The Stock Market's Early Returns

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 the election doesn't appear to have resulted in the worse possible outcome for Wall Street, what did occur was interpreted by the market negatively enough to cause a small crash today. So far Obama has won the presidency by a 7% plurality, although based on turnout estimates several million votes seem to be missing from the tally. The Democrats have picked up at least five seats in the Senate and have solidified control, but the filibuster proof majority remains elusive for them. Four seats - Georgia, Minnesota, Oregon, and Alaska - are still undecided however. Currently the Republican is ahead by 500 votes or less in Minnesota and Alaska and recounts will be taking place. All the ballots haven't yet been counted in Oregon's mail-in-only election, but it looks like the Democrat will win when they are. As of now, Georgia is heading toward a run-off election next month because neither candidate got 50% of the vote. Alaska would have to have another election as well if convicted felon Stephens wins, since he will probably be expelled from the senate by early next year at the latest. Current tallies indicate that the Democrats picked up around 20 seats in the House and will have between an 81 an 88 vote majority.

Inexplicably the market rallied while the voting was taking place, with the Dow closing up 305 points or 3.3%. This was the biggest rally since 1980 when the market was first opened on election day. The previous biggest rally was a 1.2% gain in 1984 when Reagan defeated Mondale in a massive landslide that was universally predicted. Today, after seeing the returns all the major U.S. stock indices dropped 5% to 6%. Previously this would have been a headline news, but a drop of this magnitude has become commonplace in the last two months of high volatility trading.

Volatile markets are of course not healthy markets. A 305 point Dow rally yesterday, followed by a 487 point or 5.1% drop today should not inspire confidence. The S&P and Nasdaq were down a slightly greater percentage and the Russell was down the most with a 5.7% drop. Oil dropped $5.23 a barrel after an even bigger rally on election day. When Japan opened, the Nikkei followed the U.S. markets down, ending its morning session with a drop of 5.7%. The Hang Seng in Hong Kong was having an even bigger drop, while the Shanghai Composite hit a two-year low before attempting a recovery. Like the Nikkei, Korea and Taiwan were experiencing crash level drops at mid-day while Singapore and Australia were down somewhat less than 5%. If anything, volatility in Asian markets has been even greater than in the U.S.

In the longer term, there is a lot more to consider than the 5% to 6% drop in the U.S. markets today. Since September 2007, the New York Investing meetup has pointed out how the Federal Reserve and the Treasury have attempted to prevent and cover up economic problem before the presidential election. Well, the election is now over. Some of these actions may now start to unravel. If so, we shall begin to see this in the next month or two.

NEXT: When Stimulus Ceases to Be Stimulating

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.

Start Looking for Capitulation

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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Another market bloodbath took place in Asia last night. The Nikkei fell a further 6.4% and took out its 2003 low of 7603 to close at 7162. This is now a 26 year low and it's not clear that even 18 years of selling has been enough to establish a long-term stock market bottom in Japan. The surging Yen is crushing exporters there. Drops were even bigger elsewhere, with the Hang Seng in Hong Kong falling 12.7% to close at 11,016. The 10,000 support level, broken during the Asian financial crisis in 1997, seems to be acting as a magnet for the index. The Philippines market, after dropping 12.3%, halted trading. Only Korea was up slightly after it cut interest rates three-quarters of a point, the largest cut ever there. The U.S. Fed, which is meeting this week, almost certainly took notice.

While the Yen is going up against the dollar, the euro continues its fall and hit 1.2461 in overnight trading. Oil hit 62.20 and is now down 57% from its mid-July high. The drop has been so sharp and so quick that gas prices in the U.S. have fallen 53 cents in only two weeks - just in time for the November election, where the high cost of fuel was a major issue eroding voter support for the Republican party. The U.S. dollar's strong rally against almost all currencies other than the Yen, engineered by central banks acting in concert starting this summer, is partially responsible for the fall in oil prices. Their dollar support activities have been so 'successful' that the trade weighted dollar was above 87.50 early this morning. If the rally continues, this could cause U.S. exports to drop off a cliff, as they did in the early stages of the Great Depression, and take the economy with them. The American financial media, which published one story after another about the beneficial effects of a falling dollar when the U.S. currency was sliding, has so far ignored the flip side of this story.

European markets, down in the 4% to 6% range in early trading, started paring their losses by mid-day. The U.S. markets did not open down that much, but it's the close that will be important. The Treasury announced today that it would begin distributing it gift bags of money from the Wall Street bailout bill to banks and this may be helping to limit selling. The U.S. Fed will be meeting this Tuesday and Wednesday and a 50 basis point rate cut is expected - more is possible and that would rally the market if it occurs. The New York Investing meetup predicted in fall 2007 that the Fed would move rates close to zero and this prediction seems to be coming to fruition.

Stocks are extremely oversold and resistance to further selling has been evident for the last few days of trading. Buying on any major drop should now be considered. It is likely that soon some event will take place that will rally the market and its beaten down segments. While the financials may still be overpriced (doesn't mean they can't rally substantially in the short term), sectors like the precious metal miners have been fallen to truly bargain level prices. Buying at a real discount is always a good way to make money in any market.

NEXT: Short Covering Rallies, Explosive and Brief

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.

Stock Market Enters Bermuda Triangle

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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In technical analysis, a symmetrical triangle pattern usually indicates a continuation of a trend. The U.S. market indices look like they are making such a pattern on the charts. Triangles aren't the most reliable of chart patterns however and a break on both to the upside and downside is possible. If a downside break occurs, and this has not happened yet, then look for a test of the intraday lows of of around 7850 on the Dow, 840 on the S&P 500 and 1542 on Nasdaq. If successful, this could put in a double bottom and make a rally possible. A break of these levels would indicate a test of the 2002 lows on the Dow and S&P, at 7200 and 775, would likely take place.

While Monday was a good rally day in the U.S. markets, the action took place on below average volume indicating a lack of conviction in the buying. On Tuesday, the Dow was up an hour before the close and then experienced approximately a 250 point drop to end down 232 or 2.5% (It's volatility like this that is preventing the the market from getting anywhere on the upside). The Nasdaq was the hardest hit of all the indices because of bad tech earnings. It dropped 73 points or 4.1% to close below 1700 at 1696. The selling continued overnight in Asia, with Japan, Hong Kong and Korea experiencing another crash day. The Nikkei was down 6.8% or 632 points, but was still well above its 2003 low. Financials bore the brunt of the selling in Japan. The Hang Seng and KOSPI were down 5.2% and 5.1% respectively. Oil fell below $70 a barrel in Asian trading.

Things were a little better in European trading this morning, but not much. The 3 major indices, the FTSE, DAX and CAC-40 managed to hold their losses at the 4% level, just below the criteria for a crash. In a surprise move, Hungary raised interest rates 3% to protect the collapsing Forint. Surprisingly, despite all the global negativity, U.S. stock futures were up early on in pre-market trade. Wachovia's announcement of a $24 billion quarterly loss, the biggest for any U.S. financial company ever, seemed to have turned sentiment highly negative.

By a number of technical criteria, the U.S. markets should have bottomed by now. There has of course been a short-term rally, but the market is having trouble holding it. Not that the monetary and fiscal authorities haven't been trying to assist it, with one new program after another - and you can expect another 50 basis point rate cut from the Fed next week as well, with Fed funds returning to the 1.0% rate that caused the credit crisis in the first place. Right now bad earnings and negative outlooks are causing stocks to sell off. None of the major problems with the financial system have been permanently solved however. Expect them to continue showing up again and again, just when you least expect it.

NEXT: The House of Cards Economy

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 Much for That Rally

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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Yesterday, U.S. Markets returned to the level of last Friday's close, with the big rally gains of Monday being wiped out after only two trading days. If you measure a crash by a closing drop of 5% or more, it was the fourth market crash day for U.S. stocks in a little over two weeks. The drop started in Europe, with mining stocks and financials being particularly hard hit, but Europe had closed before the worse selling hit the U.S. at the end of its trading day. In Asia, the Japanese and Korean markets were pummeled, but the Hang Seng managed a partial recovery. As bad as things were, no world market could even come close to 77% total meltdown experienced in Iceland when its market was reopened on Tuesday.

Wednesday's trading pattern was somewhat unusual with the S&P 500 dropping more than the Nasdaq and much more than the Dow -the S&P is filled with both financial and energy stocks (light sweet crude dropped to $74.54 during the day and fell even further to $72.66 in Asian trading). While the Dow lost 7.9% or 733 points, the Nasdaq was down 8.5% or 151 points, the S&P fell 9.0% or 90 points. Only the Russell 2000 was off more, falling 9.5% (also representing a change, until recently small caps were outperforming big caps). The Dow broke 9000 again to close at 8578, although the S&P held above the 900 level to close at 908 and Nasdaq hasn't yet returned to the 1500s, closing at 1628. While at least one major news outlet reported this was the biggest drop in the U.S. since the 1987 crash (they were presumably taking about the S&P),it was actually only the biggest drop on the Dow since this September 29th.

Asia markets were more mixed than the U.S. The Nikkei in Japan was down over 1000 points again, dropping 11.4% or 1089 points. The close of 8458 was still above the 2002 bottom. Although, Korea dropped 9.3%, the Hang Seng rallied off a greater than 8% drop to close down only 4.8%. Surprisingly, Australia was off just 6.7%. Considering the concentration of natural resource stocks in this market and that miners had started selling down in Europe because of falling demand for commodities from China, this was a relatively good performance. Problems in Asia were followed on Thursday morning with European markets experiencing further selling so that combined with their trading on Wednesday, they experienced similar drops to those that had taken place in the U.S. The Russian market, actually opened for a change, was the worst hit Thursday with an almost 9% drop.

The U.S. markets are testing the lows from last Friday and need to hold at this level if a multi-week or longer rally is to take place. If the lows are broken more than a small amount, the next stop will be the 2002 bottom for the Dow and S&P 500 or around 7200 and 775 respectively and 1500 for the Nasdaq.

NEXT: Dr. Evil and MiniMe Loot the U.S. Treasury

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.

Stock Market Rallies Like It's 1932

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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Increases in liquidity show up in the stock market immediately and in the economy months later, but are not fully reflected in the inflation rate until years later. Yesterday's promise of UNLIMITED liquidity for the banking system in Europe (backed up by the U.S. Fed) along with the announcement of several trillion dollars in financial company bailout programs created the biggest global stock market rally ever. The future effects on the global economy remain to be seen. The likely biggest global inflation ever will not be showing up for awhile.

The Dow was up 936 points yesterday or 11.1% to close at 9387. The S&P500 was up 104 points or 11.6% and reclaimed the 1000 level by closing at 1003. Nasdaq rose 195 points to 1844 and was up 11.8%. Small caps, which have held up better than any of the other indices saw the smallest rise, with the Russell 2000 up 48 points or 9.3%. Before the rally, the Dow had fallen 40.3% from the high that it had reached on October 9, 2007 (a bigger percentage loss than in the 2000 to 2002 bear market) and had fallen eight consecutive days for a loss of 22.1%. While the points gains were impressive on Monday, the volume was nothing to write home about. Nasdaq only managed to break just above its average daily volume level at the close. Volume on the Dow was more enthusiastic, but not spectacular. Although yesterday's point rally in U.S. stocks was the biggest ever, in percentage terms it was not. Comparable and even bigger rallies took place in the U.S. during the 1930s Great Depression, but have not been seen since.

A rally of similar magnitude to the one in the U.S. took place in the world's other bourses as well. In Europe, the FTSE 100 in the UK was up 8.3%, the CAC-40 in France up 11.2% and the DAX in Germany was up 11.4%. The Hang Seng in Hong Kong rallied 10.2%. Japan was closed on Monday, but got two days of rallying in by rising 14.2% when it reopened on Tuesday. The Nikkei was trying to test test its 2003 low (which took 12 years of selling for it to reach) of just above 7600 last week. If it can manage not to break it in the next few months, the Japanese stock market may finally have bottomed after almost two decades.

Options expire this Friday and the current rally is likely to be sustained until this support for the market runs out (since August 2007, options expiration week has been the time for major stock rallies in the U.S). Today is already starting out as another big day for stocks, but be ready for any possibility. Extremely big rallies, which are typical of bear markets, are not necessarily good news. They certainly weren't during the Great Depression.

NEXT: So Much for That Rally

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.

Today's Global Stock Market Meltdown

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 Videos Related to this Blog:

A market sell off spread around the globe last night and is about to reach U.S shores as this is being written. This current round of selling was precipitated by a banking crisis in a number of European countries and in Korea over the weekend. Several Eurozone states moved to guarantee bank deposits and large bank bailouts from last week had to be restructured to make them work. The Asian bourses and Israel was the first to open after this news and the pronounced selling took place from the get go, with a number of exchanges recording crash level drops.

The trouble started on Saturday when the a plan for a coordinated bailout of the European banking system fell apart. Sunday, Germany moved to guarantee all bank deposits (Ireland was the first to do so last week). Austria and Denmark quickly followed suit and then so did Sweden . At the same time, Euro governments moved to shore up a number of troubled banks to prevent the problem from spreading. Germany had to restructure the rescue deal for lender Hypo Real Estate (after only one week), BNP Paribas agreed to buy a majority stake in Fortis which had been partially nationalized by Belgium and the Netherlands last Monday, and UniCredit, Italy's second-biggest bank, announced that it needed to raise capital. Tiny Iceland looked like it was about to become the first country with a banking system that completely collapsed. Across the world in Asia, South Korea's finance minister said Korean banks were having trouble securing funds in foreign currencies and that the government would offer loans from its reserves.

When markets resumed trading, the results were ugly. Israel was down 7% at one point, as was Russia. The Hang Seng in Hong Kong and the mainland Shanghai index experienced crash level drops of 5.0% and 5.4% respectively. Indonesia was the worst hit market with a 10% drop. Australia, India, Singapore, South Korea and Thailand were hard hit as well. The Nikkei in Japan was in slightly better shape than China, falling only 4.25% to 10,473 (well below the low of 14,000 plus bottom that it hit in 1992).

Europe, which is still trading as this is being written, followed Asia's lead. The major stock indices - the DAX in Germany, the FTSE in England, and the CAC-40 in France all fell between 4% and 5% after trading opened. Smaller countries were fairing worse with Norway down 6% and Austria down more than 8%. Oil fell to just over $90 a barrel, but gold and silver were rallying as is usually the case during financial crises. As happened last Monday morning, the precious metal rallies were taking place even though the U.S. dollar was up (the euro was down two cents against it).

As has been the case ad nauseum, central banks in Europe were pumping huge amounts of liquidity into the financial system to control the crisis. None of the previous moves have had any lasting effects, nor will this one. The next likely government action is a coordinated global interest rate cut, which we should be seeing soon. When this doesn't work, you should assume that trading bans (such as no short selling at all) will be extended and then no selling at all will be allowed because the stock markets themselves will be closed down for a day or two or even a week or more.

The U.S. markets have just opened with the Dow down almost 300 points and the Nasdaq down more than 50. It should be an interesting day.

NEXT: The New Crash Monday Phenomenon

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.