G-20 Meeting's Deficit Goals Are Meaningless

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 G-20 met this weekend and set a goal that member countries should cut their deficits in half by 2013. The agreement also calls for G-20 countries to start reducing their deficit to GDP ratio by 2016. Even with such easy to reach targets, success is by no means guaranteed.

For some reason the G-20 recently woke up and realized countries can't continue to forever spend a lot more than their income from tax receipts. Some of them have been doing just this for many decades at this point. The statement released from the meeting said, "Sound fiscal finances are essential to sustain recovery, provide flexibility to respond to new shocks, ensure the capacity to meet the challenges of aging populations, and avoid leaving future generations with a legacy of deficits and debt."  So at least ten years after the horse has left the corral, the G-20 now wants to close the gait.... but not all the way.

The original proposal for cutting deficits in half was changed from would to should because Japan, the U.S. and India objected. No one actually seems to think that Japan will be able to accomplish this goal. Japan is the most indebted major country on earth with its debt to GDP ratio reaching over 200% this year. Interestingly, the long-term budget projections of the Obama administration are for a deficit of $778 billion for 2013, which would be less than half of the $1.6 trillion projected budget deficit for 2010. The 2013 figure is still almost double the biggest deficit prior to the Credit Crisis however. It also assumes robust GDP growth and minimal inflation during the next few years. Another recession or rising inflation could easily move the U.S. deficit numbers back to well above a trillion dollars. 

European markets were up on the news today and the U.S. market is rallying slightly as well in morning trade. It should be clear to the markets that world leaders are not really serious about reducing government spending. Although, the markets might be worried that even small spending reductions could turn the global economy back down and risk another recession - assuming the first recession actually ended that is.

Disclosure: None

Daryl Montgomery
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.

The U.S. Dollar in Early 2010 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.


The U.S. trade-weighted dollar began a significant sell off in early March 2009 from the 89.00 level. By November 25th (the day before Thanksgiving), it hit its yearly low at 74.23. Almost as if on schedule, a rally began in December and lasted until the 22nd (right before Christmas). Trading was mostly flat in the first week of 2010, but off the December highs. Gold, which sold off as the dollar rose, rallied strongly in the first trading week of the year. The dollar is struggling and the technical picture now looks negative in the short-term. The December rally did nothing to reverse the intermediate or the long-term downward trend in the dollar. The currency hit its high in the mid-1980s.

The Euro and Swiss franc both peaked the day the dollar bottomed and bottomed the day the dollar peaked. The British pound, which should be a weak currency considering the extensive money printing taking place in the UK, peaked earlier on November 16th and bottomed later on December 29th. The Japanese yen, which rallied strongly starting in early April 2009, peaked on November 30th and bottomed so far on January 7th. The commodity-based currencies the Canadian and Australian dollar behaved somewhat differently. The Australian dollar peaked with the pound, but bottomed with the euro. The Canadian essentially traded flat.

The selling in the yen was sharp and powerful in the first few days of December and had the fingerprints of central bank intervention all over it. Export driven economies in Asia are becoming increasingly desperate to keep their currencies from rising against the dollar since this makes their goods more expensive and hurt their economies. On January 11th alone, at least four Asian central banks - India, South Korea, Singapore and Indonesia - bought U.S. dollars in the currency market. Unlike other currencies, the Chinese yuan doesn't float and this is negatively impacting its Asian neighbors and all other exporters. The Chinese are engaging in jawboning however to try to talk down the dollar. An investment strategist for the Chinese government sovereign wealth fund just commented that the U.S. dollar had bottomed, but the yen should be selling off. He further stated, "China now has a voice in influencing the dollar's exchange rate and the interest rate on U.S. government debt." For some reason, a laugh track didn't accompany the Internet postings of this news.

It is not surprising that the U.S. dollar rallied in December, even if the cause was central bank intervention. No asset, no matter how weak, can drop in price every day. There are always counter rallies, just as there are counter sell offs for assets that are going up most of the time. The underlying problem with the U.S. dollar is irresponsible monetary and fiscal policy. Until these are corrected, and it looks like they will only be getting worse for the next several years, a sustainable rally in the dollar against hard-assets is not possible. Central banks can intervene all they want, but the results will only be temporary. It should be kept in mind that exchange rates in and of themselves are not the only thing that is important. We are in an era when all fiat currencies globally are losing their value against gold. Unless something is done to stop this, paper money will eventually get to its intrinsic value, which is zero.
 
Disclosure: Long gold.

NEXT: A China in a Bull's Shop

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.

Falling Supply and Rising Demand Cause Gold to Soar

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:

February gold futures broke $1200 for the first time a little after 4AM New York time. February 2010 is now the major front month contract after the expiration of the December contract on November 30th. Gold futures were up 14% in November, the best monthly performance in ten years. Silver was also up 14%. Gold traded down only three days in November and hit one all-time high after another during that time. While the major U.S. stock indices were also up, gold and silver shined in comparison. Seasonally-weak oil was flat during the month. The trade-weighted U.S. dollar opened November above 76 and closed out below 75, hitting a new yearly low of 74.23 in the interim.

The price rise in gold is caused by a positive supply demand picture both for the physical metal and in the futures trading pits. For the last twenty years there have been three major sources of gold supply and three major destinations of gold demand. The sources for supply have been mining, scrap (also known as recycled gold) and central bank selling. The three majors uses for gold have been for jewelery, investment and industrial (contrary to popular belief, gold has a wide variety of uses in manufacturing, especially in electronics). Complicating the picture has been central bank leasing to miners, big banks and hedge funds that dumped significant amounts of gold on the market in the 1980s and 1990s and was a major factor in holding gold prices down. The unwinding of these positions, Barrick Gold closing out it hedge book is the most recent example, has been creating upward pressure on gold prices for several years now.

There are two major currents in the shift in market supply and demand. Central banks have shifted from the supply side to the demand side and ETFs have caused a major increase in investment demand. Up to mid-decade, central bank selling accounted for 14% of gold market supply, but in the first half of 2009, central banks became net buyers of gold. As supply dried up from central banks a new increase in demand was created by ETFs that buy and store physical gold. There are now eleven of these globally and none existed before 2003. Their gold holdings have gone from zero to 1766.40 tonnes in the last six years. The largest ETF, GLD, is now the sixth biggest holder of gold in the world (between France and China).

Gold mining has provided as little as 60% of market supply in recent decades. So far gold mining output peaked in 2001. It then fell seven years in a row until 2008. The only major producers with increasing output have been China and Russia. This may have more to do with their transitions from a communist to a more capitalistic economic model than with the contents of their gold mines however. South Africa, which was the top gold producer for much of the last 100 years, is experiencing a rapid drop in gold output and it looks like it will fall to fourth place in global rankings this year. It takes approximately ten years to open a new gold mine and gold prices only started rising in 2001 and many remained convinced for some time that the rally wouldn't last. So don't expect any significant increase in mining output until well after 2010. Barrick Gold closing out its large hedge book though is an indication that they believe gold output is likely to continue falling and prices to continue rising.

While high gold prices mean that jewelery demand will fall, the rise in investment demand will more than overwhelm any drop. In a number of developing economies, jewelery and investment demand are not actually distinguishable as is. Purchasing high-caret jewelery is the traditional method of investing in gold. While India has been the number one market for gold demand, China seems to be in the process of overtaking it. There were significant restrictions that limited gold buying by the Chinese until the early 2000s. Gold demand there has been soaring since the restrictions were lifted.

There are a number of major long-term trend changes going on in the gold market and none of them are likely to end soon. There is probably at least another decade before a new equilibrium is established and major shifts start occurring again and drive the price of gold back down. By the time that happens though, the price of gold is going to be much, much higher than it is today.

Disclosure: Long gold and silver.

NEXT: Is the Gold Rally Getting Frothy?

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 Real Story About Gold Supply and Demand

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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Just once I would like to see a media article that had a accurate supply and demand analysis for a commodity. Usually reporting is completely one-sided with only supply or demand discussed out of context. No matter how much detail is provided for one, it is meaningless unless you have information on the other. Media coverage of oil is notorious for providing this incomplete picture. The gold market is apparently not immune to it either.

Media reports today include "Gold Demand Falls 34% in 3rd Quarter: World Gold Council". A dire picture of falling demand for gold is painted. Supply issues are at least lightly, albeit very incompletely broached. While you are left with the impression that this news should be devastating for gold prices, if you check you will see that gold had a nice rally between July and September. Anyone who took the first week of economics 101, would immediately conclude the supply versus demand picture must have improved. Reporters are most likely to have been journalism or English majors and may not have even the rudimentary knowledge needed to be aware of this. They frequently miss the real story for the same reason.

Much is made in the gold supply figures about a drop in Indian demand, down 42% to 111.6 metric tons year over year in the third quarter. Not mentioned was that there are times that are considered inauspicious for buying gold in India and that period was twice as long in Q3 2009 as it was in Q3 2008. India consumer demand for gold is followed closely because it has been the number one source of demand for gold from seemingly time immemorial. However, World Gold Council figures indicate that the Chinese bought 128.6 metric tons of gold in the third quarter of this year outpacing the Indians. A little research also reveals that the Chinese bought more gold in the first half of the 2009 than the Indians as well. Retail price controls were only abolished in China in 2001 and since then consumer gold purchases have consistently outpaced GDP growth. China is clearly becoming the top market for gold knocking India off its perch. This is a big story. While that's the the headline you should be seeing, that's not what is being reported.

The World Gold Council also claims that investment in gold coins and bars were down 31% year over year and gold ETF inflows were down 72% year over year in the third quarter. If this is true, something has to be taking up the slack, either more demand elsewhere or decreasing supply. This is some vague reference in their press release about financial instruments and dehedging somehow creating more demand for gold. The specifics are not stated though. Hedging by mining companies is indeed dropping rapidly falling from 530 metric tons in Q3 2008 to 359 metric tons in the third quarter of this year. Barrick Gold (ABX) has been closing out its large hedge book and this has been helping to push gold prices up lately. Closing out hedges has the same effect for commodities as short covering does for stocks.

Miner hedges are only the tip of the iceberg however when it comes to short covering in the gold market. Mining hedges represent only around 20% of central bank leasing for gold. Central banks have been lending out their gold for years to miners, big banks and hedge funds (this is how they make money on their holdings). This usually results in an immediate sale of gold on the market and this was a major factor in keeping gold prices down in the 1980s and 1990s. Leasing has been in rapid decline during the 2000s however and you may have noticed the price of gold has gone up as leasing has diminished. It is estimated that there were 4300 metric tons of gold leased by central banks in 2004 and this was down to 2345 tons by the end of 2008.

The World Gold Council admits gold supply fell 5% in the 3rd quarter. There have been 3 main sources of market supply for gold in the last two decades - mining, scrap and central bank selling. So far gold mine production peaked in 2001 and then dropped year after year. It looks like it will be up this year. Supply from scrap is highly variable. Sales were 569 metric tons in the first quarter of this year, but were down to 283 tons in the third quarter. Central bank selling seems to have turned into net buying. Central banks accounted for 14% of gold market supply just a few years ago. This fell to 8% in 2008. Central banks bought a net 15 metric tons of gold in the third quarter of 2009 (this doesn't have anything to do with the Indian central bank purchase of 200 tons of gold recently, that took place in the 4th quarter). Central banks shifting from being a source of supply to a source of demand represents a major sea change for the economics of the gold market - something else that is worthy of headline coverage.

Spot gold has reached as high as $1153.90 recently and has been hitting one all time high after another in the 4th quarter so far. The market tells you what the actual supply demand picture is quite clearly. If it contradicts the information you are receiving, it is because that information is incomplete or wrong. Believing otherwise is a sure way to lose money.

Disclosure: Long gold, no positions in ABX.

NEXT: U.S. Interest Rates Go Negative 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.

Gold Rockets Higher

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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In a bull market there is always a higher price down the road for those who wait for it. Gold amply demonstrated this concept by hitting a new all time high yesterday (and again this morning). Tuesday's move was sudden and vertical and it took place even though the U.S. dollar was rallying strongly and stocks were selling off. While investors constantly worry about sharp sell offs, they don't usually consider that sharp rallies are also possible for bullish assets. While gold led the way up, silver and then the miners started tagging along shortly thereafter. Eventually all of the inflation trade assets followed. Look for this pattern to repeat.

At the 5:15PM end of New York trading, spot gold closed at $1085.30 yesterday, up almost $25. This took out resistance around the $1070 level. Gold was in a trading range between approximately $1050 and $1070 for awhile before testing its $1025 breakout point. Spot gold has gotten as high as $1094.30 early this morning. This is important implied resistance at $1120. Spot silver closed yesterday at $17.20 up 73 cents. It was up almost a dollar at one point. The 200% leveraged gold ETF DGP was up 4.7% and the 200% silver ETF AGQ was up 10.4% yesterday. Some mining stocks did even better. Novagold (NG) was up 13.2% and Hecla (HL) was up 18%. The U.S. trade-weighted dollar, after rallying strongly in the morning, lost its momentum and essentially closed flat.

What seems to have caused yesterday's gold burst is a story of karma worthy of a Hindi movie. As reported in this blog early Tuesday morning, India bought 200 tonnes of IMF gold. The sale took place during a two-week period that ended on October 30th. This news was generally available in the evening New York time on Monday. Nevertheless, more the one U.S. media outlet reported that India would be or was buying 200 tonnes of gold during the trading day on Tuesday. Gold which had been meandering in price suddenly started moving straight up on the intraday charts blowing out the shorts along the way. The karmic element comes into the story if you know India's past with the IMF. In 1991, during a financial crisis, India had to borrow money from the IMF and was forced to ship its gold reserves to London as collateral. Now they are buying the IMF's gold! Will a future time come, when a Western country has to borrow money from India and in turn be forced to ship their gold to New Delhi?

The movements of gold and the U.S. dollar in the last few days are significant for another reason as well. Since the Credit Crisis began the dollar has rallied before Fed meetings, during the meeting and at least into the day after the meeting. Gold has sold off in response. Things have changed noticeably this time. The Fed met yesterday and is meeting today. The dollar had the usual pre-arranged rally before the meeting and gold was weak, but then things went screwy. Gold suddenly shot to news highs on a big rally and the dollar rally faded as the meeting began. The dollar is already selling off strongly today before the meeting has even ended. Perhaps gold is just too strong and the dollar is just too weak for this manipulaton game to go on any longer.

NEXT: Inflation Trade Picks Up

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


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

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.

In for a Penny, In for a Pound

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:

The third quarter GDP figures for Great Britain were released last night and GDP fell 0.4%. I particular liked the headline "UK Still in Recession After Surprise Contraction" announcing the drop. This was the sixth quarter in a row that GDP was down in the UK. So who exactly was surprised by this? Probably just mainstream economists and anyone who reads the drivel published in their reports. One survey indicated that 100% of economic analysts had predicted that British GDP would go up this quarter - and they were all wrong. This is not uncommon. Mainstream economists frequently all ere on the wrong side of a number and are the last to know what is really going on in the economy. There is probably no profession as prone to group think and making errors in its predictions.

Once the GDP numbers were released there was immediate speculation that the Bank of England would increase its quantitative easing (aka money printing) program. The British pound fell by a penny almost immediately. This helped the trade-weighted dollar rally, since the pound is one of its components. The dollar rally was most noticeable when U.S. trading opened however. Gold and silver which reacted bullishly in overnight trading to this potentially inflationary news, dropped straight down after the U.S. markets opened. We have seen this pattern over and over again. A knowledgeable cynic would claim only blatant manipulation of the dollar and the precious metals markets backed by the U.S. government could account for it.

It's only a matter of time though before gold breaks out from its current trading range between $1050 and $1070. Indians spent $2.15 billion buying gold last week during their festival period. Gold sales were 5.7% higher than last years. India has accounted for 20% of global gold demand for many years now. There were a number of reports released by the gold bears in September about how the high price of gold would severely damage gold demand in the subcontinent this fall. It is now clear that that's not going to happen. Gold has traditionally been the way to store wealth in India and this habit goes back at least 2000 years. The Indians have never trusted paper currencies and over time have accumulated massive hoards of the precious metal. This deeply ingrained preference for gold is not going to disappear any time soon.

While Indian demand for gold is likely to remain high, it will probably be overwhelmed at some point by investment demand from ETFs and other sources thanks to the quantitative easing programs in the U.S. and UK. Jewelry has accounted for a majority of gold demand in the past. In India and other developing countries jewelry is purchased as an investment (the gold is frequently almost pure 22 caret as opposed to the diluted 14 caret gold used in jewelry in the U.S.), not as a luxury item as is the case in developed economies. Eventually, Westerners will find that the ancient habits of the East are just as good today as they were long ago.

NEXT: Interest Rates Break Out

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.

Building a BRIC House; Nat Gas and Market Update

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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The BRIC (Brazil, Russia, India, China) countries had their first ever summit yesterday. Much of the discussion centered around how they can diversify their assets out of the U.S. dollar - BRIC countries hold nearly one-third of overseas U.S. debt - without creating too much disruption. It would be more appropriate to state this as they are trying to find a way to dump their dollar holdings without causing the dollar to drop too much while they are doing so. They are considering buying each others debt. Whatever happens, they will be certainly be buying less U.S. debt in the future and you should assume they are slowly selling off their current holdings.

The implications for the U.S are dire. For the last three decades we have been dependent on borrowing money from foreign countries to fund out twin trade and budget deficits. While the trade deficit has improved somewhat with the recent collapse in oil prices (it's still very large), our budget deficit in 2009 is going to come in more than four times the previous record. Foreign sources were probably already tapped out before the Credit Crisis caused U.S. borrowing needs to balloon and now they are diminishing their lending instead. This will only force the U.S. to print more and more new money to cover its spending needs. This is the path Weimar Germany followed and it is what lead to their hyperinflation.

The trade-weighted dollar was at 80.23 this morning, still holding above its 78.33 break down level. Light sweet crude was as high as 71.73, but then fell back to around the 71 level. The Natural Gas storage report came out this morning and gas in storage increased by 114 bcfs, while expectations were for an increase of only 110 bcfs. UNG sold off 40 cents in the two minutes following the release of the data. I am not interested in buying though until it can get to around the 15 level. As of yesterday, the Dow has closed below its 200-day moving average three days in a row. So far today, it hit this line from below and bounced down. The S&P 500 and Russell 2000 have held above theirs. A break and close below for the S&P and Russell would be significant.

For some commentary from a Bloomberg reporter about the U.S. treasury bond smuggling case out of Italy and that was reported in this blog on Monday, please click below (if the URL doesn't work, try putting it into a browser):
http://www.bloomberg.com/apps/news?pid=20601039&sid=a62_boqkurbI
Whatever the truth is behind this caper, it is worthy of a James Bond novel.

NEXT: Quadruple Witching Today; Fraud Update

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

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

Market Rally at Key Juncture; Russians at it Again

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

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

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

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

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

NEXT: Best to Step Aside and Watch the Market

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

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

Market Meltup in Mumbai

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:

Last night, half way around the world in Mumbai, the hyperinflation early warning system sounded the alarm. The major Indian stock index, the Sensex, exploded up over 17% in a short period of the time. The market had to be closed because circuit breakers were triggered by the stock buying panic that sent the market into a meltup. What set off the bull frenzy? The ruling Congress party retained power in the recent elections - a relatively ordinary event. The stockplosion on the subcontinent should make every investor realize that India is a market awash with massive liquidity, otherwise a big market move like this would not be possible. India moreover is by no means unique, it's just early. The excess liquidity there is part of a global phenomenon that could create an inflation tsunami that raises or wipes out asset values throughout the world.

Despite what the mainstream media tells you, liquidity is what moves markets. The economy can be in the tank and staying there, but if there is a lot of liquidity in the system, stock prices can and do go up. The New York Investing meetup has constantly demonstrated at our meetings that the Fed is pumping liquidity into the U.S. banking system that is 10 to 50 times greater than anything during the last half century. Many economic 'experts' (mostly the same people who didn't see the credit crisis coming) are optimistic that somehow all of this huge money creation is magically not going to result in a massive inflation surge that is like nothing the world has ever seen. The events in Mumbai last night are telling us otherwise.

Hard assets are the investments of choice during inflationary times. Gold, silver, oil, and food are the four pillars of investing during these periods. The price of stocks go up as well because the price of everything goes up, although they are rarely the best performing asset class. You want to get into inflation sensitive investments early and you want to wait once you do. Based on last nights events, it is quite possible that the wait won't be that long.

The New York Investing meetup is having a class on Inflation Investing Tuesday May 19th. For more information, please see the website: http://investing.meetup.com/21.

NEXT: Market Puts on Inflation Trade Becuase of Mumbai Mamba

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.

Government Thinks It Knows Best, Market Disagrees

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:

If the Obama administration is trying to crash the U.S. stock market they are doing an excellent job. If not, they should all take a class in PR 101. The U.S. government announced that it is displeased with the progress the automakers have made with their restructuring plans (like somehow the government knows how to run an auto company), got the CEO of GM to resign, and is threatening to withhold bailout money from them and force them into bankruptcy. This would be devastating to the economies of the politically important swing states of Michigan and Ohio and for this reason it is not likely to happen. Nevertheless, all investors are paying this morning for this political cat and mouse game, with both the Dow and Nasdaq selling off around 4% as I write this. A crash level drop of 5% is a real possibility at the moment.

When the automakers received their first bailout in the fall, this blog stated it was only a stopgap measure to tide them over until after the election and a new bailout would be needed then. This has indeed happened right on schedule. While we constantly say, there is no such thing as a single bailout for an insolvent financial institution, the same is obviously true in many other industries as well. There is also no question that the automakers have been some of the worse run companies in the U.S. for decades, at least until the banks and brokers took the lead in this respect in the 2000s. Bailouts almost always have long term negative consequences, but this has not stopped the U.S. from establishing a de facto 'too big to fail policy' and it now seems to be moving toward state directed corporate socialism. Government management is an oxymoron if ever there was one. This is out of the frying pan into the fire economics.

Also weighing on the market is the upcoming G20 summit. Other countries, being led by Germany, are not interested in printing an endless stream of new money for economic stimulus plans and the BRIC countries want an alternative reserve currency. A coordinated policy for global stimulus is not likely to result from the meeting later this week as was hoped for by the Obama administration. This leaves the U.S. and Britain, the big money printers, holding the bag. Consequently, both are likely to have to print more money in the future. The BRIC (Brazil, Russia, India and China) countries want to establish a new reserve currency, at first consisting of a blend of dollars, euros, yen and pounds. No immediate policy shift will officially take place at the summit, but this likely represents a sea change in international currency policy. Both pieces of news are devastating for the U.S. dollar, which somehow ignored reality this morning and rallied strongly.

While it would be nice to do so, investors can't ignore politics. Deep down, there is really very little difference in a number of respects from the current administration and the last administration. Spending huge amounts of taxpayer money on bailouts was and is part of the agenda. If the spending can't fully be funded with taxpayer money (and this was a reality from the beginning), any amount of money necessary will be printed to cover the costs. The dollar will eventually lose a lot of its value because of this and there will be a lot of inflation. The Bush administration though was at least aware of the sensitivities of the stock market, while the Obama administration seems oblivious at best. The drop this morning, taking place during a nascent rally, is not the first time the current administration has stuck its foot in it and it probably won't be the last.

NEXT: Next Few Trading Days Are Important

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.

Muriel Siebert Discusses the 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. 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.

At the January 9, 2008 meeting of the New York Investing meetup, I had the pleasure of interviewing stock market legend Muriel Siebert. In 1967, Siebert became the first woman to have a seat on the New York Stock Exchange. In the mid-1970s, she was appointed Superintendent of Banking for New York State. No bank failed under her tenure. In her more than 50-year career on Wall Street, Muriel Siebert had personally witnessed almost the entire post World War II financial era. She had seen it all and had done it all.

Highlights of the this historical interview with Muriel Siebert have been condensed to three eight minute videos, which can be seen at:
http://www.youtube.com/watch?v=UHxRCNd0HSI
http://www.youtube.com/watch?v=bZLsD2DHvLw
http://www.youtube.com/watch?v=_tL2bOmkMwo

In the interview, Siebert indicated that things had changed considerably since the 1970s, the last period of high U.S. inflation. The U.S. had lost its dominant economic status and emerging economies around the globe were not as dependent on it as that had been previously. She also pointed out how their growth was creating a voracious demand for commodities and the wealth transfer from rising commodity prices enabled the takeover of major U.S. financial institutions by commodity producing countries like the Gulf states. She was not sanguine about the prospects for the U.S. dollar, pointing out that the U.S. needed to cut the deficit considerably to support it and the consequences of doing so would be severe.

Siebert said the she had seen nothing like the subprime crisis during her long career on Wall Street. She thought the abuses had been so extreme and damaging that some people involved in creating the problem should go to jail. Siebert asked, "Where were the regulators?; "Where were the rating agencies?"; and cited mortgage brokers as being key players in generating the large quantity of irresponsible loans. The subprime crisis wasn't the only thing she thought we had to worry about either. She mentioned the collapse of private equity and how this had helped juice the market up and that its loss would cause the stock market to fall.

Siebert pointed out the similarity between how Enron hid its financial activities and the banks had done so in the 2000s by pushing their subprime activities off-shore and off-balance sheet. She stated that under Sarbanes-Oxley that audits should be complete by March 31st and a clearer picture of just how extensive the damage was would begin to emerge. Her opinion was that no one really knew how big the problem was. Siebert mentioned the large amount of derivatives that now exist and the complete lack of regulation for them. She thought the we need global security regulation that should be instituted on a similar model as global banking regulations that are now in place. Siebert thought that there was too much leverage in the system and said this was what really scared her, although she concluded that she didn't see a 'total' collapse of the financial system.

NEXT: Central Bankers Gone Wild

Daryl Montgomery

Organizer, New York Investing meetup

For more about us, please go to: http://investing.meetup.com/21