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.

Market Puts on Inflation Trade Because of Mumbai Mamba

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 you were watching the U.S. market this morning, you saw sudden moves up in natural resource stocks, materials, and commodities. Emerging markets are the key to global demand for materials and the meltup in the Indian stock market is bullish for this sector as well as the usual inflation hedges gold and silver. While one mainstream stock market 'expert' after another has continually warned about the punk U.S. economy and encouraged bearishness on the part of investors, the New York Investing meetup has been telling the public that commodities bottomed this winter and to get in on the action. The place to watch isn't the U.S or Europe, it's the developing economies and unless you keep your eye on the right ball, you'll never make any money in the markets (and the mainstream press will be there to insure you don't).

The Sensex in Mumbai opened up another 3% last night and after a volatile session managed to close up with a slight gain after more than a 17% rise the day before. Along with China and Brazil, India is one of the major growth stories of the world. Currently, it's use of natural resources is minuscule compared to the U.S., per capital oil consumption was only one twenty-fifth of the U.S. as recently as 2005. Like China, oil use in India is growing rapidly and has plenty of room for expansion for many, many years. India is the world leader in the use of one commodity however - gold. It is estimated that Indian consumers hold 20% of all the world's gold, putting the world's central banks to shame. Gold is the traditional form of savings there as it is in a number of developing countries. Will a richer India buy even more gold? If so, how much will this effect gold's price?

The one exception to bullishness from India showing up in hard asset stocks today is oil. Oil is struggling to get above its $60 a barrel resistance (it was as high as $60.99 in London before U.S. trading began, but fell back to the 59 level after our markets opened). I have no doubts it will break 60 soon, on its way to 70. The Memorial Day holiday in late May to Independence Day in early July is a particularly bullish one for oil. The manipulation of oil news (mentioned many times in this blog) also seems to know no bounds. What is happening in Nigeria is much worse than most mainstream media reports indicate. Why is the bad news being under reported? News reports last week were filled with bearish prognostications for oil as well, even though the weekly storage report indicated a major drop in oil on hand.

Gold and silver were weak on the open this morning, but turned around shortly thereafter. It is only a matter of time before they have significant breakouts. I was quite amused when I read a report this morning from an 'expert' who was warning that prices in the U.S. could double in the next decade. We will be lucky if they don't double in some 10 month periods in the next decade, let alone in 10 years.

NEXT: More Oil Disappears; Gold Investment Demand Skyrockets

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.

China Bails Out Asia - at Least for Today

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

Our Video Related to this Blog:

Finance ministers and central bankers from the Group of 20 (nineteen of the world's largest economies, plus the European Union) met in Brazil on Sunday and called for increased government spending to bolster the sagging global economy. The multi trillion dollar bailouts, massive liquidity injections, and sharp rate cuts in the last two months apparently haven't done the trick. To do its part, China promptly announced a $586 billion stimulus plan consisting of spending, subsidies, loser credit, and tax cuts. Unlike the rate cuts in Britain and the ECB last week, when the markets crashed the day they were announced, Asian markets rallied strongly on the news.

Not surprisingly, the Shanghai composite was up the most with a 7.3% gain. It is still down about two-thirds from its high last October, after rising in one of the most spectacular bubbles in history (bubble markets usually need somewhere between an 80% to 98% drop before they can stabilize). The Nikkei rose 5.8% on the news, after having hit a new low in its 18 year drop only recently. Intraday, the Nikkei has had approximately an 83% drop so far from its bubble high in 1990 to its current low. What the final number will be and when it will take place is anybody's guess. The Sensex in India, another bubble market, rose 5.8% as well. The dollar rallied against the Yen and natural resource stocks (inflation indicators) seemed to be the major beneficiaries of China's announcement. BHP Billiton, the world's biggest mining company was up 13%.

As the rally moved along with the sun to Europe, the enthusiasm dampened somewhat. Major European markets are up less than 3% as of this writing. U.S. pre-market futures indicate an even smaller rally here. Of course the Dow already rallied 2.8% on Friday, but this was after a two-day post election drop of around 10% (half of what would be necessary to create a bear market). The news of Circuit City's bankruptcy and AIG's third government bailout, with the total now up to $150 billion, will weigh on the U.S. market if rationality prevails - a dubious presumption at best.

In case there was any doubt previously, the economic policy makers for all the world's large economies are pursuing and will continue to pursue extreme inflationary policies. In many cases, this is being done to try to reinflate collapsing bubbles. There is no short-term likelihood of success in this endeavor. They will be successful however in igniting an inflation bubble. Although this is completely predictable, expect great surprise - and denial - when inflation starts to get out of control.

NEXT: Auto-Asphyxiation - GM, Ford Gasp for Bailout

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.