BOE Kicks Off New Global Money Printing Cycle

 

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 like money printing. The Bank of England (BOE) today announced its own QE2.  Statments from Fed Chair Ben Bernanke and talk of the EU recapitalizing its banks was already juicing up global stocks before the BOE took this earlier-than-expected action.

In its latest round of quantitative easing, the BOE will be purchasing 75 billion pounds in bonds. While some news reports euphemistically described this action as the BOE will be "spending" the money, the correct phraseology is that it will be "printing" this money. The BOE has previously printed 200 billion pounds to buy bonds starting in 2008 during the first credit crisis. The U.S. Fed has already engaged in two rounds of quantitative easing (only one of many ways that money can be printed) and a third should be expected.

Stocks had already turned around on Tuesday with big rallies. Fed chair Ben Bernanke made a statement that he was willing to do more to help the economy. Bernanke has been "helping" the economy since he started lowering the fed funds rate in September 2007. While he has helped the economy, the U.S. has experienced the worst recession and worst bear market since the Great Depression in the 1930s, the official unemployment numbers have remained close to double digits, the U.S. has had the largest number of bank failures since the Savings and Loan crisis, and thanks to his quantitative easing, the U.S. has been able to run a series of trillion dollar plus budget deficits that are going to lead to serious problems in the future.  Why shouldn't markets rally with more of that in prospect?

In the short term, markets don't care about dire consequences that are somewhere down the road. They rally based on liquidity and money printing provides it for them. While the news that the EU is going to recapitalize its banks sounds positive, there is little if any discussion in any article about where the money is going to come from. For the answer, picture a giant printing press spewing out fresh euro bills at break net speed. Investors should also expect a lot of nationalizations as part of this process. Belgium has just announced it will take over failed bank Dexia (described by the news media as "troubled"). Dexia is the largest bank in the country.

Market volatility is common during credit crises. Investors should expect continued market selloffs interspersed with big rallies. Ultimately, money printing will not save the day however because real value can't be created out of thin air. The day that will happen, is the day that PIIGS will fly. 

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.

Critical Juncture for Dollar and Stocks

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 dollar began to break down on Friday. Intraday, it fell below the critical 78.33 support level, but managed to close at 78.38. It is hovering just above 78.00 this morning. The next few days should tell whether or not it is making a bottom or just falls apart. This is probably just as important for the stock market because the dollar and stocks have been moving almost perfectly inversely to each other since early March when the dollar peaked and stocks bottomed. A dollar rally should mean a sell off in the stock market.

The close and opposite relationship of the price movements of the dollar and stocks is unusual. The 1990s bull market took place while the dollar was rising, not falling. The same was the case for most of the 1982 to 1987 stock rally. So most of the long secular bull market from 1982 to 2000 was accompanied by a rising dollar. Much of the secular bear market rally that took place between 2002 and 2007 was accompanied by a falling dollar. The dollar dropping to new all-time lows in September 2007 because of the Fed's rate cutting campaign is what finally killed the rally.

A new dollar stock pattern seems to have begun last November when the dollar had a peak and stocks (and a few commodities) made a bottom. The initial relationship was quite jerky however and only smoothed out starting in March. Stocks going up and the dollar going down indicates a trade where people who go long stocks, short the dollar. Only the big banks, brokers and hedge funds are capable of engaging in this trade. It's not mom and pop investor. If the U.S. government is not going to let the dollar break down, this trade is going to have to reverse and stocks are likely to suffer.

While an inverse relationship between stocks and the dollar has taken place, this usual relationship for the dollar and gold has broken down. Gold peaked in late February and the sold off with the dollar until mid-April. It then rallied in early June and sold off again with the dollar until early July. This pattern makes no sense whatsoever. If the dollar rises, there is no reason the decoupling can't continue. August is usually gold's strongest month and gold acted very positively to Friday's GDP Report while the dollar had a vicious sell off. The reaction was so extreme that it looked like dollar traders actually read the report.

NEXT: Dollar Breaks 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.

Bank Profits Soar Even Though Business is Bad

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

Our Video Related to this Blog:

The Nasdaq hit a new high yesterday for the rally that began in early March. All the indices have had major rallies in the last several days, rising off a technical picture that indicated extreme weakness. Good earnings news, starting with Goldman Sachs and followed by the other major banks and brokers, bulled the market up. While the headline numbers look good, the rest of the picture indicates business is still deteriorating.

The two poster children of big bank insolvency, Bank of America and Citibank, released earnings today. Both had huge profits, but not because of their lending, which is what they are in business to do. Bank of America claimed a $2.42 billion profit, despite continued losses from failed loans. The bank had to increase its loan loss provisions by $13.4 billion. JP Morgan Chase also had increases in failed loans when it reported earlier. So how did these banks make money? It came from their trading businesses. Goldman also made huge profits from its trading business. It looks like all the big financials are making lots of money from their trading businesses. I wonder where all that money is coming from? Well, I guess it's good to have friends at the Fed and U.S. Treasury.

Citibank reported a profit of $3 billion, but only because it had a $6.7 billion gain on the sale of Smith Barney. As long as it can continue to sell Smith Barney every quarter, it's earnings will hold up. If not, it could be in trouble. Citi also recorded gains on assets that had lost value during the Credit Crisis, but which it claims are gaining back their value. In case you forgot, Washington changed the accounting rules awhile ago to allow the big banks and brokers to create an illusion of prosperity where none really exists. For some reason 'make believe' accounting didn't work for Bear Stearns, which literally went out of business overnight.

The banking system will not be healthy again until banks are lending and making money from their lending operations. This has not happened yet and increases in loan loss provisions indicates things are still getting worse, despite the half a dozen Fed programs to take these bad loans away from the banks. At this point, Bernanke has had two years to deal with this problem and he has yet to show any success with his give-away programs. His efforts have only helped the big banks cover up the existing problems. His side kick Geithner is now busy forcing CIT into bankruptcy, even though it lends money to a million small and medium size businesses. That's certainly going to help get more loan money into the economy. For those of us who want things to get better, 'make believe' seems to be the only option left open. Maybe we should close our eyes and try to wish hard enough.

NEXT: CIT - Last Minute Reprieve

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.

GM Bankruptcy End of an Era; Oil Rally Continues

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

Our Video Related to this Blog:

GM will declare bankruptcy this morning, striking a major blow to the prestige of American manufacturing. This is one more step, and a major one at that, in the end of the economic dominance of the U.S. In the future, historians will look back and cite this as a key event that represented a turning point and a significant failure in U.S. policy. GM is the largest industrial bankruptcy in American history. The new 'improved' GM that emerges from bankruptcy will be a socialized company with the federal government owning 60%. The government will be paying for its stake with $30 billion of newly printed money under the TARP program.

GM's bankruptcy is not an isolated event, but will be taking down a host of associated companies and this will have ripple effects throughout the economy. Two parts suppliers already filed for bankruptcy on Friday. The first major dealership, Chevrolet-Saturn, of Harlem, declared bankruptcy this morning, expect many more to follow. The problems are not limited to the U.S. either. There are apparently over 100 Japanese companies that have significant exposure to GM. There could be quite a few in other countries as well (I am sure they will all be delighted to do business with U.S. manufacturing firms in the future). The company will cut 21,000 employees or 34% of its work force during a time of rapidly rising unemployment, reduce dealerships by 2600 and close 11 manufacturing facilities.

Markets in Asia last night and Europe this morning were rallying. U.S. stock futures are up a the moment in the pre-market. Oil broke over $68 a barrel last night, breaking through resistance at 67. It was recently trading at 67.69 in mid-morning European trading. Once oil can hold above 67, the next stop is chart resistance at 70, which was the top during hurricane Katrina. Gold was as high as 988 and silver was in the 15.80s pre-market, both close to major breakout points. Silver is overextended on the technicals however, so it should have trouble getting to and staying above 16 at the moment. The trade-weighted U.S. dollar was priced at 78.79 this morning and is in danger of a major breakdown. There should be at attempt on the part of the authorities to try to save it, which might work for awhile and cause a temporary pause in the rise of gold and silver. It will be interesting to see how this plays out.

Markets which are bullish tend to go up the first few trading days of the month (and down when they are they are bearish). While oil, gold and silver look like they are in good shape, so do stocks for the moment. Nasdaq traded convincingly above its 200-day moving average four days last week (as this blog predicted it would). The Dow and S&P are both about to hit this line though and this will lead to stickiness at the very least. A failure of the stock rally is possible at this point, but that is by no means definite. The next week or two will be a key period for all markets which should tell us a lot.

NEXT: So Far This Doesn't Look Like a Top

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.

Silver, Oil, Gold - Market Screams Inflation is Coming

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:

Silver is having its best month in 22 years. It was up to 15.49 in overnight trading, getting close to important resistance around 16.00. Gold traded as high as 974 before the U.S. markets opened, inching closer and closer to that key 1000 level. Light sweet crude was trading at 66.18 at 8:00 AM New York time. It's next resistance is in the 67 area and then 70 after that. Resource stocks were up significantly in Asian trading last night. Expect gaps up in SLV, GLD, DXO, and ERX when the U.S. market opens. Keep in mind that at some point those gaps will have to be filled.

Markets tend to be bullish at the beginning of a month, so early next week is a favorable period. While it may not happen today, silver, oil and gold will become too extended from their 10-day moving averages and will have to come back down to that line. Traders with a shorter term horizon need to take this into account. If you have a longer term perspective, you can wait until key resistance is reached. Oil is heading toward the 75-78 price level. While it may not finally peak this summer until it gets to around 100, profits should be taken in the mid-70s and oil should be swing traded shorter term at that point. You don't have to worry about gold until 1200 and silver until it reaches 21. They haven't even begun their rallies yet.

Marc Faber, a very well-known market investing advisor and market commentator that appears in Barron's annual roundtable has come out with a report stating hyperinflation in the U.S. is inevitable. While, I would certainly agree that lots of inflation here is inevitable, I don't yet think the 50% a month inflation rate needed for hyperinflation is a done deal. It is certainly a possibility though. To get to that point will take incredibly inept government policy and oblivious monetary authorities. You would practically have to have a central banker throw money out of a helicopter! By the way, the Fed is still currently worried about deflation, while printing money Zimbabwe style.

The market for all commodities is bullish going forward, but that doesn't mean there aren't going to be tradeable pull backs. Which ones you pay attention to depends on how short term your trading perspective is. Other than too much extension above the 10-day moving average, you need to be aware of the 200-day moving average - HWD (Harry Winston) is caught there at the moment, but it has a textbook perfect bullish chart - and the 38% Fibonacci retracements. If you sell with a short term perspective, you must be willing to buy back with a short term perspective as well. If you can not do this, and most people can't, wait until major resistance is hit before pulling the trigger.

NEXT: How Susan Boyle Provides a Lesson for Stock Investing

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 Getting Frothy; Meeting tonight for New York Investing

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

Our Video Related to this Blog:

The stock market indices were all up over 2% yesterday. Nasdaq crossed its 200-day moving average and closed 13 points above it. We are now at the point where many stocks have had substantial rallies and are moving up sharply. Watch out when this happens! While the average person wants to buy when this occurs, unless you are a short-term trader, selling is the more appropriate reaction. Stocks that are floating 20% or more above their 10-day moving averages should be considered particularly worrisome if the stock has been in rally mode for some time (if it is moving sideways in a base that's another story).

A good general rule of thumb is to sell at least half of your position when you have 100% profits. That way you can't lose. If the stock is also around an important resistance point and the technicals are at overbought levels, you probably wish to sell all of it. Sometimes for severely oversold stocks, especially low-priced ones, the stock can move up 100% and still be in a base and in this case you should NOT be selling (DXO and HWD would be examples of this). The sell rule is only valid for a stock that has been rallying. A lot of money is lost in the market because profits are not taken. Many sell offs take place gradually, so any given trading day doesn't raise an alarm bell. Taking profits is tricky and there is a tendency to sell much too early or much too late. However, don't aim for perfection - this leads to trouble. Your goal should not be to make the maximum amount of profit possible, but a reasonable amount. What is reasonable depends on your time frame. A couple of percent is good for a day trader, but meaningless for Warren Buffett.

An important part of the art of selling is to have a good idea of overall market conditions. We are still in a rally. Currently, there are reasons to think this rally will continue into June. After that, the probabilities are likely to turn against the market. When the market turns down, most stocks will go with it. Oil might last a little longer because of its seasonal trading pattern. There are a few things, like natural gas (UNG), that are still bottoming and haven't rallied yet at all. Gold (GLD) and silver (SLV) frequently trade counter to the market and should be rallying while most stocks are selling off. There are always opportunities in the market.

Tonight, May 5th, is the monthly meeting of the New York Investing meetup. I will be interviewing William Cohan about his latest best seller, "House of Cards". Cohan will be signing his book after the interview. There will also be a talk on the state of the market. The meeting starts at 6:45PM and will be held at PS 41, 116 West 11th Street.

NEXT: NYIM May 5th Meeting; Oil Report; Swine Flu 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.

Nasdaq Confirms Double Bottom - 200 Day MA Next

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:

On Friday Nasdaq confirmed it made a double bottom in November and March. While this doesn't mean that we are out of the woods yet, it is another positive sign for continual bullish market action for the next several weeks. The other market indices have not created any recognizable bottoming pattern, although it looks like reverse head and shoulders patterns are in formation. Look for the market indices to go to their 200 day moving average, always a major area of resistance in a bear market rally. A move down when that point is reached is almost inevitable, although some minor piercing on the upside is possible.

Nasdaq's high after the November sell off was 1666. This is the neckline for a possible double bottom. Nasdaq then hit a slightly lower low in early March than it had in November (a double bottom with the second bottom lower is a more bullish pattern). Its high on Friday was 1682, above the neckline. No matter how visible the double bottom is on a chart, the pattern isn't completed until the neckline is broken. This is a buy signal. You would now like to see prices higher than 1682 being reached in the next several days for more confirmation.

The 200-day moving averages should now act as magnets for the market indices. For Nasdaq, the 200-day is currently 1780, less than 100 points higher. For the Dow, it is 9210 and for the S&P 500, 980. All of the 200-day moving averages are falling, so keep this in mind. My current guess is that they will all have to be hit. If this is the case, the Nasdaq is likely to go above its 200-day, while waiting for the more laggardly Dow and S&P 500 to catch up. The tech heavy Nasdaq has been leading the market on the upside for sometime now. If you look at charts for individual tech stocks, you will see many bottomed in November and didn't come close to making a new low in March.

At the moment, the stock charts are much more bullish than the picture being painted by the financial media. The charts tell you what people are actually doing in the markets, while the mainstream media usually tells you fanciful stories of what it thinks is happening, and even then it's mostly only half the story. Most people let the media guide their investing decisions, either consciously or unconsciously - and most people never make any money in the markets. The two are not unrelated.

NEXT: Look for the Gaps

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

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

U.S. Unemployment Rises to 15.6%

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 Jobs Report was out this morning and it was pretty gloomy. While the headline number indicated that unemployment rose to 8.5%, a more accurate number is 15.6%. The second figure includes many (but not all) discouraged workers, those who have looked for work in the last year, but not during the last month, and part-time workers who wish to work full-time. It is the 15.6% figure that you should compare to the approximately 25% unemployment rate at the bottom of the Depression in the 1930s.

The initial read for March was a loss of 663,000 jobs (close to economists predictions of 654,000). There will be two revisions for this number in May and June and expect both of them to be down, although the worse and worst figures will get no press and the BLS is well aware of that. January's number, originally reported as a loss of 598,000 jobs, had its second revision down today and the number is now a loss of 741,000. So far, there has been a loss of 3.7 million jobs in the U.S. economy in just the last six months. Expect this number to be even lower after all the revisions have been done.

Last month every sector except health care had job losses. In previous Jobs Reports since the Credit Crisis began, government and education have supposedly added jobs. Manufacturing continues to be decimated with a loss of 126,000 jobs in March. The Obama goal of driving GM into bankruptcy should help make these numbers even worse in the future. Professional and Business Services, which held up much longer than Manufacturing, had a loss of 133,000 jobs last month. Retail lost 48,000 jobs (and is very vulnerable to much greater losses). Despite all the bailout money, Financial Services still lost 43,000 jobs. Construction lost 161,000 jobs and with a commercial real estate collapse just beginning unemployment there could rise much higher. Not only were a lot of jobs lost last month, but the average workweek fell to a record low as well.

The stock market is selling off slightly so far on the employment news, which is not surprising considering the big rally in the last two days. The positive reaction of stock markets globally at the beginning of the quarter should help carry the current rally for another month or two, although after a big surge, sideways trading or selling for awhile is inevitable. Whether the rally can survive into the third quarter is problematical. For the moment, investors should keep in mind the old stock market adage from the 1800s - 'sell in May and go away'.

NEXT: Geither Talks, Market Drops .... 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.

In the Eye of the Financial Hurricane

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:

There is some effort to talk down the current rally by the media today (assume the shorts have planted the stories). This doesn't mean the rally is going to end at the moment however. The momentum is very strong and doesn't seem to be have been dissipated yet, so no need to rush out and sell anything. The rally will end however and be followed by a sharp drop, possibly to lower lows. The current rally is very much a Bear Market rally and these differ in a number of ways from the beginning of a new Bull Market.

The money has been very easy in this rally and that is a common marker of Bear Market rallies. Prices move up very fast and seemingly without restraint. In contrast, beginnings of new Bull Markets are usually a struggle. It took about 10 months to put in the base at the bottom in 2002 and 2003 (the current bottom has had about a 5 month base put in so far). The market did not just shoot straight up out of that base. The bulls and bears battled for control on almost a daily basis with the bulls being able to only gradually move the market up. That type of constant give and take allows rallies to last a long time - about 10 months in 2003/2004. The current move up is almost effortless and because of that it can burn itself out pretty quickly.

The current rally has also been led by the biggest losers of the downturn - the financials. This is typical of bear market rallies, which are mostly short covering affairs. Once enough of the shorts close out and prices rise a lot, new short positions are put on that drive prices back down. The only thing that has made the financials more valuable is that the government is willing to put more taxpayer money into their coffers. Their value is no longer determined by economic forces, but corporate welfare payments. Not exactly an enticing long term economic model for investors.

There are three things for the current rally that need to be watched closely - resistance, earnings season, and April 15th. All the major indices are about to enter a strong band of resistance. For the Nasdaq, this starts at 1600 and goes to around 1650. The Dow has strong resistance at 8300, with with more resistance around 9000. For the S&P 500, there is resistance between 870 to 940. These are levels where the rally is likely to run out of steam. Another limiting factor to the rally is that first quarter earnings season starts around April 7th. Rallies into earnings usually mean a sell off after - and sometimes even during. As for April 15th, people frequently sell investments to pay their taxes and the market tends to dip then for that reason (although the dip can be temporary). So in figuring out when to sell, watch resistance and watch the calendar.

NEXT:

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.

Print Enough Money, Everything Goes Up

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

Our Video Related to this Blog:

The stock market continued its Bear Market rally yesterday with a massive up day. The rally was impressive by almost any measure except volume, which was below average most of the day and just hit average at the close. Breadth (stocks going up versus those going down), was 41 to 1 and this was possibly a record. Small caps led the way with the Russell 2000 up 8.4%. The S&P 500 was next with a rise of 7.1% followed by the Nasdaq which gained 6.8%. The Dow was up 6.4%. If anything, yesterday's market action could be described as a crash on the upside. Panic buying was very clearly taking place in the last half hour.

If you read this blog regularly you will remember that we warned of a spectacular bear market rally more than once within the last several weeks. While yesterday was extreme even for a bear market rally, it was quite predictable. The market was severely oversold, possibly the most in history. At some point everyone who wants to sell has done so and then the only direction to go is up because there are no more sellers left. You need to close out any shorts once you see the market turn and ride the rally up. Don't stay at the party too long however. Once you have made nice profits, you need to book them.

While the media has been hyping this as the beginning of a new Bull Market, there is no reason to believe that it is. Financials have led the market up and they are just as worthless today and they were last month. Short covering is driving their rally, not long-term position taking. New Bull Markets are not led by the most beaten down group from the previous Bull Market, but Bear Market rallies are. You would also like to see a move like yesterday's right off the bottom (not after two weeks of rally) on very high volume. The picture is just not quite right.

Stocks will be going up in the long term however. If the central banks print enough money (and they are busy doing this at a breakneck pace), the price of everything goes up. The most important determinant of stock prices is liquidity (you can think of this as excessive money creation) and this trumps everything else including bad economic numbers, lower earnings, and a bleak outlook for this that and the other thing. As an example, the biggest stock market rally globally in 2006 was in Zimbabwe even though the economy there was collapsing (they were the top money printers in the world however). If you stay focused on what really matters, you can make a lot of money in this environment. Just don't expect to hear about what you should be doing from the mainstream media. They will invariably steer you in the wrong direction.

NEXT: Good News Drives Market 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.

Stocks - the Good, the Bad and the Ugly

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

Our Video Related to this Blog:

U.S. stocks gapped up today with the indices up 4% or more as I write this. Many individual stocks are up over 10%. While almost everything is up right now (except for gold and silver which are looking ugly at the moment), some of the rallies are more sustainable than others. In many cases, insolvent financial companies are up the most. Only for really short term traders do they offer opportunity however. Natural resource stocks on the other hand have real long term potential.

The oversold condition of the market is so extreme that it may be at historical levels. Under such circumstances, any little piece of news can ignite a sudden rally. Such bear market rallies are explosive and can last for weeks or even months. They are very tradeable and you can make a lot of money, but you have to get out and take your profits because the market is likely to go right back to where the rally started of even lower.

The news that started the rally today was Citigroup claiming it made a profit the first two months of this year. Indeed if the government pumps enough money into any given company it will eventually become profitable, no matter how insolvent it might be. This was followed up by a statement by Fed Chair Bernanke that major U.S. banks would not be allowed to fail (no matter how incompetent their management is and no matter how much it costs the taxpayer - he left that part out). Bad financials are bad investments though no matter what the government does.

Natural resource stocks are where the good values are to found in the market right now. They own tangible assets that will not only maintain their worth, but will increase substantially in an inflationary environment. They have had incredible sell offs that have sent them to major bargain prices. Other than oil, which made a double bottom on the charts in December and February and is in a seasonally strong period until the summer, a number of non-precious metal stocks seemed to have bottomed last fall. Like oil, they have not hit new lows with the market. Such relative strength is impressive and should not be ignored.

NEXT: Analysis of Tuesday's 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.