Drop in Shipping Indicates Slowing Global Economy

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 Baltic Dry Index, a measure of international shipping rates for dry bulk cargoes, hit new lows for the year on Monday June 28th. The index has dropped sharply in the last month and is indicating that global manufacturing activity is experiencing a major slowdown.

Shipping rates are very dependent on market demand (it takes a long time to build a large ship and to increase the supply of shipping capacity) and will rise and fall sharply in response to it. The Baltic Dry Index (BDIY:IND) is a daily record of costs to ship goods such as building materials, coal, metallic ores and grains. Oil and natural gas are not included in the index. Many of the products that are included are used as inputs somewhere in the manufacturing pipeline.

Shipping activity for 2010 peaked so far on May 26th when the Baltic Dry Index reached 4209. Yesterday, a little more than one month later, the index stood at 2447 - a 42% drop. Until this week, the low for the year had been 2501 on January 25th.  Not only is shipping at a new low for 2010, but the high for this year was less than the high reached on November 23, 2009. On that date the index was 4423 and as of now that was the post Credit Crisis peak. This compares to the all-time high of 11,793. It looks like we won't be reaching that level again anytime soon.

Lower highs and lower lows paint a picture of a weakening trend for shipping. The next key level for investors to watch is 2163. This was the low in activity on September 24, 2009. If the index breaks below this, returns to the incredibly lackluster levels in the spring of 2009 are possible. It is not likely though that we will be returning to the all-time low level of 663 from December 5, 2008. At that time, global economic activity was literally frozen and was at a severe depression level. Even in a fairly steep double dip recession, there should be more shipping activity than that.

Disclosure: None

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

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

A Snapshot of the Energy Markets

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.


Oil is entering a seasonally bullish period that generally lasts from March to August. Natural gas on the other hand tends to trade in the opposite pattern, being weak during those months and stronger during the winter. Other possible areas of interest to investors such as coal and alternatives such as solar, wind and nuclear don't exhibit the same strong seasonal trading patterns. All are affected by greater supply demand factors or government action and these can occasionally be more important than seasonal trends.

Light sweet crude (the champagne of oil) had already reached the $73 level by last June. The price just rose above $80 in the beginning of March. It has been stuck in a trading range from $70 to $83 for eight months however. The usual fall/winter sell off did not take place this year and this indicates strong underlying fundamental support in the market. Supply coming from existing fields is declining rapidly and supply from new discoveries is not even remotely making up for the loss. Only the global recession that has lowered demand has prevented a major oil price spike from already occurring again. The technical patterns on the charts of oil ETFs DBO, USO, USL and the ETN OIL don't indicate that a sustainable rally is in the offing just yet. Investors need to watch for a break above $83 in the futures markets. The first attempt may fail with the price falling back into the range however. The second break above $83 is more likely to stick and offer a profitable trading opportunity.

While the market for oil is global, the market for natural gas tends to be regional because it is usually moved from source to destination through pipelines. Transporting natural gas in a liquefied state by ship is a relatively recent development, is the more expensive alternative, and still only represents a small part of the market. The price of natural gas in the U.S. market went to incredibly low levels last August and September - the spot price at Henry Hub (the basis for futures trading) was as low as $2.25. This was well below estimated costs of production. The CFTC (Commodity Futures Trading Commission) investigations and new supply coming online were two factors that explain this economically bizarre and unsustainable behavior (commodities must trade above production costs, just like a business must sell its products for a profit). The U.S. only has 4% of global natural gas reserves though, so oversupply conditions will disappear eventually. Cold winters and hurricanes in the Gulf of Mexico are bullish for prices. There appears to be little that would be bullish for natural gas in the next several months though. The natural gas ETF GAZ hit a new yearly low on March 2nd.

As for coal, there are really two distinct markets - one for metallurgical coal, which is used for steel production and one for steam coal, used mostly for generating electricity. Metallurgical coal prices are obviously strongly dependent on the global economy, with Chinese demand being particularly important. Lower steel production because of a faltering recovery would be extremely bearish for this type of coal. Most coal though, 62% globally and 93% in the U.S., is used for producing electricity. Coal and natural gas can be used interchangeably in a large number of U.S. generating plants. So high prices for natural gas are bullish for coal and vice a versa. There is no danger in the U.S. running out of coal in the next many decades, since the U.S. has the largest coal reserves in the world. The ETF KOL has rallied since March 2009 and its chart looks very similar to the charts for the major U.S. stock indices. Expect coal to continue to trade like the overall stock market.

In the alternative energy space, solar stocks had a strong rally at the beginning of the year and than sank when the problems in Europe hit the overall market. Germany reduced subsidies for solar power and China reduced bank lending twice. The market is still dependent on government subsidies and China is a key player, so both actions were bearish. The technical picture on the charts turned from very bullish to bearish almost overnight. Solar stock ETF KWT looks like it has put in a bottom in the last few weeks, this doesn't mean a sustainable rally will necessarily follow immediately.  Some relief from a severally oversold condition should be taking place soon.

Nuclear power is even more dependent on government action than solar, wind or other alternatives. Nuclear plants take years to build and require government approval. There is a nuclear renaissance going on globally. The U.S is not part of it and it remains hidden from most Americans, as well as the fact that 20% of U.S. electricity is generated from nuclear power. There are approximately 52 new nuclear power plants being built globally - China and India are leading the way - and more are on the drawing board. This of course is bullish for uranium in the long-term. However, nuclear energy ETF NLR is currently in a bearish trading pattern. A key event that investors should watch for is the 50-day moving average going up and crossing the 200-day.

Oil is the leader in the energy markets. Rising oil prices are bullish for all the other operators in the space, although there can be a considerable time lag between the rise in oil prices and other energy commodities. Investors should keep in mind that oil is priced in U.S. dollars and a rising dollar lowers its price and a falling dollar raises its price, everything else being equal. The alternatives become increasingly desirable as energy sources with each increase in the price of oil. Investors in energy need to watch developments in the oil market closely and then add the specific supply demand picture in the other markets. The large number of ETFs now available makes it easy to move in and out of any of the energy sectors or sub-sectors and to lessen the risk of owning individual stocks.

Disclosure: No positions

NEXT: Feds Probe Hedge Funds in Euro Collusion Plot

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.

Energy Investing Guide for 2010

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.

As has been the case for many years now, oil was once again one of the best investments in 2009. While oil has a leadership position in energy, it is only one part of a very large and complex sector that includes natural gas, coal, nuclear power, biofuels and renewables. Ultimately, the price of everything else in the sector will be influenced by the price of oil. All sources also have an easy to determine cost per unit of energy generated and these at least in theory should be somewhat similar across the sector. In reality, that price can become significantly different from one energy commodity to another and this can indicate severe over or under pricing. Price moves in oil and the other commodities in the sector don't necesarily take place at the same time, but can be considerably lagged.

While oil and coal (both the commodity and their stocks) and wind energy and natural gas stocks had significant rallies from their respective price bottoms in February and March 2009 , the natural gas commodity, uranium and nuclear-related stocks, and many solar stocks remained depressed throughout the year. While almost every commodity rallied strongly in 2009, natural gas and uranium were the two glaring exceptions. Natural gas prices literally collapsed and at the low were trading at price levels that were seen earlier in the decade and in the later 1990s. Natural gas futures fell to around $2.40 and spot prices were even lower. Uranium had a strong rally from 2003 to 2007 when it rose from around $10 to over $130. It fell to around $40 at its low in 2009 and hovered just above that price throughout the rest of the year. The solar industry is a more complex story. It is only an economically viable source of energy when oil prices are high. At lower oil prices, government subsidies are key. While a few solar stocks have rallied nicely from their lows, most had not gone up much by the end of the year.

In 2009, prices for both natural gas and uranium fell below estimates for their production costs. No commodity can trade in that range for long since production closes down to bring supply and demand back into balance. By the spring, 50% of natural gas rigs in the U.S. had already closed down. In must be kept in mind that prices in both the natural gas and nuclear industries are influenced by the government. The CFTC (Commodities Futures Trading Commission) held hearings this summer about trading in the oil and natural gas markets. Along with the SEC, the CFTC interfered with access to trading vehicles in these markets that were used by the small investor. Natural gas ETF, UNG was effectively turned into a closed-end fund because of the actions of these two government bodies. Leveraged oil ETF, DXO, closed down as a consequence of their interference. As for the nuclear market, the U.S. Department of Energy has a stockpile of 158 million pounds of uranium and it occasionally sells some of this on the open market and depresses prices, just as central bank selling of gold occasionally depresses gold prices.

While prices were down for natural gas and uranium, they are not likely to go lower in 2010, at least for any extended period of time. They will be supported because they are too close to their production cost levels. This does not mean a major rally is imminent however. Prices can get low and stay low for a long time, as was the case in the 1990s. A number of commentators claim that this will be the what happens now because oil, natural gas, uranium and solar stocks were in a bubble that lasted into the 2007 and 2008 period and once the price goes down it will not recover again for many years. Similar arguments were made in 1974 when oil hit $12 a barrel. It's ultimate high was still several years off and several times higher. Energy was in a bullish period back then just as it is now.

Oil looks like it will be strong again in 2010, based on its price behavior in the fall of 2009. Oil prices, like many commodities, have a strong seasonal component. For oil, the bottom tends to be in the winter between January and March and the yearly peak between June and September. Light sweet crude rallied 9% in October 2009, at a time of the year when it should have been selling off. This indicated unusual strength. Crude ended the year near its yearly high, which was somewhat above $80. While seasonal selling pressure will exist for the first couple of months of 2010, buying pressure will then cause the price of oil to rise. It would not be unreasonable to assume that it will get above $100 a barrel during the year. It is not likely however that price will go up enough in 2010 to break the old high of $147. That will have to wait until the following year. Oil and many oil stocks should continue to be good investments in 2010.

ETFs/ETNs, exchange traded funds and exchange traded notes, are the easiest way for investors to get oil and oil stock exposure in their portfolios. The ETF/ETNs: OIL, DBO, USO and USL can be used to invest in oil as a commodity. For those who are more aggressive and want as much as 200% long exposure through leverage, UCO, HOU or LOIL, which trade in the U.S., Canada, and the UK respectively, can be bought. For ETFs that hold stocks of oil and gas companies, XLE, IYE, and IXC are possible choices. Investors bullish on oil stocks can get leverage on them by purchasing DIG and ERX.

While oil should be doing well in 2010, natural gas does not look as promising. There is an incredible glut in the market and new supplies are coming online through the global shipping of compressed natural gas. Still the price of natural gas is relatively low compared to oil on a historical basis. It will take some time to work out the excesses however and fully restore balance between these two commodities. Natural gas tends to have sharp price rises every four to five years and the last peak was 2008, so another really big move up shouldn't be expected until around 2012. Trading opportunities will of course exist in 2010 and low prices will be available for those who want to slowly accumulate and hold their positions for a while. A good ETF for the natural gas commodity is GAZ. Leveraged natural gas ETFs HNU and LNGA trade in Canada and the UK. The leveraged ETFs are a better choice for shorter-term investors.

The supply demand picture of uranium is bullish in the intermediate term. A number of new reactors will be coming online in Asia over the next several years. Growth in the use of uranium usage is expected to be over 2% a year until 2030 according to the World Nuclear Association. The market is thought to be in deficit of 60 million pounds a year. It is estimated that uranium prices would have to move up to around $75/$80 to improve supply. Miners in particular will benefit when this happens. ETFs for nuclear power include NLR, NUCL and PKN. Only NLR has any significant trading volume however.

As for solar power, a few of the leaders had good rallies in the second half of 2009. This is an indication the whole sector is in the beginning stages of a market recovery. Investors should keep in mind though that this is a new industry and there will be a period of consolidation. Some companies will not last. Longer-term investors should avoid stocks with bad financials. The two solar ETFs are TAN and KWT, but these have partially rallied already in 2009 because the leaders in the sector started moving up. Individual stocks which have not rallied too much yet and which investors might want to consider are ENER, JASO, SPWRA, and WFR.

Commodities have been in a longer-term secular bull market since around 2000. This type of bull market tends to last around 20 years. So, there is still a lot of time left and good investments to be made. Buying stocks and commodities on intermediate term drops is the correct strategy in such markets. Buying oil in the spring of 2009 produced quick and substantial profits. Prices in other parts of the energy sector haven't moved as fast as oil did in 2009 and this is giving investors another chance to profit in 2010.

Disclosure: Long ENER, WFR, natural gas.

NEXT: Conmodities Versus Stocks: A Decade Performance Review

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 Pull Back or Top?

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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Stocks had a sharp drop yesterday. Some people have already stated that the market has topped out. While certainly this is possible, the argument is weak. The market doesn't go up every day, although this may not have seemed to be the case lately. Even the best rallies have sharp drops. As was mentioned in this blog several days ago, there were a lot of stocks in the market that were overextended and floating way beyond their 10-day moving averages. A decline for them was inevitable and is now taking place. If they drop enough, they offer a major trading opportunity. In general, small oil producers and drillers offer the best deals in this scenario. While some areas of the market may already be in decline, others will perk up. The PPI report today indicated a whiff of inflation and you can expect much worse in the future.

The Nasdaq was down 3% yesterday. It is the only major stock index that has hit its 200-day moving average - classic resistance in a bear market rally. It hoovered at that level for 9 days. The Dow and S&P 500 have yet to get to this key level. It is not unreasonable to assume they will before the rally ends. Oil managed to go down slightly despite a massive drop in oil and gasoline in U.S. storage. I have noticed this lack of reaction on the storage news several times during the rally that began in February. The market has only reacted to the good or bad news two or three days later. So much for the Efficient Market Hypothesis.

While oil itself dropped a small amount, small cap oil stocks were down as much as 15%. The ones that were floating well above their 10-day moving average need to come down to at least their 20-day (the 30-day or 40-day would be even better) moving average to restore some balance. They become good trading buys at that point, especially if gaps are filled by the drop and the RSI has fallen to around 50. HTE, which had about a 50% rally in only four trading days is a good example of this type of stock. PDS less so. In many cases, coal stocks were even more extended than oil and they need even more selling to get to a bargain price. Take a look as MEE for example (don't buy it, at least not yet, just take a look at it). The incipient rally in natural gas has another type of profile (a rally at the beginning and one that has been going on for awhile have different trading rules). UNG needs to come back down to its 50-day moving average before it becomes interesting.

While inflation effects oil and other commodity prices, it is even more important to gold and silver. The PPI report this morning was up 0.3% after dropping 1.2% in March. Year over year, PPI is down 3.7%, although core prices are UP 3.4% (yes up, they have never been negative). Food prices rose 1.5% in April with a record jump in eggs and large price increases in vegetables and meats. Energy prices supposedly fell last month (yeah, that's realistic). The deflation that the government claims took place in its highly manipulated reports is dependent on falling oil prices. Once they go back up - and this has been happening since February - the deflation that never really existed is going to turn into very ugly inflation. Unlike the deflation, the inflation will be real.

NEXT: The Scamdemic in Insurance, Autos and Swine Flu

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.

Bull Markets Climb a Wall of Worry

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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An old market adage from the 1800s is that bull markets climb a wall of worry. At almost every step of the way (except at the end), there is substantial hand wringing about stocks being over priced, overbought, overextended and ahead of themselves. You will hear and read over and over again how current prices are not justified and the rally has gone way too far. Despite all the numerous reasons cited, most of which seem quite reasonable, stock prices continue to go up and up. Based on these criteria, we are currently in major bull market.

This type of opinion for stocks has been pervasive in the mainstream financial media from almost the beginning of the current rally (the oil market is even worse, with a constant barrage of negative headlines and news of impending price collapses that are supposedly going to take place any moment). It has however reached new heights in this rally with the CEO of NYSE Euronext giving a public interview stating the current rally is likely to run out of steam and stocks return to their previous lows. Considering the NYSE Euronext makes its money on the amount of trading that takes place, widely publicized comments from its CEO to talk down the market and discourage people from trading are a bit curious to say the least. There is definitely more to this story than meets the eye.

As we pointed out in the blog a few days ago, the big money in rallies like the current one is made by buying very low-priced stocks with good fundamentals. A case in point would be diamond company Harry Winston (HWD). While the media was telling you to stay out of the market, you could have almost doubled you money in this stock in less than two weeks. The stock is indeed now overextended, but should offer some opportunity for buying it on a drop later next week or even earlier the following week. While oil the commodity is moving sideways, a number of oil stocks are moving up. We mentioned in this blog drillers was the place to look, one the best deals seems to be Precision Drillers (PDS). A few shippers, also mentioned here as a place to look, have had explosive rallies in the last couple of days.

If you have a longer term perspective, media coverage can actually be very helpful. Just look for stocks that they are bashing. One of the best examples I have ever seen of this was in an article published in yesterday's IBD ("Bottom Fishing Can Land a Smelly Catch"). While every point made in this article applies to HWD (try to find an IBD stock that went up a 100% in the last two weeks - don't bother looking, there aren't any), the article is actually about MEMC Electronics (WFR). While most of the article bashes WFR as one of the worst stocks in the world, a careful reader would note that WFR had similar problems in 2001 to those that it has today and it was selling as low as $1.05 at that time. Within 6 years, WFR went up to $96.08. So you could have made 95 times (or 9500%) your investment by buying the stock when things looked worse. But don't worry, IBD is doing its best to make sure you don't fall into that trap again!

NEXT: Nasdaq Confirms Double Bottom - 200 MA 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.

Rallies Make You Rich, No Matter What the Type

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

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While the major indices were flat yesterday a lot was going on below the surface in the market. Oil went on another incredible roller coaster ride, opening way down, getting close to even and then closing with smaller losses. It's back above the breakout point again in European trading this morning. A lot of small cap stocks, including some oil and gas drillers and producers, had major rallies yesterday however. In fact, the beaten down inexpensive under $5 stocks - the ones that almost every financial advisor tells you categorically to avoid are the stars of this rally. This is nothing new, its always the case in short-covering, technically based rallies.

Oil is repeating the behavior pattern at $50 that took place when it traded around $40. It went above $40 and was driven back below it over and over again. The oil "experts" were repeatedly quoted in the media that a price over $40 couldn't be justified. Oil would then go below $40 and would shortly thereafter bounce right back above it. It then shot up to $45, which the "experts" said was too high. It then promptly went to $50. Yesterday was the 4th time light sweet crude was driven below the key $50.50 breakout point. This morning in European trading it shot back above it. The market has continually shown that the oil "experts" the mainstream media quotes are wrong. Nothing succeeds like failure in financial media coverage however (much like in Washington, D.C.). The media seems to seek out "experts" who have never made a correct prediction in their entire careers.

The "experts" will also tell you not to buy stocks under $5 and stocks that have had huge price drops because they are unsafe. Better to stick with 'sure things' like Enron and those Bernie Madoff funds instead. When the market has has a major drop, buying low-priced, beaten down stocks are the key to making the most money in the rally that follows. Just make sure the company is financially viable - a current ratio around 2.0 and positive operating cash flow are the signs the company is likely to continue its operations. Low or no debt is even better, but not necessary. Running out of cash and failure to make debt payments is what drives companies into bankruptcy. On a fundamental basis, you can find a number of low-priced stocks that have very low price earnings ratios, price to book values well below one and even with price cash flow ratios below one (the price is below the amount of cash generated for the most recent year). There are also stocks with real dividends above 20%. These stocks are major bargains by any criteria. Oil and gas, coal (even in its bright, shiny form), and shipping are the richest source of these stocks. There are a few bargains in technology as well.

Yet is the mainstream media telling you to buy, buy, buy? Not at all. It is filling you with fear and telling you this is a suckers rally. Every rally is actually a suckers rally however. In a bull market, the suckers are the people who buy and then hold. In a bear market, its the people who sit on the sidelines and don't buy at the bottom or close to the bottom or even after the market is off the bottom because the financial media is warning them about losing money. If you are doing this, just remember every major financial publication had nice things to say about Enron. How much money do you think you'll make if you follow the investment advice of those people?

NEXT: The Deflation Boogieman, Oil and Intel

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.

Commodities Rumble, Financials Tumble

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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Alcoa was one of the biggest movers in the market yesterday. At one point it was up over 20%. It was also the stock that I pounded the table to buy at Tuesday night's class on Technical Analysis. Our February choice, DXO, is up over 50%. Basically every stock I mentioned during the class had a good to huge rally. Even FCX, used to illustrate a number of technical points and well advanced in its rally would have made you good money. It was in the upper 34's on Wednesday morning, but over 42 at its high yesterday (there are better bargains in the market at this point). Even a Canadian Royalty Trust that I only mentioned in passing that I had purchased, went up nicely. A couple of attentive attendees took the hint. Coal stocks across the board had terrific rallies. We spent a lot of time looking at coal in the class. While I wasn't sure steel had bottomed, it rallied sharply nevertheless. No one apparently picked up on the shipping company that I made a gratuitous remark about, probably because I didn't state that I owned it. It was up 28% yesterday.

What wasn't up yesterday were financials. Citigroup was down 26% at its low, but closed down 16%. It is planning a reverse split. Wells Fargo was down 10% and Regions Financial down 12%. Broker, Morgan Stanley was down 13%. Insurance companies were clobbered (watch this space for a future bailout). Prudential was down 25% and Met Life, 12%. While you can make good money day trading financials, their long term picture is down while the long term picture for commodities is up. You can no more walk away while holding these positions than you could leave a big pile of chips unattended at the gambling tables in Vegas or Atlantic City. Of course you would eventually not have that pile of chips anyway since gambling, unlike investing, is ultimately a losing activity.

While the precious metals rallied yesterday, beaten down silver did much better than gold. Both were significantly down on Wednesday morning and shot up like rockets after the Fed announcement. It looks like a lot of traders were stopped out of both during the drop. I've seen this Wall Street racket played repeatedly over the years. Manipulators drive down the stock price driving the small players out and then a sudden reversal takes place and it shoots up to the sky. The inside players get the stock cheap and makes big profits, while the small investor is left holding the bag . Only if you have a accurate big picture of what is going on can you protect yourself from this type of shake down.

Oil continued its rally yesterday, closing at 51.61. This was the highest close since December 1st and represents a very significant breakout. Next resistance for the futures contract around $57. Natural gas finally joined the party and was up 42 cents to $4.10. This is a rally right off the bottom. Probably best to wait for some pull back from the initial rally if you want to buy. Gasoline and even heating oil had significant rallies yesterday as well. Oil has now rallied from the high 33's to over 52 in a month. During this entire time, the mainstream financial media has published one story after another about how oil can't rally until the economy improves and how oil can't rally because demand is declining. Nevertheless, oil has rallied sharply. Apparently the smart money doesn't pay any attention to the media, nor should you if you want to join the big money some day.

NEXT: Making a Silk Purse Out of a Sow's Ear

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.

Invest Now for the Coming Inflation

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 Federal Reserve finally fessed up yesterday, announcing it was going to print new money to buy U.S. Treasury bonds. While my initial reaction was, 'so what else is new?', the public has not previously been officially informed of the massive inflationary policies that the Fed is implementing. While Bernanke did admit that the Fed was printing money to pay for the bailouts (how else could they have been paid for?) in his 60 Minutes interview, the markets didn't react to his statements on Monday... but they did yesterday. The dollar dropped like a rock, gold shot straight up and interest rates plummeted. Financials had the biggest rally on the good news that worthless government paper was going to be used to purchase their worthless debt paper (for some reason this seems like some sort of scam to me), although all metals and oil went up as well.

In yesterday's announcement the Fed said it will buy $300 billion of U.S treasuries (mostly in the 2 to 10 year range), $750 billion in Mortgage Backed Securities (MBSs) from Fannie Mae and Freddie Mac (both bailouts are black holes for government money), and increase purchase of Fannie Mae and Freddie Mac debt to $200 billion. The Fed signalled it would increase its balance sheet to $4 trillion. It was $900 billion last year and $2 trillion more recently. Take these numbers with a grain of salt, they are on balance sheet only (think Enron accounting). To increase its balance sheet the Fed must print new money. Even without knowing this, it is obvious that new money was being printed for some time now. To pay for all the bailouts, there has been huge new issuance of treasury bonds. Even though this created a big increase in supply, interest rates went down indicating that demand for U.S. treasuries was increasing even faster. Where do you think all of this extra demand came from?

The reaction to the Fed's announcement is a prelude to the future. The dollar tanked almost 3% in minutes, something that previously would have been a major move in a month. Gold which had been selling down and traded as low as $889 reversed course and rallied $57, also in minutes. Silver which traded as low as the 11.75 went up a dollar - and is still a major bargain. Oil which was also selling off Wednesday morning, reversed and closed up. It traded as high as $51.65 a barrel overnight, which is a breakout that confirms that a double bottom was made last December and February. All other metals and coal went up as well and you should consider them to be good inflation hedges too. It is possible that even steel stocks put in a bottom because of the Fed's move.

You should be adding to your commodity positions at this point. Consider buying commodities that you don't already own or have large postions in. If you already own enough oil, you might want to buy some more silver for instance. You might want to consider picking up some base metals and coal, if you already own a lot of gold. While, gold, silver and oil are the foundation for inflation investing, any tangible asset that has a useful function and a limited supply that can't be increased significantly is also a good choice.

NEXT: Commodities Rumble, Financials Tumble

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.

Short Term, the Market is Looking Better

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

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While nothing has changed in the long term outlook for the U.S. stock market, the shorter term picture brightened from a technical perspective somewhat on Friday. Bear market rallies can come out of nowhere and can be highly profitable. They should not be avoided as is currently being advised by the never-made-a-dime-trading 'pundits' who are now pompously announcing 'the long-term trend hasn't changed'. This would be hard to argue with. However it is in the short term that you make quick money.

Examining many charts, you will find a common pattern of almost vertical drops without much or any relief rallies. These drops have gone on for 6 months or more (a common maximum period for selling). The trend has gone sideways for the last two months or so. If you look at moving averages you will see that they have become bunched together on the daily charts. Even looking at these charts for a brief period, it is sometimes impossible to differentiate the 10-day, 20-day, 30-day, etc. moving averages. Bollinger Bands have become very narrow. The tight moving averages and narrow Bollinger Bands frequently precede trend changes.

The Nasdaq is leading the other U.S. stock indices. On Thursday it closed above its bundle of moving averages on the daily chart and then rallied strongly on Friday to the top of its Bollinger Band. Similar behavior took place in early January and Nasdaq traded above the Bollinger Band for one day. That breakout failed however. While the RSI and MACD looked good at that time, the down trend pattern of the DMI was not quite resolved at that point. Things look better now and the moving averages are more tightly intertwined . There is still no guarantee of a rally yet though. The price needs to either ride upward with a rising Bollinger Band or jump above it. The moving averages need to start rising with the 10-day on top, the 20-day just underneath it, the 30-day just underneath that, etc. When the moving averages are all together as they are now even a short rally will start to create this pattern.

The other thing to pay attention to is that there were two major pieces of bad economic news lately - the GDP report and the Jobs Report. The Market rallied both days. When the market does this, the bad news has already been priced in. This doesn't necessarily mean a big rally is coming, but the downside risk during those times is actually relatively low and the upside potential is very high. In addition to the tech stock laden Nasdaq, oil, coal, and non-precious metals are starting to look interesting. The first thing you should be looking for before buying is a close above the 50-day moving average. You also always need to keep in mind that you need to take your profits when you get them.

NEXT: The Slippery Slope of Oil Media Coverage

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.