Market Keeps Going as Stimulus Keeps Flowing

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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Spot gold hit another record high on Friday, breaking the $1100 barrier for the first time. While gold hit $1102 intraday, it closed at $1097 at the end of New York trading at 5:15PM. So far this morning, gold has traded as high as $1110.60. This is another record intraday high and perhaps today will be gold's first close ever above $1100. Spot silver traded as high as $17.75 in the early going. It is still stuck in its trading range between $16 and $18. A break and close above $18 will be significant.

As the precious metals go up, the trade-weighted U.S. dollar is going down. So far this morning, the dollar has traded as low as 74.98. It is trying to take out its low of 74.94 from October 21st. There is an approximately 0.75 gap on the DXY chart today. This huge gap will have to be filled eventually. The euro broke above its 1.50 resistance again this morning and once it can remain above this level (this may take awhile), it will head toward its old high of 1.60. The U.S. dollar will in turn head toward its old low of 71.50.

As has been the case with dollar weakness since March, stocks are rallying as well. The technical damage from late October is getting undone on the S&P 500 and Nasdaq charts, both regained their 50-day moving averages last Thursday. It never existed on the Dow chart. The small cap Russell 2000 still has a severe limp however and needs to be watched carefully. Just as the Dow is holding the stock market up and trying to lead it higher, the Russell will take the lead in bringing the market down. The market survived serious technical problems last July and is trying for an encore. Just as was the case this summer, central bank stimulus which is flooding the financial system with liquidity is pushing prices higher.

The market is getting its adrenalin shot today from the G-20 meeting held over the weekend in Scotland. The finance ministers from the world's biggest economies pledged to "continue to provide support for the economy until the recovery is assured". The smart money knows this is some point well into the future. Even more eye opening was a note prepared for the meeting by the IMF. The IMF stated bluntly that the U.S. dollar is "now serving as the funding currency for carry trades" and is "still on the strong side" (so expect it to go lower). Warnings about the abrupt end of the U.S. dollar carry trade have already been appearing in media reports for several weeks now. The same thing happened when the Japanese yen became the source of a global carry trade in the 1990s. I remember hearing warnings year after year after year after year after year that this would end abruptly. Apparently it finally did in 2009. So don't get your hopes up for the dollar carry trade lasting beyond 2024!

NEXT: Bond Auction Puts Focus on Interest Rates

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.

Manipulation Fails, Gold Rallies Back

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 old tricks of the authorities to game the gold market and support the U.S. dollar are no longer working. The IMF gold sale, used at least half a dozen times in the last two years, barely dented the price of gold yesterday and gold is rallying nicely this morning and trying to push above its high from last week. The U.S. dollar is dropping and is at 76.05 at the moment. If it drops below 76.00, it could fall all the way to 71.50 this fall. The inability of the dollar to rally during the Fed meeting this time is a sign of extreme weakness and an indication that the usual behind the scenes manipulation supporting the dollar is no longer working.

While the U.S. mass-media repeatedly publishes stories about there being no inflation, there can't be any inflation and even if there is inflation, it won't show up for years, gold is telling a different story. Just yesterday this quote could be found in the Wall Street Journal, "Still observers say many buyers believe inflation will remain low for years to come." The financial press is filled with similar remarks on a daily basis. Insiders don't believe this for moment, which is why gold is hitting record highs. These stories are meant to keep the public uninformed about what is really going on in the economy and financial system.

The source of inflation is the U.S. government's huge deficits and the need to continually print new money to cover them. This is constantly covered up by mainstream press reporting as well. Just this morning a story from a major online service about the huge bond auctions this week had the following quote, "Solid demand at auctions of different maturities this summer suggest today's two-year sale should be fairly well received." Media coverage has been filled with stories citing solid demand for U.S. treasuries in the last many months. Just where is this solid demand coming from?

In the second quarter, the U.S. Fed directly bought 48% of the new treasuries sold. It is quite likely that it 'influenced' the purchases of much of the rest. One mainstream financial paper stated U.S. households increased their holdings of treasuries by 2.5 times during 2009 so far (and this wasn't a comedy piece). The statistics that includes household holdings of treasuries also include hedge fund purchases however. Hedge funds are much more likely to have purchased massive amounts of treasuries, but somehow this logical conclusion couldn't be reached, perhaps because it would lead right back to the Fed. The large U.S. banks, all of whom have connections to the Fed, have also increased their purchases of treasuries significantly. There have also been reports from alternative Internet sources about how the Fed has been faking foreign purchases of treasuries by funneling them through off-shore money havens.

Whatever the actual percentage of new treasury purchases by the Fed is, and you can assume that it is well above 48%, it is all being done with printed money... lots of printed money. There has been no case in history of massive money printing by a government that didn't subsequently result in a lot of inflation. I have yet to see this mentioned in mainstream media coverage. It looks like the truth will soon be told by gold and the U.S. dollar. Gold is on the verge of a massive breakout and the U.S. dollar on the verge of a massive breakdown. The next few weeks could be quite interesting.

NEXT: Fed Decision Today; Dollar, Bonds and Gold

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.