U.S. Dollar,Stocks,Bernanke and Natural Gas

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 U.S. dollar fell below its breakdown point again on Friday. DXY, the ETF for the trade-weighted dollar, closed at 78.01 and spent much of the day trading in the 77 range. This is the second time the dollar has traded below the key breakdown point of 78.33. Last time it was below this price for 5 days. It's inability to stay above this level is a sign of weakness. Gold of course rallied and was as high as $957 during the day. It is once again trying to get back to the important $1000 breakout level.

As the dollar fell, stocks rallied. This has been a typical pattern since this March. In the larger scheme of things it is unusual however. For the first time since this phase of the rally began in July, volume was noticeably above average (average volume has been declining during the entire rally however). The rally has looked sickly so far because volume started out light and continually fell - a very negative pattern. It seems that if stocks rally, the U.S. dollar has to sell off and vice-a-versa. Something has to give soon.

What fueled the rally on Friday was existing home sales supposedly being up 7% and bullish comments by Ben Bernanke about how the recession is ending. The home sales figures are of course suspicious, but no amount of fantasy has managed to disturb the market rally so far. Bernanke, who has continually been wrong in his pronouncements on the Credit Crisis and recession is also being believed by the market for no apparent reason. Bernanke was incredibly self-congratulatory in his speech, giving the major central bankers full credit for saving the world from global recession. The proof that this has happened is minimal to say the least and exists mostly in manipulated government statistics that lack any credibility. Lost in the coverage was the failure of four more U.S. banks on Friday, including one with $13 billion in assets. So far this year 81 U.S. banks have failed, compared to 3 in 2007.

Natural gas is staying at its impossible price levels. The near-term futures contract fell as low as $2.75 toward the close on Friday. UNG was down 1.4%, while GAZ was up 1.3%. Their price movements should be almost identical and certainly they shouldn't move in opposite directions. But that is only true in reality, something which the market has become completely detached from.

NEXT: Bernanke Reappointed, Court Order and FDIC

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.

Oil storage, Stocks and States

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 opened strongly this morning. How they close and on what volume will be significant. The economic news, although negative is being reported in a positive light this morning. The fiscal crisis in California, and a number of other states, is being mostly ignored. It's likely everyone is assuming they will find some way to carry on. The oil storage report this week was a repeat of last weeks.

Yesterday, the Dow once again closed below its 200-day moving average. Intraday, it fell below the 50-day, but managed to rise to close above it. So far today, it is well above it for only the second time in the last two weeks. China hit a new yearly high last night and European stocks were up nicely today, especially commodity plays linked to Chinese growth prospects. Japan, Australia and New Zealand were down, although the rest of Asia was up. Gold has traded up nicely and silver decently today. The trade-weighted dollar is weak, last trading at 79.69, still just above its break down level of 78.33.

Oil peaked today in mid-day European trading, where it reached at least 71.50. Selling came in strongly after the storage report. Crude supplies were down another 3.7 million barrels last week. In the last two months they have dropped sharply. Gasoline and distillates were both up however, gasoline by 2.3 million barrels and distillates by 2.9 million barrels. Even if oil in storage is in short supply, it won't matter for awhile because there is more than enough gasoline, diesel and heating oil around at the moment. The last quote I saw for oil was 69.35.

In economic news, the ISM Manufacturing report came in at 44.8, better than last months 42.8. Any number below 50 indicates that manufacturing activity is contracting. Nevertheless the mainstream media reported big improvements in manufacturing data. This was the 17th month in a row that the manufacturing sector of the U.S. economy has shrunk. Housing data today was contradictory. The government reported that its home purchase index was down 21.9% year over year based on mortgage applications. The less reliable real estate PR organization NAR reported that pending home sales were up however based on signed contracts. Guess which news item got the most attention from the media.

NEXT: So far, so Bad

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.

Subprime Housing Leads to Subprime Financial Institutions

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.

The housing reports released in October 2007 which indicated the state of the market in September were even more dismal than those of the prior month. Nationally, foreclosures had doubled year over year and they had gone up as much as 500% to a 1000% in the worst hit bubble areas of the housing market. Existing Home Sales were down 23% nationally. Although also down substantially, New Home Sales were nevertheless reported as increasing (huh?).

The September 2007 New Home Sales report was a classic example of how the financial media frequently reports bad news as good and hopes people only read the headlines and not the fine print. The New Home Sales report originally indicated that there had been 795,000 houses sold in August. The report then indicated 770,000 houses sold in September. This drop of 25,000 was heralded by the media as a increase of 4.8%. This happened because the sales figures for August were revised downward to 735,000 (by almost 8%, an incredible error for a statistical report) and the September figure was above this number, so this indicated that sales were going up! The first thought of any rational person should of course have been, 'if the numbers for August were actually much lower, why shouldn't the ones for September be much lower as well?' Even a casual look inside the September report lent substantial support that this was indeed the case. Sales in the West, probably the worst hit housing area in the U.S., were supposedly up 38% - a completely absurd number and an indication that the September numbers were being overstated just as the August numbers had been.

Despite the complete devastation in housing sales., median house prices were reported up 2.5%. The statistical tricks that led to this impossible outcome were discussed previously in this blog in the posting, "Housing Market Collapses, but the Statistics Hold Up".

House sales were falling off a cliff because mortgage money was disappearing. By October 2007, 183 mortgage lenders had already closed their doors since the previous December. One that didn't was Countrywide, the largest mortgage lender in the United States and therefore presumably too big to fail. What kept Countrywide afloat was a $2 billion capital infusion in August from Bank of America. Barron's reported that there were rumors that this bailout had been secretly arranged by the U.S. federal government. If so, it would only be the first of many bailouts that the Feds would have to arrange to prop up failing American financial institutions. Shortly thereafter, one of the major British mortgage lenders, Northern Rock, experienced a run on the bank - the first in England since the 19th century. Northern Rock had been known for it 125% mortgages and when word got out that it needed an emergency loan from the Bank of England, depositors queued up for blocks desperate to get their money out. While the Bank of England directly provided capital to keep Northern Rock going, this approach would prove to be no more successful than the more circumspect American one. Both Countrywide and Northern Rock would barely survive into 2008.

Next: What Banks and Enron Had Common

Daryl Montgomery
Organizer, New York Investing meetup

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