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.

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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.

More Oil Disappears; Gold Investment Demand Skyrockets

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 U.S. government's weekly EIA storage report came out this morning and for a second week in a row there was a big drop in crude supplies. Gasoline in storage dropped even more. The less reliable industry report from the API, released Tuesday evening, showed an even bigger drop of oil on hand. The ever bearish (and wrong) oil industry 'experts' were quick to point out that demand wasn't rising, it's just supply that is falling, as if somehow this doesn't cause prices to rise. One area where demand is unquestionably rising is in gold purchases for investing. According to today's report from the World Gold Council, these more than tripled year over year. As was pointed out in the New York Investing meetup's 'Inflation Investing' class last night, investment demand is the key to future price rises in the precious metals.

While the mainstream media has continually (and inaccurately) trumpeted that there is a glut in oil supply in the last several months and twisted and even misreported recent EIA statistics to show that this was the case, the price of oil has been steadily going up since February 18th. Obviously the smart money and the insiders haven't believed a word of the bearish story on oil that the press has been telling the general public - nor should you. Oil in storage dropped by 2.1 million barrels last week, after a more than 4 million barrel drop the week before. At least this time analysts predicted a drop (of 1.5 million barrels), unlike last week when they predicted a big gain. Gasoline supplies dropped an eye popping 4.3 million barrels this time around. NYMEX oil closed at 60.10 yesterday and almost reached 62 early the morning, which represents a breakout to a new trading range.

A more significant report released this morning was the World Gold Council's supply and demand figures for gold in the first quarter. Investment demand more than tripled from Q1 2008. The current figure of 596 tons is up from 171 tons last year. Investment demand represented almost 60% of all demand for gold in the January to March period - and that percentage is likely to rise substantially in the next few years until it totally overwhelms all other demand categories for gold (jewelry, industrial, and medical). ETF demand by iteself exceeded jewelry demand, historically the biggest source for gold usage, for the first time. Industrial and jewelry demand both had sharp drops, so the overall demand increase for gold went up 'only' 38%. What supposedly prevented a major price rise in gold last quarter was a huge increase in gold supply from scrap (gold holders cashing in their gold). The scrap figures should be taken with a grain of salt however. Analysis of previous big rises in supply from scrap indicate that almost the entire increase came from just one country -India - and nowhere else in the world. This is suspicious to say the least since the rules of economics tend to work the same everywhere.

Gold and its companion silver have yet to start a new rally phase, but should be doing so soon. It's never possible to say exactly when. The new demand figures for the precious metal can only be described as extremely bullish. Oil's current rebound off its lows is well underway and should last minimally at least 5 to 6 more weeks (this is the most conservative estimate). In the best case, it could continue well into the summer. Seasonal factors will eventually cause selling in the fall/winter, but don't expect oil to return to the lows from last winter. It is much more likely oil will be returning to its highs from last summer. You will probably have to wait until 2010 for that though.

NEXT: Dollar Weakens; S&P British Outlook; TED Back From Dead

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.