CFTC Kills Off DXO

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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DXO no longer exists. Deutsche Bank announced on September 1st that it would redeem all shares after the market closed on September 9th. DXO was started in June 2008 and had $600 million in assets. It was a investment vehicle that offered hundreds of thousands of small investors a leveraged oil play. Many members of the New York Investing meetup bought it in March and sold it in June of this year and made a 165% profit on this trade. We will not be able to do so again in the future.

The CFTC (Commodities Futures Trading Commission) has been holding hearings this summer to investigate 'speculation' in the oil market. It has specifically targeted ETFs and ETNs in this regard. Deutsche Bank did not directly mention the CFTC in its announcement but said this redemption is the result of “limitations imposed by the exchange” causing a “regulatory event”. How much behind the scenes pressure was put on Deutsche Bank is not known. Deutsche Bank is a holder of U.S. mortgage debt. While it doesn't seem to be on the list of TARP recipients, it did receive approximately $11.8 billion from AIG as a result of the government's nationalization of the company. It can also be assumed that Deutsche Bank benefits from other Fed programs that take junky assets off bank's books and replaces them with higher quality bonds. When the government 'owns you', you are likely to give it what it wants.

It is interesting that the CFTC is concentrating its efforts on 'speculation' from investment entities that are used by small investors. Like the SEC, it hears no evil and sees no evil when it comes to the large players. For years there have been two large banks that have held large short positions in Silver futures (and Deutsche Bank may be one of those banks). It took years of complaints before the CFTC agreed to investigate, just as the SEC continually ignored complaints about Bernie Madoff and his obvious $65 billion Ponzi scheme. So far, the CFTC has found nothing, just as the SEC never at any point found any wrongdoing on Madoff's part (his Ponzi scheme collapsed on its own accord). If the federal government wanted to limit speculation in the commodities market it could easily have done so, by forcing Goldman Sachs and Morgan Stanley to close down their commodity trading operations. Federal law prohibits banks from speculating in commodities and both Goldman Sachs and Morgan Stanley became banks in 2008. The government gave both firms a special five-year dispensation however. If you are a big player, you don't have to worry about 'the rules'.

The government's action in the energy market should be seen for what it is - an attempt at imposing price controls on oil and gas. Price controls never work and almost always lead to shortages and much higher prices. ETFs will not disappear either as a result of the CFTC's action, but will turn into closed-end funds. There will be an attempt to launch more of them. Each one will be smaller, less liquid and have a much higher expense ratio. More will move to overseas markets that are less restrictive. While it is just oil and gas this summer, expect other markets (particularly agricultural) to be affected in the future.

NEXT: The Cash From Clunk-Heads Program

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.

Inflation Versus Recession

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:

Gold hit its second highest price ever yesterday. Interestingly, the U.S. dollar is not close to its all time low. For any given dollar level, gold prices have been rising over time. Inflation is when a currency decreases in value and this has been happening for the dollar when measured against gold. Looking at the value of one currency versus another can obfuscate that inflation is taking place. All fiat currencies are declining in value against gold and this indicates that a widespread global inflation is taking place.

The trade-weighted dollar fell as low as 77.02, but closed at 77.19 yesterday. This is well below the 78.33 breakdown level. The dollar is at an 11 month low and even if it stays at current levels or rises somewhat will hit a yearly low within 3 weeks. This will be very bearish. The U.S. dollar is already at a yearly low against the euro and Australian dollar, both of which hit new highs yesterday.

While inflation is taking place, the same thing can't be said about an economic recovery. Consumer spending accounts for 72% of U.S. economic activity and under current conditions can not improve in the foreseeable future. Consumer Credit for July was released yesterday and it fell by $21.55 billion or at a 10.4% annual rate. Credit card debt fell at an 8.5% annual rate. It was the 11th straight monthly drop. While consumer credit is contracting, so is consumer income. At the same time, the savings rate is rising. All three indicate less consumer spending and ongoing contraction in almost three-quarters of the U.S. economy.

The one-month drop in consumer credit in July was four times greater than the entire consumer debt in the U.S. in 1944. The 60 plus year post World War II expansion was fueled by ever increasing consumer credit. Like all expansions inevitably do, this one has come to an end. Initially, there was real growth that went along with the expansion, but in the last three decades U.S. growth has been based on increased spending made possible through excess credit. Going forward inflation is going to make this impossible.

NEXT: CFTC Kills Off DXO

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.

Gold Breaks $1000!

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:

As of this morning, gold has been above $1000 an ounce three times. The first time was in March 2008 when it reached $1033 and the second was February 20th of this year when gold reached $1006. Slightly after 4 AM New York time, gold traded at $1007. Gold also traded close to the $1000 mark in July 2008 and early this June. Unlike previous attempts to break the $1000 an ounce level, this one is taking place at the beginning of gold's bullish seasonal period that runs from August to February.

Gold has had a spectacular rise that began only last Tuesday. Most of the technical indicators on both the daily and weekly charts are not even remotely overbought. The technical patterns look more like a pre-rally. They have not even reached the usual rally formations yet. Until they do, choppy trading around the strong resistance level of $1000 is quite likely. A break higher now is possible, but is not likely to last too long initially. A rally will take hold after awhile however. Gold now has a long 18-month base and that can act as a springboard for a long and powerful breakout that can last for several months.

Silver was as high as 16.80 this morning and is trading at a yearly high. It is trading in a band of resistance between 16 and 19. It may get stuck in this area for awhile as well. Once it clears the 19 area it is likely to go to new highs breaking through the 21 level reached in March 2008. Silver always follows gold.

As would be expected the U.S. dollar is not doing well this morning. DXY, the ETF for the trade-weighted dollar, traded as low as 77.14 pre-market. This is a new low for the sell off that began in March and well below the breakdown level of 78.33. This is the third time this level has been breached. The dollar is weak and the precious metals are strong because the G20 made a pledge this weekend to keep their unprecedented stimulus efforts going. Stocks are rallying as well, not reflecting any potential growth in the global economy as the mainstream media is reporting, but because more liquidity rallies stocks. If it is interpreted as inflationary, it also causes gold and silver to rally and the U.S. dollar to tank. The market's message today is quite clear.

NEXT: Inflation Versus Recession

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.

No Recovery in Jobs

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 contained little evidence that an economic recovery was taking place with a loss of 216,000 jobs in August. The headline unemployment rate jumped to 9.7% (a 26-year high), while the alternate figure which includes discouraged and involuntary part-time workers rose to 16.8% (the highest since this number has been published). This was the 20th month in a row that there has been a loss of jobs. U.S. employment in the private sector is now lower than it was in 1999.

Revisions in June and July's numbers indicate an extra 49,000 jobs were lost in those months. It is quite likely downward revisions will take place for the August number as well, which is based on a survey of businesses. The separate household survey (which is much more accurate because it is a large random sample) indicated that 392,000 jobs were lost in August and unemployment rose by 466,000. The only industry group in the private sector to add jobs in August was health care. It has consistently added jobs during the entire Credit Crisis.

Weekly claims to collect unemployment insurance came in at 570,000 this week. This is still well above the 400,000 level that indicates a recessionary economy. A true economic recovery would lower this number well below 400,000 and keep it there. Many American workers are not eligible for unemployment, so when they become unemployed they don't show up in the weekly claims or total numbers receiving jobless benefits. That number has reached 6.23 million and while rising lately has had some dips because a number of unemployed have exhausted their benefits and are no longer included.

As bleak as these figures are, the mainstream media managed to put a positive spin on them because the total job losses came in slightly better than expectations (the unemployment rate was worse though). News articles for some time have indicated that a 'jobless recovery' would be taking place. A jobless recovery is an oxymoron and there is no such thing. This only first appeared after the early 1990s recession was supposedly over. It appeared again in the early 2000s. Why at these times and not before? The government started making major statistical 'improvements' to the GDP numbers and related figures in the 1980s and followed up with more in the 1990s. After this was done, it was possible for the economic statistics to have a recovery despite what was happening in the real world. Only when employment starts increasing and job gains become consistent will the recession actually be over.

NEXT: Gold Breaks $1000

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.

Inflation News Sends Gold Soaring

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 ISM Services Index was released this morning and it came in at 48.4, which indicates only a slight contraction. While the mainstream media put the usual bullish spin on the news, it was actually nothing short of disastrous. One component was overwhelmingly responsible for the improvement from last month - Prices Paid. Prices Paid is a measure of inflation. It came in at an eye popping 63.1 in August versus 41.3 in July. The biggest increase in the Manufacturing Index yesterday was also Prices Paid (new orders was a very close second though, there were no close second in today's Service report). In the manufacturing report, prices paid was 65.0 in August versus 55.0 in July. None of the ISM reports are adjusted for inflation, just like most of the government's economic reports. In both cases, higher inflation as opposed to better economic activity can make the numbers look better. Financial media usually fails to mention this.

Spot gold reached $987 this morning. It is approaching once again the key $1000 breakout level. Spot silver almost reached $15.80, just below important resistance at $16. Gold has traded just over $1000 twice. The first time was in March 2008 and the second time in February 2009. This key level was reached at the end of gold's bullish seasonal period which ranges from August to February. This time the $1000 level will be reached at the beginning of the strong seasonal period. Expect silver to follow gold up. Once it breaks above $16, it will head toward $21.

While you would think that the U.S. dollar would nosedive on this news, it was down only slightly from yesterday's close of 78.38. After dipping just below the 78.33 breakdown level, it started rallying and is now up. This illogical trading of the dollar has been common since the Credit Crisis began. Why would traders rush to buy it, when the currency is constantly being debased by the central bank? They wouldn't, at least not voluntarily. Nations, including the United States, have a long history of trying to maintain the value of their weakening currencies by manipulating the market. The manipulation always fails in the end however.

Fed chair Ben Bernanke has said over and over again that there can't be inflation because there is spare capacity and slack in economic production. While he may be an expert in the U.S Depression, he apparently never studied hyperinflation where just such a scenario is common.
Bernanke has also been repeatedly wrong in everything he has said and done. For those who would like a video review of Bernanke's appalling record, click on the link below:
http://www.youtube.com/watch?v=HQ79Pt2GNJo

NEXT: No Recovery in Jobs

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.

Global Stock Markets Weaken

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:

Both the Nasdaq and Dow were down 2% yesterday. The S&P 500 and Russell 2000 were down 2.3% and 2.5% respectively. Euro markets were also down yesterday after the route in the Chinese market Sunday night. While the Nikkei held up on election news, it was down 2.4% last night. Global markets have been rising together for the last 6 months and now seem to be selling off in tandem as well. China led the world's stock markets up and seems to be leading them down.

As expected, the ISM Manufacturing report yesterday came in above 50, which indicates expansion. It was the first time in 19 months above this level. The 52.9 reading was up from 48.9 in July. The new orders component was up 10% and was responsible for much of the rise. As has been pointed out in this blog, the Cash for Clunkers program is behind much of the recent burst in U.S. manufacturing activity. Recovery is only meaningful if it takes place without government stimulus however. Otherwise the economy falls right back down as happened in Japan repeatedly in the 1990s and 2000s and seems to be happening in the UK right now. The glowing bullish AP coverage of this report at least also stated "as long as consumers remain hamstrung by weak pay and job losses and wary of ramping up spending, the economy might not be able to sustain a recovery". Oh really?

Weak pay is the operative word. The Productivity Report today had productivity up 6.6% last quarter, the most in several years. While the rah-rah-rah media gave the usual bullish spin to the news, it is actually quite bleak. The big rise took place because labor costs fell so much. They were down 5.9% in Q2 after being down 5.0% in Q1. This means a lot less money is going into the average consumer's pocket. At the same time credit availability is also being cut. So how are consumers going to increase spending? Retailers are currently reporting that back to school sales are weak as should be expected. So much for 72% of the American economy doing well.

The dollar was up yesterday as has been the case since March when stocks sold off. It closed at 78.76, above its 78.33 breakdown level. It was below that key point part of the day. Gold was mostly flat yesterday, but was trading at $965 this morning. Silver is above $15. Gold is trying to get back to its $1000 breakout level and may do so soon.

NEXT: Inflation News Sends Gold Soaring

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.

Next Five Days Critical for Stock Rally

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:

In a healthy market the first four trading days of the month should be up in the aggregate. This month, it's the first five trading days in the U.S. because Friday is the day before a major holiday and stocks usually go up on those days. The seasonals are negative for stocks, with September historically being the weakest month. U.S. money supply has been contracting lately and investor sentiment has turned sharply down, both also negatives for the market. Whether this can outweigh the U.S. government's invisible (and not so invisible) hand in the keeping the market rally going remains to be seen.

The Chinese markets had a dead cat bounce last night, being up only a fraction of a percent after dropping around 10% in the previous two days. European markets are weak this morning. Unemployment is increasing in the Eurozone even though France and Germany supposedly pulled out of the recession with their positive recent GDP reports. In the UK, the manufacturing sector went back into contraction in August after being positive for one whole month in July (there was much celebrating about how UK manufacturing had recovered when those numbers came out). Even more problematical for the British economy is that consuming lending in the UK dropped last month for the first time since records have been kept. Like the U.S., the UK is highly dependent on consumer spending to keep its economy going. Also like the U.S., their solution to produce economic recovery is money printing.

In the U.S. auto sales are predicted to be the best since last September thanks to the Cash for Clunkers program - just one of many U.S. government programs that reward people who engaged in irresponsible and stupid economic behavior (and paid for by those who didn't). The ISM manufacturing report out this morning is predicted to turn positive because of the improvement in the auto industry. Unless the U.S. government has some new program every month to buck up the manufacturing sector, it might quickly turn negative again as happened in the UK. The biggest beneficiaries of the Cash for Clunkers program have been Toyota and Honda (Why doesn't the federal government just shoot the American auto manufacturers and put them out of their misery?). Interestingly, Japanese auto sales were reported up for the first time in a year last night.

Manufacturing activity has been up for the last 5 or 6 months in China (depending on which report you read). While internal demand was cited as one reason, exports are supposed to be up. Who is buying more of their exports? The major economies are all in bad shape and despite a positive economic statistic here and there thanks to government stimulus programs and jiggling of the figures, they will remain in bad shape for some time. Eventually, global stock markets will figure this out.

NEXT: Global Stock Markets Weaken

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.