So Far, So Bad

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 stock market is tanking today. A sell off the last trading day before July 4th is statistically unlikely and should be considered bearish in and of itself. We will have to wait until the close next Tuesday to see if the first four trading days of the quarter were net down and are also providing a bear signal. Stocks started off strong on Wednesday, but faded as the day progressed. The Dow was up only 57 points at the end, but managed to close above its 200-day moving average for only the second time in almost three weeks. Volume was unusually low for the first day of a quarter. The Dow is below both its 200-day and 50-day as I write this and a close below both key levels at the end of a week can only be interpreted as negative.

The monthly employment report was released this morning and set the tone for trading. A loss of 325,000 jobs was predicted by analysts, but the number came in way above expectations at 467,000. The official unemployment rate was 9.5%. If discouraged and involuntary part-time workers are factored in, unemployment would have been 16.5%. Only education and health care were supposedly hiring last month.

While bad economic news is negative for a currency, somehow the U.S. dollar went up on this news. The mainstream media has indeed been reporting the dollar rise and explaining it as safe haven buying. If you are puzzled by this, you should be, especially since gold is going down at the same time. No one in their right mind would load up on a currency with a weak economy as a safe haven play. It is more likely the invisible hand of the U.S. Treasury lifting the dollar today. Don't expect the media to ever report that though.

All the major U.S. stock indices are down over 2% in afternoon trading. Oil is performing even worse. The commodity hit a low of $66.54 in today's trading and was just over 67 at the close of NYMEX trading. Natural gas futures are barely down, although UNG is dropping big time. The cause of the disconnect is not clear. The reason for any drop whatsoever is even less clear, since the storage report this morning was very bullish. Analysts expected a build up of 82 billion cubic feet, but the increase was only 70 billion.

I guess we will just have to wait until next week to see how things play out.

NEXT: Does Money Printing Cause Deflation or Inflation?

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 Takes Gas, Silver's Shining Moment, GM Watch

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 oil inventory report was delayed this week and it was bullish big time for the third week in a row. The natural gas report was just better than expectations, but even this minimal accomplishment proved a combustible mix that caused UNG (the natural gas ETF) to shoot upward. SLV (the silver ETF) traded over 15.00 this morning, removing all doubt that a breakout has taken place from strong resistance around 14.50. News reports are indicating that some progress is being made with GM bondholders in a last minute effort to avert the largest industrial bankruptcy in the history of the United States.

Analysts expected that U.S. oil inventories would rise 1.8 million barrels last week. Boy did they get a surprise! Inventories fell by 5.4 million barrels. Gasoline, the major use for oil during the summer months, had 600,000 less barrels in storage. Year over year U.S. gasoline demand is down only 1.2% despite the troubled economy, yet oil is still 47% off of last year's high. Despite dropping supply and the barely lower demand for gasoline compared to the much lower price of oil, you can still find bearish comments on oil in media coverage. Our favorite oil ETF, DXO, has continually told an opposite tale however - and when in doubt, the market is always right. DXO broke above 4.00 today and should be heading higher until light sweet crude reaches at least $75 a barrel. Triple leveraged energy company ETF, ERX, is having an even better day after consolidation around support between 29 and 30 level.

While oil may have only a month or so left of its rally (frequently when the most money is made), natural gas is still putting in its bottom and I have been accumulating UNG since it fell back to the low 14's. Unlike oil, the fundamentals of natural gas are indeed negative and have been for a long time. Moreover, the favorable seasonal for natural gas can begin as late as July as opposed to February for oil. The peak is most likely in late October, early November, while oil statistically peaks in early August. This week, analysts expected U.S. storage of natural gas to increase 111 bcfs (billion cubic feet), but the increase came in at only 106 bcfs. In a heavily shorted market, that was enough to generate a big move up.

In the precious metals, SLV trading above 15.00 today was quite impressive. At the moment silver is doing better than gold, but it has a lot of catch up to do. Gold is only 4% off its recent highs of 1000, while silver is about 30% lower than it previous high around 21. SLV has another point of resistance at 16. After that, SLV testing 21 is almost certain.

Some progress seems to have been made with GM bondholders this morning. It is still too early to tell if this will come to fruition. Whether or not GM declares bankruptcy (allowing this to happen will be one of the biggest economic mistakes that the U.S. government has ever made) is obviously going to go down to the wire. The stock has not fallen below a $1.00 today however and is actually up 10% at the moment. When the market thinks a company is going bankrupt, it pushes its price into the penny level. Watch to see if this happens. While a GM bankruptcy will weigh on the market, the avoidance of bankruptcy would cause a big rally next week.

NEXT: Silver, Oil , Gold - Market Screams Inflation

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.

GM Saga Continues; Gold Becomes the New Oil

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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This is the last week for GM to arrange a deal with its bondholders in order to avoid bankruptcy - and things don't look good at the moment. While this has been weighing on the market for some time, it didn't prevent a huge rally yesterday that saw the Nasdaq zoom and close well above its 200-day moving average. This picture would be extremely bullish, if volume had been heavy instead of just average. Gold and silver were down slightly in the stock rally and this was odd behavior to say the least considering the Korean nuclear test. News coverage on the precious metals is beginning to resemble the negative coverage that oil experienced from February to just recently. Oil wound up basically flat on the day Tuesday, but was as high as $63.45 in European trading this morning. Look for $67.00 as the next resistance.

What has been going on with GM in the last few months highlights the extent of recent government incompetence in handling the U.S. economy. Federal policy from the last several presidential administrations has undermined our industrial base and built up the FIRE (Fire Insurance Real Estate) economy to replace lost manufacturing. Obama claims he wants to restore the balance. Unfortunately, none of his actions support his rhetoric. GM, which is the first major opportunity to help revive U.S production, has been handled disastrously. The Obama administration has interfered with the operations of the company as if somehow they know more about how to run a large industrial enterprise than people in the industry. They don't. While GM has been poorly managed for decades, it is still run better than the U.S. government.

Furthermore Obama's people have made demands that are improper and unlikely to be met in order for GM to get more bailout funds. No such demands were made on any financial institution that received TARP funds. While the unions have been more than cooperative, the unsecured bondholders have balked about accepting equity in exchange for their holdings. This was inevitable since they would be entitled to more in a bankruptcy, either through distribution of assets or by cashing in their credit default swaps - an action that would cost the financial companies receiving TARP funds a lot of money. Trying to force bond holders to accept equity is also an attempt to violate their rights under law. Who would want to lend capital in a country that does this? If the Obama people sat down in a room and tried to figure out an economic policy that would lose in the short term, lose in the intermediate term, and lose in the long term, they couldn't have done any better.

Lack of confidence, along with the massive money-printing operations of the major central banks, will continue to drive up the price of gold and silver. Don't expect to hear this from the mainstream media however. Some tidbits from today: 'Gold off for second day amid broad metals selling' (gold was down $2.20, a minor intra-day blip); 'The strong dollar has sapped some of the resilience that gold has been showing' (a quote from someone who has a $600 price target on gold and has been wrong about the price direction of gold for months, but that's not mentioned in the article and doesn't keep the media from quoting him); and 'silver skidded 4.5 cents' (but was still above the key breakout level of $14.50). I also particularly liked the coverage in the Wall Street Journal yesterday that said 'gold could go to a $1000 by the end of the year'. Now that's an earth shattering prediction. And to think investors who get their information from the media have trouble making money in the markets. I can't imagine why.

NEXT: Oil Takes Gas, Silver's Shining Moment, GM Watch

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 Inventory Report Super Bullish; Watch Silver and Gold

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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Nymex oil was as high as $60.08 a barrel yesterday, another six month high. The oft quoted 'experts' are still bearish as they have been all the way up from $33 a barrel. While it has received little attention, silver has been rallying nicely and is approaching resistance around $14.40. It is likely to get sticky around that level before a breakout can take place. Gold has been trading above, but close to its 50-day moving average for the last four days and the moving average pattern is trying to become bullish. Nova gold (NG) mentioned in this blog yesterday was up 15%. It has strong resistance only 20 cents higher, so it's not likely to be at a great entry point at the moment.

Oil is a very seasonal commodity and on average the price peaks the first week of August. The peak can actually take place anywhere between June and September. If you wish to be as conservative as possible, there is at least another month left to the oil rally. There could be two or three. Points of strong resistance include $70, the high during hurricane Katrina; the $76-$78 range, which includes the 38% Fibonacci retracement of the sell off and oil's last major breakout point before it went to $147 a barrel (this combo makes this resistance area particularly formidable); and $90, which is the 50% Fibonacci retracement of the sell off. You might need a hurricane heading toward the Gulf of Mexico to get to that level on this go around.

The EIA storage report just came out and blew the bears out of the water. Oil analysts had predicted oil in U.S. storage would increase by 1.4 million barrels. Instead, oil in storage decreased by 4.7 million barrels. Gasoline supplies were supposed to be up 400,000 barrels, but dropped 4.1 million barrels. While there was an immediate market response on the upside for oil and oil companies, I suspect a bigger rally will not show up for a couple of more days (this has happened before).

It is my belief that as the stock market fades, and this should be happening within a month or so, that gold and silver will start to shine. While there are people who are predicting gold will fall to $600, there have been a number of supposed oil 'experts' that have remained bearish during the entire oil rally. You can expect the gold bears to remain vocal all the way up as well. Watch the charts if you want to know what is really going on. Moves to higher levels and breaking above resistance are bullish signs that will tell you that gold and silver want to continue to rally. For gold, 1000 is the key level and when that is broken, a significant move up should follow shortly thereafter.

NEXT: Market Pull Back or Top?

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.

If It's Wednesday, It's the Oil Storage Report

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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Every Wednesday at 10:30AM the EIA (Engergy Information Agency) releases it oil inventory report for the U.S. This not only includes the oil at the NYMEX storage facility at Cushing Oklahoma (actually down two weeks ago, although the drop didn't get press attention), but oil at refineries, oil just arriving by ship, etc. It also includes the oil in the Strategic Petroleum Reserve, which is not available for general use except during an emergency. Media coverage has continually reiterated that there is a 'glut of oil' and that we are 'drowning in oil' even though there is only approximately 18 days of oil in storage (this fact remains unmentioned).

While you will continually see references in the media to the drop in global demand for oil, you will see far fewer references to falling supply. In many articles you won't see this key piece of information mentioned at all. World demand is estimated to have fallen from 87 to 84 million barrels a day because of the current economic decline. However, OPEC alone has cut daily production by over 3 million barrels. The decline in usage may also be overestimated. A report out of China, currently the worlds second largest oil consumer, today indicated that year over year demand for oil in March dropped a "whopping" 0.25% (you would need a magnifying glass to notice the change).

Falling oil production isn't just the result of evil plotters and maldoers like OPEC as the American press would have you believe, but is being caused by oil being depleted from major fields. Both North Sea and Mexican oil production are falling rapidly simply because the oil is running out. Production in the Cantarell field in Mexico, the second largest in the world, is dropping by 15% a year. This is one of the major sources of oil for the U.S. As early as five years from now, the oil being pumped from Cantarell may be so little that there will only be enough for internal use in Mexico. This will make the U.S. even more dependent on oil from our "friends" in Venezuela and the politically unstable corruptocracy of Nigeria. Even worse, the recent drop in oil prices has caused a number of production projects to be cancelled and this will add to the inevitable oil squeeze that will be taking place in the next few years.

The oil report today indicated more oil in storage than the consensus estimate. Oil, the commodity, went down on the news. Some oil stocks such as PDS and HTE are doing exceptionally well today however. The seasonals for oil are bullish at until at least June, and maybe into the summer, and there is likely decent money to be made until then in the short term. While a price pull back this fall/winter is probable because of seasonal patterns, that should be considered a major long term buying opportunity.

NEXT: IMF Notices Recession; Possible Sovereign Defaults

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.

The Deflation Boogieman, Oil and Intel

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 PPI report yesterday and CPI report this morning both indicated deflation - at least in the headline numbers. PPI was down 1.2% and CPI down 0.1%. The core rates were flat and up 0.2% respectively. Falling energy prices, and falling food prices as well this month, are responsible for the "deflation" that is being reported by the government. NYMEX oil prices meanwhile closed yesterday in New York at $49.41, but were once again above $50 again in European trading this morning (the weekly storage report is out today at 10:30AM New York time). Oil is well off the $33 low being reflected in recent inflation statistics. Tech bellweather Intel released earnings last night and there was actually some good news in the numbers. The CEO also blatantly stated the PC market had bottomed. Apparently traders don't believe him though since the stock had a big drop in the aftermarket.

We have covered many times in this blog how the U.S. government manipulates the inflation statistics to lower the reported inflation rate, so you should always add a few percent to whatever numbers it releases. We have also demonstrated several times how falling oil prices are almost solely responsible for the recent drop in U.S. inflation rates (falling oil along with drops in other commodity prices were the key components of the deflation that took place in Japan in the late 1990s and early 2000s as well, but you will never see this mentioned in media reports). The U.S. government reported this morning that year over year headline CPI is down 0.4% - the first annual decline since 1955 - but the core rate is up 1.8%. Yesterday, the headline PPI was reported down 3.5% since last year, the largest decline since 1950. Gasoline and food prices were down over 13% and even food prices supposedly dropped (something I haven't noticed in the real world).

Considering the light sweet crude oil is already around 50% above its February low, the days of the current "deflation" may be numbered (and of course the U.S. is printing new money at an outstanding rate to make sure they are). During the entire time that oil prices have rallied, the mainstream media has continually stated that the price can't go up until the economy recovers and demand for oil increases (neither has occurred, yet prices have risen) . A quote from an article this morning, "Demand will have to come back before you see the oil price move up from $50 in a sustained way." You can find very similar statements when oil was at $40 and yet the price rose to $50. My guess is you will see similar statements at $60 and probably $70 as well. Interestingly, the people being quoted in the articles today are different from the people that have been quoted, and who have been continually wrong, during the last few months. Is the mainstream financial press actually starting to realize that their credibility is damaged when they continue to quote a source that has been wrong a few dozen times in a row? Perhaps, although you should note that the quotes themselves that contain the inaccurate information are not changing, just the people they are attributed to.

Finally, Intel earnings last night were significant. While they don't exactly indicate that the global economy is running on all cylinders, they do indicate that tech spending is not collapsing. It is also unusual for a CEO of a major company to state so blatantly an opinion of overall market conditions. So why isn't the market giving his bullish comments any credibility? My feeling is that it is because tech spending in the U.S. may not have bottomed. However, the U.S. is not the center of world when it comes to technology spending (and many American traders have yet to realize this). The market for computers in East Asia became twice as big as the market in North America long ago. If demand for tech is picking up in Asia, the market could have indeed be turning around.

NEXT: Economic Statistics are Yesterday, Stock Prices are Tomorrow

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.

Fed Minutes Take Oil on Roller Coaster Ride

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:

It would be easy to get whiplash watching the oil market these days. The news was grim early in the morning yesterday with blaring headlines of oil falling below $48 a barrel in anticipation of a bad news oil storage report at 10:30AM. Storage however turned out to be below expectations and oil started rallying immediately. NYMEX oil got to over $51 a barrel mid-day, rising above the key breakout point around $50.50. Then late in the afternoon the minutes from the last Fed meeting were released and even though they should be taken about as seriously as a Mel Brooks movie, oil nosedived on the Fed's gloomy outlook for the economy. In the end oil was up 23 cents, closing at 49.38, though today in mid-session European trading it's above $51 again.

The price of oil was weak early Wednesday because of a report Tuesday evening from industry group, the American Petroleum Institute, that indicated there was 6.9-million-barrel build in storage.This report is not terribly reliable because it is not comprehensive and submitting data is voluntary. The government's EIA report that came out the next morning, painted a very different picture of the oil market. Oil in storage rose 1.7 million barrels, much less than the 2.3 million barrels that analysts had predicted. Distillates, which include heating oil and diesel, fell by 3.4 million barrels versus expectations of a drop of only 600,000. Gasoline demand was reported as being 0.2% below a year ago (if demand was 100 a year ago, it is now 99.8). While the drop in U.S. gasoline demand is something you would need a magnifying glass to see, the mainstream media has continually reported it as collapsing and falling off a cliff or words to that effect.

Despite the bullish tone of the storage report, oil (and most of the rest of market) sold off big time when the meetings from the Fed's March meeting were released in the late afternoon. The Fed, which didn't see the Credit Crisis coming, miscalculated it at every twist and turn, and didn't foresee the recession, is now gloomy for the next two years going forward. Sure they were wrong over and over and over again, but now they know what's going on. The minutes also indicate the Fed is worried about deflation even though it is stated in the same minutes that they are printing new money like no tomorrow. Worrying about deflation under such circumstances is like worrying about being attacked by Big Foot while walking through Central Park. The probability is somewhat less than zero.

While gasoline demand in the U.S. is flat, it should be rising in China. For the last three months cars sales in China have exceeded car sales in the U.S. Year over year, car sales are down 37% in the U.S., but up 5% in China. China is on its way to becoming the number one auto market and the number one energy user. Oil demand is shifting from North America to East Asia while the ability to produce oil is declining 6% a year by some estimates. There are even predictions out there of an oil price spike as early as later this year. While I don't necessary believe it will happen that soon, it will indeed happen as some point.

NEXT: It's Not the News, It's How the Market Reacts to the News

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.

Stocks Look for Bottom, Oil Rallies

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 market is going up and down like a yo-yo today, alternating between negative and positive. Stocks are trying to find a bottom and will probably do so soon. No matter how negative the outlook is for the economy and earnings, stocks can only go so low before having a rebound because the selling gets exhausted. At this point media reports have gotten about as gloomy as they can get, with each person making a more negative price low projection than the last (Everyone is always about as bullish as they can get at a top also). While stocks grope for a bottom, oil looks like it found one last month.

On Friday the Dow hit a new low of 6443 and the S&P500 hit a new low of 667. Nasdaq broke its November low of 1295 (the last index to do so) and traded down to 1269 at one point. The close wasn't as bad because heavy buying came in at the end of a day. Professionals tend to trade at the close and their willingness to load up on stocks on a Friday is a bullish sign that indicates they think the risk of an upside surprise is becoming bigger than the risk of a downside one.

Oil is behaving particularly bullish. The near term futures were up 4.4% on Friday despite the horrendous jobs reports. For months the media pundits have been telling you that oil can't go up until the economy shows signs of recovery. The New York Investing meetup has maintained this is not the case, but you should focus on the supply picture instead. Supply has been dropping and the economic news has only gotten worse. In the last few weeks, oil has rallied from the $33 a barrel range to over $48 this morning. New York Investing recommended DXO (200% long NYMEX light sweet crude) at one of its classes on the evening of Feb 17th. You could have picked it up the next day at the bottom (and some people did). The position has been profitable ever since (almost 50% at its best) despite the horrendous market sell off.

The stock indices are sitting above important support levels. The Dow has a band of support between 5600 and 6200. The S&P 500 has a band of support between 600 and 630 or so. Nasdaq has support at 1240. The Russell 2000 at 325 and 300. Even the upper end of these prices might be enough for a bottom at the moment since the market is itching to rally. At the very least you might want to start picking up some of the many bargain stocks out there when the indices fall to these levels.

NEXT: Stocks - the Good, the Bad and the Ugly

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 and Silver Rise, Oil falls

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 and silver continued their climb yesterday, while oil scraped along the bottom. The prices of all three are affected by the value of the U.S. dollar and inflation. As we covered in this blog yesterday gold demand hit a record in 2008. You can assume it will hit another record in 2009. Investment buying is the main driver, with the GLD ETF increasing its holdings 200 tons in the last month alone. Demand for oil on the other hand is falling, but not by nearly as much as the press would have you believe. The supply is likely to be falling much faster sometime in the next several months. Oil is a major bargain now, just as gold and silver were last October and November.

Gold closed at 978 in the futures market yesterday and reached 986 in London trading this morning. It should soon reach its all time high just above $1000 an ounce. Expect some selling in that area, but assume it will only be temporary. The current rise in gold is taking place because of a loss in confidence in the global financial system. This is not something that can be fixed over night, it will take many years. Gold and silver will be good investments during that period as people lose faith in paper currency and see that it is continually losing its value. Once gold breaks decisively above 1000, it should move to 1200 in a very short time. The next stop after that should be around 1500. Global governments are likely to try to dampen enthusiasm at that point by announcing an IMF gold sale or engaging in some other manipulation (a chronic problem in the gold market).

Silver always follows gold and is still far from its previous high around 21. Silver closed at 14.29 in the futures market yesterday. It's recent rally has been powerful just like gold's. Silver broke through major resistance in the mid 13's like a knife slicing through hot butter. The next stop is around 16, where the resistance is even more formidable. Expect some problems in that area. Above that there is minor resistance around 19 and then the important old high of 21. Unlike gold, silver has not made a new all time high yet. The old high from 1980 is in the 50s. It will get there eventually.

While gold and silver are operating on all cylinders, oil is languishing in the mid 30s. Light sweet crude (there are many grades of oil) may have doubled bottomed at 33+, only time will tell. Fundamentally, oil is cheap especially since it is priced in U.S. dollars, which are incredibly overvalued. The alleged oversupply of oil doesn't stand up to scrutiny either. While the supply has been building up in the U.S., the price of gasoline has been rising steadily. If there is so much oil supply why isn't it used to produce gasoline, which is obviously in short supply if the price is rising? Either there is no oversupply of oil in the U.S. or some form of manipulation is going on. You can decide for yourself.

NEXT: Oil Yes, Financials No

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.

The Euro, Oil, Retail bankruptcies, and GMAC

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:

Oil, energy companies, the precious metals and the mining stocks are doing well in European trading this morning (the U.S. markets are not open yet), in a hint of what should be expected next year. The inflation linked investments are doing well as retailers in Britain seem to be crumbling, along with the UK economy. In the U.S., there is a question of whether GMAC actually qualified to become a bank holding company. The Euro turns 10 on January 1, 2009 and its impressive performance against the U.S. dollar in the last couple of years is likely to continue.

The Euro traded around 1.42 against the U.S. dollar last night in Europe, well off its historical low of 0.82. While it didn't do well in its first couple of years and required global central bank intervention to prop it up, that story has reversed in the last couple of years. Global central bank intervention (which the New York Investing meetup documented starting in August 2008) has been needed to hold it down and the U.S. dollar up. The Euro has so far hit an all time high of 1.6038 last summer, but was trading in the mid 120's only recently. Driving it down has led to falling oil prices (oil is priced in U.S. dollars). In the long run, the currency of the inflation avoidant eurozone is likely to be a better bet than the currency of the 'print as many dollars as possible' U.S. Fed.

Nymex oil was as high as $40.27 in electronic trading overnight (and in an unusual price inversion that has been going on for awhile, lower than the Brent contract which hit $41.35) Tensions in the mid-East were cited as the reason for oil rising today. Reading the commentary, many analysts seem to assume that global tensions are a rare exception and are likely to disappear in the future. Any reasonable historical analysis indicates that this is unlikely. Global financial distress tends to translate into higher levels of conflict because governments shift the blame for their own incompetence to 'outside influences' being responsible. Not only does oil pricing benefit in the long run from this, but so does safe haven gold. Gold was up about $15 in Europe until the time the U.S. markets opened and then it was up only around $8. The drop when U.S. trading begins is a common occurrence that has lasted a long time. It has even been documented in academic studies that concluded it could only be the result of market manipulation.

As the inflation-linked trade was doing well in Europe, the retail trade was sliding further toward oblivion in the UK. Children's clothing chain, Adams, filed for a certain type of bankruptcy protection today. This followed the failure of the 99-year old general retailer Woolworth's, tea and coffee seller Whittard and music chain Zawi - all around the height of the holiday buying season. There are predictions that as many as 15 'major' UK retailers will go under early next year. Don't expect retail will be in much better condition in the U.S., it won't. You can expect a wave of failures on this side of the pond as well.

It is not likely that the Federal Reserve will bail out U.S. retailers (but don't rule out this possibility for any big chains with large credit operations) as it is trying to do with GMAC, the credit arm for General Motors. GMAC is trying to convert to a bank holding company as brokers Morgan Stanley and Goldman Sachs did in the fall. It is not clear it successfully did so however. Conversion to a bank holding company is the latest government scam to allow the Federal Reserve to pump money into a failed company. If the company is not a bank, but has anything to do with the credit markets, then turn it into a bank and give it a government bailout. Currently nothing succeeds like failure in the U.S. -the bigger the failure, the bigger the reward. And this is supposed to fix our economy? Right.

NEXT: A Nasty ETF Surprise

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 Enters Buy Zone

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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At the extremes of sentiment, there is nothing more bullish than a bearish commodity. When oil got to around $12.50 a barrel in 1998, surveys showed that only 3% of traders had a positive price outlook . Within days it was trading over $17 a barrel. The turnaround was sudden and explosive. The few contrarians who saw the opportunity made a lot of money in a short period of time. It turned out that $12.50 wasn't the low however, that was in the $10 range and it took a few more months to reach it. Similar behaviour is possible this time around.

Nymex oil fell as low as $33.44 in overnight trading. This represented a sharp drop in 24 hours after more than five long months of steep selling. It is common for markets to have six month sell offs. It is also common for the selling to end with a big drop at the end. Keeping that in mind, I started buying OIL today, even though I do not think oil has hit its low just yet. I suspect that this will be somewhere between $22 and $28. The set up for a good short term trade or the beginning of accumulating a position seems to exist though.

As I have said many times, the bottom price of oil will be determined by the cost of production. This is much higher than it was in 1998 because there is less easy to get to oil available. Much of the oil that has come on line in the last few years is oil that is expensive to produce, such as tar sand oil from Canada. This supply will start disappearing with oil selling in the 30s and the loss of supply will become extreme in the 20s. While you can find any number of news articles about how the demand for oil is going down because of the economy, you will see little about the supply also decreasing, which is the bullish side of the equation. Economic arguments that deal with the demand picture without mentioning supply are meaningless and should always be discounted.

Oil is one of the four pillars of inflationary investing (along with gold, silver, and food commodities). Keep in mind that it is priced in U.S. dollars and the Fed basically said this week that it intends on printing any amount of currency necessary to get the U.S. out of its current depression (my word not theirs). Just last night the BOJ in Japan lowered interest rates to 0.1%. England will likely institute ZIRP sometime in 2009. With the world's central banks engaging in hyperinflationary policies, it is only a matter of time before the price of inflation-linked commodities skyrocket. You just need to time your entry and wait for that to happen.

NEXT: Bailouts: It's Not Just Banks, It's not Just the U.S.

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.

The Truth About Deflation - A Crude Analysis

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 carefully orchestrated media campaign to justify its money printing spree, the U.S. government has been trumpeting the need to counteract the threat of deflation. While there has been disinflation (lesser inflation) since this July when a concerted global central bank intervention began to drive up the value of the U.S. dollar, even the highly under reported inflation rates that the U.S. government publishes are still positive. A look inside the figures indicates quite clearly that there is only one major source for dropping prices - oil and its derivative products. If this reverses (and it will), watch out.

The PPI for November fell 2.2% after a record drop of 2.8% in October. The core which excludes food and energy was up 0.1%. Energy prices fell 11.2% after a 12.8% drop in October. Gasoline prices had a second record monthly decline. Home heating fuel fell by a whopping 23.3% (you should note that prices are down the most just as demand it rising substantially, which doesn't make sense if supply is not changing). Food prices were unchanged on the month. For the year, PPI is up 0.4%, but the core is up 4.2%. Overall PPI could indeed be reported as negative for the year when the December figures are released.

The seasonally adjusted CPI fell by 1.7% last month - the biggest drop since 1947 when seasonal adjustments were created. Core prices were unchanged however. Food itself was up. The cost of home ownership was up. The cost of health care was up. Energy prices however were down 17% . Gasoline prices fell an eye-popping 29.5% (gas prices went down at least 75 consecutive days in a row this fall, something which has never happened before). For the year, CPI was up 1.1% and the core is up 2.0%.

This morning the NYMEX light sweet crude contract hit $38.16 even though OPEC just said it would cut daily production 2.2. million barrels (the market is sceptical that this will actually happen). This is approximately a 75% drop from the early July high. This amount of drop is too much too fast. While I do not have exact figures, oil appears to be getting close to its cost of production. Could that level be as low as $35 or even $30? Yes it could. Whatever the bottom price is, the threat of deflation will likely disappear once it is reached .. and that should be soon.

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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.