Helicopter Ben at the Controls, Dollar Drops, Market Pops
By Robert Perrego, at 10:46 pm on November 16th, 2009Federal Reserve Chairman Ben Bernanke spoke to the Economic Club of New York today about the dollar, unemployment and the economic recovery. Nicknamed ‘Helicopter Ben’ after a speech he gave on deflation, which cited a statement by Milton Friedman about using a ‘helicopter drop’ of cash, Bernanke appeared none too optimistic on the economy and stated exceptionally low interest rates would be needed for an ‘extended period’. Then, to make the bulls and the carry trade cowboys break out the champagne, Bernanke said “It’s extraordinarily difficult to tell, but it’s not obvious to me … there are any large misalignments currently in the U.S. financial system.”
In plain English, Helicopter Ben does not see any bubbles. This type of statement basically supercharges any asset class that is currently thought to be in ‘bubble conditions’, such as stocks, bonds and commodities, as now the world’s most powerful central banker is on their side. As a result, we got 2009 highs in the market indexes, all time highs in the price of gold and a confirmation signal of a bull market from The Dow Theory.
The Dow Jones Industrial Index ran up 136.49 points (+1.32%, 10,406.96) and the S&P 500 broke 1,100 and rose 15.82 points (+1.44%, 1,109.30). The Nasdaq 100 broke 1,800 gaining 18.95 points (+1.05%, 1,807.56). All three of these indexes closed at 2009 and 52 week highs.
One of the signals of a bull market from Dow Theory is that one average confirms another. The two averages used here are the Dow Jones Industrial Average and the Dow Jones Transportation Average. The Industrial Average has been ahead as of late, setting new highs as recently as November 9th, while the last time the Transportation Average set a new high was October 20th. Today, both the Transportation and Industrial Averages closed at 2009 and 52 week highs when the Transports closed at 4046.30.
A stock in both these averages, Boeing Co. (NYSE: BA) did not sell any airplanes over at a Dubai airshow, but they made some noise by signing a development deal with Abu Dhabi’s state investment vehicle Mubadala Development Co., to help the country diversify away from the oil patch and build an aerospace industry. Boeing was the biggest gaining component of the Dow Jones Industrial Average up $1.80 (+3.55%, $52.48).
New York Spot Gold traded up as much as +25.80, at all time high of $1,144.40 an ounce. At 12:15 p.m., gold was up about $17 an ounce when Bernanke started speaking. Ben’s first comments seemed pro dollar strength and the PowerShares Dollar ETF (NYSE: UUP) spiked higher on heavy volume immediately. At the same time gold and all three of the market averages started dropping as dollar shorts were bought in and long stock positions liquidated. Fifteen minutes later the plunge reversed, gold bottomed out up about $11 an ounce and then took off for another $15 an ounce to trade $1,144 at about 2:30 p.m. New York Spot Gold settled up $20.20 an ounce (+1.81%, $1,138.70, 4:08 p.m.)
Nymex crude went down on Friday while the rest of the market enjoyed an up day on a bad Consumer Confidence number. Today, oil made up for lost time gaining $2.55 a barrel (+3.34%, $78.86, 4:17 p.m.) on a weakening dollar.
Economic reports this week may make the market seem like topsy-turvy world. Right now the market run is being fueled by a dollar carry trade, so any reports that the economy is weak means interest rates (and the dollar) will remain low. Tomorrow we get the Producer Price Index at 8:30 a.m. (0.5%, ex. food and energy 0.1% expected) and then Industrial Production at 9:15 a.m. (0.4%, 70.7%). Wednesday bring the Consumer Price Index (0.2%, 0.1%) and Housing Starts (600K), both at 8:30 a.m. and Thursday is good ole Jobless Claims (504k) at 8:30 a.m. and Leading Indicators (0.4%) and The Philly Fed Survey (12.0) at 10 p.m.
With the CPI and PPI, low numbers means no inflation so no need to raise interest rates. This is bullish for the carry trade cowboys. On the other hand, high numbers that indicate inflation will bring more pressure to raise rates and cause the shorts to get nervous. This is the same in one way or another with all the releases coming out this week. If all of a sudden we get a large drop in Jobless Claims, this too would also build pressure for a rise in rates.
Welcome to investing and trading 2009, where because of the dollar carry trade, down is up.
