Expect Another Misguided Stimulus Plan

Last week Alcoa (AA) posted its earnings results and the market was pleased, but trepidation greeted investors this week as many continued to wonder how much longer the good news would last. How much longer can a stock market that seems completely detached from reality continue to rally? Well, one thing seemed clear to me coming into this so-called earnings season; it wasn't going to be enough to miss on the top line and manipulate a beat on the bottom line and be rewarded. Case in point, yesterday before the market opened there were a couple of companies that posted results that missed on the top line but beat on the bottom line. These household names saw their share prices hit hard:

• Dominoes Pizza (DPZ): -10.00%
• Johnson & Johnson (JNJ): -2.43%

Knowing that investors would demand more from earnings this time around, the market meandered most of the session. Some buyers stepped up, but even those fence-sitters with money burning a hole in their pockets decided it would be the greater part of valor to wait and chase if they had to. By the same token, sellers may have written out tickets but few punched them. Instead, they hesitated all the way into the closing bell. Although the market cheered two big-time earnings releases last night the rally is tired. It's going to need a continuous flow of great news to keep moving. I think that it would have been better if there was more of a pullback a couple of weeks ago (although it would have been a difficult task stopping people from panicking).

Stimulus Victory Lap

I think that another disappointing jobs report will be all the Administration needs to put the wheels into motion on the next stimulus plan which will be billed: "This Time It's Shovel Ready." It means that the deficit will swell at an even faster rate and the dollar will sink at an even faster rate. Only China had a larger stimulus plan than we did, but they also had record bank lending and immediately began working on job creation. Yesterday morning, states began to report how many jobs were created or saved by the stimulus package, and what's revealed is that the program is extremely flawed and designed to redistribute wealth to Obama's biggest backers... unions. So, money that came from the pockets of all taxpayers is going directly into the pockets of pro-Democrat teachers. This is a redistribution of wealth.

All taxpayers put money into the system, but only taxpayers affiliated with state unions are reaping any benefits. It's classic redistribution of wealth where hard working people are shut off from their money, which goes to a niche of people including payments to people that pay no taxes or just social security taxes. The first-time homebuyer tax credit is limited to singles making $75,000 or less so a hard working person making $90,000 is deemed too rich; their taxes go to someone making $50,000 looking to buy a home they probably couldn't afford in the first place. Not only is it redistribution but it's also poorly run. Here are the other problems.

• Terribly inefficient to spend $135,000 to create a single job
• Should have been front-loaded if it were to really catapult the economy

Disingenuous On Its Face

In the meantime, the chain of events means a larger deficit, which requires the government to raise money by printing it or increasing taxes. I think that it's going to be a combination of both. This will only hasten the already rapid decline of the dollar and cost people that work hard even more of their blood, sweat, and tears.

The sad thing about this plan is that it wasn't designed to work in the first place. Sure, if you sprinkle $800.0 billion it's going to stimulate, but politics were the driving concern when the plan was mapped out.

The real secret to this stimulus plan is the bulk of the money was designed to go through the system right before the 2010 midterm elections. There is no reason it couldn't have been front-loaded to really try to be the catalyst the Administration claims it has been thus far.

It stinks all around.

Economic Data

Retail Sales

The positive economic news flow found its way into the September retail sales data, not that this is surprising following the chain-store results issued last week. Apparently, consumers are feeling better about their economic positions, enough to go out and purchase furniture and fall clothing. Weak wage growth and a higher creeping unemployment rate must no longer be at the forefront of everyone's mind. September retail sales at -1.5% (consensus: -2.1%), or +0.5% ex. autos (consensus: +0.2%), displayed strength in furniture, grocery, health and personal care, clothing, sporting goods, and general merchandise. Electronics, building materials, and non-store retailers had lower month to month sales. Excluding autos, building materials, and gasoline station receipts sales in the month were +0.4% after a +0.8% print in August.

Comments

[Larry House:]

All stimulus plans are misguided.

Oct 14 11:59 AM

[Socialism c...:]

Except the only real stimulus plan: permanent tax cuts and permanent cuts to government!!

In case anyone else doesn't see it yet...it was socialist housing programs that caused the mortgage meltdown...and more socialism will melt down the entire economy, if this power-grabbing federal government continues its course!! We are only in the 3rd inning, folks!!!


On Oct 14 11:59 AM Larry House wrote:

> All stimulus plans are misguided.

Oct 14 12:32 PM

[The Geoffster:]

“If by the mere force of numbers a majority should deprive a minority of any clearly written constitutional right, it might, in a moral point of view, justify revolution”
- Abraham Lincoln

Oct 14 12:36 PM

[Roger Knights:]

"the rally is tired. It's going to need a continuous flow of great news to keep moving."

If it stalls, it falls.

Oct 14 03:32 PM

[OldSusanna:]

As a new study, I'm terribly naive--but don't we still face additional, potentially gut-wrenching adjustments as we normalize from our previously gluttonous, artificially inflated economy? We can't be uber-consumptionists forever...can we? And aren't many of the government's expenditures not only pay-back but bad-medicine, too--protracting our "illness?" Why does our government seem hell-bent on tying quality of life to quantity of "stuff?"

Oct 14 06:59 PM

[Moon Kil Woong:]

The only stimulus new stimulus will stimulate is inflation. If you feel sick seeing the word stimulus then I've made my point.

Oct 14 08:51 PM

[Albertarocks:]

The very word "stimulus" infers that something is dormant, dead or dying. The underlying questions that are first asked in all cases are "Why does it need to be stimulated? Should it be stimulated? Will the stimulation return the desired results, or will the revived patient arise as something unknown or perhaps more flawed than before?

Of the questions that need to be answered, the one with the scariest answer is "why does it need to be stimulated?", because the answer is that the cause of the malady is also the provider of the stimulus. The same entity that caused the problem in the first place, is now hovering above with the "vaccine" in hand... a vaccine that is very unlikely to produce the desired result. Does it sound familiar? It seems to me that it's the economic version of the annual flu shot. Another economic stimulus may well be designed to deliver the death blow, just as the unproven and dangerous (yet extremely lucrative for big pharma) flu shots are causing people to die within a week. I say "to hell with vaccines", for both the economy and for the human population. The similarity between both scenarios is just too eerie to be coincidence.

www.thinktwice.com/flu...

Oct 15 09:29 PM