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Wednesday, February 18, 2009

Porkulus Bill Signed


by Larry Levin

The market was hammered today bringing the Dow within a whisper of the October closing low. The much heralded Porkulus/Spendulus Bill fell on deaf ears. Or said another way, was given two big thumbs down. It is a colossal waste of money, and not even "The One" couldn't make a silk purse from this sow's ear. Although the early boot stomping from the Japan/European sell-off did not get worse as the day wore on, the signing of the bill couldn't suspend the reality that it just won't do much.

Several months back I came across some frightening news from the Fed which is just as relevant today. It revealed what a real house of cards we had been living in. Just in the third quarter 2008 alone, U.S. households lost $647 billion in real estate; $922 billion in stocks; $523 billion in mutual funds; $653 billion in life insurance and pension fund reserves; plus $128 billion in private business interests.

Total destruction of household wealth in the third quarter: $2.8 trillion, the worst in recorded history. That's four times more than the government's entire $700 billion bailout package (TARP). Total destruction of household wealth in the last year: $7.2 trillion or over TEN times more than the $700 billion TARP package.

The destruction of wealth is large and rapid; the government rescues, relatively small and slow. It's unstoppable, but governmental officials will continue nevertheless - witness the Porkulus Bill. In the end, it will be like a bad restaurant experience: Not only was your dinner never served, but you got the tab - as well as the other tables!

But none of this ever matters to the Keynesian blockheads in government and on Wall Street. Japan tried to spend its way out of this EXACT scenario in the early 1990's.

The steps that Japan took included a 10.7 trillion yen stimulus package in August 1992 - a 13.2 trillion plan in April 1993 - 6.2 trillion in September 1993 - 15.3 trillion in February 1994 - 14.2 trillion in September 1995 - 16.7 trillion in April 1998 - 23.9 trillion in November 1998 - and 18 trillion in November 1999. The grand total: a whopping 118.2 TRILLION yen, which is about $1-trillion at today's dollar-yen exchange rates. Yet it was all for naught. The economy still suffered a "Lost Decade" of deflation and lackluster growth.

Frankly, Japan is just one year removed from "TWO lost decades" of deflation and lackluster growth. But wasting money isn't stopping the Japanese politicians. Last August Japanese officials announced another stimulus, this time 11.7 trillion yen. And then, just a few months later, officials announced an additional 5 trillion yen stimulus in October. But what the hell, if it doesn't work it couldn't be because the Keynesian claptrap is wrong - no - it just wasn't done properly or some other idiotic excuse. Just a few days ago Japan announced ANOTHER stimulus of 20 trillion to 30 trillion yen.

Sadly, this could be where we're headed.

As I have said before, this Keynesian "pump-priming" in a recession has often been tried but never works. As an economic stimulus, it is clearly overrated. The money that the government spends has to come from somewhere, either via onerous taxes or debt. Moreover, the public works from the so-called stimulus projects are usually far less productive than the would-be private investment that can longer exist.

Do you doubt me? Many banks said they didn't need any more money after their initial TARP funding, but came back for more - some begging. And tonight we learn that, even though GM and Chrysler just received billions of bailout-dollars, they both have their hand out again. Chrysler says it needs another $2 billion, while GM says it needs another $30-billion.

Like the Japanese, the USA will just throw good money after bad. Why? Because it makes politicians and their slack-jawed electorate "feels" like something is being done. Results? What does that matter - they "feel" super.



Previous Day's Trading Room Results:

Trade Date: 2/17/09


E-Mini S&P Trades*
(before fees and commissions):



1) TP sell @ 11:00am at 792.00 = +3.25 (1 lot)

2) Algorithm positions (3)...combined SofT and Algo total...+6.50


Electronic (YM) Mini-Dow:


1) No trades today




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