Market Stimuli

I take a siesta for a few weeks and all hell is breaking loose in the markets.   Here is my analysis on some of the happenings.

Government Stimulus Package

In the eyes of the government, the best way to combat record debts and a credit crisis, is to create more debt and hope and pray that the poor and middle-class spend it on consumer goods.  When I heard the terms of this stimulus package I cringed.  So checks of $600 to individuals and $1200 to couples are supposed to jump start the economy?  Did they forget that we have record foreclosure rates?  Did they forget that most Americans are in serious debt?  Most of the lower and middle class people I've talked to say if they get this "stimulus" check in the mail, all they will do with it is pay off their bills.  So we've devalued our currency even more so that American's can pay off bills.  That is the government at work for you.


Market Volatility

Here was my 2007 outlook from my Zacks Challenge homepage (I was just a bit too early with this prediction):

The market is looking at a correction in 2007.  The slowing economy, record deficits and tightening credit facilities will contribute to that correction.  The precious metal should benefit from this correction and gold and platinum should be challenging new highs.

Now in 2007, the Central Banks around the world prolonged the inevitable slowdown by throwing liquidity in the markets.  The markets responded with happiness thinking that this is the needed "medicine" to fight off the credit market disease.  With all the money that was thrown around, the disease won and the end result was still a slowing economy.


Federal Reserve Rate Cuts

At this point you have to question whether the United States really has a free-market economy, by the actions of the Federal Reserve.  Their 75 basis point cut before market open was nothing more than a way to try to "rig" the markets.  If all of your previous rate cuts did nothing to change the downtrend in the economy how was an emergency 75 basis point cut going to be the magic bullet and why was it needed before the Federal Reserve Meeting?   And even with this emergency rate cut, "the markets" want even more rate cuts? Why?

At what point to you just let market forces take over?  At what point do you allow the market to flush out all the garbage loans and bad business decisions of companies?

My message to the Federal Reserve and the Treasury Department will be to stop the devaluing of our currency to try to help the rich companies who wanted to squeeze another dime out of the American people. Stop trying to bail out people who made bad mortgage decisions by taking loans out that they knew they couldn't afford (Stop trying to place the blame solely on mortgage companies saying they offered bad products.).  Ironically your "saving" of a recession back in the beginning of the decade with massive rate cuts has contributed to the economic situation of today.    Stop offering stimulus packages that put our nation in more debt.  With foreign entities buying up more of our banks, the US homeland security issues in the future will not deal with terrorists trying to bomb us, but foreign nations telling us how we should spend our money.


On Precious Metals

Precious metals have been a leader in this down market.  Gold as rebounded to over $900 an ounce.  Platinum continues to make record highs.  As I stated in my January 2 commentary the supply side of gold and platinum will rest on South African production.  With gold and platinum outputs continuing to slow in South Africa and in the case of platinum a deficit being created, prices will continue to remain near record price levels until either more supply hits the market or we see demand plummet.  Also with all the Federal Reserve and US Government stimulus packages, the value of the dollar should continue to slide which should be positive for precious metals prices.




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