Over the past few weeks we’ve been seeing economic data suggesting that things are getting better. The worst is behind us. All is well, and we can get back to normal, what ever that means. So, let’s take a few minutes here tonight to discuss what’s going on.

Am I wrong? Have the things I’ve been preaching to you been all wrong and the Bankers like Bernanke got it all right? Did he really solve the problems, and he’s the Hero that Obama says he is? Is Bob Rinear, that nut from InvestYourself just some doom and gloom conspiracy nut with a bunch of silly notions that are soon to be proved wrong? In the here and now you are going to have to make that choice for yourselves folks.

I do a lot of radio interviews all around the Country. It doesn’t matter if it’s San Bernadino California, or Madison Wisconsin, or Ft. Lauderdale Florida, all I hear from the call in’s is how terrible things are. They can’t find jobs, they hate the direction that America is heading. They don’t like struggling while bankers have the lofty problem of whom to give billions in bonuses to. Yet there are some raw data facts that show economic activity here and there. Is this really the start of the grand healing?  Am I just so blinded by rage against the Social programs this nation is headed for that I just can’t bear to admit defeat?

My answer to that of course is a resounding no. I’d actually enjoy being so completely wrong about my assessment of our situation that you can all throw tomato’s at me on public TV. Nothing would make me happier than to see everyone get jobs, and for retirees to stop having too much month left at the end of the money. But alas, I don’t believe I will be the target of tomato’s. Unfortunately, like so many of the longer term projections we have made in the past that came oh so true, I think this one will too.

The key element, and the one single take away you have to remember each and every day is that Uncle Sam is on a spending binge that the entire planet has never seen before. It’s so hard to pin down the exact numbers, but added together, lightly shaken, and the best estimates are that we are spending the upwards of 23 TRILLION dollars. Included in that is bail outs, cash for clunkers, cash for baby sitters, loan guarantees, loan modifications, Housing energy rebates, and a zillion other incentives.

Now I ask you something. If we have an economy that averages approximately 13 trillion dollars per year in true economic activity, what happens when TWICE that is stuffed in the pipe? Well, “something” has to come out the other end. It’s really quite that simple. You cannot inject 23 Trillion dollars into a 13 trillion dollar economy without pockets of that stimulus showing up in “better” economic numbers. So, what we have to think about is this: Can this economy continue to show activity without that sort of stimulus?

Let’s look at things a bit differently. In the 2.5 years since the wheels came off this thing we call the American economy, we have seen the single biggest explosion of free money that the world has ever seen. More than WWI and WWII spending combined. Yet look around you. Malls are vacant. Commerical Real estate is in shambles. Unemployment hovers at 17+ percent. Energy/food/medical/education is soaring in cost, while we just discovered that for all of 2009 Personal income fell 1.4%, the single biggest fall since 1938. In other words, all that money, all that stimulus, all that scattergun approache to plug the holes in the dam have resulted in Very little. It now costs us 7 dollars in stimulus to create 1 dollar of activity. Can that last? What happens if the stimulus is removed? What happens if it isn’t?

The reason that I’m confident that my doom and gloom predictions are indeed correct is simply a matter of the proverbial catch 22. If the stimulus is removed, all the activity spurred by the stimulus stops, which creates a vacuume that is bigger than if there was no stimulus in the first place. That’s because spending is taking place in response to the stimulus money in a given area, in anticipation of growth. If the artificial growth is suddenly halted, the money spent in anticipation of it’s continuation becomes wasted, creating a loss of capital that should have gone into truly productive situations.

On the other hand, if the stimulus is not removed, but instead is increased, how long can that go on? If you listen to TV people and our President, it appears “a long long time”. Yet history proves over and over and over, that if all you had to do to create a booming economy was to pour money in it, it would be the standard the world round. The facts show however that mother nature is going to work her magic, despite the efforts of the Central planners. Whether it’s the failure of a big institution, or the slow backing away from the other Countries, or run away inflation, or any of a host of other ills, unbridled printing of money and spending has resulted in disaster EVERY time.

So, I feel confident in my predictions. If they take away the stimulus, we crash. If we continue with it, we still crash, but it takes longer. A more drawn out process. A death by a million paper cuts. As ugly as that sounds, I have been presented with no evidence of being wrong. As long as they keep the spending spigots open, we will continue to see pockets of activity, surrounded by masses of non activity. Cut it off and it all crashes. Continue and we’ll face the inevitable devaluation and default. It really is just that simple. The only variable is timing. Cut off the stimmy and we crash in a month. Continue the reckless spending and the drawn out crash takes two to three years to complete.

On Sunday I’ll expand on that a bit more, but as we are coming into the all mighty “jobs” report on Friday, I wanted you to get a picture of what we’re dealing with here. Yes they are all gaga about the fact that we aren’t losing 700K jobs a month like we were a year ago. But that’s not because the economy is healthy, some of it is because of incredible amounts of money pushed into the pipe to “keep things steady” and some of it is because companies have already slashed to the bone. If you once had 200 employees and now have just 75, you can’t cut 100 like you did last year or it’s “shut out the lights” time.

Don’t forget that for every “feel good” headline they put out and cheer over until you want to vomit another headline like this crosses the wires:

12:39 PM About 9.1% of FHA borrowers had missed at least three payments as of December, up from 6.5% a year ago, foreshadowing a possible crush of foreclosures that could exhaust the agency’s cash reserves

Keep that in mind, okay?

Now onto the market:

Last week the market couldn’t even mount a flaccid bounce. But we knew that at “some” point a bounce was imminent and we said Sunday we thought we’d get it early in the week. Well we did, gaining 200+ points in two days. Then Wednesday hit, and as we know Wednesdays are quite notable for being “reversal” days. In other words history shows us that what ever happened on Monday and Tuesday is often times reversed on Wednesday. So, sure enough despite what every analyst on TV was calling a great ADP employment report, we spent the entire morning session Red.  Yet I wasn’t completely convinced that this particular day was going to end down 50 points. Why? Ahh, the all mighty Jobs report on Friday.

Market’s have a history of moving up into a news event and then either selling that news, or really rallying off it. It was my guess they’d do anything they could to keep the bull spirit alive. So, after a long grinding session we ended the day basically flat. The DOW off just 26, the NASDAQ up a fraction. S&P down 6. Yawn.

After the bell, Visa and Cisco reported earnings that have the TV buzzing. They are gushing about how wonderful everything is. This is going to help the cause for tomorrow and I expect most of Thursday to be green. But, I also think that unless there’s a leak over the Friday jobs numbers, and trust me, leaks are common, we should tail off a bit ahead of the close as they fret over Friday.

So, what do you do? We are only carrying one position right now and it’s doing just fine for us. I’d love to take on some more, because I do think the market “wants” up. But what if we don’t get the wonderful report they want? That could be cause for a big fat sell off and I don’t want to be exposed to it. Now there are a few games you can play. You can do a straddle with options, buying some calls and some puts against say the S&P or the DIA’s. That way one side of your play “should” move enough to offset the loss of the other side. But we aren’t going to play that tune. We’re going to hope we’re right about tomorrow being green, and then maybe sell half our position and lock in that gain. If Friday’s report is good, we’ll reap some more. If it’s not, hopefully we can sell the balance before it goes red on us.

That’s about it for today folks. Enjoy the craziness out there!

PS..  If you’d like to see the exact stocks/options/metals and 401K moves we will be looking at for this week, please consider becoming a member of the “insiders club” located here: Click Here