On Friday it’s my Anniversary. The date marks 27 years that my wife has put up with me, and that’s quite a feat. But this week also marked another anniversary, the one year anniversary of the great stimulus plan.  When I look back on my 27 years of marriage there were very high spots, and very low spots, but overall its been a success. Was the Stimulus plan a success too?

We have had interest rates at “0″ for over 14 months. They’ve spent billions of dollars on every cockamamie scheme known to man. We had cash for clunkers, cash for babysitters, cash for extended unemployment benefits. We’ve exploded the deficit for as far as the eye can see. We took over the auto industry, the insurance industry, and the banking industry. We took over the mortgage industry. Yet despite all that, the economy is still mired in a mess.

Take a peek at this news blurb sent to me this am:

Stimulus averted Great Depression II. Timed for today’s one-year anniversary of the American Recovery and Reinvestment Act, the White House released a report saying the government’s stimulus measures prevented a second Great Depression and saved or created 2M jobs. Republican lawmakers responded that “self-congratulatory ‘stimulus’ spin from this administration is hopelessly out of touch with reality.” Notably, only around a third of the $787B stimulus budget was paid out during the stimulus program’s first year, and much of it was used to maintain existing social services and government jobs. Entering its second year, additional funds will be spent on tax cuts and infrastructure, though economists say there will likely be little impact on the unemployment rate.

So this morning at 10:30 Obama came on TV to tell us how wonderful his stimulus program has been. I have to tell you something from the heart. If I didn’t follow the economic beat as I do, I’d have listened to that speech and been completely convinced that Obama’s moves have indeed saved the world, and we look just fine. But unfortunately I do follow the economic beat, and I really do know what’s happening, and it isn’t quite as wine and roses as he suggests.

He brought on a few small business people that because of the stimulus were awarded contracts that allowed them to hire some workers. Buy some equipment. He said “for those of you who say my stimulus bill didn’t save jobs, just ask Charlie here”. Because Charlie had hired 100 workers. From there he hit on clean energy and how some billions there have created opportunities for some solar power manufacturers to expand and hire workers. It was really moving. But, what he didn’t happen to mention was “where’s the money come from?” He didn’t say a word about how we pay this money back. He didn’t mention one of the most basic questions about socialist programs, basically “Sure you can create economic activity if you give away free money. But what do you do when the money is gone? Where do you get it then?”

Look friends here’s one of the most basic “rules” of economics. If all it takes to create a booming economy is for the Government to hand out money and make work projects, wouldn’t it have been done before? Oh wait a second. It has. Guess what? It only works until the over riding debt load gets to the point where it implodes on itself. Printing money and pumping it into the economy is NOT economic growth. You can’t take from Peter to pay Paul, before one day Peter says “pay up”.

Of course there’s pockets of economic activity, there HAS to be. You cannot pump billions upon billions into a system without some form of activity rising. I have no argument with that. My argument is simply 1) we didn’t have the money to start with, we had to borrow it and 2) what happens the second the stimulus is withdrawn? Look at China for a moment. They just went through a massive stimulus program and by most accounts it’s worked. But they didn’t have to borrow the money to create that GDP, they had it sitting there in a pile. So, even if the stimulus is short lived, the infrastructure as far as new roads, bridges, high speed trains etc, will continue to service the people with NO DEBT ATTACHED to it. But here, even after the bridge is built we’ll be paying for it for years and years, because the money came with an interest charge. There is a significant difference.

The bottom line of course is that as I suggested last week, they are going to look at the Japanese model and revise it a bit. They are going to continue to pump money into projects, which will keep things such as GDP looking better, but all the while adding to a deficit no one wants. Just this week we found that China was a net seller of treasuries last month. They don’t want any more dollars that we print out of thin air. The PIIGS are seeing a series of  rolling sovereign debt implosions, and this won’t end any time soon. If you stand back a bit and look at the big picture, what we are seeing is two things. The experiment of fiat currency is in it’s end game, and the rest of the world is desperate to try and get away from any more pain.

As Uncle Sam continues to try and deal with the 44 States that are in dire straights, as he continues to help the unemployed receive a check, he’s looking more and more at the bankers as a way to take in revenues. This will have exactly the opposite effect than what they want out of it. Follow along with me here. Let’s suppose you are Joe the Banker. You can lend your banks reserves to small business, but what if they go belly up? YOu can lend to individuals, but what if they lose their jobs? Or you can lend to Uncle Sam, and get 5% guaranteed on Mortgage backed garbage that he’s taking in daily. So, why on earth would any same banker want to lend to small business or the private individual? He’d be nuts. Even if the banks borrow via the interbank rates at just below 1%, and buy Gov’t guaranteed notes paying 5%, they can take that 4% spread, and do the fractional reserve 10 times practice and leverage up even more. Who needs Billy the tire center, or Johnny the contractor, when Uncle will pay them spreads that are guaranteed?? No one, hence lending will be even more curtailed as Uncle turns more and more to the banks for his daily bread.

Obviously what I’m getting at is that this past year has allowed Obama to make a zillion TV appearances and tell everyone what a hero he is and how he saved so many jobs, etc.  But, if we look at construction spending, Commercial Real Estate, and a host of other major economic indicators, it’s apparent that it is nothing more than a stop gap measure, something to kick the can down the road until they come up with something else. Don’t buy the hype.

Now onto the market

The problem with all this craziness however is that the market is in flux. After hitting the high on February 19th, we’ve peeled off 9%, and then chopped sideways, and boy do I mean chop. On Tuesday we were up 169 points on nothing but air. Today we opened big and it looked like we were going to put in two big days in a row which would have been the first two day run in over 2 weeks. But at about 11:30 the DOW was up only 6 points. Positions that we took Tuesday that were up, some a full dollar, were in danger of going negative on us. So, we had no choice but to scale out and lock in some small profits.

Our feeling on Tuesday was that for the first time in weeks, they were going to pull their act together and actually start the “big ole bounce” that takes us back to about 10,600 on the DOW. The timing seemed right and some of the technicals seemed right. Yet because the market had shown us that face before, we couldn’t just stand pat.  So, we took some small profits and waited out the session. Finally, it was over, and yes we had put in two back to back green days.

So, is that the start of something? I “think” it is. I tend to think that we’ll probably see a slight rise from here. One reason is simply the put/call ratio and the “max pain” theory. For all you new readers, let me explain. People buy call options if they think the market is going higher and put options if they think it’s going to fall. Well when there’s tens of thousands of these options out there, the market has a very sinister way of moving in a direction that would cause the most of those options to expire “worthless”. That’s called “max pain”.

In looking over the put/call, one thing stands out, and that is to inflict the most damage, the market would simply go nowhere for the next two sessions. But it could “wiggle higher” a bit, without sacrificing too much of it’s maximum pain potential and I think that’s what it’s going to do. If you’re interested in seeing the individual stocks we are looking at, consider joining our insiders club.

I tend to think you can “lean long’ here , but don’t get over extended and remember to keep a finger somewhere near the sell button. If I’m right, we could easily see the market move up to the 10,500 – 600 level over a couple weeks. But again, we’ve seen many headfakes in the last few weeks, so let’s let the tape prove it to us. We’ll see you all Sunday.

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