My Economic Stimulus Plan

Later today, President Bush is supposed to discuss his plan to stimulate our "weakening economy."

His plan is likely to give money back to individual taxpayers and ease business liabilities, stimulating both consumers and industry. Bush proposed rebates of up to $800 for individuals or $1600 for families, while lawmakers wanted to lessen that amount and limit who receives it (Yahoo! Finance article).

I think that this plan is stupid.

Maybe it will help the economy a little bit if each family of four goes out and purchases four new iPhones. However, I think that a simple injection of money into the economy through intending to increase consumer spending is short-sided and futile.

Instead, I believe that the government, if they are going to aid anyone, should look at the corporations.

Over the past days, weeks, and months, foreign sovereign funds have injected billions of dollar into US corporations. Most of the major financial companies have received large investments from outside sources. Japan's major investment banks are reportedly pooling billions of dollars for investment in a struggling Wall Street counterpart.

I'm not an isolationist, but why let wealth leave our country when we could easily keep it here?

Instead of dishing out money for people to buy new purses, the government should focus on preserving stock market capital, and thus, the value of millions of individual Americans' investments.

If the government doesn't want to directly purchase equity or bonds like foreign investors have been doing, there are much easier solutions; provide long-term, low-interest loans or simply open the discount window, repercussion-free, at a rock bottom interest rate (say, 2%). However, as long as qualified financial analysts looked it over beforehand, putting $20 billion of Social Security money into Wall Street could end up being an excellent long-term investment.

If the government is still interested in helping individuals, they should help financially-responsible people who were romanced into adjustable-rate mortgages. I'm sorry, if you bought a $500,000 house on $30,000 of annual income, I don't think that you deserve to keep it. However, for someone with a steady job who just can't make the adjusted-up payments, the government could step in to help those individuals.

First, the government could work through the mortgage broker to negotiate a new rate that the borrower can pay and will still provide profit for the lender. That way, everyone wins; shareholders of the big banks (BAC, who will soon own Countrywide, etc) won't unjustly miss out on profit that was already accounted for, while individuals will face a more reasonable repayment rate.

My last article discussed how the US economy is already contracting; if it's not, it's certainly slowing down. Discussing ways to improve economic conditions is the right thing to do, but simply handing consumers a check isn't.

Help out the people that truly need help - from Joe Dirt's adjustable mortgage to Merrill's write downs, there's better ways to fix the economy than to hand me $800.




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We're in a Recession, and on the way to $60 Oil.

As the markets continue to slide (now hitting their lowest levels in almost a year today), commentators and analysts are afraid to say "recession."

If you turn on CNBC or read a business newspaper, you'll see the terminology of choice - "possibility of recession" or "on the path to recession."

I want to be the first person (that I know of) to go on record saying this: The United States is currently in a recession.

What does that mean?

Well, if the recession started around the 2007's Q4, then we may be in for a bad earnings season. However, many of the blue-chip companies important to our markets and economy have extensive international operations, where growth is strong. (IBM pre-released that they will have a very strong quarter.) Also, a weak dollar aids companies with extensive overseas operations, so while you may not get to vacation in Europe this year, the bottom lines of many conglomerates will swell (or, at least, not crumble, if the domestic economy is weak).

Looking back, markets usually perform worst right when the economy is in recession - that may explain the 10-15% losses in major indexes over the past three months. Of course, if our markets emerge with just a 15% slap-on-the-wrist, we should consider ourselves lucky. If the markets endure another 10% haircut over the next few months, I think everyone will agree that we're in a recession even if the economic data isn't on the books yet.

What's good about a recession? It encourages competition and efficiency. One can easily argue that many of our core industries have been in a recession of their own for a while - American carmakers have been hemorrhaging money and laying off workers for years, while many mortgage and housing companies have already gone bankrupt. When industries struggle, the strong survive. When American companies and industries strengthen, they will be better suited to compete against rivals in Europe and Asia, eventually leading to prosperity a few years down the road. The "Jobless Recovery" following the recession of the early 2000's created a 5-year golden era for the American markets and economy.

Plus, another benefit of a recession will be a massive decline in the price of oil. Sure, there are fundamentals that should provide support for oil at a historically-high level, but that level is NOT $90/barrel. The price of oil is no longer driven solely by fundamentals; now, the emotion and whims of traders, coupled with news, creates buying frenzies of selling panics. If it is declared that the US is in a recession, I think that we could see $60 oil. The actual impact on the worldwide demand for oil will probably be negligible, but psychologically, news of a recession would be very significant. I wouldn't have the guts to bet against the price yet, but if we see $60 or $50, it would present a great buying opportunity.

Though things are looking grim, I'm buying. I increased my position 50% in Buffalo Wild Wings, a stock that's fallen over 50% because of one slightly week quarter. (People will eat wings even if the economy is retracting 1%/year instead of growing 2%.) No debt, lots of cash, tremendous growth, and a superior product are all reasons to invest in Buffalo Wild Wings. Check out articles in my archive; all of the analysis is still valid today.

I also bought Intel after the bell today below $20/share. It's truly a irrational world when the media focuses on a 2 cent miss instead of the 51% increase in profits. Why should a solid company lose 15% of it's value for THAT? Especially as the economy is looking grim, a show of good corporate growth should be rewarded by investors, not thrown to the curb. As long as there's nothing awful on the call, investors should hopefully start acting rationally and Intel may pop back up to it's closing level today.


So, I want to go on record making two predictions, which admittadly, may not end up being factual:

• It will later be shown that as of January 2008, the United States is in a mild recession
• Oil will dip to $60/barrel sometime in 2008

Bold? Maybe. Only time will tell.


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