Stimulus Spending Revised Down: Only $11.6 Trillion

What’s this? Two straight down for the Cash for Clunker Stock Rally? It can’t be. Bernanke!! We need more cheap money!

I hope you’ll forgive the sarcasm. But there hasn’t been much red for the major indices lately. Of course, a little selling isn’t the end of the world. And no matter what the bears say, it’s also probably not the end of the rally.

Since July 10, the S&P 500 has ramped 200 points, or nearly 22%. Why not take some profits, especially ahead of Third Quarter earnings?

*****Durable goods orders came in weaker than expected this morning. The weakness was mainly due to falling orders for airplanes. But economists also expected automobile-related orders to rise more than expected.

Gains in auto related spending might have signaled a follow-through from the Cash for Clunkers program. It also would have been wishful thinking. Without incentives, consumers still aren’t spending. That makes me wonder what will happen to home sales when the first time homer buyer credit expires.

*****This also points to one of the big concerns for Third Quarter earnings – revenue. We see jumps in spending when there are incentives. But for the most part, consumer spending has been weak and there’s no reason to think that corporate America will enjoy improved earnings based on spending. Earnings gains from the Second Quarter were a result of cost-cutting. And with little room left to cut costs, stagnant revenue may lead to stagnant earnings.

*****In March, Bloomberg estimates were government stimulus spending and guarantees totaled $12.8 trillion. Today, Bloomberg says the total is down to $11.6 trillion.

That’s something of an improvement. And it’s important to remember that, as Treasury spokesman Andrew Williams points out, government financial commitments are backed by assets. Unfortunately, we don’t know exactly what these assets are. But we can surmise that at least some portion of them are of dubious value.

Like the mortgages the Fed is buying. The Fed has bought $694 billion in mortgage backed securities. I’d be surprise to learn that some aren’t worthless due to default.

Bloomberg gives the subject a good treatment, along with tables detailing what the government has lent or guaranteed and what it has gotten back. Here’s a link to the article—http://www.bloomberg.com/apps/news?pid=20601109&sid=aJwZIBMSGsek

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*****Finally, here’s Jason Cimpl with some video analysis of natural gas stocks. He thinks they’ve made a long term bottom and are set for some substantial gains. To view the video CLICK HERE

Until Monday,

Ian Wyatt

Editor

Daily Profit

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