Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Prieur Perspective: Stimulus Bridge to Nowhere


Government spending frenzy won't solve crisis.


Events during the past few days were dominated by the announcement of US Treasury Secretary Timothy Geithner's financial stability plan and a deal reached by Congress on the economic stimulus bill. However, the much-anticipated bailout bang soon whimpered as investors were disappointed about the lack of "beef."

Meanwhile, markets were also mired in uncertainty on the back of fresh evidence of headwinds facing the global economy - notably in major economies such as the UK, continental Europe and Japan.

Jim Rogers gave the bank rescue plan a big thumbs-down: "(Geithner) ... has been dead wrong about everything for 15 years in a row ... This (the rescue plan) is not going to solve the problem, it's going to make it worse."

Referring to the stimulus bill, Steve Forbes said: "It's just a grab bag of every spending proposal that's been banging around Congress for years."

And Bill King (The King Report) commented as follows:

"A cure should have something to do with the diagnosis. The classic argument for fiscal stimulus presumes that the central cause of our current economic problems is this: We, the people and our government, are not doing nearly enough borrowing and spending on consumer goods. The government must step in to force us all to borrow and spend more. This diagnosis is tragically comic once said aloud."

Stock markets were on the receiving end as risk-averse investors sought out the safe havens of the US dollar (+0.8% in the case of the US Dollar Index), gold (+3.1%) and bonds (with the yields of 10-year Bunds and Gilts down by 21 and 17 basis points, respectively).

The week's movements of the MSCI Global Index (-3.9%, YTD -9.0%) and MSCI Emerging Markets Index (-0.6%, YTD -2.2%) reflect global investors' skepticism about the rescue plans. Strong performances came from China (+6.4%) and Russia (+14.3%), but still left these markets in the red by 61.9% and 63.0% since their respective bull market highs. As mentioned before, the chart pattern of the Chinese Shanghai Composite Index shows arguably one of the most bullish formations of the major stock market indices.

The major US indices suffered their worst weekly losses this year (to record 5 losing weeks out of 6): Dow Jones Industrial Index -5.2% (YTD -10.6%), S&P 500 Index -4.8% (YTD -8.5%), Nasdaq Composite Index -3.6% (YTD -2.7%) and Russell 2000 Index -4.7% (YTD -10.2%).

John Nyaradi (Wall Street Sector Selector) pointed out that among the exchange-traded funds (ETFs), none of the main economic sectors registered positive returns, as summarized in the chart below. Not shown, the KBW Bank Index ETF (KBE) lost 14.3% on the week, and the Dow Jones US Real Estate Index ETF (IYR) 12.0%. The ProShares Short Dow30 ETF (DOG) led the way among inverse funds with a gain of +5.3%.

Click to enlarge

< Previous
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos