Yesterday we commented
about some Fed discussion calling for more stimulus. Here’s and economist who says flatly;
“Stimulus didn’t work.”
EXCERPTS FROM MONEY
MAGAZINE
“After the recession began, Presidents Bush
and Obama felt a need to "do something." Their approaches differed,
but both chose classic Keynesian stimulus policies. It didn't work. My own research showed Bush's
temporary tax rebate in 2008 had no discernible effect on the economy. Nor did
Obama's $800 billion stimulus plan in 2009, which included tax rebates,
increased federal spending, and grants to states for infrastructure projects.”
“The stimulus increased
the federal debt burden and created uncertainty about what was next for
taxpayers…Households mostly saved the stimulus money instead of spending it.
Even where there was a temporary boost to consumption, my research found it
didn't aid the recovery…The stimulus increased the federal debt burden and
created uncertainty about what was next for taxpayers…”
He was equally frustrated
with the Federal Reserve:
“…large-scale purchases of
mortgages and Treasury debt were aimed at lifting the value of those
securities, thereby bringing down interest rates. I believe quantitative easing
has been ineffective at best and potentially harmful.” Full story at…
I mentioned the above Money
magazine article a few blogs back and said I would post excerpts and a link
when it made it to the web. This is interesting
reading from an economist who was critical of both Bush and Obama, so it can’t
be said that he is politically motivated.
RECESSION – Nahhh
The
Morgan Stanley Cyclical index has been outperforming the S&P 500 at a
fairly steep rate recently so this suggests that investors don’t believe that a
recession is coming anytime soon.
Cyclical stocks (like Caterpillar for example) are more recession
sensitive than stocks in the S&P 500. This is encouraging and is evidence
that this rally will continue.
MARKET
Wednesday the S&P 500
finished essentially unchanged (up 1-point) to 1402. VIX fell 4% to 15.32.
NTSM
The
NTSM analysis was again BUY at the close on Wednesday.
Sentiment
has been falling over the last three days as investors were betting that the
market would fall. They have been
wrong. This too suggests that the rally has
a ways to go.
MY INVESTED POSITION
Based on the BUY signal, 6
July, I moved back into the market on 9 July (after the weekend) at S&P 500
1352. I now have a 50% stock allocation
overall. For my age, that is what most
advisors recommend, however, I am normally much more aggressive. I am underweight my usual aggressive
allocation for stocks because there’s a lot of risk now. So far this year NTSM is beating the S&P
500 by a whopping ½% on one trade.
