Another Negative Week

More evidence came out last week that the economy continues to slow, the Fed will continue to cut rates, and at the same time food and energy prices continue to rise.  Commodities such as wheat, soybeans, corn, natural gas, and oil all are reaching very high levels.  Everytime an economic report comes out, it’s slower GDP, higher unemployment, falling home prices, lower manufacturing, and on and on and on.  And everytime one of these reports does come out, the market moves another notch down taking with it the good companies and the bad.  For those of you who still are buying the dips, this can’t be a pleasant experience.  It’s not too late to sell stocks.

Many argue that this is stagflation and perhaps the Fed should actually be increasing interest rates.  They have made it clear they are not interested in fighting “inflation” right now but will rather focus on getting the economy going.  Unfortunately, dropping money out of helicopters with the new economic stimulus package and dropping interest rates isn’t the answer.  The money that will be sent to U.S. taxpayers in a few weeks will just be used to pay gas bills.  That money should have been used by the government to buy the bond insurers.  If they have more trouble or go under, the ripple effect will be too much for this economy.  As it is, lenders are scared to lend and healthy borrowers are getting turned down.

So we have a government that is making policy based on populism instead of capitalism.  I’d like to see how the stimulus package would have looked if we were in year one of a presidential cycle instead of year four.  Does anybody really think Hank Paulson really believes in what he is doing?  Remember, he was the CEO at what is known to be the smartest firm on the street.

The theme continues to be short the dollar, short small and medium sized U.S. companies, and long commodities.  In the short run, I’m getting some sell signs for commodity stocks and think they will take a breather.  They certainly did on Friday.

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