Will More Stimulus Help?
Everyone agrees that the stock market likes cheap money and low interest rates. Because when you can borrow cheaply, the risk of stocks is easier to stomach. And when interest rates on bonds are at or below inflation rates, there's no incentive to hold bonds.
So one might think the promise from the Fed that more quantitative easing is in the pipeline would be seen as good news. But the stock market's response to the Fed's policy statement from Tuesday hasn't looked like a ringing endorsement.
Of course, the S&P 500 has run into another significant resistance point at 1,150. And the 9.5% September rally has pushed stocks into overbought territory. A pullback for prices is reasonable under those conditions.
So while the weakness in stock prices over the last couple of days isn't necessarily a condemnation of the Fed's latest stimulus promise. Still, I think the Fed made the wrong move.
As I've expressed, a show of confidence by the Fed and an honest discussion of the challenges facing the U.S. economy from our politicians would go further to helping the economy adjust for long-term growth. But if course, honest discussions are political suicide.
I receiveda letter yesterday challenging my statement from yesterday's Daily Profit that "It's going to take time, re-training and probably some government incentives..." to reduce the unemployment rate.
Mr. Martin states that "What's needed is simply new government policies." In an environment where an increasing number of Americans are advocating cutting government spending and even ending emergency extensions to jobless benefits, I'd like to know exactly what those are.
And don't say it's the Health Care Bill that's responsible for the unemployment rate. I'm no fan of the bill. Any health care reform must attack costs, not coverage. And Obama totally misread the American mood when he pushed that bill.
But I know my business, and the added expenses I'll take on as a result of this bill aren't keeping me from hiring. I hire when I sell more newsletter subscriptions. And I've hired several people this year.
I get the sense that many want the government to spend less, and at the same time, fix everything. But how do you fix the unemployment situation? The U.S. has lost nearly 2 million construction jobs since the housing bubble burst. That's around 25% of all layoffs.
Government policy isn't going to give these people jobs. And really, they shouldn't have had jobs to begin with. The housing bubble artificially ramped demand and hiring, and masked imbalances in the U.S. economy that have been building for at least 15 years.
6 million manufacturing jobs have been lost since 1997. Sure, we could argue that outsourcing manufacturing overseas is responsible, and that if we just bring manufacturing back to the U.S., our problems are solved. Sounds great. And I'm sure plenty of U.S. workers would jump at the chance to make $10 a day like workers in other countries. Or, to support higher wages, perhaps we'd like to pay $30 for a t-shirt that currently costs $7 at Wal-Mart...
It's time to face the fact that some manufacturing that was once the foundation of U.S. innovation and leadership simply isn't anymore. When the Chinese are mixing cement by hand with shovels, a U.S. cement mixer looks pretty advanced. But once the Chinese have cement mixers of their own, the U.S. advantage is gone.
That's essentially where we are now. So let's not lament our lost manufacturing advantage. If other countries can make stuff cheaper, let them. The real advantage that our manufacturing base represented was one of innovation and efficiency. It's high time we looked forward to what we can make better than anyone else in the world.
OK, rant over...
Of course, I'd like to hear your thoughts here: dailyprofit@wyattresearch.com
I caughtthe tail end of an interesting interview with the CEO of Barrick Gold (NYSE:ABX) this morning. When he was asked if gold was in a bubble, he pointed out the several of the longstanding metrics of gold's relative value were within historical norms.
At current prices, an ounce of gold is worth 17 barrels of oil. The average is around 15. An ounce of gold will get you 343 pounds of copper, also within historical norms.
I also learned that Barrick's costs are around $450 an ounce right now. That means for every ounce of gold they sell, $840 is pure profit. There is an earnings explosion coming for gold miners. Click HERE to discover which miners to buy now.
