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

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
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

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

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

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
cement mixer looks pretty advanced. But once the Chinese
have cement mixers of their own, the
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: [email protected]

I caughtthe tail
end of an interesting interview with the CEO of Barrick Gold
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

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.

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