So now the government is actually going to subsidize car sales with up to $4,500 in incentives for car buyers who get rid of cars that get 18 mpg or less.
I understand that the auto industry is hurting. And I also get that more efficient cars help reduce our dependence on foreign oil. But is it appropriate to use tax payer dollars to fund auto purchases?
Perhaps if we were talking about something that is a necessity, like farming, subsidies make some sense. After all, we need farmers. I think we have to consider cars a luxury, or at least a discretionary purchase.
Not only that, but a car subsidy can only create temporary demand. And given the precipitous drop in car sales (10 million vehicles will be sold this year as opposed to 16 million in 2007), it’s highly unlikely any momentum can be created. Not with unemployment on the rise. And not with home values still falling.
*****Increasing demand based on stimulus spending is a temporary fix. The government is just buying time hoping that the economy will recover. But many of the signs of recovery are based in stimulus spending.
*****Analysts are now acknowledging that oil has been rallying on a falling dollar and on expectations of price inflation. Of course, the potential for price inflation is, once again, directly related to government stimulus spending.
The massive amounts of Treasury bonds that have been and will be sold are boosting interest rates and driving the value of the U.S. dollar down. So any asset priced in dollars is rising in price. Like oil. Mind you, that doesn’t mean its value is rising, just its price.
At some point, higher oil prices will affect the prices of other goods. But as I’ve noted before, it’s likely to be a while before producers are able to raise prices in the current economic environment. Remember, it wasn’t until 2007 that inflation really started to become an issue.
*****Another catalyst for commodity prices in general is supply. Global demand is down, credit has been difficult to get, and miners and producers have not been investing in increasing supply.
That sets the stage for supply/demand imbalances when economic growth returns.
We’ll be discussing these topics and our bullish outlook for commodity stocks in next Wednesday’s Video Conference. It’s titled Inflation Busters: Discover the Stocks to Grow and Protect Your Wealth and will air on Wednesday, June 24 at 6 pm. It’s free to attend, you can sign up HERE.
*****Jason Cimpl, technical analyst at TradeMaster Daily Stock Alerts, has his latest video chart analysis ready for you. Last Friday, Jason absolutely nailed this week’s trading. I hope you find this week’s analysis just as useful. Here’s the LINK.