Thank You Benjamin!

Today we saw the power detailed and precise plans have. In a semi-annual meeting with the Senate, Ben Bernanke gave the public a timeline on when he expects the recession to end, how the government plans on ending it and the steps they are taking to do so. He instilled confidence back into the government by saying that the Stimulus Plan will work, the measures taken to help housing will work and that the government is taking the right course of action with regards to helping the financial sector. He reassured investors today that an all-out bank nationalization is not in the government's plan at all. He shed light on the bank stress test. He stated that he believes the banks are still valuable franchises and he believes they will be able to recover. He reiterated that since the banks are still valuable franchises, the government is not going to let them fail. 

Tomorrow Geithner is going to reveal further details about the bank stress test and will begin conducting it. As more details come out about stabilizing the financial sector, I believe we will see a rally in the markets. Now that we are finally going to start the recovery program for banks that Geithner has planned, hopefully we will learn what liabilities the banks have and how much additional capital they may or may not need as well as the overall health of the financial institutions. Once investors have this information it will take away from the speculation there is right now about the state of the financial sector, putting an end to the recent sell-offs. 

Bernanke did a good job today of re-instilling confidence in investors - something they have been lacking recently. His statement that he believes the recession will come to an end this year gives investors an idea of when they can expect a recovery. 

Why the Market is a Mess

Well, the stock market had another bad day... the Dow Jones broke its previous low. However, don't worry about the Dow Jones, instead focus on the S&P 500. The Dow Jones is a broken index. The stocks in it are supposed to represent the US economy, but battered stocks like GM and Alcoa don't represent the type of economy we have right now. For instance, the United States is moving away from being a major car manufacturer. Therefore, a stock like GM shouldn't be in an index that is supposed to be representative of the major industries in the US economy.  The S&P 500 does a much better job of taking into account America's largest industries and thus is much more representative of the United States economy. Uninformed investors follow the Dow Jones while informed investors follow the S&P 500. It hasn't dipped below its lows yet; it's still testing them. 

So why is the market doing so badly right now? The market is fearful that recent government action won't effective enough to fix the problems in the economy. The biggest drag on the market today, as usual, was the banks, including an over 10 percent drop for Bank of America. Obama's mortgage plan received mixed reviews. Investors were pleased with the details, they just aren't sure how well it is going to work; hence, we saw a flat trading day. Before we can see any sustained rally, we need to see a planned solution for the financial sector. The major problem with the banks right now is that we don't know how much their toxic assets are worth. Tim Geithner is working on a plan to get this issue resolved. Once we have the details of his plan, I think we'll see a positive move in the market. Until there is a solution for the banks, don't expect any sustained rally - get used to the market testing the lows.

If you have investments at the moment, don't panic. Be patient. Government action will have an effect; we just have to wait until we have all the details on how the banking sector will be fixed. For now, don't be surprised when we keep having these negative moves in the market. It's just investors who are fearful of the government's action.

Some Optimism In This Mess

Talk about a close call, the Dow Jones literally closed tenths of a point off its 52 week low. But more importantly, a better index to value the market,  the S&P 500 closed about 40 points higher than its low. Even though it was a horrible day in the market, I find some happiness that we did not break the lows. I also find optimism for Obama's speech tomorrow. On Wednesday, Obama is scheduled to release his plan for fixing the housing market. The housing market is the basis of this whole economic mess and so I am anxious to see how the government plans on fixing it. Fixing it is the most important thing we can do right now to help the economy, so tomorrow's plan is critical - even more so than the stimulus package. Now let's hope President Obama gives some details. I'd be shocked if his administration has not yet learned the consequences of coming out and giving a broad outlook on a plan, offering absolutely no details. It only causes panic in the markets. If he comes out with a good report, expect a rally, if not, we will break the lows tomorrow for sure. 

The market has crashed many times because the government has failed to tell investors how they plan on dealing the mortgage crisis. Investors believe the most important thing to fix the economy is housing, this is what they have been waiting for.  Let's hope President Obama can deliver.

The stimulus bill was also signed into law today. While I am not a huge fan of it, I also do not believe it is as bad as everyone says. At least something is being done to help unemployment and I am glad the bill is signed and ready to go so it can start working. We've been waiting too long for something to be done to help create jobs. Stocks have been discounted a lot because investors believe the stimulus is useless. It is only a matter of time before investors see the stimulus package will work better than expected (I think the stimulus package could have been changed to work a lot better, but we have to work with what we got) and stocks post a rebound.

Mr. President, please please PLEASE give us some details tomorrow!

Testing The Lows

Pay attention folks. The next few days are going to give us a good tell on how the market is going to perform this year. The market hates what the government is doing and we are seeing that with the Dow Jones shedding hundreds of points every day. What is the government doing that investors hate so much? Two things: uncertainty and too little stimulus spending.  The market hates uncertainty and the fact is that Geithner has not shed light on the details of his plan to help banks. Without details, it is hard for people to invest when they do not know what is going to happen with the government's spending. Now, to be fair, fixing the banks has no easy solution and it is going to take time to come up with one. But as long as we don't have the details of the bad bank plan, don't expect the markets to have a sustained rally. The second thing scaring investors is the stimulus package. Investors are afraid it is too big and is going to sink the U.S in debt. And more importantly, there is not enough stimulus. Businesses don't like the idea of 40% tax cuts because people rarely spend that money, they save it. With only 60% of the spending going to stimulus, investors are losing faith that the package will actually stimulate the economy.

You hear analysts giving predictions on what they think the market low is going/has been. But you can decide that for yourself in the next few days.

Now, the reason I say that the next few days are going to give us a good tell on how the market is going to do is because we are testing the lows. If the lows hold, then you can rest assured that we have created a bottom and that the market is not going to go much lower. The market has had bad news before and still held the November low, we'll see if the lows hold one more time. This is some of the worst news the market is going to have thrown at it and if the lows hold, we can be optimistic about the future.  

However, if we break the previous low, we could be in some trouble. It shows that the market has not priced in the worst of the news. I would not invest for the short term because no one knows how low the market could end up going. It could be a rough year if the market has not bottomed yet.

So make sure you pay attention to how the stock indexes are doing over the next few days, it will give you a good insight on what kind of investment to make. 

*Well on a funny note… while I was writing this the market finally got some details about the treasury plan and boy did we see a quick rally, I think the market just went up 200 points in 30 minutes all because we got DETAILS on what the government is doing! Be cautious though, quick movements in the market like this almost always overshoot and we see the repercussions the next day.*

Hold Your Horses On The Stimulus

Today more Senate Republicans were in the news saying they wanted an overhaul in the stimulus package. I've been wanting to write about what companies should be able to grow their earnings because of the stimulus plan, and therefore making them good investments. However it's been difficult because everyday some Senator gives a new plan. That is why I want you to hold off on making any investment play off of the stimulus until a bill is actually passed in both houses. 

Why should you wait? You heard it is going to include infrastructure and tax cuts so why can't you go ahead and make investments based on that? I've seen a lot of people telling investors that Caterpillar is going to do really well from the stimulus package. But that may not be the case. You need to look at what TYPE of infrastructure is being spent. For example, Republican Senator Bob Corker said today he wanted to increase infrastructure spending. So... well that is good news for Caterpillar because they will have more business right? No. The increase in infrastructure spending is for the military. Building new jets and tanks will not increase Caterpillar's business. So while you might think an increase in infrastructure spending is good for Caterpillar, it really is not. So do not be fooled into paying a high amount for infrastructure stocks. If an announcement is made that infrastructure spending is going to be increased, investors might send stock prices soaring higher than they should be because they do not realize just how little is being spent on each sector.

The infrastructure spending is beginning to be very widespread, meaning no particular sector is getting enough money to really jump start the companies in it. That doesn't mean that no company will benefit, but that you should wait until more light is shed on what EXACTLY the money is being spent on. Also, if the spending becomes too widespread, invest in smaller cap companies because while a billion dollars might not stimulate a huge company, it could really have an impact on a small cap firm.

Stimulus Finding Trouble In The Senate

Hope your weekends are going well, this is just a quick article from CNBC that I want you to take a look at. It's about how the stimulus package is losing more support from the Republican party. 

The U.S. Senate's No. 2 Republican warned Sunday his party's support for President Barack Obama's economic stimulus bill was eroding and "major structural changes" were needed to win Republican support.

"You have to start from scratch and reconstruct this," Sen. Jon Kyl of Arizona told "Fox News Sunday." He said the proposed bill, with a price approaching $900 billion, "wastes a ton of money." Kyl took issue with items in the bill, including a $500 tax rebate, the creation of dozens of new government programs and transfers of cash to states.

"There would be major structural changes that would have to occur," he said.

Republicans sought not to delay the bill, but wanted "huge amendments that would redirect it" to address the housing industry collapse and provide tax relief measures, Kyl said.

Sen. Richard Durbin of Illinois, the Senate's No. 2 Democrat, told the program that Democrats were "very open" to Republican ideas and amendments to the bill, including provisions on infrastructure spending and to provide oversight to avoid mistakes made in implementing the TARP bailout program.

The Obama administration and Democrats have already cut two provisions in the bill passed by the House of Representatives without a single Republican vote.

Looks like the bill is going to take longer than expected to get passed. 

Don't Jump Into Every Market Ripple

So today we had a nice rally of 200 points in the Dow Jones, thanks to a strong performance by bank stocks. But that doesn't mean anything. Tomorrow we could see a 300 point drop because someone reported bad earnings. The bank stocks got a lift from news that the Fed will keep rates at almost 0% all year long and the Obama Administration is moving quickly to buy up more toxic assets from banks. Additionally, House Democrats leaders announced today that the Stimulus Bill is expected to pass the House. 

While this is all good news for banks, don't be fooled by this market ripple. Today Starbucks and others announced even more layoffs. As companies continue to release earnings, they keep announcing massive layoffs to help cut costs. Don't overlook this. As more layoffs occur, companies based on consumer spending will continue to see their earnings deteriorate. The job losses from this week alone are really adding up. 

Lastly, the Stimulus Bill is supposed to pass the House, but that does not mean it will pass the Senate. Democrats do not have enough votes to bypass a filibuster, and right now Republicans seem to hold strong opinions against the excessive spending of the bill and a lack of tax cuts. The market is expecting the bill to pass, but it will probably find resistance in the Senate. And if it doesn't pass the Senate, do not expect the market to take it well. Having said that, I don't think the bill will never pass, I just don't think it will pass right away. Republicans and Democrats both agree that some kind of stimulus package needs to be passed, but not on how it should take shape. And I have faith that President Obama will be able to stretch across the aisle and bring both sides together. If the bill doesn't pass the first time, it will present a great buying opportunity as the market will likely push down prices.  

Keep following how strong Senate Republican opposition is to the bill is so you can predict if the bill will get passed or not. And amongst all the news of stimulus and banks, do not lose sight of unemployment.

Look For The Stimulus Bill To Get Bigger

Just some news about the stimulus bill from the weekend:

• Nancy Pelosi said she is still against nationalizing any banks, but is seeking more money to buy up more toxic assets from banks.
  
  
• Home builders and other industries are lobbying congress to add more incentives for themselves in the bill.
  
  
• John McCain said earlier today on "Fox News Sunday" that he wants a re-write of the bill and would not support the bill the way it is right now. On the flipside, Nancy Pelosi said she is willing to consider GOP ideas, but is unlikely to add the larger tax cuts the GOP wants. 
  
  
• House Minority Leader John Boehner stated he is voting against the bill if it is not changed.

From the Wall Street Journal

Do You Know Where the Money Is Going?

You may know that Obama is calling for a new stimulus plan. But do you know how the money is actually being divvied out?

• $58 billion - Energy
  
  
  
  • $32 billion – towards funding a smart electricity grid
    
  • $20 billion+ -Tax credits and cuts related to renewable energy and research for clean/efficient energy
    
  • $6 billion - Weatherize modest-income homes
    
  
  
• $275 billion - Tax cuts:
  
  
  
  • Tax credit of $500 a person/ $1,000 for married couples, targeting payroll taxes
    
  • $2,500 tax credit for of higher education, up to 4 years
    
  • $7,500 first-time home buyer's credit, does not have to be repaid
    
  
  
• $141.6 billion - Education
  
  
  
  • $62 billion - School districts, modernizing schools
    
  • $39 billion – Aid to school districts/public colleges to prevent cuts in services
    
  • $15.6 billion - Reward states reaching performance standards
    
  • $25 billion - Prevent layoffs
    
  
  
• $90 billion - Infrastructure:
  
  
  
  • $30 billion - Highways
    
  • $10 billion - Rail/transit
    
  • $31 billion – Making public buildings energy efficient (saves money in the long run)
    
  • $19 billion - Water projects
    
  
  
• $102 billion - Aid to the poor and unemployed
  
  
  
  • $43 billion – Unemployment and job training
    
  • $39 billion – Unemployment health insurance
    
  • $20 billion - Food stamp benefits increased b y 13%
    
  
  
• $111.1 billion - Health care
  
  
  
  • $87 billion – Aid for Medicaid
    
  • $20 billion – Computerization of health records
    
  • $4.1 billion – Making sure patients are getting the best treatment and preventing health problems
    

The infractructure program in particular sounds like a good plan since it will create many new jobs. I suggest you read the USA Today article since it gives a good description of how the money will help the different areas the money is being relegated to.