More Cheap Money Is Good For The Soul

Krugman’s Stimulus 2.0
I was told today that over the last few days, Krugman had dinner at the White House. I actually mean that. I was told that Krugman and one other prominent Economist had dinner at the White House.

So Stimulus 2.0 seems highly likely. The playbook is to crash stocks to get Congress political cover for authorizing still more spending. They may do the same thing over the next few weeks.

I saw an article on Drudge the other day that talked about how Congress is already looking for another $90 billion in “Stimulus”.

I think this one will be for real. I think the money will actually be used to get people back to work and get infrastructure built. My thesis remains that you placate the poor with Entitlements, while you under-pay them for their current labor or subsidize their unemployment and you placate the affluent by driving up their asset prices, while taxing the hell out of them.

On November 4, 2008, I wrote a piece entitled “Did I Miss The Bull Market?” Here is some of what I wrote –

“When markets crash, they need time to repair the damage. They don’t just bounce and not look back. The markets were cut in half in a year. Yet everybody is still looking to buy and not miss out on the New Bull Market. Things don’t work that way. I expect at a minimum a retest or two of the October low (848). I would not be surprised to see us undercut the lows to scare the heck out of the remaining Bulls. Can you imagine how sick you would feel if you bought today and the markets put in NEW Bear Market Lows?”

Nothing could scare the CNBC Permabulls (Kudlow, Sleezeman et most others), but for rational people, how sick did it make the fully invested feel when prices fell from 1,007.51 on 11/04/2008 to 667 in March 2009? We closed today at 883 after an 8-week moon shot.

I included this chart in the post. The Black Arrows are Interest Rate Cuts and the Green Arrows are Tax Cuts. Do you see how there was a Rate Cut and a Tax Cut after the markets had bottomed? I consider Quantitative Easing to be new-age Interest Rate Cuts in a ZIRP (Aero Interest Rate Environment) and I consider a “Stimulus” to be the Democrat version of a Tax Cut.

So we are right on track to having Washington flood the system with one last blast of Liquidity, just to make sure that the Economic Expansion gains traction. They won't pull the excess funds out in time, but hey, a little extra cheap money and lax lending standards never hurt anybody. Right?

Look for an extension of Quantitative Easing (the Fed buying another several hundred billion more US Treasuries) and another Tax Cut, er “Stimulus” package, in the very near future.

When you see Bill Gross on TV talking about how much we need both, you will know that the fix is in and it is time to reload massively into Gold, Commodities and Commodity-Based Currencies and Economies.