Why You Need To Hedge The Market Now!

| July 8, 2009 | 0 Comments

Empty promises and an overhyped stimulus plan have the markets set up for another crash.

Here’s what you need to know.

The $787 billion ‘stimulus’ plan is really a welfare program.  Don’t believe me?  Take a look at the numbers straight from the horse’s mouth.

According to recovery.gov, $56 billion of ‘stimulus’ money has been spent.  Any guesses where our tax dollars are being invested? Infrastructure, technology, green energy, incentives for investors… hardly.

Try this on for size.

  • $21 billion in Medicare
  • $12 billion in Social Security
  • $6 billion in Education Aid to States
  • $2 billion in Food Stamps
  • $600 million in Low Income Rental Assistance

If you’re keeping score at home, that’s $42 billion in welfare and $14 billion in stimulus.

I can’t believe $14 billion in government stimulus hasn’t jump started a $14 trillion economy.  Give me a break.  It’s not even a drop in the bucket.

So much for shovel ready jobs.

We all heard the politicians say, “My district has construction projects ready to go.  Just give us the funding and we’ll put people to work repairing our crumbling roads and bridges.”

They got their money but projects aren’t starting.

In fact, $20 billion is sitting in the Department of Transportation waiting to be spent on infrastructure improvements.  But only $440 million has been spent so far.  (Sounds like the shovels are stuck as politicians fight over the pork.)

The prospect of a ‘V’ shaped recovery is fading quickly.

In order to get the economy to turn on a dime, the stimulus needs to be in the system now.  Not three years from now.  But that’s exactly what the current stimulus plan is designed to do.  It will trickle in the stimulus money into the economy through 2012.

The bottom line is the stimulus plan isn’t stimulating the economy. At best, it’s stopped the bleeding.  But it isn’t the same as laying the ground work for a robust recovery.

It sounds like a recipe for a recovery with no economic growth (i.e. an ‘L’ shaped recovery) to me.

Here’s the problem.

Expectations are for earnings to improve every quarter going forward.  It’s more likely they’ll stabilize and stay at current levels for the next year (or longer).  Once earnings estimates are revised down, stocks will be grossly overvalued.  After that, watch out, it could get ugly.

The carnage won’t be confined to the stock market either.

Companies will move to improve earnings by reducing overhead and spending.  In other words, fire more workers, cut back hours, and cancel bonuses.

This will keep the unemployment rate rising.  And more people will join the ranks of the underemployed.  It all adds up to social unrest, or at least, discontent.

When the politicians come up for re-election, they’ll stand little chance.  Some politicians can already see the writing on the wall. But they’re not willing to go without a fight.

The rumblings of stimulus plan part 2 are starting to resonate in the halls of Congress.  (I guess the logic falls along the lines of two wrongs make a right.)  You can expect the rumbling to get louder as the ranks of the unemployed continue to swell.

Thanks to a well meaning but misguided and badly timed original stimulus package, “Part 2” could be a foregone conclusion.

So what’s the end result?

The potential for further market declines is high.  Look to hedge the market using options or inverse ETFs.  Protect yourself and your investment nest egg from the government’s embarrassing failures with the stimulus plan.

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Category: Stocks

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets on a daily basis. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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