This Is The Government's Week

The final touches are being put on the stimulus package. We don't think it will have much effect on the markets as it won't create enough new jobs to make a difference. The government needs to spend money now on projects to get the money flowing again in this country. Consumers are scared. They are focused on saving assets and not spending them. Any tax cut won't lead to new discretionary purchases but perhaps reducing debt or squirreling the money away under their mattresses. The government should consider an idea we casually mentioned last week. Instead of a $400 tax credit, lets give American families a $400 gift card to spend at any retailer in the United States. Spending will increase, retail sales will rise, manufacturers will move inventory, profits will increase, and the circulation of dollars will expand. Also, perhaps some jobs will be saved.

Treasury Secretary Geithner will also announce his new Bank Bailout Plan. On September 29th we wrote that the bank problem can't be solved until bad assets are written down to levels where private investors see value. That process will also require banks to take more write-downs which in turn will result in the need for more capital to be injected. We have also proposed a joint fund where investors and the government can jointly buy distressed assets at fair market prices. It looks like the government is finally moving in that direction. The details of the plan will be discussed tomorrow and the markets will be anxiously waiting. Until then, we will need to focus on corporate earnings or more likely losses.