Governments should Prepare a Stimulus Packages But Just Sit Tight

When trading the stock market doing the hard thing is what counts. This may be very difficult to do. For instance when using stop losses you are supposed to act on them without failure.

If you are trading a stock with a 5% mental stop loss and not a physical stop loss and the stock drops by 10% say, do you exit immediately or do you wait hoping for a retracement back about your mental stop?

The correct answer is GET OUT ASAP. The first loss is the smallest loss in most cases.

Governments should take note and heed this advice. They are pouring billions of tax-payer money into technically insolvent banks and financial institutions.

It all sounds nice and is touchy-feely good. But it is draining the world of future credit markets for private investors when confidence returns and business and people want to borrow beyond what they have to borrow to keep themselves financially afloat.

Governments make it sound good with phrases like, “we need to protect jobs” but then give tax-payer money to house insulation companies and create a bubble in that industry and distort an already sick economy. This is the winner/loser strategy adopted by most governments who believe they have to do something – anything!

Forgive me if I am skeptical about these stimulus packages. It seems to me they are just big “vote-for-me” bribes. Just today I read there is a chance our fearless leader Mr Rudd  may decide to go to the polls early to capitalise (no pun intended) on the spending, er I mean stimulus package.

In the US it is no different. The mid term elections are less than two years away. The stimulus package is to be spent over four years with only part of it being spent in the first two.

That means Democrats (or both parties if a bi-partisan stimulus package actually gets passed) will be able to pump prime the electorate to get themselves voted back into office even if the economy is still in the toilet. They will say they haven’t finished the stimulus yet.

In Australia we have unemployment at under 5%. But our Reserve Bank dropped interest rates by 4% from 7.75% to 3.75% in a matter of weeks – just in case. In real terms that is a 52% drop in the cost of money and we are still going over the precipice according to our Prime Minister. Banks aren’t lending and business aren’t borrowing.

So all it achieved in my view is destroy the wealth of people who were prudent and saved their money – okay okay – like me. Self-interest acknowledged.

And now the Government tells us there is an urgent need to spend $43Bn of borrowed money if we are to have any hope of avoiding a financial and employment catastrophe.

It is amazing to me that we are told we need to spend these huge amounts of money when recessions only last from 6 months to 18 months on average.

In Australia we are more affected economically by what goes on in the US than what our own government does.

According to reports the US is over a year into its recession. So it should not be too long now before this nightmare is over 😉 Why the need to spend all those billions when we only have a few more months in recession anyway?  🙁

We have no idea whether the previous stimulus on Australia, $10.4 billion actually created any of the 70,000 jobs it was supposed to. Just as in the US no one knows if the bailout money really helped except to justify more bailouts. We’ve spent this much so we should be closer to fixing the problem – crazy don’t you think?

Surely with the elephant in the financial pool (sorry USA) the Aussie’s should do what they do best – go surfing. They should sit and wait for the US stimulus wave and surf out of this financial melt-down.

Even a small wave for the US can be a tsunami for Australia.

It was the famous trader and Wall Street speculator, Jesse Livermore who said,”

After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!

Why this advice? Well because governments around the world are speculating. They have no idea what will work. By definition that’s speculating. The only problem is that governments are NOT traders. Trader’s have an exit strategy.

Governments don’t know when to cut their losses and what’s more they don’t have to. They can just print more money.

This is the best advice for governments. Sit tight and be prepared to help where help is needed for good sound business and social reasons.

Governments should stand by to help viable and profitable businesses with retaining knowledgeable staff.

Governments should stand by and help families that have been responsibly supported themselves and paying their mortgages if they need help.

Sitting tight with all that money being available IF NEED BE is far more responsible.

History shows that if governments create too much money, when the economy does turn round there will be too much money chasing too few products. That’s inflation.

So just after you pick yourself up from the recession and government spending trying to prevent the inevitable recession, you will be getting whacked on the back of the head with inflation.

It’s not certain but it is highly probable and it is likely to be very bad because helicopter Ben has sent the money growth graph vertical. A Bubble if ever there was one.

So governments and financial institutions have destroyed your equity investments, reduced the interest on your savings and will probably inflate away what money you have left. You should learn all you can about inflation and get prepared to be on the right side of it should it inflation start to take hold.

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