February 09, 2009

Watch the Birdie

The so-called "stimulus" plan looks set to clear the Senate in the next day or so, but it's close enough and uncertain enough that until it actually does the markets won't react. That gives me a window to stick my neck out and make some predictions that can make me look stupid...as if I need the practice. So, on the assumption it will clear the Senate, here's a prediction of the immediate market reaction:

Stocks: The Dow and the S&P will hump themselves for an instant loss of about 3-5% or so, testing the lows of last fall on fear of the inevitable inflation from all that government spending and the lack of real stimulus, along with the fear of the future taxes required to pay the Porkulus bills. The NASDAQ will also fall, but maybe not quite as much. It's never really recovered from the dotcom crash, so it has less margin to lose.

Crude Oil: Neutral to about a 3% drop. While cheap oil is nice, it's also a sign that the markets do not believe that Porkulus will have any near-term stimulus effect AT ALL on energy demand. Well, duh.

Metals: A nice clean indicator for expected inflation resulting from Porkulus. Figure on an immediate 2% or more spike in gold and platinum prices. That 2% represents the net present discounted cost of the dollar inflation that will result from Porkulus.

In other words, the markets will tell us the obvious--we have just debased our national assets by 2% or so in one spending bill, trying to return to prosperity with printing presses rather than real production.

Banana republics everywhere can tell us how that works.

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