A Second Stimulus?

While talk is circulating among top Democratic leaders about the possible need for a second stimulus plan, the Republicans are wasting no time putting Obama and the Democrats in the hot seat for lack of results from the original stimulus package. Personally, I've seen no improvements in the economy other than some stabilization in financials and the auto industry. I tend to agree with some who think that any further stimulus package should include payouts to taxpayers, legal citizens of the United States. If they want to get the economy moving, give the money to the people who will put it back in to the economy, i.e. consumers. The banks have horded stimulus money, while at the same time increasing the burden on the taxpayers through fee and interest rate increases. If you're not helping the cause, then you're hurting the cause. Charging more fees and higher interest rates while cutting charge limits is not going to get consumers spending again. I personally have stopped using credit cards entirely.

The real bottom line is, we are not going to see the economy improve until people go back to work. An unemployment rate of 9.5 % will continue to drag the economy down and now experts are saying it could go as high as 11 %. That's a great deal above the what Democrats predicted with the passage of the economic stimulus, so I think the Republicans and the American taxpayers are right to be throwing some hard questions towards the current administration.

Given all this, I think the stock market will remain down for the better part of this year and in to 2010. It does present some great buying opportunities, the price of good companies being down along with the bad. But it does call for investors to be very selective. As I mentioned in an earlier post, I've recently invested in Proshares TWQ fund, which shorts the Russell 3000 index, as a hedge against falling stock prices. I'm doing this on an experimental basis and while it is too soon judge overall effectiveness of this strategy, the price per share did go up as the overall market fell earlier this week. The real test will be its' effectiveness over a longer period of time. I'll keep the readers posted on how it's working out.

Reverse ETF S&P 500

I mentioned in a previous article that I thought the market would pull back some during the summer months. It looks to be the case, with the recent turn of events. A pull back was to be expected after such a rapid run up in stock prices. Barron's had an interesting article on this at:


http://online.barrons.com/article/SB124579457810443905.html?mod=googlenews_barrons


This is usually the time of year when I take advantage of lower stock prices to add to my long term holdings, reducing my average price per share and increasing dividend income. As a new tactic, I've decided to invest in a reverse ETF or exchange traded fund called Short S&P 500 ProShares (ticker symbol: SH). In theory, a reverse ETF shorts the market and should move in the opposite direction of the stock market. In this case, since I expect the market to go down some, the shares in SH should move up, balancing out my portfolio. This is a way of shorting the market with less risk than opening a margin account. I'll keep readers posted on how it works out.

Re-invested in Universal Insurance (UVE) for my regular portfolio on price pull back, looking to add more shares if the price goes lower. Also added Calumet Specialty Products (CLMT) as a long term holding for their dividend payout. Not much going on with my recent purchases in energy limited partnerships, but with the good dividends, I can afford to wait for upward movement with those.