Why the Stimulus Bill Won't Work... And Three Strategies You Should Implement Right Now to Protect Your Portfolio

     The Dow ended last week just a scant 165 points above what I believe is a critical support level of 7,200.  The non-stimulus bill has passed and the mortgage bail-out is underway.  That's close enough for government work, which is my way of saying that I just don't think these money give-away strategies will work soon enough to matter.

     It is time to get more Bearish.

     Our government had the opportunity to make a real difference with a real stimulus bill... one that would actually stimulate the economy... such as a two-year federal tax holiday.  But, our now one-party system of representative government has decided that it is more interested in political preservation than economic preservation.  Here's some of my thinking on the subject... you decide...

     Virtually nothing in the $800 billion so-called stimulus bill is actually stimulative to the economy.  My interpretation?  The recession will be deeper and last far longer than it should.  This is the same mistake made by Roosevelt where he exacerbated the Great Depression by not actually stimulating the economy.

     Virtually all of one party voted for the bill and virtually none of the other party voted for the bill.  If it was truly a bill designed to "save our economy," why such a party-line split?  My interpretation?  We now have a rubber-stamp congress that is now representing its party rather than representing the people.  This is very bad for our country and our economy.

     No one in congress read the faux stimulus bill.  According to their own accounts, not one senator or one representative read the entire bill.  It is more than scary that so much money is taken from our future to pay for things that may well not be beneficial to our economic recovery, without anyone actually reading and debating the details of the bill.  My interpretation?  Pork, pork, pork.  Not stimulus, stimulus, stimulus.

     The President's $275 billion housing bailout plan is deigned to reward people who made bad decisions on buying a house and punish the rest of us.  Where is the punishment?  Well... in addition to massively growing government deficit spending (which we taxpayers must repay at some point), all of our homes have lost a lot of value in recent years.  All of us are suffering in this recession.  Why aren't the 92% of homeowners with mortgages that are being paid on time, just as deserving of tax dollars as those who refuse or can't make their mortgage payments?  That would be real stimulus.  Why does it make sense to keep people in homes that they cannot afford?  One reason why people live in apartments is because they either don't want to own a home or cannot afford to.  What's wrong with that system?  Home ownership is NOT a constitutional right.  My interpretation?  This is another 3rd of a trillion dollars being spent that is NOT stimulative to the economy.  The net effect is negative on the economy... not positive.

     And, to top things off... President Obama is now reporting that he intends to raise taxes to pay for the deficit.  Has no one in Washington ever conceived of the idea of cutting spending and reducing taxes, to spur economic growth and generate more real tax dollars?  Why is the solution always to raise taxes?  Since we are approaching a time when most people in the U.S. won't pay taxes, I am sure this idea of taxing the rich (again) will get rave reviews in the focus groups.

     And... Not only are we getting to the point that we can't trust our government to do the right thing... we have to rely on extremely biased propaganda machines, also known as the mainstream press, to get our news.  The so-called free press is supposed to give us the facts from which we can draw conclusions and make our own opinions.  But, much of the 'news' is nothing more than thinly veiled editorial commentary that is almost always biased toward one agenda or another.

     For decades, we have been recipients of a growing volume of propaganda being thrown at us under the guise of news; sort of like washtubs of lies containing thimbles of truth.  We have to sift through the propaganda to find the truth and it is often impossible to find.  We have to draw, hopefully intelligent, conclusions from data that is tainted, biased and/or completely contrived.  This is not easy.  This propaganda machine is also how so many bad politicians continue to get voted into office.  There is a saying that you never know who is swimming naked until the tide goes out.  Well, the tide is going out and there are a lot of naked politicians and greed-driven big-business moguls out there.  I just hope enough people see them for what they are.

     What has this got to do with investing in the stock market?  Everything...

     It now appears that the eastern European financial system is collapsing and some say the 50-to-1 leveraged banks of Western Europe are teetering on bankruptcy.  Chris Dodd is telling us that the President wants to nationalize the big U.S. banks (later somewhat retracted from the White House).  Most of the money in the so-called stimulus bill is designed for anything but stimulus and much of what is stimulus won't come in to play until a year or more from now.  No one in the U.S. government is exhibiting much in the way of true leadership.  The great American dream of accomplishing anything if you work hard, are creative, honest and smart, is crumbling while our government continues to reward stupidity and avarice while building up a voter base.

     This week I was talking with one of my clients.  He is considering the merits of opening another location for his successful small business.  It would mean he would have to invest a sizable amount of money and take on additional risk, but he has the resources and the business risk is acceptable.  However, he is not going to move ahead with his expansion because he is afraid that the additional income from the new location will push the income he has now into a higher tax bracket and he believes that his existing taxes are going to be increased by the current administration.  So... he has decided to wait.

     This is what is likely happening all across our nation as we move dangerously close to a socialized state that punishes those who pull the wagon and rewards those that ride in the wagon while encouraging even more to ride.  This is a wholesale sellout of individual initiative and capitalism to socialism or worse.  Want some more?  Check out this spontaneous commentary from Rick Santelli of CNBC.  Rick wants to start a Tea Party in Chicago... I'm ready, Rick... give the word.

     So, what's my investment plan?

     I am shifting to cash and more Inverse ETFs.  Here is my strategy:

     First of all, I am not making a lot of changes immediately.  I am still very hopeful that the worst is behind us, but I can no long ignore the possibility that it is not.  So, I am moving slowly back to cash.  I am raising stops and selling off equities to move to 60% cash.  I cannot take the chance that the various closed-end funds that I hold will not be impacted negatively.  I was hopeful that we could ride this out in some stable closed-end funds, but even that is turning out to not be a completely safe haven.

     Next, I will be buying more Inverse ETFs and precious metals.

     For 40% of the investable dollars, I will continue to keep globally invested, but will have a Bear bias for Europe, the U.S. and Emerging Markets.

     I regularly mention that I have a "forever investment strategy based on one-week-at-a-time."  This week, the market took on a decidedly more Bearish stance at what I had hoped was the bottom.  The market has now broken down below that low and is giving every indication that it could move much lower.  The seriously big problem is that our government is not doing anything to really help stimulate the economy and the rest of the world is sinking into a much deeper recession.  We have to move to where cash is king and keep our bias on Inverse ETFs.

     Have a great (hopefully) week in the market.  Unless we get some significantly good economic news, this week could be brutal.

"Wall Street has turned the clock back to 1997. Investors unable to extinguish their worries about a recession that has no end in sight dumped stocks again Monday. The Dow Jones industrial average tumbled 251 points to its lowest close since Oct. 28, 1997, while the Standard & Poor's 500 index logged its lowest finish since April 11, 1997."

-- Associated Press

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