Tuesday, June 16, 2009

Gov't "net stimulus" rises again

What I call, "net stimulus," which I define as the daily amount of spending by the government, minus the amount of revenue it is taking in, is rising.

A positive reading indicates that the government is spending more than it is taking in, which is a good thing because by definition that is adding to the income and savigs of the private sector. Rising income and savings eventually equate to greater wealth of the private sector.

The graph below looks at a 5-day average of "net stimulus" superimposed against a chart of the S&P Index close. The way to use this is if net stimulus is falling or negative, you want to be defensive as a stock trader (sell into rallies) on the idea that the government's "wealth pump" is sucking wealth out.

On the other hand, if net stimulus is positive and rising, then you want to be bullish on stocks and buy dips, the idea being, the pump is pumping in income and savings and that will lead to greater wealth and higher stock prices.

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