The overall market as measured by the Dow Jones Industrial Average lost approximately 521.62 points or approximately 6.0% in the two (2) weeks since our last edition of the Sterling Weekly. Basically every sector index I track is looking weak. One way of interpretating this is that there is not really any sector of the economy that is doing well.
I've often written that bull markets are created by new technologies and deregulation (or in some instances by new regulations). Those are the 2 items that create long term economic growth. Heavy government regulation and/or spending does not create growth; it creates a misallocation of resources that result in the picking of winners in one sector of the economy, and losers in another. Think about the recent government mandates for biofuels. Take a good look at the ethanol industry. The government required its use as a blending agent for gasoline and provided producers with a tax credit (ie. subsidy payment) of $0.54/gallon. Hundreds of ethanol plants were built as major companies entered the industry and almost every community in the midwest tried to put up its own ethanol plant. The result, an unsustainable spike in ethanol prices, the price of the feedstock (ie. corn), the cost of farming (farm land shot up in price as did the cost of fertilizer, ect.), speculators entered the commodities markets, consumers paid higher food prices and there were food shortages in some parts of the world, and finally we were left with an industry with way to much capacity and a shortage of raw materials. And when the market finally normalized everyone lost money. Many commodity funds have incurred huge losses and shut down, countless number of ethanol plants have gone bankrupt with their investors loosing money, even the farmers have had a hard time profiting during this, and all consumers have paid higher food prices as a result. In the end, everyone involved in the ethanol industry has been hurt. I've consulted for a biodiesel company since early 2006, and worked on numerous projects in the ethanol industry; additionally I've got family in the mid-west who farm and are involved in the ethanol industry. While they have made it through the turmoil in the industry, many others haven't. The moral of this story is when the government starts dictating things, no one comes out a head. Something everyone should be aware of when they start thinking that this government stimulus package is going to turn the economy around. It is going to make things worse.
Oh, and by the way. I consider myself to be multi-talented. I can do more than just criticize, I can offer my own solution; which I start providing in the next edition of the Sterling Weekly.
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