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goldminingXpert (28.75)

Halloween's Scariest Costume: The Truth



October 30, 2009 – Comments (33)

In March, everything was crashing, it was the end of the world, etc. Blah blah. Along came Obama and the Stimulus Cannon of Change which fired your children's future at the economy and made things better. Or so we were told. Everything started going up. We're happy. Yay! GDP is positive, WooHoo! Yay! Oh snap, why are disposables incomes down 7% yoy when GDP is rising? Why is the housing market still sinking? Why is Wilbur Ross predicting a commercial real estate crash? Why is the stock market throwing up a hairball the same week the "recession" ended?

The truth is that all of it was a mirage. There was no recovery. None. All that happened was that trillions were spent to slightly slow the rate of decline of the economy. The artificially low interest rates have, as an Austrian economist with half a brain could tell you, stimulated false demand, needlessly driving up the cost of commodities and weakening the dollar, thus making a bad situation EVEN WORSE! Shelia Bair, in a profound understatement, told us that many more banks will fail in the coming years. No duh. The economy has built on a false foundation of cheap (much too cheap) credit and false hopes. Sure, earnings are "up." But what about revenues? Down 20 to 30% across the board. Earnings are up? Why? Cause companies fired tons and tons of people. Are those jobs coming back? No, unemployment has stabilized because people have abandoned their job hunts.

Consumer confidence, not surprisingly, fell today and was far weaker than expectations. Average Americans know the economy still stinks -- and they won't be putting up big #s for Christmas sales. It's only when you spend too much time around the Great Bloviator of Hope and/or mainstream financial "analysts" i.e. CNBS that you get sucked into thinking there is an economic recovery because the stock market has gone up. The stock has gone up because people expected the recession to end, once the market started rising, then people said, ah, the market is up, recession must be ending, buy more stocks... you can see how this ends. Real GDP (GDP - Cash for Clunkers - pay you to buy new houses - Government borrowing from China to fuel bridges to nowhere - etc.) is steadily sinking at a good 8 to 12% a year annualized. It's all been an illusion, the 7 months of Hope that we mortgaged our kids' future for. It's Halloween this weekend ... the truth is far scarier than you think.

33 Comments – Post Your Own

#1) On October 30, 2009 at 4:56 PM, RonChapmanJr (29.79) wrote:

A good post without being mean or vindictive = +1 rec

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#2) On October 30, 2009 at 5:28 PM, JaysRage (79.93) wrote:

It is still a fight to the finish of inflationary monetary policy vs deflationary base fundamentals.   Right now, I think they are fighting to a bloody draw.  

It's difficult to predict how the next round will go.   Fundamentals are not good, but I just don't think the Fed will stop pumping money into the economy if there is a continued threat of deflationary movement. 

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#3) On October 30, 2009 at 6:25 PM, devoish (81.00) wrote:

The plan of giving money to the banks and hoping it gets lent out is not working. That is a good thing.

The plan of having just waited until banks resupply the economy with money, will also take a very long time. Let's face it, if they are not lending cheap Gov't money they are not lending their own either. And that is a good thing.

So what now? Zombulation?

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#4) On October 30, 2009 at 6:50 PM, rexlove (99.72) wrote:

If your theory is true and government stimulus money is responsible for the stock market run-up - then the stock market still has a ways to go. This would be a horrible time to bet the market is going down.

Check the government web site According to this the government has only spent $207 billion of the $787 billion in stimulus money. That mean only a little over 26% of the stimulus money has made it into the economy. What do you suppose will happen when the other 74% is injected into the economy????

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#5) On October 30, 2009 at 8:20 PM, SolarisKing (< 20) wrote:

rexlove (94.88) : Buy the rumor, sell the news. Yes only a third was spent, but perhaps more than a third was speculated into the price of the market.

I know that i'm not supposed to say it out loud, but.  .

 "This market is toast".


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#6) On October 30, 2009 at 8:36 PM, mts883 (< 20) wrote:

There is no Austrian economist with half a brain. The Austrian School of Economics is not a credible organization, and no serious academic takes them seriously for very good reason.

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#7) On October 30, 2009 at 11:57 PM, throwerw (28.42) wrote:

good post

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#8) On October 31, 2009 at 1:40 AM, goldminingXpert (28.75) wrote:

stimulus plans don't create real recovery Rexlove.

Mts883... Bernanke is a "serious academic." and people with a brain in their heads don't take him seriously... Austrian economics makes more sense than whatever variant of Keynesian is being run at the moment.

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#9) On October 31, 2009 at 12:45 PM, AdirondackFund (< 20) wrote:

Schiff likens the present economy to a staggering drunk the moment before he passes out for good.  Others have been watching things progress along the same lines and tried to prepare as best as can be expected, only to find in truth that the damages imagined beforehand are actually much greater in real life.  We haven't even absorbed this single idea yet...and will be forced to at some point.

The Mafia Dons of Wall St. will always instigate the roulette of musical chairs at the first instance of trouble, as they have always done in the past, as both a surety to their own survival and a punishment for poor conduct...but frankly, most of it is a self fulfilling prophecy, no additional pun intended.

Alstry thinks there will be war (a distinct possibility), others a P3 crash, or simply a Revolution, as I have been suggesting from the start.  As ugly a movement as Reform always is for a People, there really is no other way out.  The list of Reforms is legendary and we have barely started for fear of goring our own Ox...the bane of all recessions, this one being no different.  At a certain point, money becomes Political, especially when the last source of it is Government itself.  We are already experiencing this with Cash-For-Clunkers Bailouts, and Stimulus Money..none of which have worked, as predicted. 

How now Brown Dow? 

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#10) On October 31, 2009 at 1:26 PM, johnnyrocku (99.84) wrote:

Excellent post!

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#11) On October 31, 2009 at 3:15 PM, DarthMaul09 (29.00) wrote:


Agree with your points, but what do you believe will hold its value in this environment?  Foreign stocks?  Gold/silver?  Passport?

Friday's market was interesting in that everything appeared to be going down, the dollar, the market, commodities ...  It was the opposite of Lake Wobegon, where everything is below average.

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#12) On October 31, 2009 at 5:54 PM, rexlove (99.72) wrote:

GMX - you said -  'stimulus plans don't create real recovery Rexlove'

I guess your not in the Keynesian camp. Do you believe in supply-side economics instead to get us to a real recovery? 

I guess time will tell. To Obama's defense only about a quarter of the stimulus money has been doled out. And I'm sure that less than half of that money has even been spent.

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#13) On October 31, 2009 at 7:40 PM, goldminingXpert (28.75) wrote:

Dollar was UP a lot on Friday Darthmaul and will continue to rise as the global short squeeze on dollars continues. Also, short positions were up. As per usual, bonds, cash and dollars are the safe havens.

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#14) On November 02, 2009 at 12:09 PM, EV38 (29.97) wrote:

Even though we stand on opposing sides at least you made a good argument for your country's possible economic (but not necessarily stock market) downfall.

Then in #13 you have to ruin it by talking about how the USD will be in a short squeeze. Currencies do not work in the same way stocks do. Short squeezes occur on stocks when brokerages who hold shares to make available to short start calling those in to feed the buying demand. There is no brokerage holding USD to short, the FX market is a completely different animal. You can't get a short squeeze, just a "run to safety", and no one is such a sucker to view the USD as safe anymore. If anything there's an oversupply. Also companies don't continuously and perpetually print up more share certificates, only every once in awhile to raise capital.

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#15) On November 02, 2009 at 1:47 PM, jesusfreakinco (28.30) wrote:

EV38 - good response to GMX

All - Did you see Roubini's comments at:

Why will these carry trades unravel? First, the dollar cannot fall to zero and at some point it will stabilise; when that happens the cost of borrowing in dollars will suddenly become zero, rather than highly negative, and the riskiness of a reversal of dollar movements would induce many to cover their shorts. Second, the Fed cannot suppress volatility forever – its $1,800bn purchase plan will be over by next spring. Third, if US growth surprises on the upside in the third and fourth quarters, markets may start to expect a Fed tightening to come sooner, not later. Fourth, there could be a flight from risk prompted by fear of a double dip recession or geopolitical risks, such as a military confrontation between the US/Israel and Iran. As in 2008, when such a rise in risk aversion was associated with a sharp appreciation of the dollar, as investors sought the safety of US Treasuries, this renewed risk aversion would trigger a dollar rally at a time when huge short dollar positions will have to be closed.

This unraveling may not occur for a while, as easy money and excessive global liquidity can push asset prices higher for a while. But the longer and bigger the carry trades and the larger the asset bubble, the bigger will be the ensuing asset bubble crash. The Fed and other policymakers seem unaware of the monster bubble they are creating. The longer they remain blind, the harder the markets will fall.

JFC - I disgree that the bond market is view as a safe haven - it is a place where people park their money because it is the only liquid market to do so (at least for now) - howeer, it is only the short end of the curve where people park money.  The long-end is a fool's game and the Fed's long-end purchase program cannot be sustained.  Having said this, I agree with EV the USD and bonds are not being viewed the same as they were a few years ago (or even 6 months ago).  On this point, I disagree with Roubini.

I guess time will tell who is right. For my kid's sake, I hope he is right.


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#16) On November 02, 2009 at 2:10 PM, et2bru (< 20) wrote:

With the given $72 Trillion parked on the sidelines and the prospect of no interest rate increase in the forseeable future, just how is this money going to grow? With an increase of global population of 1 billion since 2000 just how is the global economy going to remain in zombiland. The rest of the known world is no longer waiting for America. America must do something extra special or shrink whilst others grow. At least some of that $72 Trillion has to be put to work somehow. How about the consumption hungry on the rest of the planet?

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#17) On November 03, 2009 at 6:30 PM, dannyboy633 (< 20) wrote:

I need some help here. In your reply to Darthmaul you are basically saying that you don't belive the dollar will crash, is that right? I do belive in the demise of the dollar, and you gave us on your statement some of the reasons why! The days of the dollar as the world reserve currency are almost over. I would say in less than 10 years. Besides that in a near future Oil wont be traded in USD, its already happening. Some OPEC countries are already trading oil 2/3 in Euros and 1/3 in USD. All the agreements China has made in the past months will not be paid in USD. 

My broker just trade in US exchanges. Even though I buy foreign stocks my capital will be in USD. How can I invest abroad using USD, but having my capital in foreign currency, and just converting it in USD when I cash out? ADR's? Pink sheets? OTC? Im new here and I really need some ideas/help.


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#18) On November 05, 2009 at 3:33 PM, d1david (28.58) wrote:

in response to ev38-

ever hear of a carry-trade?  the us dollar has become the carry carry trade... if it unwinds- it will be the same effect as a short squeze on a stock

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#19) On November 06, 2009 at 2:21 AM, EV38 (29.97) wrote:

#18 Yes I'm aware. I actually made a blog about this a little while ago. While the USD has somewhat of a carry-trade effect for non-US stocks it cannot become the carry trade currency like the Yen was/is and benefit from the short squeeze of any unwinding once it happens for one simple reason. You can't short USD to buy USD to put it into the US stock market.  If the market does turn, every international investor will close their US positions and transfer the gains back to their home currency, creating selling pressure on the USD. The Yen didn't face that phenomenon because the Nikkei is a fraction of the size of the US markets.

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#20) On November 06, 2009 at 4:14 PM, Formula51 (< 20) wrote:

GMX, would like your opinion on what the heck the market was doing today?

Yesterday we rallied like crazy in part because weekly job losses were a whoping 13,000 less than expected, despitean upward revision to last week and them still being ridiculously high at over 500,000.

Today we get armageddon like news of 10.2% unemployment when many didnt even predict that number, or if they did it was their peak forecast in 1st or 2nd quarter next year.  Yet today, the market closed positive.  That news should have been a huge wake up call to reality and it wasn't?  I don't get it?  No one is going to tell me with a straight face that news was baked into the market are they....

And I have news for you guys, its going to get worse.  My industry (engineering, procurement, management, and construction) is getting ready to swing the axe like it has not done in decades.  College educated (masters myself and on the chopping block), white collar jobs are going to drop like flies in the 4th Quarter.  Watch and see.  Its sad and scary.

Your opinion would be much welcomed.  Personally, part of me feels like its time to get short, or shorter I should say.

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#21) On November 06, 2009 at 7:24 PM, rexlove (99.72) wrote:

Formula51 - just goes to show you how much pressure there is for the stock market to move up. Considering the huge 2% jump yesterday in the market and the bad unemployment report - I don't think anyone would have guessed for the market to finish the day up. Not a good time to be short in the market. Should be a stong market in the coming week based on todays activity. Continued positive earnings surprises should boost the market to new highs. MAY even hit my year end target of 1200-1250 S&P within the next week or 2.

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#22) On November 06, 2009 at 7:24 PM, rexlove (99.72) wrote:

Formula51 - just goes to show you how much pressure there is for the stock market to move up. Considering the huge 2% jump yesterday in the market and the bad unemployment report - I don't think anyone would have guessed for the market to finish the day up. Not a good time to be short in the market. Should be a stong market in the coming week based on todays activity. Continued positive earnings surprises should boost the market to new highs. MAY even hit my year end target of 1200-1250 S&P within the next week or 2.

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#23) On November 06, 2009 at 9:45 PM, DeerHunter73 (74.51) wrote:


 Your a little higher then i am. I picked 1000 on the S&P and 10000 on the dow back in march and april, When the Market is about to plunge started. I also said several times that would happen BY OR BEFORE the end of this year. Then in July i changed that to 1100 to 1150 on the S&P and 11000 on the dow. Either way Ive been long since March and will stay long. Im not one of the PERMA BEARS who want this market to crash and so many times guessed for a crash thats not going to happen. the correction came last week and i thought it would goto 9000 before the buying picked up, guess they didnt want it going that low again.

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#24) On November 09, 2009 at 2:35 PM, Formula51 (< 20) wrote:

Rex and Deer,

I'm not a permabear, just someone who is watching and learning, or atleat trying too.

I can't believe the V-shpaed recovery we are currently forming.  It makes no sense, we haven't fixed anything and all previous v-shaped recoveries were followed in a matter of months by unemployment numbers that fell sharply in an "upside down V".  I see no predictions for unemployment to do that this time, not even by the most optimisitic.

Then there is your comment of a "correction" DeerHunter.  You say it came last week, but the S&P only fell by about 5% again (the fourth time since March).  5% is not a correction to a 60% run based on what?  A devalued dollar that has sent commodities prices up despite falling demand and brimming inventories.  A boom in tecnology companies because everyone will have money next year to buy the latest phones and laptops with unemployment over 10%?  Companies aren't going to need to do much restocking either when they have less employees.

I don't see any real, sustainable foundation for this rally.  Something a "V" shaped recovery must have.  If I remember correctly, our weekly and maybe monthly unemployment numbers are still right around, if not higher than they were at the peak of the last recession.  Yet, we cheer those numbers.

Rex, Deer, do either of you believe this talk of real estate recovery?  The idea that foreclosures, option Arm and interest only loan resets, and commercial real estate loans are going to magiacally disappear or better yet, the government will make it all better......

I am a sarcastic person, but I mean my questions seriously, where's the beef.....

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#25) On November 09, 2009 at 3:20 PM, rexlove (99.72) wrote:


You got to realize the market is always forward looking. You cannot apply a formula and say if GDP is xxx and earnings are yyy and unemployment is zz the market should be at DOW 10,000 (for example) . Stock traders know unemployment is 10% and will likely rise to 11-12%, they know banks will fail, more homes will go into forclosure, etc. That's priced into the market. There's a reason the market is more than 30% off it's all time highs.

In general the markets track earnings and hover about a certain earnings multiple. If future earnings look good market p/e ratios rise and if they look bad the p/e ratios fall. There's a reason the market fell as far as it did back in March - traders feared we would have Great Depression kind of future earnings. When traders realized things were not that bad - things rebounded quite quickly. The evidence in this is the amount of earnings estimate beats in the 3rd and 4th quarters.

Right now the market P/E is probably around its historical average (for the past 30 yrs). If traders anticipate higher growth from here the market can easily support a higher p/e ratio. See my blog about this topic.

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#26) On November 11, 2009 at 10:58 AM, Formula51 (< 20) wrote:

Ahh, so you were one of the one's I was looking for in post#20.

"Stock traders know unemployment is 10% and will likely rise to 11-12%, they know banks will fail, more homes will go into forclosure, etc. That's priced into the market. There's a reason the market is more than 30% off it's all time highs. "

So 10.2% unemployment last month was priced into the market huh?  Funny that is wasn't estimated/expected by virtually anyone.  But let me get this straight, 11-12% unemployment, more failing banks, and tons more homeforeclosures are priced in to the market and that results in a market that is only 30% off its highs?

Come one now, read that and tell me it makes sense.  You can't.

As for market PE ratio's, I like to look at the P/E10 and things make even less sense then.  Based on P/E10, we are WAY ahead of ourselves and we never reached a single digit bottom like ALL past recessions.  I don't know what to make of it.

Here's what I was talking about with unemployment.

In the past, when we have had a steep gain in unemployment, it has been followed by an equally steep decline with the exception of 1975.  This has resulted in V-shaped recoveries.  However, I here most analysts predicting prolonged high unemployment.  That should make our debt increasingly hard to manage and could lead to the demise of this recovery.

Perhaps it will go something like this:



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#27) On November 11, 2009 at 8:52 PM, rexlove (99.72) wrote:

F51  - Actually it makes a lot of sense to me. Looking at your charts only supports my arguement further. Yes some banks are in horrible shape, homebuiders and REIT's are in the dumps - have you seen their stock charts? Just because the they have fallen so hard does not mean the rest of the economy should follow. I guess you think the market being 30% off its highs as insignificant? I don't. And your 3rd chart (inflation adjusted) shows us being down 45% from our market highs.

Your first chart supports my arguement that the market is on the overvalued side on a P/E basis. But as I stated in my blog we can support a higher PE at this time based on future growth.  see here:

Actually I need to revisit this data further since earnings estimates are a good 20% higher for the 3rd and 4th quarters since I wrote the blog. The market may be more fairly valued than I initially determined.

I'm not a big fan of using the P/E10. Take a look at this excellent analysis of the market over since 1920 by Robert Schiller. He uses the 2 year and 5yr moving averages:

Not sure what your point is with unemployment chart. As indicated in your chart - it's always beeen a lagging indicator and sometimes only peaked way after the recession was over.

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#28) On November 16, 2009 at 4:28 PM, Formula51 (< 20) wrote:

The point with unemployment is that when there is a V-shaped recovery it almost always corresponds with an upside down V-shape in unemployment.

No one is predicting that kind of steep decline in unemployment, so one must wonder if this really will be a V-shaped recovery.

I still don't think 30% off the highs is significant for the worst recession since the depression.  I mean, we haven't unwound any of the debt.  Fannie and Freddie are still disasters, GM and Chrylser are bleeding, BAC and C are having their worst quarters yet, regional banks have a walloping coming with commercial real estate, AIG is a joke, and the new administration tripled the defecit in less than 100 days.  Unemployment and home foreclosures are still out of control despite the governments best efforts to curtail them and banks sitting on delinquent homes all over the country.

Oil is running up despite falling demand and high inventories, gold is going crazy, yet the market just keeps on trucking sucking everything up with it.  It is an absolute joke.  I have never seen nor read anything like it.

And we just piled on more debt with stimulus program extensions, health care is coming, talks of even MORE stimulus.  Where does it end?

I fear we crashed one house of cards only to hastly build another one as high as we could, as fast as we could, that has no foundation.

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#29) On November 17, 2009 at 10:39 AM, d1david (28.58) wrote:

F51, and to also add.. mortgage delinquencies are STILL....STILL climbing!!!! 

if we are "recovering" this trend should have flatlined or improved... it has not, it has accelerated ... which shows the true state of the average consumer.... UNDERWATER...


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#30) On November 17, 2009 at 2:40 PM, d1david (28.58) wrote:

todays report that overall early payment default rate (60 days delinquent) is 6.25%!!

Just 2 years ago when I work at Option One (which is sub-prime) our default rate was 2.5%

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#31) On November 17, 2009 at 8:50 PM, rexlove (99.72) wrote:


I guess time will tell on the unemployment numbers - but as I said before its a lagging indicator so I'm not too worried yet.

You named a few companies Fannie Mae, Freddie, GM, Chrysler, BAC and Citigroup. Clearly many of these companies took high risks and were heavily leveraged with subprime loans. So they failed - many are bankrupt. All that means is more market share for the strong companies that did survive. Goldman Sachs, Morgan Stanley, Ford, Walmart are just some examples.

I think you still need to give time for the stimulus measures to work. As I've noted before less than a quarter of stimulus money has been even doled out. And I'm not too concerned about the mounting deficit yet. During WWII the US government ran up a defit to 120% of GDP. This 'stimulus' is often credited with getting us out of the Great Depression.

The falling US dollar should help out companies with strong international presence. It should also help out our trade imbalance. Emerging markets are also looking real good. I'm placing my bets on these two sectors.  

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#32) On November 19, 2009 at 12:54 PM, Formula51 (< 20) wrote:

WWII absolutely pulled is out of the Great Depression because it turned us into a net exporter.  It PUT PEOPLE TO WORK producing goods that people were paying for.

WWII is the only reason there is any grey area for people to even try to argue that the New Deal was successfull.  The war brought us out of the depression.

What is going to bring us out of this one?  Do you really think the Stimulus will?  Look at how short lived (Cash for Clunkers for example) its affects have been.  In fact I believe I was reading that this quarter coming up or 1st quarter of 2010 will be the last quarters that get any significant boost from the Stimulus.  With the predictions for unemployment, that isn't going to be enough.  Perhaps that is why they are spending more money, extending programs and talking of a second stimulus.  Again, without some REAL catalyst for growth (like a War) it wouln't work.

What is it someone called it, "Extend and Pretend".  That's pretty fitting.

I take it you saw this: Record Number of Mortgages Late

Scared yet?

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#33) On November 19, 2009 at 1:55 PM, rexlove (99.72) wrote:

Actually the stimulus has barely begun. If you read my comment above only about 25% of the stimulus money has even been doled out. Many of it is going towards very large scale projects that take years to complete. I suspect much of the money that has been doled out has barely been used yet. Most large scale projects (bridges, roads, nuclear reactors, etc.)  start in the engineering/design phase. Just wait till the money is used to hire workers, buy materials, etc. See here if you would like to see where your stimulus money is going:

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