U.S. Fiscal Stimulus - Devil in the Details

Looks as if the House and Senate have finally agreed on the stimulus package and it should be signed into law tomorrow. However, it appears the headline numbers (and the ones being reported by all the talking heads) is much more impressive than should be reported. I continue to hear how the $787 billion is equivalent to 5.5% of 2009 GDP. One is left to believe that all the stimulus is actually going to be spent in 2009. It leads to hope (on a side note I have to put that hope is not an investment style) which both the sell side and the long only buy side are banking on. Reality is that only $184 billion will be spend in this fiscal year (ending September 2009). Now it is only 2% of GDP. Lets put that against Q4 GDP of -3.8%. First of all the revision will most likely take this to -5%. Q1 doesn't look any better. How will earnings meet current expectations? They won't! Not as massive an injection as one might believe.

Here is what should be being reported:
1) the $787 billion is the estimated cost over 11 (yes eleven) years
2) $184 billion will be spend in fiscal 2009 - maybe adding 1% to 2009 GDP
3) the spending is NOT cohesive and is a complete free for all of projects
4) spending will be dispersed as follows: $115 billion on tax cuts (my guess is that these will be added to savings), $54 billion on education, $46 billion on transportation infrastructure (wasn't this suppose to be the rebuilding of America - not for $46 billion) etc...

The reality is that this is only the initial spend and is no where near what is needed to add or save the jobs that Mr. Obama targets. What you have not heard yet is that there is an Omnibus bill planned for this summer. Look for this to be Fiscal Stimulus 2. My guess is that when the economy continues to perform poorly through Q2 and the Omnibus bill comes to the forefront the USD will begin to fall. In the mean time look for the USD to hold in as both the EURO and POUND look much weaker in the near term. My guess is that markets will rally off the news that this stimulus plan has actually been passed (looking passed the reality of the spending) and that Mr. Geithner will actually have some concrete solutions with TARP 2. I continue to believe in selling this rally and protecting yourself for the back half of the year - earnings are not coming back anytime soon.