So what’s all this business about stimulus? What’s it going to take to get the economy back on track? What does all this mean for the US dollar? And why are so many people starting to trade currency now? What are you going to get for you-know-who for Valentine’s Day?

There are a lot of questions to answer in our first newsletter. First, we’ll look at the Chart of the Week, then a few words about the financial mess we’re in, and then I’d like to spend a moment to introduce you to a friend.

I think Citigroup is pretty close to insolvent. I have no idea why this stock is still listed in the Dow 30, and I have no idea if this company can survive. But check out what is going on right now here:

It’s got to do something, and it's going to do something soon. It’s either going to fail completely and the stock will go to zero (let's hope not) or we are going to see a miraculous resurrection of the world’s most f&*$d-up financial company (it is after all, for you technical enthusiasts, wildly divergent right now). It’s probably harder to run Citigroup right now than the Federal Government.

If you trade options, you know that there are ways to profit from either direction on this stock. In any instance, I think this stock will be the big financial story of 2009. Keep an eye on it, even just for the sake of entertainment.

The world is in financial turmoil, and there are two main things that have to happen before any of this shit gets sorted out and back to “normal.”

The Non-Banking Financial Sector Has Exploded And it’s Not Coming Back

The engine of financial growth over the last five years has been home equity. You already know that. We also hear that what kept that engine running was a huge market for securitized mortgages; semi-financial entities and banks would “originate” mortgage loans to consumers, and then those mortgages would be bundled and sold off to banks and other semi-financial entities. A huge percentage of these mortgages were made to borrowers who had less income than necessary to support the debt. Because the business of making and selling loans was so damned profitable, a flood of money poured into this sector of the economy.

Now, it’s as if a massive financial neutron bomb has exploded. Many of the banks, and most of the semi-financial entities, have disappeared. The offices are still there but the people are gone. And the problem here is that even if the Federal Reserve pumps a shitload of money into banks, buys parts of banks, or completely takes over banks, it’s not going to resolve one major issue: we are not going to see, for a long time, any loans being made to people with bad credit.

The Federal Reserve can pump all the money in the world into the banking sector, but now it’s like watering down the remains of a house after the fire has already ravaged the building. It’s just adding insult to injury.

The point I’m trying to make is that the economic recovery we are hoping for isn’t going to come from re-capitalizing banks. That’s just going to save some of the banks from failing completely.

We Need Another Bubble

The main problem that no one is talking about is that we need another bubble. We need some time to get over the last one, and then we need to dive right into the next one. We keep talking about the housing market, and that’s fine, but seriously, there is no chance that in the near future we are going to start seeing $500,000 home loans made to fast-food workers. Those days are over. Not forever, but that ship has sailed. Property values will eventually recover and home sales will pick up, but we probably won’t see the crazy mortgage stuff again for another 20 years.

But the only thing that fuels growth in the world economy is some kind of theme or bubble. Housing, technology stocks, energy, other commodities, railroads, shipping, tulips – you name it. Every major economic expansion of the last century (and further back than that) can be tied to a theme, or a fascination with one particular sector of the economy.

Here’s what I’ve got my eye on:

• A Health-Care boom. I think it’s unlikely that we will see nationalized health care in the United States. But I think that we will see massive, and I mean super massive – like $500 billion to $1 trillion – spent from the government on health care programs over the next 8 years. This is one of the two next great bubbles. Spending on research and technology will account for a huge part of this, and we will see venture capital pour into this area.
  
  
• An Alternative Energy Boom. In the next 10 years we’ll witness the largest transformation in the way we power our lives than in any period of time in history. There will be unbelievable amounts of money spent on alternative energy for cars and clean coal and other sources of power for our homes and business. Don’t let the recent fall in gas prices fool you: there will be more investment made in alternative energy in the next decade than in any other industry except for health care.

I’ve been thinking about one more huge growth area, but we’ll save that for another week’s newsletter. For now, I am as sure about those two areas as I’ve ever been about anything.

Here’s the daily chart for the EUR/USD. You can click on the chart to make it larger.

For about 10 years now, I’ve been working with entrepreneurs in my adopted home state of West Virginia. A few years back I produced a PBS television special to encourage young people to look to entrepreneurship as a career option (rather than working in a factory). Anyway...

Every once in a while, a local banking friend of mine will introduce me to a young person starting a business. Sometimes I’ll take this budding business owner to lunch. Often I leave the meal wondering if they’re going to “make it,” because they either lack the passion or discipline to build their business.

Well , on Friday I had lunch with someone who is already making it and since it’s near Valentine’s Day, I want to quickly introduce you to her.

Carri Perani makes some ridiculously awesome hand-made jewelry. The stuff she does is one of a kind, affordable, and the story about how she got started is incredible. Over the objections and negativity of others around her, as a young woman she started crafting bracelets from wire and materials her father would bring back from work. She’s turned this skill into a fast-growing jewelry business. I’ll let you visit her site yourself and read the rest of her story. Everything she makes is handmade and there's only one of each (I've only included this personal note about Carri's business to the first 500 newsletter people).

Here's the link to the site. Take a visit:

http://www.iridescencejewelry.com/

Thanks for reading this week's newsletter. I'll be back next Monday with more thoughts about the bailout plan, about the fate of the US Dollar in 2009, and more.

Happy Trading!