MERRY MEDIOCRITY
By Charles Payne, CEO & Principal Analyst
8/30/2011 9:29:55 AM Eastern Time
"People who are unable to motivate themselves must be content with mediocrity."
-Andrew Carnegie
Well, there is one place where mediocrity can be the motivation, and that's the stock market. Of course, when the market has been flushed out of weak sisters and wobbly-kneed uncles, it is much easier to get the kind of session witnessed yesterday. What got the market going?
>; The Fed is still serving as a backstop that will try to jawbone stocks higher or resort to manipulation.
>; Consumers are back, albeit at the expense of savings, but who cares.
>; Valuations are dirt cheap and smart players tripped over each other for a piece of the action.
>; We faced down a once-in-century hurricane and earthquake so what is a little market risk.
There are many reasons for the market being higher because stocks were, and still are, oversold. The best reason, albeit somewhat disingenuous, is the expectations game. Expectations are so low that it means even if we miss on things like the ISM Manufacturing number or the jobs report, the downside will be limited. On the other hand, clearing those low hurdles could have an Olympian impact on the mood of the market and investors. I think the Fed will get in the game in several ways, and if there is a so-called Plunge Protection Team (White House operation to support the stock market) then it's going to get in gear, too. But, there is also another thing in favor of the market.
It's the only game in town to make money. Sure, gold has been amazing and is clearly a smart hedge even at these levels. But, Treasury bond yields are just too paltry in a world where so many people have to play catch up. I find it hard to imagine that a 65 year old person with less than $500,000 in liquid assets can settle for 2% for the next thirty years. But, there is enough fear to keep people in that foxhole a little longer. I will say with the appointment of Alan Krueger to head up the Council of Economic Advisers that scintilla of hope there could be even a slight altering of the grand game plan was dashed. This is another academic that believes in spending a lot of money, gained through a lot of taxes, to go to stuff like alterative energy.
The labor economist is something of a renaissance man, an expert on terrorism, taxes, and happiness, among other things. The problem is he is yet another guy with theories instead of dirty hands from doing the kind of work that America needs. I'm talking grassroots jobs that grow and along the way, enlarge the wealth of communities and the country.
I would have preferred someone that took risks, bet it all, and won. That person's victory and riches triggered a virtuous circle and he/she could bring that firsthand knowledge to the job. Instead, we are going to hear about the virtues of higher minimum wage and how great alternative energy is for the nation and economy. Don't get me wrong, there is a place for academics in searching for solutions.
Yesterday I had Dr. Burt Folsom from Hillsdale College on my 2PM Fox Business Show, and he made great points, many of them from his book: "The Myth of the Robber Barons." He pointed out that the first three railroads in this country were subsidized by the government, leading to massive waste and bankruptcy for all, while a fourth non-subsidized railroad survived. We looked at five alternative energy companies that have gotten millions of taxpayer dollars and visits from President Obama or Vice President Biden. The best performing name was down only 63% from its two-year high. Pull up a chart of these names and ask should they really get your hard earned money?
>; A123 (AONE)
>; Advanced Battery (ABAT)
>; Ener1 (HEV)
>; Evergreen Solar (ESLR)
>; Cree research (CREE)
As we get closer to the latest jobs speech more stuff is being leaked. It looks like the centerpiece of the program is renovating thousands of public schools and tax breaks for new hires. Who can say no to spending on public schools? The heartstrings and finger pointing are all wrapped in a neat bow. Of course, it would be something involving unions and government. I'd much prefer we renovate the insides of public schools beginning with curriculum, bogus tenure, and low expectations. As a sustained job creator this idea gets an F+. Sure, there will be a lot of money floating around and a big chunk will make it back into the Obama Victory Fund, but it's not going to trigger real economic growth.
On the topic of tax breaks for new hires, it's not going to work. Businesses hire based on demand, and save for a few more mall jobs to absorb those public school retrofitting checks no business is going to take the bait. With the new healthcare law kicking in and triggering devastating new taxes, businesses will be looking to save money not hire idle workers. (By the way, even the US Postal Service is getting wise to paying people not to work. While I can't vouch for the speed at the USPS, so far paying workers for "standby time" is down to $4.3 million in the first half of 2011 from $30.9 million in 2009. The story broke in the Washington Post, and it seems to me because of so many looming layoffs such largess, which was heavily abused, can no longer be tolerated or encouraged.)
Fox News is reporting the green jobs program in Seattle is being called a bust after 16 months and $20.0 million; it created just 14 jobs. The program was designed to weatherize homes, but has only been able to upgrade three homes so most of the jobs are administrative. Apparently this is the norm for the Department of Energy, which has allocated $508.0 million to 41 states for its Better Buildings Neighborhood Program. That investment has yielded 600 jobs created or retained, which means it cost taxpayers $846,666 per job.
One year into the program 9,000 homes have had energy audits and some type of upgrade. The goal is 150,000 homes by 2013 to save consumers $65.0 million annually
(Those supposed savings will go away when utilities are forced to close down coal plants...but that's another story.)
The Expectations Game- No Winners
I don't think the market is excited at all about the jobs speech, and that might be the best news because it's all about expectations and low hurdles.
Back to the market, I love the action in part because stuff that was stuck in the mud acted much better. US Steel (X) had a great session, banks rebounded, and retailers acted well, too. But, make no mistake, on weeks that lead up to the jobs report there is normally one big down session. In fact, a healthy pullback sometime between now and Friday will enhance low expectations, thereby building up any kind of beat on jobs.
This game of expectations goes beyond Wall Street and into so many parts of our everyday lives. Washington DC has made the shift from bold promises of sending a man to the moon and creating full employment to the point that a year from now our President will run for reelection on a platform that unemployment is only 8.5% as compared to "almost 10%", and that message will resonate with those that forgot how we used to demand more. I'm living through this game right now with my power company. Our power went out on Sunday and we were told it would take a week to get it back on.
Well, the power came back last night, and we were relieved. Then this morning the power went out again. I have a feeling they are actually rationing power, rotating it among different homes while they play the game of expectations. I'm supposed to be thrilled the company I pay money to each month is half-ass doing their job. With about a week's advance notice this shouldn't be a problem and no one in the modern world, let alone America, should be without electricity for a week, even intermittingly. But, it does remind us to be grateful and never relax or take anything for granted.
Today's Session
The market is going to give back gains at the open, and that's to be expected. The key now is to hold intraday lows from last week and build a new base of support. We sent out profit alerts on three ideas yesterday in part to this wild volatility and the need to be nimble and always have cash. At some point, I will ride out the gyrations for larger, longer term gains but am not sure the risk/reward dynamic has changed enough just yet.
Charles Evens, a voting member of the FOMC, said this morning he "would favor more accommodation" because we would be worse off without QEII. He says commodities are up on demand, not the Fed bludgeoning the dollar. His comments have sent gold soaring this morning but oddly added pressure on stocks. Maybe the sobering reality of the true state of the economy is mitigating the notion of more upward manipulation of the stock market...for the moment.
Life, Liberty, & the Pursuit of Happiness
By Charles Payne, CEO & Principal Analyst
8/30/2011 9:29:55 AM Eastern Time
"People who are unable to motivate themselves must be content with mediocrity."
-Andrew Carnegie
Well, there is one place where mediocrity can be the motivation, and that's the stock market. Of course, when the market has been flushed out of weak sisters and wobbly-kneed uncles, it is much easier to get the kind of session witnessed yesterday. What got the market going?
>; The Fed is still serving as a backstop that will try to jawbone stocks higher or resort to manipulation.
>; Consumers are back, albeit at the expense of savings, but who cares.
>; Valuations are dirt cheap and smart players tripped over each other for a piece of the action.
>; We faced down a once-in-century hurricane and earthquake so what is a little market risk.
There are many reasons for the market being higher because stocks were, and still are, oversold. The best reason, albeit somewhat disingenuous, is the expectations game. Expectations are so low that it means even if we miss on things like the ISM Manufacturing number or the jobs report, the downside will be limited. On the other hand, clearing those low hurdles could have an Olympian impact on the mood of the market and investors. I think the Fed will get in the game in several ways, and if there is a so-called Plunge Protection Team (White House operation to support the stock market) then it's going to get in gear, too. But, there is also another thing in favor of the market.
It's the only game in town to make money. Sure, gold has been amazing and is clearly a smart hedge even at these levels. But, Treasury bond yields are just too paltry in a world where so many people have to play catch up. I find it hard to imagine that a 65 year old person with less than $500,000 in liquid assets can settle for 2% for the next thirty years. But, there is enough fear to keep people in that foxhole a little longer. I will say with the appointment of Alan Krueger to head up the Council of Economic Advisers that scintilla of hope there could be even a slight altering of the grand game plan was dashed. This is another academic that believes in spending a lot of money, gained through a lot of taxes, to go to stuff like alterative energy.
The labor economist is something of a renaissance man, an expert on terrorism, taxes, and happiness, among other things. The problem is he is yet another guy with theories instead of dirty hands from doing the kind of work that America needs. I'm talking grassroots jobs that grow and along the way, enlarge the wealth of communities and the country.
I would have preferred someone that took risks, bet it all, and won. That person's victory and riches triggered a virtuous circle and he/she could bring that firsthand knowledge to the job. Instead, we are going to hear about the virtues of higher minimum wage and how great alternative energy is for the nation and economy. Don't get me wrong, there is a place for academics in searching for solutions.
Yesterday I had Dr. Burt Folsom from Hillsdale College on my 2PM Fox Business Show, and he made great points, many of them from his book: "The Myth of the Robber Barons." He pointed out that the first three railroads in this country were subsidized by the government, leading to massive waste and bankruptcy for all, while a fourth non-subsidized railroad survived. We looked at five alternative energy companies that have gotten millions of taxpayer dollars and visits from President Obama or Vice President Biden. The best performing name was down only 63% from its two-year high. Pull up a chart of these names and ask should they really get your hard earned money?
>; A123 (AONE)
>; Advanced Battery (ABAT)
>; Ener1 (HEV)
>; Evergreen Solar (ESLR)
>; Cree research (CREE)
As we get closer to the latest jobs speech more stuff is being leaked. It looks like the centerpiece of the program is renovating thousands of public schools and tax breaks for new hires. Who can say no to spending on public schools? The heartstrings and finger pointing are all wrapped in a neat bow. Of course, it would be something involving unions and government. I'd much prefer we renovate the insides of public schools beginning with curriculum, bogus tenure, and low expectations. As a sustained job creator this idea gets an F+. Sure, there will be a lot of money floating around and a big chunk will make it back into the Obama Victory Fund, but it's not going to trigger real economic growth.
On the topic of tax breaks for new hires, it's not going to work. Businesses hire based on demand, and save for a few more mall jobs to absorb those public school retrofitting checks no business is going to take the bait. With the new healthcare law kicking in and triggering devastating new taxes, businesses will be looking to save money not hire idle workers. (By the way, even the US Postal Service is getting wise to paying people not to work. While I can't vouch for the speed at the USPS, so far paying workers for "standby time" is down to $4.3 million in the first half of 2011 from $30.9 million in 2009. The story broke in the Washington Post, and it seems to me because of so many looming layoffs such largess, which was heavily abused, can no longer be tolerated or encouraged.)
Fox News is reporting the green jobs program in Seattle is being called a bust after 16 months and $20.0 million; it created just 14 jobs. The program was designed to weatherize homes, but has only been able to upgrade three homes so most of the jobs are administrative. Apparently this is the norm for the Department of Energy, which has allocated $508.0 million to 41 states for its Better Buildings Neighborhood Program. That investment has yielded 600 jobs created or retained, which means it cost taxpayers $846,666 per job.
One year into the program 9,000 homes have had energy audits and some type of upgrade. The goal is 150,000 homes by 2013 to save consumers $65.0 million annually
(Those supposed savings will go away when utilities are forced to close down coal plants...but that's another story.)
The Expectations Game- No Winners
I don't think the market is excited at all about the jobs speech, and that might be the best news because it's all about expectations and low hurdles.
Back to the market, I love the action in part because stuff that was stuck in the mud acted much better. US Steel (X) had a great session, banks rebounded, and retailers acted well, too. But, make no mistake, on weeks that lead up to the jobs report there is normally one big down session. In fact, a healthy pullback sometime between now and Friday will enhance low expectations, thereby building up any kind of beat on jobs.
This game of expectations goes beyond Wall Street and into so many parts of our everyday lives. Washington DC has made the shift from bold promises of sending a man to the moon and creating full employment to the point that a year from now our President will run for reelection on a platform that unemployment is only 8.5% as compared to "almost 10%", and that message will resonate with those that forgot how we used to demand more. I'm living through this game right now with my power company. Our power went out on Sunday and we were told it would take a week to get it back on.
Well, the power came back last night, and we were relieved. Then this morning the power went out again. I have a feeling they are actually rationing power, rotating it among different homes while they play the game of expectations. I'm supposed to be thrilled the company I pay money to each month is half-ass doing their job. With about a week's advance notice this shouldn't be a problem and no one in the modern world, let alone America, should be without electricity for a week, even intermittingly. But, it does remind us to be grateful and never relax or take anything for granted.
Today's Session
The market is going to give back gains at the open, and that's to be expected. The key now is to hold intraday lows from last week and build a new base of support. We sent out profit alerts on three ideas yesterday in part to this wild volatility and the need to be nimble and always have cash. At some point, I will ride out the gyrations for larger, longer term gains but am not sure the risk/reward dynamic has changed enough just yet.
Charles Evens, a voting member of the FOMC, said this morning he "would favor more accommodation" because we would be worse off without QEII. He says commodities are up on demand, not the Fed bludgeoning the dollar. His comments have sent gold soaring this morning but oddly added pressure on stocks. Maybe the sobering reality of the true state of the economy is mitigating the notion of more upward manipulation of the stock market...for the moment.
Life, Liberty, & the Pursuit of Happiness
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