Economy Heading Into Perfect Storm

Includes: HEV
by: Charles Payne

By now, we are all aware the U.S. economy is brewing into what could become the ultimate perfect storm. The thing is that we can see it coming; it’s not something that will descend upon us one otherwise sunny afternoon. It’s not like that dust storm that engulfed Phoenix this week.

Right now, our political leaders are riding through a storm, holding onto hopes of getting reelected even if it means we stay the course and eventually face a storm that leads to a desert of despair. The haboob (sandstorm pushed by strong winds) that swept through Phoenix delayed flights and will have everyone there washing cars, clothes, and pets for the rest of the week.

For the economy, it works the opposite. We have to clean up our act now to avoid the financial haboob. This is not just an American story, but one about the decline of the Western world. The rest of the world has taken notice, and instead of fear there is joy and anticipation. It’s not just about the fall of the West, but the belief that the Earth keeps spinning.

Case in point was the selection of Pyeongchang, South Korea as the host of the 2018 Winter Olympics. America and European countries have come up short trying to host these big-time sporting events. The excitement and growth around the world can’t be matched in the West.

If we keep our eyes closed much longer, even for what seems like a moment, that moment could be gone forever. It’s time to toss out gimmicks and rhetoric and fix this thing once and for all. But I think best case scenario is a deal loaded with phony spending cuts, some tax increases, and another blank check for $2.5 trillion. Or as the Kansas song "Dust in the Wind" says, “just a drop of water in the endless sea” of debt and untenable obligations that only become more expensive as time goes on.

Picking Winners and Losers

The market determines the winners and losers, period. Obviously, when the government is shelling out billions of dollars it creates temporary demand that feels as good as legitimate free market demand, but it’s different. In the case of alternative energy, there has been an untold amount of money from governments around the world looking to curry favor with the green movement, and clumsily create jobs at the same time. The job part is the farce for the public, which gets bled out of money to produce something it doesn’t want and yet is told is a great thing.

Yesterday, during the Obama Tweet Festival, the DOE tweeted that we have quintupled our market share (advanced batteries) over the last four years. Shortly thereafter, Governor Granholm tweeted: “Obama: whoever wins the advanced battery race wins the clean energy race.”

Of course, the governor of Michigan is touting her book, as they say on Wall Street. Automakers in her state had the world on a string, but mismanagement and union greed destroyed their lead. If not, they wouldn’t be touting non-combustion engine vehicles. Even though the statement comes out of desperation, it doesn’t mean it’s not disingenuous.

(To be honest, even the concept of first mover in industries with real demand isn’t a big deal anymore. I don’t know that it ever was a big deal, but first movers from Kodak (EK) to MySpace aren’t considered winners by any measure.)

How interesting her comments were on the same day Wunderlich Securities upgraded Ener 1 (NASDAQ:HEV) to a Hold from a Sell rating. The stock soared 6% higher for the session, closing at $1.06. Of course this stock rallied to $4.36 ahead of VP Biden’s January visit, where he touted the $118.0 million in stimulus funds the company received. In addition, Biden talked about the $7,500 tax credit being turned into cold hard cash up front for people buying electric cars; so far, about 4,000 people have taken the bait (probably less subtracting government purchases). Biden said the facility he visited would add over 1,000 jobs by the start of 2013 after adding 120 last year.

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