Seeking Alpha

Charles Payne's  Instablog

Charles Payne
Send Message
Wall Street Strategies has been providing independent stock market research since 1991 to individual, retail and institutional clients through a balanced approach to investing and trading. Charles Payne, our founder and chief analyst, is routinely sought after for his stock market, political,... More
My company:
Wall Street Strategies, Inc.
My book:
Be Smart, Act Fast, Get Rich
  • EBOLA IN AMERICA - By Charles Payne

    Late yesterday, the Centers for Disease Control and Prevention (NASDAQ:CDC) reported the first case of Ebola in America. Officials stressed the virus will be contained, but this is the kind of stuff that nightmares are made of. While I do not expect panic thanks to containment, it is worrisome that the American passenger did not exhibit any symptoms of Ebola until four days after his flight from Liberia to Texas on September 20th, and he was not hospitalized until September 28th. In addition to near-term pressure on airlines and multiple spikes in pharmaceutical names (most will crash later), several ethical issues will arise.

    The notion of screening people coming into this country has to be discussed. Looking back at how the Plague in Europe was addressed, we learn that Venetians made ships dock for 'forty days' before passengers could come ashore. The word "quarantine" originated from the Venetian dialect "quaranta," meaning "forty days." Last week, the CDC said left unchecked, the Ebola virus could grow to 1.4 million cases by end of January. I am confident that we can contain it in America, but people are going to be afraid for a long time. I would not make any stock market decisions based on this news.

    Activists Always Win

    On Friday, Starboard publicly pushed Yahoo's management to make decisive moves including, acquiring AOL. The move sets up drama that encompasses several of the biggest topics on Wall Street, and even Main Street where investing buckets of cash is a problem for large corporations, even with US companies sitting on $1.7 trillion. It is now a huge question mark for Yahoo, too.

    $9.5 billion cash IPO

    $37.0 billion 16.5% stake

    $40.5 billion market cap

    Then, there is the role of activists investors whom I lovingly call the 'Pharaohs of Wall Street.' These guys are making tons of money for themselves and investors, but most never change their corporate behavior or get seats on the board of directors for companies.

    Activist or Shakedown Artists?
    10 years of ActivismBoard BattlesSeat ConcessionsDuration

    (months)

    Ackman22514
    Einhorn15125
    Icahn652626
    Loeb28713
    Peltz15529
    Rosenstein25520
    Singer28433
    Smith (Starboard)693516
    Ubben13522
    Whitworth28823

    Nevertheless, the activists already have two big wins this week with Einstein Bagels (NASDAQ:BAGL) and Ebay (NASDAQ:EBAY), but there are huge names that could be in the crosshairs:
     

    • Whole Foods (NASDAQ:WFM)
    • McDonalds (NYSE:MCD)
    • E-Bay (EBAY)


    While takeovers inject life into the market, many of these activist deals result in something that adds value to their targets, but not in the same way as an acquisition. So, a board market impact from activism, even in huge household names would have a limited impact on the broad market.

    Hong Kong, Not Arab Spring

    Why the protest in Hong Kong is not the new Arab Spring, is to look at this picture from the Wall Street Journal Asia. Look closely at the advertisement on the exterior wall of the mall. Piaget watches are the crème of the crop in luxury brands beginning at $15,000, up to $70,000 with diamond encrusted models priced upon request.

    I get the idea that everyone wants universal suffrage, and in this case, it was promised, but there is an element of the Occupy movement in these protests, which saw college kids and young adults frustrated in the midst of an economic slowdown. Despite the obvious frustration of young adults in Hong Kong, they have got it good versus most of the world, particularly with their unemployment rate. The city-state's per capita income of $38,124 is more than ten times that of Egypt.

    Unemployment Rate
    15 - 24 year olds
    Globally12.6%
    Hong Kong9.4%
    Egypt24.8%

    There is a lot at stake, even with Hong Kong representing 2.5% of China's GDP from the 16.5% when it was handed over by the United Kingdom. Moreover, I suspect this movement will fizzle out much like the Occupy movement in America.

    Today's Session

    This morning, ADP released its employment report for the month of September. Over the month, the US private sector saw 213,000 jobs added, significantly higher than the downwardly revised 202,000 added in August and the 200,000 consensus estimate. Small business, which is the backbone of our economy, represented 41% of the job growth by adding 88,000 jobs. It appears that retailers are really gearing up for holiday spending as the amount hiring at goods-producing companies rose over 27% to 58,000 from August. Manufacturing also increased its jobs added by over 34% to 35,000 from August. Though it is possible for surprises, the ADP Employment Report indicates that we should see an increase in jobs added in the Bureau of Labor Statistics Job Report.

    Service Producing (Preliminary Figures)
    Employer SizeSmall (less than 50)Medium (50-499)Large (500+)
    Month Change (Jobs Added)43,02234,37020,825

    Goods Producing (Preliminary Figures)
    Employer SizeSmall (less than 50)Medium (50-499)Large (500+)
    Month Change (Jobs Added)6,2787,1825,759

    Oct 01 10:28 AM | Link | Comment!
  • AMERICAN SUCCESS: THE REAL STORY, NOT INEQUALITY - By Charles Payne

    Policy of Fortune

    Yesterday, Forbes Magazine released its list of the 400 richest Americans. For the past 33 years, I have followed this list as a source of inspiration. I am in awe of those who have inherited money and have used it to build their wealth into larger fortunes. However, politicians act as though those same rich Americans from 1981 are hogging up all the money. The percentage of income growth is going to the top 10 percent; they are not the same rich Americans from 1981. Instead of allowing it to be a source of scorn, we should cheer those who are born without a silver spoon, yet create wealth with nine zeroes in net worth, because it is never done in a vacuum; wealth creates opportunities.

    The Young and Rich (Self-Made)

    In fact, the ladder of success is alive and well in America. An example of success is Elizabeth Holmes, age 30. She is the youngest woman to become a self-made billionaire, and to grace the cover of Forbes's 33rd annual edition. Not bad for someone who dropped out of Stanford to start a blood testing company; turned out to be a smart idea. There are 26 other newcomers on the list as well, and they could all take a subway train and not be bothered (no one would recognize them).

    The concept reminds me of a time when I was in Paris. I was staying at a famous hotel and so was Madonna. Her people were running around everywhere, paparazzi was everywhere, and one day, there was a huge crowd around the elevator waiting for Madonna to come down. As I looked on, David Rockefeller was standing next to me and no one recognized him. I do not think people realize all the new businesses and services in their lives that are generating new wealth for the nation like WhatsApp, Rockstar Energy, and Uber, just to name a few.

    Success is alive and well in America, but it could be much greater if one is allowed to work without the high taxes, regulations, and divisive leadership. With that said, the fourth quarter is shaping up to be formidable.

    Santa Claus is Coming to Town

    American businesses are betting this will be a huge Christmas season. Many retailers are increasing holiday hirers from last year. Macy's alone is hiring 86,000 seasonal hires, a little more than in it did in 2013. Other businesses have joined in announcing an increase in holiday hires from Kohl's to UPS and GameStop (which was supposed to be out of business by now).

    One thing seems clear, the momentum is building, as the increase in spending in August was 17 times the rate in July, as consumers spent $60.4 billion by dipping into savings.

    Consumers Stepping Up?Increase in WagesIncrease in Spending
    July$18.4$3.5
    August$30.4$60.4

    In addition to signs, wages might be higher going into Christmas, and retailers should expect the "must-have toy" this season, a Snow Glow Elsa Doll at $39.91. Moreover, they should be prepared to ride the "Frozen" hysteria by getting parents into the stores, or by clicking away to stuff those stockings.

    Today's Session

    After finishing yesterday in the red, the major indices began perking up in the premarket hours, poised to open in the green. In Asia, the market closed mixed as the protests demanding full democracy continued in Hong Kong/China, and in Japan, there was mixed data out on household spending. In Europe, the major bourses traded higher with inflation slowing in the Eurozone area and better-than- expected sales are being reported in Germany. Here at home, we do not have too much economic data being released today. However, some potential market movers from today are the S&P Case-Shiller HPI, Chicago PMI, and a reading on consumer confidence for the month of September. Also, eBay (NASDAQ:EBAY) is officially spinning off PayPal, which led to the stock trending up nearly 8% in the pre-market. So far, it looks as though the month of September and the final day of Q3-2014, will go out with a bang, even though returns for the month ought to stay red.

    Sep 30 10:11 AM | Link | Comment!
  • BANKING WITH THE ENEMY...AND FEDERAL RESERVE - By Charles Payne

    Question of the Day

    How do you believe the Islamic State (a.k.a. ISIS or ISIL), one of the world's richest terrorist organizations, was able to secure funding and begin its operations so quickly?

    Click here to post your answer and let Charles know what you think.

    Out of nowhere, the Islamic State (a.k.a. ISIS or ISIL) sprung up from what some experts called the "junior varsity team" which is one of the world's richest terrorist organizations. This begs the question, how did they start operations so quickly: part venture capital, part old-school gang tactics and a dollop of luck? Following the flow of cash to ISIS, many think the "seed money" or "angel funds" came from rich "investors" in Sunni dominated countries such as Saudi Arabia and Kuwait. The second round of funding came from Al-Qaeda, foreigner-born suicide members, and local sympathizers.

    ISIS FlagISIS
    Money Trail
    SeedSaudi Arabia
    Kuwait
    Start-upAl-Qaeda
    Foreign Suicide Bombers
    Locals
    Basic OperationsTaxing transportation
    Shaking down businesses
    WindfallsKidnapping
    Central Bank of Mosul
    Oil Fields

    Once operations were up and running, the initial day-to-day funding was facilitated by the use of those old-school gangster tactics: shakedown of local merchants, taxing transportation at impromptu crossings, etc.

    However, it was three developments that delivered big-time Windfalls:
     

    • Ransoms included a reported $18 million for four French hostages, a big windfall, though not consistent
    • One-time looting of the Central Bank of Mosul yielded up to $490 million dollars
    • Vast amounts of daily income generated from oil fields: $1.2 million from Iraq and $2.0 million from Syria; roughly up to $100 million monthly.


    Right now, sources think ISIS generates $6 million a day from oil, wheat, taxes, ransoms, and even donations, and controls up to $2.0 billion in assets. What concerns me the most is the cash flow and where ISIS is banking? In recent years, America has fined western banks billions of dollars for violating several laws including, the Bank Secrecy Act and the Trading with Enemy Act. ISIS is banking somewhere, and I pray it is not with a foreign bank that has access to funds from the Federal Reserve.

    Banking with the Enemy
    Lloyds

    2009

    Libya

    Sudan

    Iran

    $350 million
    Credit Suisse

    2009

    Iran$536 million
    Barclays

    2010

    Cuba

    Libya

    Iran

    Sudan

    Burma

    $298 million
    HSBC

    2012

    Iran

    North Korea

    $1.9 billion
    ING

    2012

    Cuba

    Saudi Arabia

    $619 million
    BNP

    2014

    Sudan

    Cuba

    $8.9 billion

    While we track down the money angle, there has to be a greater commitment to bombing in order to kill and destroy, rather than surgical strikes that are not taking out entire buildings. Last night, President Obama told CBS 60 Minutes that he underestimated ISIS, but our "responsible" countermeasures are already coming up short. For now, I do not see ISIS influencing the market, but if the town of Kobane on the Syrian-Turkey border falls, start to worry, as that would be devastating.

    Today's Session

    The protest in Hong Kong were both intense and impressive, but probably not an economic event… yet. One reason there should be an initial, muted response to the protest is that it could soon force China's communist leaders to either step up with the usual blunt objection of justice or back off to allow the evolution of democracy which is the fact China's economy has grown so rapidly. In 1997, Hong Kong was 16% of China's GDP, now it's down to 2.5%.

    Merger Monday

    Three deals from this morning include:
     

    • Dreamworks getting a bid from Softbank
    • Athlon Energy being acquired by Encana
    • Tibco getting a $24 per share bid after being in the rumor mill for more than a decade


    Market anxiety from last week has carried over, and while unnerving, it's critical to test the resolve of investors. I don't think it's necessarily a harbinger of imminent destruction, but at some point, selling begets more selling. I still see this as more of a shakeout/consolidation phase of the market. That being said, we will let the dust settle today.

    Sep 29 10:06 AM | Link | Comment!
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.