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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
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  • Gratitude In The Animal Kingdom And Welfare Utopia By - Charles Payne

    Researchers at the University of Bern in Switzerland set out to observe if the principle of direct reciprocity exists in the animal kingdom.

    Using lab rats, it turns out that the notion of gratitude exists and it is rewarded.

    One set of rats were able to pull the lever that doled out either a piece of banana (the great reward) or carrots (a less attractive reward). When the recipient rats were allowed to return the favor with cereal, they pulled the lever first and much more often for the rats that had given them the good stuff.

    Now, these researchers should see if the notion of reciprocity exists in Americans, where gratitude has been replaced with contempt and those who receive goodies from others, expect even more.

    Moreover, even when there is a sense of being grateful, there is no sense of obligation to return the favor in some form or fashion. This is the result of the Great Welfare Utopia. Despite the higher taxes I'm paying to help support others in my town, no one bothered to come to my house to shovel...even for money.

    To this, I say..."Rats!"

    Small Businesses Shrugged

    Americans love their small businesses for so many reasons, including the fact that more Americans work for them than the large behemoths. Although we see positivity in small businesses, we see negativity in banks and on Wall Street.

    I don't think that's the reason why banks aren't lending to small businesses; but it is a maddening phenomenon that keeps getting worse.

    Bank assets have soared past $2 trillion and loans to big businesses are well above pre-recession highs,while small business loans are down 17%.

    However, never fear, because the Easy button is here. Staples announced it is getting into the small business-lending arena. The office retail giant, which is still in the process of trying to get the okay to absorb Office Depot, will provide funding from $2,500 to $1 million through a service that promises approvals in days, not weeks.

    We know Staples will not be the answer, but it is a shame that all the printed up cash is not going to the people who are willing to pour their blood, sweat, and tears into their business rather than buying back their own shares.

    Message from Construction Spending

    After climbing to $961.4 billion in 2014, there was much hope that this year would see construction spending back above $1.0 trillion; January came in at an annual pace of $971 billion up 1.8%.

    There are certain trends, such as the boom in apartments and condominiums, but total spending on single-family homes also presents an economic opportunity.

    January Construction (Private)

    Residential

    Total

    Change

    Single Family

    $204.9

    +9.7%

    Multi-Family

    $48.8

    +29.8%

    In non-residential construction, there is a narrative that business is bulking for domestic growth and local spending at hotels and amusement parks. Manufacturing came in better than we expected and it hints at potential jobs and wage growth.

    January Construction (Private)

    Winners

    Total

    Change

    Manufacturing

    $64.1

    +22.55

    Commercial

    $57.3

    +14.0%

    Office

    $38.7

    +14.9%

    Lodging

    $16.6

    +17.8%

    Amusement

    $8.7

    +22.0%


    www.census.gov/construction/c30/c30index.html

    • Commercial
    • Auto Showrooms +30.5%
    • Restaurants +30.1%
    • Shopping Centers +14.1%
    • Building Supplies +90.8%
    • Warehouses +52.8%

    Each day, we are greeted with more news about delayed or abandoned energy projects; which means we get less great-paying jobs. On the other hand, private education points to a slowing demand for college and religious spending which continues to suffer since the start of the Great Recession.

    January Construction (Private)
    Losers

    Total

    Change

    Power

    $82.5

    -13.5%

    Education

    $15.5

    -4.1%

    Religious

    $3.1

    -12.0%

    I'm interviewing Michael Kneeland, CEO of United Rentals tonight on Making Money with Charles Payne- tune in for the best inside scoop on the rebuilding of America Fox Business 6PM EST.

    Today's Session

    The market looks ready to take a break today, which isn't unusual during a week of earnings. Later today, Janet Yellen is speaking and that could move the needle, even though she is so cautious these days. It seems like each word is individually vetted before leaving her lips. Although, she did get a little upset about the notion that she was having secret meetings.

    This week is still poised to be historic, but such lofty expectations bring serious anxiety as well.

    Mar 03 10:18 AM | Link | Comment!
  • Facts, Not Myths Of Rate-Hike Risk - By Charles Payne

    Question of the Week

    Market volatility can be really awful, but it's not the end. Instead, it's the beginning of some big things. How would you describe your temperament with the market and ability to ride the waves?

    Post your answer below.

    Let's talk about what happens to the stock market when the Federal Reserve begins to hike interest rates. For a long time, investors were told that the announcement of the end of Quantitative Easing (QE) would trigger a collapse in stocks. Next, it was the start of ratcheting down QE, and as dumb as it sounds, there was a lot of noise that the last $3.5 billion would do the trick of opening a trapdoor.

    Not any of that has happened. Surely, the rate hike will spark the mother of all crashes, right?

    The doomsday crowd has been so wrong, but they still get soapboxes and they use frustration with government and the economy to promote an inevitable day of reckoning. It is not unlike me predicting that Boston will see a massive blizzard in January or February of 2016. Of course, that should not stop anyone from visiting beforehand and it does not mean all the snow in the world will not be cleaned up afterwards.

    Yes, there are issues and the market will take a hit one day, and it could happen from a Fed rate hike, but here's a look at the history, not the hype.

    In the months before the Fed began hiking rates, stocks began to pullback, going into that first rate hike as gains are pared from six months out to just three months before. This has happened six months before every previous rate hike.

    Federal Reserve Rate Hike
    S&P Performance Before

    6 Months

    3 Months

    1987

    9.7

    7.3

    1994

    4.7

    2.7

    1997

    15.1

    5.1

    1999

    11.4

    5.5

    2004

    2.8

    1.2

    Average

    8.7

    4.4

    Here's the Price Earnings (NYSE:PE) history when hikes begin, and it is important to know that the S&P is nowhere near recent valuation levels for the Fed to move. (I really wish they would get it out of the way.)

    Federal Reserve Rate Hike
    S&P Performance After

    3 Months

    6 Months

    1987

    -29.3

    -15

    1994

    -3.9

    -2.4

    1997

    12.7

    18.9

    1999

    -6.6

    6.7

    2004

    -2.3

    6.4

    Average

    -5.9

    -2.9

    Here's the Price Earnings (PE) history when hikes begin, and it is important to know that the S&P is nowhere near recent valuation levels for the Fed to move. (I really wish they would get it out of the way, however.)

    Federal Reserve Rate Hike
    PE Ratio

    1987

    20.0

    1994

    21.5

    1997

    19.6

    1999

    33.5

    2004

    20.3

    Average

    23.0

    Here's the rub ,the S&P average gains of +8.7% goes all the way down to -5.9% over a nine-month period; that's when people make big mistakes and take big losses. This time, the doomsday crowd will be barking.

    I can only hope we have a fair amount of cash and have earned your trust to the point we can ride the volatility in the market. If it's really awful, it's not the end, but it is the beginning of big things and opportunities. As for the Fed making that move, I do not think our economy is where they feel confident. Maybe it will reach it by the end of the year, but the fact is that the economy will never come close to its full potential under this administration.

    Riding out the Waves

    I have always said that I regret 85-90% of the sells I make at some point down the road. There is an amazing argument to buying, holding, and adding on dips rather than taking losses. Take a look at the hottest stocks from 2000 to the end of last year. Have you ever owned and taken a small profit or worse, suffered a loss on the stocks below? Most have been hot stocks this year.

    I get that people are afraid, but gosh, the evidence for not panicking is so overwhelming. Yet, I know I will have my hands full once we hit a rough patch.

    Company

    Symbol

    % change since 2000

    Monster Beverage

    MSNT

    46,514%

    Keurig Green Mtn.

    GMCR

    31,124%

    Tractor Supply

    TSCO

    7932%

    Gilead Sciences

    GILD

    4539%

    O'Reilly Automotive

    ORLY

    4084%

    Today's Session

    As quiet as it is on the western front, there is tension beneath the surface that's palpable. Lots of big news will roll out this week and a lot is at stake after February erased a difficult January.

    All eyes are on the NASDAQ as the index continues to edge higher toward its all-time high. It's been fifteen long years and still memories haven't faded much. But fundamentals are different and justify several stocks moving much higher over the next couple of years even with an occasional hiccup.

    The Aruba Networks deal happened this morning as advertised, although there isn't much of a premium. The fact is Hewlett Packard buying Aruba Networks signals old tech has to get on the move, not unlike old drug companies that have been buying up biotechnology companies at lightning speed. Memo to IBM (which caught another downgrade this morning).

    I'm very optimistic about the market in general, but admit it's been a while since it's been really tested and I don't mean the October scare.

    Mar 02 9:51 AM | Link | Comment!
  • Let's Talk Red Flags - By Charles Payne

    The market has begun to spin its wheels and that makes people nervous. I will lay out the red flags. I am not talking about the $18 trillion in government debt, the Fed's balance sheet, or the ticking time bomb of pensions, but trends that could arguably derail the stock market rally.

    Earnings are beating lowered estimates, but are yielding less than the twenty-year average. Sure, stock yields are attractive versus bond yields, but are they good enough to justify higher share prices? Here is the rub: consensus on earnings points lower and lower for this year, but it should reverse and move higher as we enter 2016. So, should stocks pullback before then and reaccelerate?

    I am not sure. Overall, I do not like earnings in retreat, even if a large part can be explained by the strong dollar limiting the top line and pressuring margins. We focus on individual names, yet this is something we will monitor closely.

    However, there is the deflation question that will not go away. The consumer price index (NYSEARCA:CPI) inflation reading was negative for January, down three months in a row; it experienced its largest one-month decline since Dec 2008, and has gone down year-over-year. The good news for those worried about the Fed hiking rates is that this puts them off again. The bad news is deflation is insidious.

    Then, there is the average daily volume that continues to plummet. The only spikes are associated with periods of duress.

    (click to enlarge)

    In the end, the market moves higher when there are more buyers than sellers, even if the overall volume is light. It is not a red flag, but it is worth monitoring. The flip side is those trillions of dollars on the sidelines; bond market and overseas could still find their way into U.S. equities, making this a moot point.

    In the meantime, insider sells are picking...in the last 12 months:

    • $6.55 billion in sells
    • $177 million buys

    We will watch. The worst-case scenario at the moment is a sudden panic from one of the above. We are not too expensive to warrant the selloff from the naysayer crowd. We are overdue for a pullback, but that's it at the moment.

    Today's Session

    The Bureau of Economic Analysis (BEA) upwardly revised its original Q4-2014 US gross domestic product (NYSE:GDP) growth estimate to 2.2% from an earlier estimate of 2.1%. The equity markets were unmoved by this and proceeded to open in the red as this reading is far lower than the impressive 5.0% growth observed in Q3-2014. Nonresidential fixed investment increased more than originally estimated while private inventory investment increased less than measured last month. One highlight from the report is that consumer contributions were still strong as personal consumption expenditures rose 4.2% in the quarter, significantly higher than the 3.2% increase observed in the previous quarter.

    Feb 27 12:30 PM | Link | Comment!
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