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Questions Persist for the Market By: Charles Payne

|Includes:AAPL, Ford Motor Company (F), TM

Last week had a little bit of everything; lots of corporate earnings, lots of economic data, and lots of political intrigue. We got a sense of what has been going on with the economy, but we enter the new week and month with as many questions about what the economic future looks like. Despite a better than expected GDP report, a double-dip recession is considered more of a probability. Many promises were made by the White House but the stock market didn't take the bait. Heck, the hottest company in the world couldn't even dazzle investors enough to keep its own stock from tumbling. Even though Apple (NASDAQ:AAPL) posted amazing earnings and unveiled its latest game-changer, the iPad, it wasn't enough. And, then, there's the best car company of the past decade that may have squandered an image that took a generation to create over the inability to put the brakes on shortcuts to maintain its insatiable growth. Toyota (NYSE:TM) climbed to the top because Detroit lost sight of quality and then lost its reputation, so even as U.S. cars got better the notion persisted…made in America wasn't as good as made in Japan.

(Even the ironic fact that most of the gas pedals in question were actually made in America will not help Toyota, which is racing against the clock. There will be a full court media press, and replacement parts are supposed to be on the way this week.) Business is a bare knuckle sport that can make MMA fights look like hopscotch. Toyota's rivals piled on last week. Still, there is only one real domestic winner in the U.S. auto industry, if of course we do not count foreign auto companies operating inside the U.S. who actually have more employees than domestic-born rivals. Ford (NYSE:F) has broken through the image issue in part because it didn't need government welfare. And that gets back to the idea of making cars people think are good and therefore go out and purchase. This is how commerce works. There has to be competition in order to address the needs of consumers, which constantly evolve.

Now, General Motors and Chrysler have a chance to take share from Toyota but they have to be careful not to talk too much about this particular mishap because the tables could turn (no auto company has escaped the perils of recalls). Instead they need to expedite efforts to be real players and focus on appeasing consumers and not the "green" movement or the White House. This car saga runs parallel to what's happening in the political arena. For the most part, the Democrats and Republicans have waited for the nation to recall the other party.
This doesn't lead to much innovation, and eventually it leads to political parties trying to dictate to the public what it needs rather than letting the marketplace decide. When there are only two parties, there is less urgency to be really creative, but I think that could change if grassroots movements re-flower in the spring and come on stronger and stronger.

What's most important is the unique form of democracy, where made in America is regaining its reputation in of all places...America.
As for the automobile industry, the world is wide open and up for grabs. China is the hottest market and American cars don't carry any stigma, but Japanese automakers are in the mix, and European automakers, too. So image means a fair amount, and fortunes shifted last week, but a permanent shift only happens through products people want and not products people settle for. (Over the weekend Honda recalled a bunch of cars, too.) This brings me back to the stock market. The market sent a message last week that unlike the auto industry or politics, where the best of the worst can win, there has to be real leadership. That leadership hasn't come from earnings, economic data, or the overall political landscape. In fact, capping the week off, six bank closures were announced.

Last year 140 banks bit the bullet and the FDIC was forced to extract three years worth of premiums from the banking community. Many think 2010 is going to be even harsher for the banking industry.

In Other Words

"Fly me to the moon
Let me sing among the stars
Let me see what spring is like
On Jupiter and Mars"
Bart Howard (song by Frank Sinatra)

The 2011 Budget

Today, President Obama's budget will be submitted to Congress for fiscal 2011, and it's going to be raked over the coals on both sides of the aisle. The White House says it's freezing spending in some areas of the budget, which is killing the Left, which sees government as not just the savior but the only entity that should determine wants and needs. Of course, the amounts being talked about don't amount to a drop in the bucket and is just a political talking point designed to mitigate genuine concern and criticism from the American public. There are distinct winners and losers in the budget. The folks in Florida are smarting over the fate of the shuttle program, and now its successor, the Ares Program. Although a key campaign promise was to maintain the U.S. lead in space, we will not be singing "fly me to the moon" unless we are asking the Russians and Chinese for a lift.

In his Saturday radio address the President lurched further toward acknowledging the concerns of Main Street:

"As we work to create jobs, it is critical that we rein in the budget deficits we've been accumulating for far too long, deficits that won't just burden our children and grandchildren, but could damage our markets, drive up our interest rates, and jeopardize our recovery right now."-President Barack Obama on January 30, 2010

It sure sounds good, but reality is much different than lip service. Here are some key assumed numbers:

Economic Data

December Personal Income & Spending

The numbers sure looked good rolling off the tape for both personal income and spending. However, futures barely moved to data that was stronger than expected. Much in the same manner as the GDP report, it wouldn't be surprising to see this morning's read on personal income and spending be panned.

For starters, government payrolls increased month to month, likely in support of the census. Second, there was a retroactive adjustment to Social Security payments, which boosted personal income by $8.5 billion. The two areas that the market may focus on this morning are the month to month declines in goods producing and manufacturing payrolls following increases in November. Such declines suggest demand has normalized post the inventory restocking phase that was in play in 4Q. The increase in service payrolls, on the other hand, implies people are needed to sell the goods that were produced and could experience renewed payroll weakness in coming months as that new supply is worked off.

Final Note

In this market, great stocks get hit with not-so-great stuff. The idea, as a result, is to buy quality on sale and the way to do it is to add slowly.  Ideas we currently have shouldn't be approached through slowly building positions.  If you normally buy $10,000 per idea I would buy (or short) $5,000 initially and wait for dips to add.

Disclosure: None
Stocks: F, TM, AAPL