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  • Lots of Dirt on Earth Day By: Charles Payne 0 comments
    Apr 22, 2010 9:50 AM | about stocks: PEP, KO, TIF, CSX, UNP, GS
    I'm teaching a class tonight at the NYU Engineering School. I'm pumped and excited, and will put the plan on the site over the weekend.

    "The energies of our system will decay, the glory of the
    sun will dimmed, and the earth, tide-less and inert,
    will no longer tolerate the race which has for a
    moment disturbed its solitude. man will go down into
    the pit, and all his thoughts will perish."
    - AJ Balfour

    It's Earth Day for the 40th time and corporate America is playing the game, which is actually good. I'm not a big fan of the melding of the world where every place looks the same. I was in Cabo, Mexico earlier this year and was a little surprised to see Office Depot (NASDAQ:ODP) and Home Depot (NYSE:HD) dot the road between chaparral and cacti. The individual uniqueness of each place is slipping away. But, that being said, I would like the edge taken off this holiday that has become something of a reminder of how evil mankind is and how innocent and worthy of worship is Mother Earth. If there is a McDonalds (NYSE:MCD) promotion, like a little dirt sprinkled on your burger, people will ignore the message of the holiday like they ignore the message of other (real) holidays. Hey, the DVD version of the hit movie "Avatar" is out today so instead of being pissed at all humans we can just focus on evil corporations and their evil military henchmen.

    By the way, why did we need an Earth Day when we've had Arbor Day since 1872? Also, if Earth could speak directly to the EPA do you think there would be a plea to not call humans walking population machines? That CO2 humans spew out is ambrosia for nature, after all.

    The big news of the day will not be Earth Day but instead scorched earth day on Wall Street, where President Obama will direct his aim from point blank range. Yesterday, the Senate Agriculture Committee passed derivatives legislation that requires banks to spin off swaps trading divisions. There is no doubt that derivatives are a serious problem like nuclear waste, but limiting who can play in the muck doesn't seem like the answer. As much as the word transparent is tossed around there is no doubt that this is an arena everyone needs to understand better. Heck, it's pretty clear that most of the players in the space had no clue...none! Yesterday one Republican (Grassley-Iowa) crossed the aisle to support the bill on derivatives, and I suspect others may be prepared to support this measure. But it's bundled with other measures that have nothing to do with reform and everything to do with power.

    In the meantime, this Goldman (NYSE:GS) case gets weaker by the moment. Of course, it can't take away the headlines and negative comments from comedians to politicians and everyone in between.

    I think that it's time to pullback the rhetorical throttle and try to create calm and enthusiasm. We'll see. In the meantime, President Obama says that he's not going to return the $1.0 million given to his campaign by Goldman and its employees. In an interview, he said that Wall Street knew what he was about and how he would go after them. That might explain one side of the story but he had an impression of Wall Street that was completely unflattering and still took the cash anyway. Speaking of conflicts, if there isn't going to be a $50.0 billion Wall Street funded wind down fund that means a so-called bank tax to pay for TARP. If you're confused about that because most of the big banks have paid back their TARP loans this money would go to pay for the automakers and other non-bank recipients. That might be confusing, too, since GM paid off their government loan so fast.

    Actually, GM still owes a little more than $45.0 billion and paid off their loan with a special fund, but I actually like Ed Whitacre and could tell he was going to snatch the top job at GM when I saw his walk. The guy has that hip cadence that exudes confidence.

    As for the bank tax, the U.S. will be pressured at the G20 (not to be confused with the G7) where European nations are going to pour it on for a bank tax that is boldfaced, punitive, and hostile. I'm sure that the U.S. will not take the bait but one has to wonder what we give up to soothe the ire of our allies. But there are problems with the use of short-term instruments being used to fund long-term illegal assets. There is a problem with too big to fail if nations focus solely on pre-event punishment. Yet, financial companies must yearn for more transparency and confidence of counterparty risk and stability. It's all very complicated, and the only thing stopping the American financial market from being hijacked by European zealots are a few Republicans that must weather a public relations storm that takes their stance against the ridiculous and unfair and paints it as sympathy for the devil.

    Or, should I say one of the devils that make our lives miserable; the insurance companies, oil companies, drug companies, and Wall Street being the others. Smart regulations and casting a brighter light on derivatives is ideal, and hopefully it happens sooner rather than later.

    Of course we could just shake down big business and the so-called rich and live off their accomplishments until it's time to find another source to fund a society that looks down on success and discourages risk taking. Hey, let's look over at Greece since we are already getting on the same track. Greeks have enjoyed lavish lifestyles, early retirements, incredible public pensions, and long vacations. Now, the folks are in the streets because there is no money left to pay for all of that stuff. Of course they aren't debating Wall Street as they haven't been blessed with a place where money can be raised to make ordinary dreams come true.

    Greek bond yields are going through the roof and are at their highest level since 1998. At 8.56%, the 10-year bond is more than 500 basis points above German bonds. Even as the rest of the world tells Greece it must get its act together civil servants are striking and no target is immune from hospitals to the Parthenon (tourism is your only source of income...wake up). This news isn't helping global financial markets as the domino scenario looms large and all of Europe is threatened.
     
    Economic Data

    Producer Price Index (PPI)

    Why economists tend to disregard food prices is a debate that is likely to wage on for long after we are gone. Food prices, according to the March PPI report, were up for the sixth consecutive month. Our retail sector analyst, Brian Sozzi, has observed consumers continuing to balance strongly purchases of needs as opposed to wants. This is happening in spite of the bounce in consumer confidence and broader economic indicators. Additionally, Brian called out the 4.9% increase in jewelry prices in the PPI report as something that is consistent to his companies under coverage in the sector raising prices. For example, Tiffany & Co. (NYSE:TIF) is raising prices to capture the trade back up by the consumer on the high-end and offset margin pressure from higher input outlays (precious metals chiefly).

    March headline PPI was +0.7% against the +0.5% consensus forecast. Though there were areas of concern as it pertains to an inflationary ramp, the overall report seems benign enough to keep the Fed on the sidelines with respect to interest rates. The market's tame reaction to the report may be confirmation of such a viewpoint.
     
     
    We will be going more in depth on the report in the afternoon comments.

    Initial Jobless Claims

    Following a sizable increase last week, those accessing emergency jobless claims declined some 508,000 to about 5.3 million. The decline is quite welcome, but the fact is those are 5.3 million people that are contributing below optimal levels to the U.S. economy. We will continue to monitor this mostly un-talked about number. Initial claims on the headline were 456,000, slightly ahead of the 450,000 consensus estimate.
     
     

    Random Musings
    By: David Silver, Research Analyst

    * PepsiCo (NYSE:PEP) reported earnings this morning with earnings per share coming in at $0.89 per share, however, that result included multiple items that affected comparability. On an apples to apples basis, the Company reported earnings of $0.76 per share, above the Street's $0.75 per share forecast, but below our $0.77 per share forecast. Similar to the Coca-Cola Company (NYSE:KO), PEP came up short on the top line.

    * The railroad industry continues to deliver a strong quarter, with Union Pacific Corporation (NYSE:UNP) this morning releasing earnings of $1.01 per share above the Street's $0.95 per share forecast. Volumes 13% compared to the first quarter of 2009. After CSX Corp (NASDAQ:CSX) last week, this marks the second major railroad to report strong volumes. Truckers in the space have also been reporting improving demand and even more positive for the industry and economy, the industry has been seeing stabilizing prices.


    Disclosure: None
    Stocks: PEP, KO, TIF, CSX, UNP, GS
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