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  • Revenge of the Moralists By: Charles Payne 0 comments
    Jun 10, 2010 9:36 AM | about stocks: BP, TGT, CAT
    "Hey! Gotta gotta payback! The big payback!
    Revenge! I'm mad! The big payback
    Got to get back! Need some get back! Pay back! The big payback!
    That's it! Payback!!! Revenge!!!
    I'm Mad!!!"
    - James Brown

    Yesterday, Reverend Jesse Jackson appeared on Fox Business Network to promote his call for a boycott of BP. Even when it was explained that the more than 10,000 BP stations in this country are independently owned and operated he insisted on this course of action to punish the company. He also said BP should be put into U.S. receivership. The political impact of trying to nationalize a company based in a foreign country, in this case the staunchest of American allies, would be devastating. It's the kind of move only a dictator would take. Which brings me to Hugo Chavez, the egomaniacal dictator of Venezuela, who recently received a visit from Reverend Jackson coming to his defense after comments made by Pat Robertson. It's amazing any American would defend Chavez. But it's truly horrifying when we promote actions that would destroy thousands of would-be entrepreneurs simply to teach a lesson.

    That old chestnut about "reckless behavior" was tossed about too. Searching for raw materials needed to move us around is inherently risky. You can't travel from boycott location to boycott location without using something that was hard to extract from the earth. So hard in fact that people that make a living doing so are killed from time to time. I just wish one of these boycotters would only travel by bicycle or sailboat. I just wish one person deriding evil oil would get around town on roller skates. BP will pay a heavy price beyond oil lost in this heart-wrenching spill. But we have to be careful not to declare war on business. Surely, an anti-war activist and person that seeks compassion for convicted murderers should understand the dangers of this road to destruction. Should we destroy the largest business in the U.K. even if it turns out the spill was the result of human error? Should we destroy the company even if it turns out BP cut a few corners?

    According to Franchise Gator, a person needs at least $250,000 to buy a BP franchise. Jesse Jackson believes homeowners that are missing mortgage payments for a variety of reasons deserve a massive reduction in principal and an easier monthly payment so they don't lose their homes and investments. In many of these instances there was no initial down payment. Yet, those families that cobbled together the fee to open a BP station should see their life's work and savings destroyed because of an effort to enact revenge. It's scary stuff.

    There are companies based in different countries currently drilling in the Gulf of Mexico. Petrobras (Brazil), Royal Dutch Shell (Netherlands), Pemex (Mexico), and many others have announced giant oil finds over the past couple of years. Should these companies and nations clear out even if they're operating in international waters?

    Reckless oil drilling by Venezuela is the only real source of income for Huge Chavez. If he can get a free pass for that sin and others, such as oppressive rule over a nation of ever-cowering citizens living in daily fear, then why not a business that makes it possible to travel around the world and promote social justice? I don't know where this boycott is going, maybe nowhere, but politicians are desperate and socialists smell blood. Ralph Nader has called for a three month boycott and more and more politicians are demanding BP not pay its quarterly dividend. This oil spill has been a jackpot for those with animosity toward America and capitalism, and they aren't going to let it slide. Franchisees and shareholders aren't going to be collateral damage in this insidious attack based on revenge because they are indeed the main targets.

    I'm mad!

    Pro Business Government Rewarded

    On Tuesday, Hungary came up with an economic rescue plan that while a little dubious expressed more courage than the economic road America is heading down. Yesterday, Panama's sovereign debt rating was lifted at Moody's to Baa3 from Ba1. This investment grade rating (the lowest) matches an upgrade last month by S&P. What's driving this newfound optimism in a period when most sovereign debt ratings are downgrades? The country has taken a mostly pro business approach to growing its economy. In March, a series of tax code changes were announced.

    > Corporate tax rate decreased to 25% from 30%
    > Income tax brackets lowered; a person making $50,000+ now taxed at 15% from 27%
    > 49,500 small and medium-sized business receiving a tax cut
    > 30+ taxes in code will be completely abolished

    Sales taxes are increasing to 7% from 5%, and this move is expected to reap millions from consumption in a nation where the PPP has climbed to $12,000 annually from $6,000 over the past decade. This tax doesn't apply to food (except restaurants), medical services and medicines, school tuition, agricultural supplies, and housing expenses like water bills. This takes Panama closer to a flat consumption tax that many smart people advocate for the United States. Keep in mind this is Central America, so shifting solely to a pro-business tax regime is dangerous. The country is investing money into expanding the canal, building a commuter rail, and a metropolitan sewer system. Moreover, there is that typical red meat for anti-business groups, higher fees on banks. Bank fees:

    * $75,000 on banks with $100.0 million + assets
    * $1,000,000 on banks with $2.0 billion + assets

    I must say Panama deserves a higher debt rating and a pat on the back. We shouldn't be getting lessons on economics from Hungary and Panama, but we are. BTW, Panama's deficit to GDP for FY10 will be 1.4%.

    "Modest Improvement"

    Hey, what did you expect? No matter how hard the media sold the recovery as some kind of miraculous achievement we all knew better...right? Ironically, most economists I know are still touting the spending and believe that big bang is right around the corner. Any day now. I don't think the release of the Beige Book report yesterday triggered the selloff; it's just a coincidence it came out at 3:00 pm. It should be clear by now to all that spending didn't act as a springboard; the car is still trying to get out of the ditch.
     
    Today's Session

    In many ways it seems the market has shifted from trading in tandem with the Euro to trading in sympathy with the shares of BP. The embattled oil company took it on the chin big time yesterday. Talk of cutting the dividend, seizing some assets, or putting the entire company into receivership is compounding the mystery of how much this disaster is going to cost the company. There was no good reason for the market to slide into the close other than behavioral reaction. Be that as it may, stocks faltered even as Target (NYSE:TGT) and Caterpillar (NYSE:CAT) raised their dividends. The major indices are forming a descending triangle, which suggests a major move could occur very soon. The good news is there seems to be a bottom; the bad news is it could break either way. I continue to believe the stock market is oversold.
     
     
    Let's watch BP closely. It lost $17.0 billion in market cap yesterday, and that is probably enough to make everyone involved in the oil spill whole. There is pushback from the U.K., which I knew would come, although not sure what took so long. By the way, speaking of the blame game apparently the U.S. is blaming Europe for Turkey voting against additional sanctions on Iran. The feeling is it was a protest vote for not being admitted into the EU, but I think it's much more than that. Moreover, Brazil voted against further action as well, which in many ways was also its way of reminding the world (mostly the U.S.) it's a player and must be dealt with as a real global player.

    All of the stocks associated with the Gulf oil spill disaster are indicating higher, including BP.

    Economic Data

    Initial Jobless Claims

    Initial jobless claims were another disappointment, but the market wasn't hanging any hopes on a positive surprise. 456,000 people filled for first-time unemployment benefits, the Street was looking for 448,000.

    * 4-week average: 463,000 from 461,000
    * Continuing claims: 4,462,461 from 4,717,000
     
     

    Foreclosures

    Foreclosure filings decreased for the second month in a row, falling by 3.3% from April to May, according to RealtyTrac. New notices of default reverted back to more normalized levels as it finally appears as though the amount of delinquencies is subsiding. That being said, the later stages of foreclosure are still quite elevated, and with the total number of foreclosures at 322,920, the housing market is still in crisis mode.

    Foreclosure sales are still just below peak levels, while bank repossessions continue to hit new record highs. It appears as though lenders are actually speeding up the process by which delinquent borrowers are cycled through the foreclosure process. After millions of borrowers have been sitting in delinquency, often going for more than a year before foreclosure, the pipeline of pending inventory has been building. As lenders finally process the foreclosures, it is possible that existing home inventory continues to build in the months ahead, despite the apparent slowing of new delinquencies. With the homebuyers' tax credit having run out, the potential increase in vacant home supply continues to be a cause for concern.
     
     
    Equity futures are holding up pretty good but it's like saying a prize fighter looked great during the singing of the national anthem before facing Mike Tyson in his prime.


    Disclosure: None
    Stocks: BP, TGT, CAT
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