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  • No Confidence By: Charles Payne 0 comments
    Jun 29, 2010 2:08 PM | about stocks: TSLA
    Now it's official, America is afraid of the current policies of the Administration, joining a chorus of people across the spectrum of life. The crazy thing is that the President and Ben Bernanke continue to believe their words can dislodge people from the everyday realities of their own lives. The Chairman of the Federal Reserve joined the President today to let everyone know the economy is growing. Just as last week's FOMC comments acknowledged angst in the economy but blamed it on Europe, so, too, did President Obama today.

    The President observed "skittishness and nervousness on the part of the markets and on the part of business and investors" are derived from troubles in Europe. This is the narrative laid out by the guys that control monetary and fiscal policies. The average person in this country knows there are problems in Europe but don't follow so much that ECB policy is weighed into their daily financial planning. Let's face it; people are rapidly losing confidence in President Obama. Sure, we know "what's happening around the world in emerging markets, in Europe affects us here in the United States" but Mr. Bernanke this isn't why businesses aren't hiring. Most Americans applaud austerity plans sweeping the globe and wonder why we insist on self-destructive spending even as the living dead (Cameron's description of the UK government) plead with us to go the other way.

    The market was reeling when the latest consumer confidence reading was released by the Conference Board. It was a shocker. It was a major disappointment. Each component of the report paints a picture of people that have lost confidence. Late last year we saw where people that still had jobs were beginning to get back to the malls and spend a little. People began updating resumes and hitting the bricks, and for a second if felt like home prices were stabilizing. In short, there was a thin argument that at least for now the worst was over. Consumer confidence readings backed up this notion, including the Conference Board report which improved three consecutive months. Those gains were measured, reflecting fragile belief/hope things were getting better. As we all know so much of our economic future is self-fulfilling. People must feel confident for the economy to recover.

    On that note, the stock market was higher, too, adding to a sense the worst had passed us by. This is all changing quickly. If the President is right about the economy "strengthening" it must only be in his neighborhood. We hear talk of a double-dip, although I say the economy was never such a huge success as to consider it recovered. In other words, this is part of the longer dip. As for consumer confidence, it is critical that it's turned around quickly.

    Consumer Confidence

    Only 4.3% of consumers believe jobs are "plentiful", down from 4.6%, while nearly half (44.8%) seen them as being "hard to get." Only 10.4% of consumers see their incomes rising, and that's down from 11.4%, not exactly the kind of thing that makes you want to hit the malls.

    > Present Conditions slipped to rating of 25.5 from 29.8
    > Expectations plunged to reading of 71.2 from 84.6
     


    I couldn't find a single positive trend in the report, not one silver lining. The real story is how quickly consumers are losing faith. The overall reading of 52.9 was substantially lower than the consensus estimate of 63.0. Experts say this report needs to get above a reading of 90.0 to indicate the economy has recovered.
     
     
     
    Home Prices

    Case-Schiller came in better than expected, the first increase in home prices in months. But, it was like that proverbial tree. This report is backward looking and inconsequential in a market focused on a future that looks painful.
     
     
    The financial regulatory bill is looking much shakier than it did even 24 hours earlier. I think that $20.0 billion bank tax has to come out or the bill doesn't pass. It's too bad Senators Brown and Snowe don't have misgivings beyond the bank tax. Be that as it may, the speed bump could be just what we needed to derail renewed hopes for cap and trade.

    We closed out many positions simply to raise cash and mitigate near-term damage, but the market is oversold. Unfortunately, what would be screaming buys under normal conditions are wait and sees because of receding confidence in the government to shift gears and let the free market take over from here. No new idea this afternoon.

    Auto Industry Buzz
    By: David Silver, Research Analyst
     
    The buzz this morning in the auto industry has been about the Tesla (NASDAQ:TSLA) IPO, which was oversubscribed, and was trading above the final target range of $13-$15. Yesterday, the company increased the number of shares it was trying to sell by 25% and also the target range from between $11 and $14. All in all, Tesla, the maker of the only highway ready completely electric vehicle, the Roadster (pictured here), made out very well in the first IPO of a U.S. automaker since Ford (NYSE:F) did it back in 1956. But let's strip away the sleek design of the Roadster, the 0-60 mpg in 3.9 seconds (for the base model, 3.7 seconds for the Sport), the 288 peak horsepower, the 245 miles range, the 3 and a half hour full charging time, and even the $110,000 price tag to take a look at what the future for the company looks like and where it compares to the other automakers out there. Tesla right now is about as niche as you can get with only one vehicle on the market, the Roadster. The Model-S, a sedan, is in the development stage, but by the time it reaches the market, 2012, there will be other 100% electric vehicles including Nissan's Leaf and Chevrolet's Volt. So the first-to-market advantage is out the window and the fact remains that the company hasn't posted a profit. The money raised from the IPO will help fund the Model-S, but Tesla is still dependent on government aid to survive. The IPO alludes to a new era in the auto industry, but for the time being, the investment doesn't hold the weight.

    In other news in the auto industry, General Motors gave another update for analysts. By 2014, General Motors expects to release 70 models in international markets to help expand its market share. GM President of International Operations Tim Lee tells financial analysts the company is the industry leader in the combined markets of Brazil, Russia, India, and China. He says GM is on track to be the first global automaker to sell more than 2 million vehicles in China this year. GM says overall auto sales in China will rise 20% this year to 16.5 million (compared to the estimated 12 million in the United States).

    The company continues to comment on the potential IPO for the new General Motors, however, the American taxpayer (and Canadian taxpayer) shouldn't get all giddy that they will be repaid in full on the first round. The largest IPO ever was Visa Inc (NYSE:V), which raised $17.9 billion; the U.S. taxpayer is into GM for more than $50 billion. The forecast is that the U.S. government will liquidate its holdings in a piecemeal fashion, selling approximately 11% to retain a 49% stake following the IPO. The UAW is also rumored to be interested in liquidating a portion of the union's holdings (in its VEBA account) to "diversify its holdings." Eventually, General Motors will become a public company (probably by the end of 2010), but it will take a few more years before the U.S. taxpayer and Canadian taxpayers are made whole again. The GM IPO looks more attractive than the Tesla IPO as General Motors has a large market share and is growing overseas. European sales will be weak through the rest of the year, and I am expecting the auto industry to plateau over the next few months (especially cycling the cash for clunkers program from last summer), which will act as a drag on the IPO.


    Disclosure: None
    Stocks: TSLA
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