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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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  • Just Ordinary People By: Charles Payne 0 comments
    Aug 12, 2010 9:49 AM | about stocks: CSCO
    "Thoughts of heroes were as good as warming pans" -George Meredith

    On March 26, 1905, the Bayonne, New Jersey police arrested fireman James Mclnerny, who was suspected of setting fires in the town. As it turns out, McInernry loved the excitement as he eventually confessed to setting 15 houses on fire over a six-month period. He had a 100% attendance rate at these fires and often was already there with horses and hose fighting blazes when his fellow firefighters at the Americus Engine Company arrived. These sorts of stories pop up even now as one report says 75% of arsonists do it for the excitement. There are others that pull these kinds of stunts in a bid to be the hero. I think we are in the midst of this kind of scenario. I think the President has used the hero syndrome as a guiding force since he took office and it has backfired miserably. Psychologists say another way to explain "hero syndrome" is "narcissists in a slump."

    Considering the President was elected to save the economy it goes without saying he's in a slump.

    The problem has been the misdirection of resources to support an ideology that has put agenda above saving the economy.

    > Redistribution of wealth
    > Controlling banks
    > Taking over healthcare
    > Cap and trade
    > Jobs?

    Yesterday, the government began a program to distribute $3.0 billion to unemployed homeowners looking down the barrel of foreclosure. The money is coming out of funds returned to TARP, funds that were supposed to go back into a lockbox and returned to all taxpayers.

    * $2.0 billion to 19 states with higher than average unemployment
    * $1.0 billion to HUD to provide zero-interest rate loans up to $50,000 to homeowners to be paid back in two years

    I know many homeowners that have worked real hard to pay mortgages despite lower household incomes and despite much lower values. At what stage do we draw the line? For sure, this isn't going to create jobs but it could tilt an election...or two. Eight of the top ten recipients were so-called blue states in the 2008 election, and combined have 181 Electoral College votes. Remember John McCain only received 173.

    * Top ten recipients in millions of dollars: CA $476, FL $239, IL $166, OH $149, MI $129, NC $121, NJ $112, IN $83, and TN $81.

    After hearing over and over about how the economy has been jumpstarted the reality is at best, the economy is leaning on an old kickstand. The average time needed to find a job now stands at 35.2 weeks, an all-time record, and next year 43.0 million Americans will be on food stamps up from 40.0 million this year. I've personally witnessed the hero treatment afforded politicians for delivering what amounted to crumbs to people so depressed they thought it was manna from heaven. Does the entire country need to be beaten down so badly we cheer when the crumbs are shipped out? We have been psyched out into investing so much animosity and hate toward banks and business that in general we didn't realize the setup. The economy was in bad shape, but more fires were set and they haven't been put out.

    The hero syndrome is dangerous for those innocent bystanders, and in this case all Americans have been burned.

    All we need to turn this around is for ordinary people to be inspired.

    The Market

    The market staged a very impressive rebound in July and fought off negative economic news in the first week of this month. But the realization that this is still an uphill battle against a determined foe knocked the stuffing out of the market yesterday. Yesterday, headlines screamed investors worried about economy after Fed meeting. With that statement it stands to reason that investors were not worried about the economy on Monday or Tuesday? The Fed reminded everyone its toolbox is limited. The Fed moved slow out of the gate when the crisis began, and while they flashed some brilliance here and there it has mostly been too little too late. Yet, they deserve more of a pat on the back than the Administration. Admittedly, Bernanke got caught in that hype game for a moment and took a few victory laps of his own before being reappointed, but the Fed isn't going to be the hero in this story.

    The hero will be the American people if they can find a way to climb out of their foxholes. People, no doubt, have been beaten down; their homes, their 401Ks, their jobs...all gone. And, now, the best routes to getting it all back are being taken away or blocked. The market looks to the future. The market would like to believe all of the pieces are in place to turn this around. I'm working on a special report to outline those pieces and events; in the meantime the market is going to continue to gyrate and overreact to news. I honestly don't think anything has changed this week from last. When I sent out alerts to exit a few positions this week I got a few emails asking why. The answer is the market, not the stock. In fact, these days you have to take a two-pronged approach and be prepared to take some off the table from time to time even in names that should be trading much higher.

    On that note, one stock I haven't liked for years will lead the parade today. Unfortunately leading the market lower will be Cisco (NASDAQ:CSCO), which posted its earnings results after the bell. Last night, John Chambers & Co. delivered disappointing news made so because of his unusual confidence after the last earnings release.

    I think the phrase that spooked the market most was "unusual uncertainty", which has become the new "irrational exuberance." These are hot button phrases that say "I'm so confused."

    Cisco beat the Street's earnings estimate by a penny, coming in at $0.43 per share on recorded revenue of $10.8 billion, which missed consensus of $10.9 billion. Current quarter guidance of revenue as much as 20% or higher year over year to possibly $10.95 billion let investors down. Management says corporate customers are worried so they are delaying purchases. The company has hired 3,000 new employees this year and plans on hiring 3,000 more; so far 70% of the hires are in the United States.
    The company bought back $2.3 billion worth of stock during the period at an average cost of $23.30 a share. It might be time to just bump the dividend payout. The tepid guidance sent the stock much lower in aftermarket trading.

    Today's Action

    There was a moment early this morning when equity futures began to drift higher, hoping for a better-than-expected initial jobless claims reading. It didn't happen. Claims were up 2,000 from a revised reading of 482,000 the previous week. The better news is that the 4-week average and continuing claims are edging lower.
    It will not have the same impact as China not growing as fast, but EU orders slipped 0.1%; the experts said it was going to go up 0.6%. With industrial output falling 1.6% in France and 0.5% in Germany on a monthly basis, following strong gains for both countries in May.
    In just one day the market became somewhat oversold, but it's obviously opening under pressure. Ideally this is what we want, but it's like being the substitute actor in a smash Broadway play and the lead was hurt in a traffic accident an hour before the curtain is going up...and then they tell you you're up. Sweating bullets is an understatement. For now, we need to pay close attention to great names that come in with the rest. Keep your powder dry, everyone should have a fair amount of cash.

    Disclosure: None
    Stocks: CSCO
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