A feline Casanova, hey man, that's where it's at
Get a shoe thrown at me from a mean old man
Get my dinner from a garbage can
Yeah don't cross my path
I don't bother chasing mice around
I slink down the alley looking for a fight
Howling to the moonlight on a hot simmer night
Singin' the blues while the lady cats cry,
Wild stray cat, you're a real gone guy"
It has been all about Tiger Woods lately, whose exploits are anything but cool and will surely put a crimp in his formidable strut. The scandal has brought him more than a shoe being thrown at him... it has lowered him down a peg. And, that seems to be the recurring theme these days. Arrogance meets its comeuppance but when it's all said and done will it mean anything? Yesterday, President Obama grabbed a cat of nine tails to flog home the idea that banks are obligated to make loans. This despite the near death experience that all began the last time a president played hardball and demanded banks to lend money or else! Back then, President Clinton told banks to implement the Community Reinvestment Act. A failure to do so would mean no mergers or opening of new branches.
The banks got the message, but to make the risks they were taking more palatable the government altered the role of Fannie Mae and Freddie Mac, and as they say the rest is history. So, yesterday President Obama stepped up to the plate ready to wrestle the fat cats into making loans they don't want to make. I'm not sure that these banks would have gone out of business if they weren't "saved" by taxpayers, but I don't think they would be paying themselves the kind of money they're paying now because they wouldn't be positioned to do so. In fact, if there wasn't so many easy ways for banks to make money now they might be lending more. Bankers have been hated from the beginning of time and didn't do themselves any favors this last go-round, but the President is barking up the wrong tree (I wanted to stick with the cat theme but "meowing up the wrong tree" doesn't have the same ring to it) and sending mixed messages.
Don't make risky loans unless they are to people that might vote for me even if they default on this obligation. Hold onto more cash in case there is another hit to the economy. Right now, bankers are saying that they don't have to bother chasing mice around; there is too much accommodation to force the issue, so they'll continue to slink around until the coast is clear. On that note, the fat cats were conciliatory, and even suggested they are ready to lend big time...sometime...next year. I still think that rates have to move higher, the government has to take away the punch bowl. It is good news that banks are paying back TARP, which is more than could be said for some of the non-banks that got bailed out via taxpayer money.
Something tells me that these companies will not be flogged with a cat of nine tails. Anyway, the dog and pony show at this stage of the game is too little. The President could have avoided all of this stuff by redirecting all of the programs specifically designed to boost banks and just worked with small businesses directly. On that note, the Small Business Administration (SBA) is a relic with more in common with the old bureaucracies of the former USSR then a dynamic force for getting funds into the hands of small businesses and entrepreneurs. It's time for the finger-pointing to stop, and time for constructive action. I know taking on the mean old banks creates an us-versus-them atmosphere. But it's really getting old at this point. I realize that it's part of the sale to get through stiff and unreasonable consumer protection. I say unreasonable not just because it's unfair to banks but in the end would harm consumers immensely.
In fact, the browbeating of business simply hasn't worked.
Free Market Works
Maybe it's because the White House has found more convenient whipping boys or maybe because there is hype and there is reality. Whatever it is, executives at ExxonMobil (NYSE:XOM) decided to pull the trigger on a massive deal. It's not that the numbers were so overwhelming (although impressive), the nation's largest oil company is shifting gears to focus on natural gas. This is huge! ExxonMobil doesn't make moves based on what's going to happen tomorrow. The natural gas glut will still be a problem for some time but as time goes on it's a no-brainer that natural gas will rebound and play a significant role in America. While alternative energy will get the entire buzz, and even be a growth industry, replacing crude oil isn't going to happen overnight. But, natural gas is abundant, cleaner than oil, and cheap. Yesterday, natural gas stocks were higher on speculation as to which company could be next. But this is more than industry consolidation. ExxonMobil is making a seismic shift in its business model.
Solar stocks were higher yesterday, too. In fact, individual names in the space soared. Much of that has to do with the climax of Copenhagen. It's shaping up to be a utopian event that sees a pledge to save the planet with unrealistic targets on the use of fossil fuels and pledges that will surely be broken sooner rather than later. Still, the hype will be so intense that we can feel it now in the stock market. I've always said you can make money in a stock without drinking the Kool-Aid. Plus, there will be winners in the solar space. But, I think that natural gas will be the biggest winner for a decade, maybe two. In the meantime, consider these nuggets:
- Natural gas provided 4.0 million jobs and generated a $385.5 billion impact on the economy in 2008.
- Natural gas companies paid $2.9 billion in non-tax revenue into the treasury in 2007 and $7.2 billion in 2008.
The Dow Jones Industrial Average closed at a new high without any fanfare or hype after a lazy session that felt like nobody was around. There is no doubt that the Street is in a holiday mood but the bias remains to the upside, now if only we could get some volume! Today's inflation data could provide an extra spark and this could help end the year with a bang, albeit on less volume than we'd like. However, that has been the case all year long.
To get beyond key resistance points in the major indices there has to be a serious catalyst. I'm not sure that this would do the trick but the Fed begins its two-day gathering today. Moreover, the market has found it difficult to get its footing when the dollar moves higher. In the meantime, Best Buy (NYSE:BBY), even after beating by $0.10, isn't going to be the savior today.
Producer Price Index (PPI)
The Producer Price Index for November showed a 1.8% increase month to month versus the 1.0% consensus estimate. Meanwhile, core prices (excluding food and energy) increased by 0.5% versus the 0.2% expectation. Prices have been largely deflationary since August '08, and this increase comes as a surprise. Ben Bernanke will certainly be keeping an eye on this result, as the pressure is rising for him to raise rates. Given the prospects of an improving economy, loose monetary policy and the falling dollar, it wouldn't be surprising to see this figure continuing to rise. Among the biggest gainers during the month were fuel, eggs, and animal fabrics such as wool and cashmere.
Empire State Index
The report was about as unfavorable as one could expect at a time of rising equities indices. On the headline, the number missed consensus by a wide margin for December. Manufacturing activity in the measurement area has declined noticeably since October, implying a sluggish recovery is a real probability. Elsewhere in the report, prices paid rose, new orders and shipments were lower, and inventory continued to be brought down. Expect the report to be largely dismissed as manufacturing is a small percentage of the U.S. economy (and NY is a small sample size) and other economic reports (retail sales, consumer confidence) have been more favorable.
Many Retail Tidbits to Dissect This Morning
By: Brian Sozzi, Research Analyst
There was a host of retail sector related numbers out this morning that provide clues as to how the holiday shopping season is trending post Black Friday weekend. In the aggregate, I would say that the data has been positive, and not suggestive of a U.S. consumer that has completely went into the bunker this holiday season (despite surveys to the contrary). Please visit wstreet.com to read remainder of the article.
- I am curious. As a consumer, would you respond better to a (1) a 30%-50% off sale at a retailer, or (2) a promotion of spend $100 and receive a $25 gift card in return. If you have a chance, send me an email at brian.sozzi@wstreet with your response.