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You Want to Play Rough? By: Charles Payne

"Okay, I'm reloading"- Al Pacino in "Scarface"

So what's next for the Administration? Yesterday Tim Geithner said that there needs to be a "fresh, cold look" at the government's role in housing. Adding "action is needed to ensure that markets are more stable, consumers are protected, credit is widely accessible and important housing policy objectives, such as affordable housing for low and moderate income families are administered effectively and efficiently." Geithner and company are reloading!

I guess that the comments from Geithner means owning a home is the next birthright in America and all it will take is tapping into that pool of greedy and selfish earners of $200,000 (individual) or $250,000 (family) per annum. As for the fresh and cold look, well maybe it's time to throw fresh, cold water on all the schemes that aren't. Those inefficient programs have taken billions of taxpayer funds and yet have done nothing to stem the tide of falling housing prices or to stop the avalanche of foreclosures. This says it all about the government's role. The fact that Fannie Mae and Freddie Mac are becoming Yucca Mountains for toxic real estate waste under Republicans and Democrats says it all about the government's role in housing. If fresh means getting out of the way then that would be cool.

There is something decidedly ass backwards when people that struggle, take chances, make sacrifices, make smart choices, and contribute to the nation are rewarded with the obligation to pay for the needs and luxuries of others. A family making $250,000 a year with three children and a house in a major metro area is seeing more of their earnings go to people not in their family than their own children. It's only going to make those with resolve to be successful less sure, some will give up. In the meantime, there is absolutely no incentive to try to move up the ladder of success. Reading between the lines I get the feeling the Treasury Secretary is on the cusp of unveiling some ass backwards plan that punishes job creators and people with moderate, or even great, success.

The new mantra in this country:

The harder I work the more I owe society and the less I work the more society owes me.

Yesterday I was the keynote speaker at the Redchip Conference at the NASDAQ building in Times Square. (Tomorrow, Stephen Moore will be the keynote speaker.) It was a great gathering of entrepreneurs, private equity folks, and other types of investors. My speech was titled "The Changing of the Guard", and focused on how America is fading as it becomes disenchanted with capitalism while a large chunk of the world is climbing higher as they embrace capitalism. I got a great reception before and after the speech, but one Marxist in the crowd took offence that I would be against government healthcare because it has been such a great success around the world. There isn't a nation with government run healthcare that I would swap for America, where there is still opportunity to go from rags to riches and touch so many lives along the way.

I'm going to post the speech on the website later this week but here is an excerpt:

"All of this stuff has worked to move the nation away from its roots. Never a nation of whiners and finger pointers, America became great through hard work and a belief we all had the power to change our lives. This is the country of people that pull themselves up by the bootstraps and those born dirt poor use the bootstraps of opportunity that has always been the hallmark of the land of milk and honey. Something horrible is happening and it's slowly eating away at the foundation. For years, the rest of the world marveled at the mentality of America. Tocqueville, after traveling through America, published "Democracy in America" in 1835 which outlined the differences between America and Europe.

His book focused on democracy being a balance of liberty and equality and how Americans were consumed with hard work and making money. In fact, while it wasn't meant to be a compliment he noted America's "crass individualism and market capitalism" which had "taken root to an extreme degree." Now, crass individualism is giving way to "shared sacrifice" and "market capitalism" is being ditched for "government intervention and competition."

I guess after the victory tour we should brace for another crack at cap and trade legislation and the emergence of immigration legislation, which was promised to the Hispanic caucus. Jobs will continue to get lip service and maybe serve as cover for additional bills that will ostensibly be touted as job legislation but probably will divert funds to pet projects.

The Market

Equities continue to defy all laws of gravity, logic, and arithmetic. The market continues to move higher even as individual investors continue to pull money from mutual funds in general and equity mutual funds in particular. In domestic equity funds there has been a mass exodus extending back to June 2008. In the six weeks ending March 10, 2010 three weeks saw a net outflow of cash into domestic funds for a total of $8.49 billion, while the other weeks saw inflows of $2.08 billion. Economic data has been mixed at best but nothing at all that shouts MARKET TAKES OFF LIKE ROCKET. Yet, that's exactly what has been happening. Then there is fiscal and monetary policies that are anti-business and very dangerous.

In my book "Be Smart Act Fast Get Rich" (you can order on or I wrote Dr. Spock from "Star Trek" would go broke playing the market.

There is a method to the madness which seems to be deliberately stacked against the average investor. It seems so odd that the masses could be pulling money out of the market and yet the market moves higher. Yet, this isn't the first time this has happened. I'm not sure when it's going to happen but I bet the big correction happens after individual investors become more interested in U.S. stocks. Also interesting is that American investors, when they decide to put money into equities, almost always put more into foreign equities than domestic. Last year, U.S. investors took a net $39.4 billion out of domestic funds while investing a net $30.7 billion in foreign equity funds.

In general, investors have been taking money out of mutual funds in part I think to meet day to day financial obligations.

The Expectation Game

So how the heck does this market keep rallying? It's the expectations game. Look for a loss of a $1.00 per share and a loss of only $0.90 per share looks fantastic. Look for new home sales to dip 0.6% and we can throw a party when the actual number is only a dip of 0.5%. It's a manipulative game to be sure as it seems expectations are always low enough to hurdle. Those times when consensus gets bold enough to expect real growth have been the times the results have come up short. So, the crazy irony is would-be investors acting prudently continue to be shut out from a rally that doesn't stop despite the light volume, suspect news, and absence of obvious economic justification.

At this point, however, we will have to see something that goes slightly beyond beating sandbagged estimates. Next week it could be the jobs report, which has gotten tongues wagging at a possible number like 300,000 net jobs created.

Technical View

The market has followed our technical work to a tee but now the DJIA is at what could be a formidable resistance point. The index is at a double-top and faces resistance from this point to 11,000. A breakout there could be good for another leg up…a thousand points higher, albeit not in a straight line.

Economic Data

Durable Goods Orders

This was another in the list of economic reports that appeared reasonable when hitting the wires but may not have been that reasonable once dissected. Generally, the February durable goods orders report is supportive of a continued recovery in the U.S. economy. However, declines in new orders for electrical and appliance components and communication equipment stood out prominently. Moreover, semiconductor shipments declined 11.4% in the month following a close to 28% increase in January. While our semiconductor sector analyst Carlos Guillen attributes the month to month decline to seasonal factors, he does note that the decline for February was slightly higher than historical norms. In other words, there were aspects to the report that bear watching in coming months for potential trend materialization.

February durable goods orders came in at +0.5% (consensus: +0.6%) or +0.9% (consensus: +0.6%) excluding transportation. The prior headline durable goods orders number was revised to +3.9% from +3.0%. Machinery new orders had a nice bounce back, rising 4.7% after falling 8.8% in January.

Mortgage Applications

We may be receiving an initial taste of what is to come in the housing market should the Fed's exit from the mortgage market cause a spike in rates. Refinancing activity for the week-ended March 19 declined noticeably from the prior week as the 30-year rate broke above 5.00%. Refinancing activity has fallen sharply since hitting a four month peak in late February. If homeowners cannot refinance into lower monthly payments, spending power is likely to continue to be constrained. From a positive perspective, purchase activity increased week to week, indicating sales may be stabilizing following a recent downdraft.

Disclosure: None