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Still Looking For Answers and Leadership By: Charles Payne

|Includes: BP p.l.c. (BP)
So, with financial regulatory reform heading for the finish line, everyone is worried about how draconian the measures will turn out to be. Worst case scenario is banks begin diversifying immediately, leaving less competitive businesses at home and abroad. Much has been made on Capitol Hill about how much banks made in the first quarter, but if those numbers are a shocker and must be stopped, then the real good-ole days will never return. I'm not a fan of big banks or Wall Street firms, but if we say $18.0 billion is too much for all FDIC insured banks there would be primal screams for the kind of cash raked in back in the day.

Banks made $145.2 billion in the fourth quarter of 2006. I think that's a more appropriate benchmark rather than the $5.5 billion made in the first quarter of 2009. Banks are hoarding money, they've admitted as much. There is still the commercial real estate situation, which is getting bigger, although it hasn't delivered that second shoe warned about for more than a year. Then there is demand for loans, which remains scarce because qualifications are much more rigid. Don't get me wrong, people want to borrow money to buy homes and start's still the American dream along with the white picket fence. The clock is ticking fast, and financial regulation may be tweaked but there is no room for big fixes to actually become a smart law. Instead the bill is being used to exact revenge on the evil banking system for political gain.
Can't Blame the Last Guy...What Now?

I don't think any president in history was as maligned as George Bush, who won two elections but lost a third through John McCain. I saw cartoons of him as a chimpanzee, I've heard comedians rip him to shreds without any restrain, and I've seen the media tie him to the back of a Hummer and drag him through the mud. We have all heard, and seen, the Office of the Presidency mentioned in tones of disrespect that are beyond comprehension. I know people that say the Bush White House ran the drug trade and orchestrated the attacks of 9-11. I get it, the man angered many people. The doors to the kinds of ridicule that no sitting president should have to endure were kicked wide open after the slow response to Hurricane Katrina. I was saddened and angered by the government's response to Katrina, and the images will live forever. That was a swift moving hurricane that triggered the collapse of a levy that flooded a city. It was a unique situation that happened fast.

This BP oil spill, on the other hand, has been a slow motion disaster that should have been solved by now. Obligations to fix the situation were abdicated to BP out of the gate, even as it was apparent BP either didn't know what it was doing or wasn't being completely honest (or both). The knee-jerk response, and insatiable desire to make any corporation "evil' and find new revenue sources to keep the spending spigots running, mired the fact this was a disaster that demanded all the intellect and physical might of the federal government. The yapping about who would pay seems so petty in light of the potential looming economic and ecological damages. The notion of keeping a boot on the neck of BP seems off base when they were also supposed to be fixing the problem. Now, the idea that the Department of Interior is considering is pushing BP aside to take over repair operations; if the latter can't get its act together it's an odd threat.

Interior manages 500 million acres of land or 1/5 of all U.S. land mass, and 1.7 billion acres of the outer continental shelf. That is an amazing swath of land, which means an amazing amount of responsibility. On those acres, 30% of national domestic energy is produced. From the outer continental shelf comes 27% domestic oil production and 14% natural gas production

There were no plans to fix an oil spill in deep ocean water. Although oil drillers are regulated through Minerals Management Services, the agency apparently didn't have any plans in place for the kind of accident that created this predicament. Then there are the allegations of sexual favors, lurid parties, and all kinds of other shenanigans going on between MMS personnel and the folks they were supposed to regulate. So the Keystone Kops act was in place from the start; it has gotten much worse since.

The Army Corp. of Engineers still hasn't been given permits to build sand berms to stop the oil before it enters marshes. The state of Louisiana has been asking the federal government to help build sand berms since Hurricane Katrina struck, but has been brushed aside every time.

Since April 20, there have been 19 environmental waivers and 17 drilling permits granted for operations in the Gulf. I'm not good with words, but I thought there was a moratorium.

Lisa Jackson, head of the EPA, said the oil dispersant being used by BP was okay even though it had never been used to fight spills beneath the surface. Now, the EPA wants BP to scale it back significantly and find something better because it causes a "moderate" human health hazard. BP says there is nothing better. In the meantime, oil grows denser and moves closer. Don't fear as Congress is going to hold hearings into the situation. Plus, that oil tax announced just last week has quadrupled to $0.32 a barrel to help pay for a slate of new spending programs, although it's ostensibly going to the Oil Spill Liability Trust Fund. It's going to raise $11.0 billion over ten years, although only one billion dollars can be spent on any particular individual spill. Why point fingers when you can pick the pockets of another fallen industry. I'm sure the spill will be stopped one day, but its 34 days and counting, and if this were the last guy in the White House there would be nationally televised events to raise money and beat the piñata.

The Market
Despite hints the market wanted to move higher we got the same last second pullback in stocks in what can only be described as an orderly panic. Or, maybe at this point it's like Pavlov's dog; just as much buying was hard to explain on the way up, now it's just the other way around. We know the issues, but feel frustration at the lack of answers from people elected around the world to make such determinations. The lingering creates new concerns, new questions, and new fears.

Right now, it's the reemergence of the dreaded double-dip recession. Even if that doesn't happen, there is still a greater than 50% chance this recovery will be lackluster by historic standards (although the media tells us it's "remarkable"). For now, each day seems longer and excruciating as we wait for that last hour of trading for the big move, which these days are to the downside.

For now, the longer term trend line is still intact, but key support for the S&P 500 1,056.

The situation in Greece is precarious, and belies the notion that placating or ignoring madmen in power is a good strategy. The olive branches offered to Iran and North Korea would have been better used to spank them. Now, the world is on high alert again, and the stakes are higher after South Korea has said it's going to take some kind of action. The question is whether that action will go beyond economic. By the way, just how much more can North Koreans be kept out of the global economy? In the meantime, what is China doing to quell the situation? I think China is deliberately not intervening, and using a belligerent Kim Jong Ill as yet another bargaining chip (Dear Father was just in China a few weeks ago) in its negotiations with the United States.

Start of the Year for Retail Means Different Things to Different Parties
By: Brian Sozzi, Equity Research Analyst

In a still challenging economic backdrop, where high-income earners are disproportionately distorting sales at malls, off mall locations, and e-commerce, sales and earnings grew impressively to commence 2010. Numerous instances abound of double-digit percentage sales increases at stores open longer than a year (comps), gross margin expansion on favorable comparison dynamics/increased full-price sales, and heady growth in per share earnings. If one was privy to work high in the pecking order at a retailer, some form of compensation was likely triggered (stock compensation, 401k matching, etc.).

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This Morning

The big down opening isn't a reflection of fundamentals, but it is a legitimate reflection on the wrong direction lawmakers are heading with the socialization of our economy. We can only hope the final version of financial reform isn't the nail that breaks the back of commerce and ushers in an era of stalled Main Street progress. You have to have some downside protection. For now, I think it is wiser to hold quality positions rather than get sucked into broad based selling. Extenuating circumstances must come to a head soon, although in the case of Europe and North Korea, it would be kicking the can further down the road, but that could clear the way for a bounce.

Disclosure: None