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Drop the Phony Language - Time to Judge Beyond Bogus Numbers By: Charles Payne

Did you guys see this yesterday?
"The federal financial regulatory agencies and the Conference of State Bank Supervisors (the regulators) have issued a statement to assist financial institutions and their customers affected by the Deepwater Horizon Mobile Offshore Drilling Unit explosion and oil spill in the Gulf of Mexico.
The regulators' statement emphasizes that financial institutions are encouraged to work with their customers and consider measures to assist creditworthy borrowers affected by the Gulf oil spill. Such measures can help customers recover financially and be better positioned to honor their obligations. In the affected areas, these efforts can also contribute to the health of local communities and the long-term interests of institutions and their customers.
Consistent with the regulators' longstanding practice of assessing the financial condition of institutions directly affected by natural and other disasters, examiners will consider the unusual circumstances of banks and credit unions in affected areas in determining the appropriate supervisory response to safety-and-soundness issues.
The regulators are committed to working with the industry to respond to issues that arise in the aftermath of the Gulf oil spill and to minimize disruption and the burden on banks and credit unions in affected areas."
This is simply nuts. What the hell are they trying to say? Are they saying banks in the Gulf area are deliberately not lending to borrowers in the Gulf? Maybe the banks want businesses to fail and homes vacated as to add to their already mountain of housing inventory. Heck, all banks have been doing is selling those distressed properties for 34% discounts to market prices. The key phrase is "creditworthy borrowers" which has changed dramatically over the last two years. Before, it was anyone who could fog up a mirror but today it's someone with a job, a high FICO score, and virtually no existing debt obligations. This is what the American people (thought they) wanted with talk of leveling the playing field.

This statement from the Fed has Obama Administration written all over it, shame business into doing something they used to do until such action was labeled "reckless" and deliberately harmful to the country. If examiners are saying they will back loans to people in the area hurt by the oil disaster then they have to take out "creditworthy borrowers" and make such loans at the discretion of lenders who are allowed to look borrowers in the face. Only then it would be meaningful and not more junk that only makes people believe the government wants to help. But, the private sector is simply evil, right? Let bankers make loans to people they have attended the same church with for a couple of decades or bought lunch from each day or know in other ways that don't show up on FICO scores. Let's stop the madness.

Speaking of Madness

What financial institution would lend money to an entity that was $6.0 billion behind in payments to schools, hospitals, and private businesses they had contracts with? How about knowing there would be a deficit of $5.7 billion in FY10 and $7.1 billion in FY11? Sounds enticing, there's more. The credit default swaps are surging. Well, this ideal borrower is the state of Illinois which may have lost out on getting the Olympics but has nudged ahead of California in the gold medal race to the bottom. Don't get me wrong, the state knows it's in bad shape so it's going to cut spending by $1.4 billion. But even that is mostly smoke and mirrors stuff where state employees will mostly keep their jobs. In the meantime, the state hopes to raise money through a variety of avenues.

Are they creditworthy...I think not, the deficit for the next two years is 50% of the state's operating budget. But in case you're interested.

* $900.0 million in "A" rated Build America Bonds (have raised $2.3 billion this route already); these bonds are taxable but the federal government subsidizes 35% of interest payments.
* $1.3 billion short-term notes next week
* $1.4 billion related to tobacco settlement
* $3.7 billion to fund pension obligations (sold $2.4 billion of these in January)

I would lend my money to the folks in the Gulf any day before a state with such an abysmal track record and flaccid political will. This is the same legislator that bolted without a budget because they didn't have the guts to do the right thing for fear of not being reelected.

The deal is the pendulum swung too far in one direction in an atmosphere of hype and greed, and now it's swung too far to the other end where many good people that aren't looking for a quick buck can't get the loans that will build future sources to pay mortgages and college tuitions. I can't figure how a state that spent itself into oblivion can be backed by taxpayer dollars for billions of dollars but banks are handcuffed from helping people. Banks don't want to run afoul of new rules or be called reckless.

Federal Reserve

The Fed lowered its economic outlook for the nation going out to FY2012. The numbers are still too high which makes me even more nervous about the fact these are the guys with the purse strings and controls to helicopters without doors. Then there are unemployment rates for the next couple of years, edging higher from estimates just a few months earlier. Something tells me these guys will be sharpening their pencils sooner rather than later.
The Stimulus hasn't worked say the people of the country and they should know, right?

The public has spoken and it's clear they aren't the dummies looking at the White House as a temple like Mount Olympus in awe. A new poll from CBS is bad news for the President but probably doesn't matter as more spending programs are on the way.

Earnings Watch

Marriott (NYSE:MAR) posted results after the bell that were better than expected, but mostly encouraging. What is the key thing that makes a company's stock attractive? It can be oversold, it could be gaining market share, but nothing is more critical if demand isn't growing enough to spur an increase in prices. (This is opposite to the Post Office which is looking to raise prices on diminishing demand.) Marriott beat on the top and bottom lines, driven by a 1.7% price hike in North America. Price increases will continue in 2H10.

JP Morgan (NYSE:JPM) news was mixed, but mostly positive.

Tidbits and Tea Party News

I must say the NAACP calling Tea Party gatherings racist is a form of racial profiling in and of itself, and the kind of thing I would think the NAACP would fight against for everyone. It's the worst kind of stereotyping, and feeds into fear already fanned by most of the media that has never seen one act of violence at the thousands of gatherings that have occurred in the last year and a half. There are so many real issues for the NAACP to fight, including the self destructive turmoil in inner cities from murders to dropouts. The greater fight is over state's rights which black leaders are concluding will lead to mass racism.

I don't think Jim Crow will come back and believe in state's rights. In this day and age, we should assume the best in fellow Americans. In the meantime, I'd like to see opportunity and the American dream promoted more than the victim card. Of course, there is still discrimination and racism. Of course, some people that attended Tea Party events are racists, just like some people that attended Democratic rallies or are members of the NAACP. But, these are small minorities, and should never be used to paint a negative picture of everyone.

There is an economic issue at hand here because the NAACP wants bigger government as they still believe it's incumbent on elected officials to create prosperity in Black and Hispanic neighborhoods. It hasn't worked in more than 50-years, and it's never going to work. Calling people racist because they don't like the President's economic and foreign policies isn't going to work either. This never should have happened. Those in power should be working to unite the nation not pounce on every issue and make it about race.

China Slows

China's growth cooled to 10.3% in the second quarter from 11.9% in the first. The news for China is actually good, which took moves to deliberately moderate its growth and contain inflation. We are going to delve into the numbers more in the afternoon update.

US PPI & Initial Jobless Claims

We are combing through the data but its compelling equities dropped after what was the best initial jobless claims report in a long time and non-inflationary PPI data. Maybe PPI was too non-inflationary.

Disclosure: none