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Japan Watch By Charles Payne

We come into the week still wondering and worrying about the effects of Japan's earthquake and tsunami. As of now, quake damage is placed at $35.0 billion, but that number is sure to climb. The headline is the race to avert a nuclear nightmare. In addition to the steam explosion at Fukushima's third reactor, the cooling systems at reactors 1 through 3 have failed. Japan has 54 nuclear power plants, of which 11 have been closed. This means rolling blackouts as much as 20% of the nation's power is lost for now.

There have been more than 200 aftershocks, and there is a high chance for another earthquake on the 7.0 scale or higher. The impact on the global economy is unclear. China is the top importer of U.S. corn, and ranks high for other key agricultural commodities. It's mostly a waiting game for markets today. People are waiting and praying.

On that note, I find it unnerving that environmentalists have hit the airwaves complaining about manmade global warming and suggesting the earthquake is the latest result. Everyone is allowed their opinion, but nobody can say this isn't an act of God without ridicule. There is something problematic in a nation where atheists can put forth theories but people that believe in God, at best, could hide behind the notion it was simply Mother Nature.

Social Media Revolution

The word went out on social media, and thousands of young adults came out to protest a lack of opportunities and upward mobility. These young people are frustrated by the fact their superior educations haven't led to economic rewards in their country. In fact, their country is on the cusp of going bankrupt. Obviously, I'm not talking about Saudi Arabia. I'm not even talking about any country in the Middle East or Africa. Instead, on Saturday 30,000 people, mostly 20 and 30-year olds filled the main downtown avenue in Lisbon, Portugal. There were simultaneous protests in ten other cities in Portugal.

Once a colonial giant, Portugal has deteriorated into the sickest of all those sick men of Europe, with the lowest GDP per capita in Western Europe. While there is no doubt the inspiration for weekend protests in Portugal was being sparked by the Jasmine Revolution that began in Tunisia, it's also a cautionary tale on why these revolutions don't always make things better. You see, it was back on April 25, 1974 that Portugal saw a shift in its government with its own Carnation Revolution which forced out an autocratic dictatorship.

Back then, young people joined with unsatisfied members of the military to force the nation to change. The country was fighting uprisings and battles to hold onto colonies around the world, and within the country there was a greater yearning for democracy. It all sounds great, right? It actually sounds a little like Egypt and to a lesser extent, Tunisia. The problem is the revolution was named after the red carnation, which represented socialism and communism. Yes, Portugal rightfully rejected its dictator but embraced a scheme that could never work because it violates certain human freedoms and inherently dis-incentivizes innovation and success.

In the decade before the Carnation Revolution, Portugal actually enjoyed enviable economic success:

* Annual GDP: 6.9%
* Industrial Production: 9.0%
* Private Consumption: 6.5%
* Gross Fixed Capital Formation: 7.8%

It should be noted that Portugal has never grown at the same rate since the revolution.

In January, a leading Portuguese newspaper wrote about the period between the Carnation Revolution in 1974 to 2010. Turns out governments have encouraged over expansion and investment bubbles through unclear public-private partnerships, funding numerous ineffective and unnecessary external consultancies and advising committees and firms. According to Google, the piece chronicled considerable slippage in state-managed public works, inflated bonuses and wages, and persistent and lasting recruitment policy that boosts the numbers of redundant public servants. That sounds much like our government today.

In Portugal, public debt is 87.1% of the nation's GDP. The country ranks high on the list for inclusion of women in education and politics. The country has a GINI co-efficient rating better than America (38.5 versus 35), but it's the highest in Europe. This is the rating system designed to measure income inequality. I think it's a scam that this is what hurts economies or that every nation should be Norway, which has the lowest number. Of course, the number should be the highest like some nations where the government sucks up all the money, but wealth and the wealthy can be great motivators in free societies.

How the heck does a socialistic country have the highest income inequality number in Europe? Socialism is so backwards and prohibits upward mobility. Now the country is on the cusp of bankruptcy. We don't hear much about it even though it's part of the infamous PIIGS acronym of failed nations that threaten the entire continent with economic disaster. The interesting thing is that disaster began just about 37 years earlier. Today, Portugal suffers from an 11.2% unemployment rate of which half are under 35 years in age. The amount of unemployed college grads is soaring, and many that are working do tasks that don't require college degree. In America, 17 million college grads are doing jobs that don't require a degree.

I really have marveled throughout this amazing wave of revolt at the speed and passion, but I can't understand why it has gotten no traction in America. I know part of it is the hardest hit people during the recession would never turn on President Obama, they would rather wallow in suffering while focused on other wrongs that have nothing to do with broad improvement. Young people think the President is too hip so they will stay out of the workforce in record levels, many abandoning education, and others reserving anger for capitalism and the rich. I'm not sure what's going to happen in Portugal. It's not going to have a violent uprising, but it's clear some sort of epiphany has occurred.

After 34 years of socialism it's hard to blame the rich or capitalism. President Socrates is losing favor and making mistakes, like recently being caught smoking in a place that was outlawed by his own administration. He promised to stop smoking, must be a common trait among socialists. I'm going to watch Portugal closely because it has to be a litmus test for how far people will go to allow a flawed ideology that is capping their dreams and abilities. It's not going to get easier with austerity as part of bailout packages, but at some point everyone and every country has to pay its debts.

Thinking Like a Private Equity Firm
By: Brian Sozzi, Equity Research Analyst

Investors in 99 Cents Only Stores (NYSE:NDN) awoke on Friday to news that the new private equity king of retail buyouts, Leonard Green, had joined forces with the Schiffer/Gold family to bring the company private for $1.34 billion. Anyone else take notice of the $19.09 per share offer price? Talk about clever, but unsurprising (NDN typically runs new store opening giveaways of general merchandise priced at $0.99 for a limited time), marketing.

It was a long overdue outcome for NDN, a company that boasts a very attractive dollar store model (variable product pricing plus the highest sales per square foot in the sector) but has never truly been viewed on par with Family Dollar (NYSE:FDO), Dollar Tree (NASDAQ:DLTR), and Dollar General (NYSE:DG) due to its lack of a broad geographic footprint. In addition to the deal being overdue, it comes at an opportunistic time in NDN's lifecycle as it invests in infrastructure to support square footage growth outside of its core California market, and at an opportunistic price by the most interested parties.

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Today's Session

In addition to Japan there are serious outbreaks of civil protest and disobedience across the Middle East, coupled with some concern over the latest plan to rescue Europe from its economic quagmire. Stocks are slumping and gaining downside momentum. Interestingly, all the things bothering the market could be turning points for all. Japan could snap out of its two decade slumber, Europe could be forced to face economic truths, and the Middle East could see the importance of upward mobility and diversification of its economy.