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Calm Before the Storm By Charles Payne

Apr. 11, 2011 9:32 AM ET
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Long/Short Equity, Portfolio Strategy

Seeking Alpha Analyst Since 2009

Wall Street Strategies has been providing independent stock market research since 1991 to individual, retail and institutional clients through a balanced approach to investing and trading. Charles Payne, our founder and chief analyst, is routinely sought after for his stock market, political, and general opinions by several prestigious news organizations. Currently, Mr. Payne is a contributor to the Fox News Network and Fox Business Network. He also hosts his own radio show on KFIAM 640 every Saturday from 2-4pm PST. Mr. Payne recently released his first book entitled Be Smart Act Fast Get Rich. Our all-star analytical team is called first when the media needs to know. We are regularly featured on several well respected finance-oriented radio and television programs such as Fox, CNBC, BNN, WSJ to name a few and widely recognized in the media as a leaders in the analyst community. In addition, Wall Street Strategies is part of Thomson-Reuters Consensus Estimates. Brian Sozzi is an equity research analyst specializing in the softline/hardline goods sectors of the retail industry for Wall Street Strategies Inc. Mr. Sozzi graduated Summa Cum Laude from Dowling College, receiving his Bachelors of Business Administration with a concentration in Finance and Accounting. Routinely sought after as a trusted point of reference for opinions and insight on the global economy and retail sector stock evaluation, Mr. Sozzi is a frequent on air contributor to CNBC, Fox Business Network, and Bloomberg, and is cited regularly by online/print publications that include Forbes, Bloomberg, The Wall Street Journal, Thestreet.com, CBS Marketwatch, Reuters, Seekingalpha, Associated Press, Crain’s NY Business, Fortune, Barron’s, AOL Finance, and the Financial Times. In 2009, Mr. Sozzi became recognized by Starmine as a top-ranked equity research analyst for stocks under coverage in such categories as EPS Estimate Accuracy and Industry Excess Return. Carlos Guillen is an Equity Research Analyst providing coverage of the technology sector for Wall Street Strategies, Inc. Mr. Guillen has had experience working in both the sell side and the buy side. Prior to working as an analyst, he was a Design Engineer for Lambda Electronics. Mr. Guillen holds an M.B.A. from NYU’s Stern School of Business, and he has a B.S. in Electrical Engineering from Manhattan College. David Urani is a research analyst with concentrations on the homebuilding, staffing, medical devices, and logistical services industries. Along with providing institutional clients with up-to-date reports of individual stocks within his industry coverage, David assists the rest of the Wall Street Strategies research desk with timely analysis of vital economic data. A graduate of the A.B. Freeman School of Business at Tulane University, David earned a Bachelor of Science in Management while majoring in finance. With prior training experience running small businesses, he has an eye for key fundamentals that keep Companies running efficiently. David’s insight has been featured in several outside sources, including the Fox Business Network, MarketWatch, and SeekingAlpha. Carlos Guillen is an Equity Research Analyst providing coverage of the technology sector for Wall Street Strategies, Inc. Mr. Guillen has had experience working in both the sell side and the buy side. Prior to working as an analyst, he was a Design Engineer for Lambda Electronics. Mr. Guillen holds an M.B.A. from NYU’s Stern School of Business, and he has a B.S. in Electrical Engineering from Manhattan College.
"...but beginning to live within our means is the only way to protect those investments that will help America to compete for new jobs." -President Obama

It's really amazing but late Friday night President Obama said he was focused on spending cuts during negotiations and not social issues like Planned Parenthood or "fresh air" (EPA). Well, maybe they're serving tea at the White House these days because the most dramatic compromise offered was a spending freeze. We are set up for deeper cuts in the FY12 budget, but we are also set up to be played, again. You see, while it would seem Republicans "won", the fact is $38.5 billion in cuts in a $3.7 trillion budget just isn't much of a cut (don't even try to say it was $78.5 billion in cuts to a budget that was never official.) What's going on is Game Theory.

Now, the White House will play the game of putting forward budgets much higher than what they really want and then making concessions to their comfort number. It's a win-win for the Administration, which gets what it wants and takes a victory lap, even the GOP gets to take a bow. Only the American public comes up a loser. So, yes, Mr. President there are more "painful" spending cuts needed, but will they really happen? And, yes, in the process federal programs people depend on may be killed; many of them should be killed as they aren't designed for greatness but rather mediocrity. They are designed to keep people tethered to government checks rather than forcing people to make it happen on their own.

"I would not have made these cuts in better circumstances" said President Obama. I love this admission about "circumstances" because now is the time to make cuts despite the notion we should wait until things get better. Things will not get better until we make them better, and the only way to do that is to remove the government from its credit cards and lack of accountability. Now it's time for tough and real cuts, and it's not 1995.

Underscoring just how difficult the challenge is these days, when debate got hot and heavy on March 30 when the U.S. debt was $14.210 trillion, by April 7 it stood at $14.264 trillion, or $54.1 billion more. Don't forget, we cut $38.5 billion, I guess.

Now we face the debate on the debt ceiling and FY12 budget. I'm not sure how it's going to shakeout, but I worry there will be nothing but fear mongering from people that should know better. The most despicable and asinine comments imaginable on efforts for a modicum of fiscal responsibility came from Harry Reid and Nancy Pelosi last week.

Pelosi shirked about six million seniors being deprived of meals. When her aides were confronted later with certain facts, like the program in question only has 2.6 million seniors in total, they replied the House minority leader meant six million meals would be cut from the program. Oh, okay, that makes sense but the program serves 200 million meals a year so the cuts amount to a 3% cut and makes it unlikely any older folks will go begging for food.

Harry Reid actually took to the floor and almost wept as he explained his own daughters and granddaughters might not be able to get checkups because of pressure at Planned Parenthood. Disingenuous, yes, but also stupid since only 3% of Planned Parenthood clinics offer the mammograms he talked about. Moreover, the U.S. government should not be in the business of cancer screening.

The Democrats are pushing fear more than ever. I don't see how our country can be great when so much false information is pushed at its citizens. President Obama had a carpet made when he took over the Oval Office that has five quotes:

"The welfare of each of us is dependent fundamentally upon the welfare of all of us."- Theodore Roosevelt.

"No problem of human destiny is beyond human beings." - John F. Kennedy

"Government of the people, by the people, for the people." -Abe Lincoln

"The arc of the Moral universe is long, but it bends toward justice." -Martin Luther King

"The only thing we have to fear is fear itself." -FDR

The first quote might explain the single-minded determination to redistribute wealth, even when it comes from people that work hard and sacrifice, and goes to people that don't work hard and don't care. I think JFK had many better quotes than the one sewn into this carpet. While this quote is encouraging, it fits in with the infamous notion that it's no big deal for Americans to view themselves as "exceptional" since every other country feels the same way. Then there are the famous quotes from FDR, which should be amended to "we only have to spread fear to stay in power."

Here's the deal. People react to fear in several different ways, including: panic, anger, guilt, shame, and powerlessness. These days, we are supposed to feel guilt and shame for succeeding. Our panic has opened the door for TARP, Stimulus, Cash for Clunkers, Homebuyers Tax Credit, Healthcare Reform, and Financial Regulatory Reform. There is also another reaction to fear. When our backs are against a wall, we often come out swinging. Sun Tzu taught warring parties to always leave opponents a way to retreat. Those that push fear and victimization do the same thing.

This is how we get the campaign promise of a higher minimum wage. It still blows me away another could be swayed to vote for someone for a higher minimum wage, but it's the same as moving that wall against the backs of those barely scratching out a living. Pump the fear and provide small offerings while taking a heroic posture. It got us government housing, endless programs that have never focused on individual greatness, and government cheese. This line of thinking also gives us last minute deals like the budget compromise that cuts less from the budget than grows on the debt ledger in a week.

The Opposite of Selling Fear

Last week, a professor at Beijing Normal University told his students "when you are 40 years old, if you don't have 40 million Yuan in assets, don't come see me, and don't say you were my student either." Professor Fan said the goal is the "requirement" he has for graduate students. His precondition is that wealth is reasonable and legally earned. His other observations:

"For highly educated people, wealth signifies struggle and effort whereas poverty signifies inability, laziness, shame, and failure." (I find this so interesting considering the last three years there has been a major effort to make hard-working and successful people feel shame. Even Hollywood has gotten into the act with stories about the perils of working too hard and making too much money. Of course, Hollywood has churned out this hypocritical message for a long time; see "Man in the Grey Flannel Suit." But, in the movie "Click" Adam Sandler followed the script but was the star, producer, and a couple other roles including key grip.)

"Once you become rich, that means that you have created a lot of GDP, tax revenue, and jobs." (Amen)

"When your contribution to society is large, it also helps low-income people, as well as preventing yourself, your family, and your relatives from becoming a burden upon society." (Ask any doorman or car dealer in Manhattan about this.)

There was a time when people in America instinctively understood what this professor is trying to teach. You don't become the richest country in the world by focusing on a higher minimum wage.

Today's Session

It feels like the calm before the storm as equity futures are edging higher. But, there is also tension in the air. There is a lot to deal with this week, and that's only scheduled stuff, I'm sure there will be some unexpected news and events, too.

What we are bracing for:

Earnings: Should be the best quarter ever for S&P 500 companies, but guidance is a nail-biter as commodities costs are hitting from every angle from the cost of moving goods, creating goods, and even higher wages in China. All of this means pressure on margins. The question is pricing power.

White House Budget: This will re-launch the attack on the rich; you know those household and small businesses raking in $250,000 a year. Supposedly, there will be a focus on long-term deficit reduction. We'll see.

Libya War: I think this issue is going to fade as it seems a forgone conclusion Qaddafi and all the other strongmen in North Africa and the Middle East (save for Saudi Arabia and Bahrain) will be ousted this year.

Merger Monday

Gosh I'm upset about that Global Crossing (GLBC) deal not because I saw it coming but I've said this is going to be the best space in 2011 and we don't have exposure. Acquiring company Level 3 (LVLT) is seeing its shares rocket higher on the news- a huge sign. Some may also think, from looking at me, I should have had an instinctive notion that Tasty bakery was going to fetch a 140% premium. There is scuttlebutt about Tyco, too. I'm encouraged by these deals point to corporations preparing for a long term sustained recovery.

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