Hoping that Red White & Blue Doesn’t Follow Swamp Holly Orange By Charles Payne
Long/Short Equity, Portfolio Strategy
Seeking Alpha Analyst Since 2009
I saw an interesting chart yesterday that marked the performance of key stock markets from 9-11 to the death of Osama bin Laden. Mexico is up 532%, Brazil 452%, Hong Kong 129%, Germany 62%, and the S&P 500 25%. So, does 25% spread over a decade sound frothy? That being said, the market needs booster shots, and (economically) there is none potentially more potent than this week's jobs report. There is a ton of economic data between now and then, but I expect one big up day and one big down day then a hush going into Friday.
Longer term, there is a ton of upside potential for the market as long as the nation doesn't go broke between now and then. Really, there has to be changes made to the spending mentality of Washington. We're getting lip service right now with a few gimmicks tossed in the mix as proposals. That's not going to solve the problem. So, there are several narratives running side by side, and it's easy to see how would-be investors could get fixated on one while ignoring the others.
Cautionary Tale of Yellow Roadway
You can be mighty, great, and rule the world (or you portion of the world) and still self destruct. Over the years, we've witnessed several business examples of this, but the most recent covers all the mistakes that could be made in business and government. YRC Worldwide (YRCW), which was formerly Yellow Roadway, saw its shares close down 23.7% yesterday from Friday's close. The stock is off 90% from its 52-week high, and 1,461 points from its spilt-adjusted high. Yes one thousand, four hundred and sixty-one points!
How did it happen? The answer is plaguing our government today; debt, unions, and misguided management. The pedigree of the company is amazing, it should have ruled forever.
Just as America has been seen as a mighty Mac truck barreling along, Yellow should have conquered the world, but it lost money in four straight years and the weight of pension obligations, high wages, and other miscues has resulted in today's company. 95% of senior lenders, all multi-employer pension funds and asset-backed funds, along with the Teamsters backed a plan that leaves existing shareholders with 2.5% of common stock in return for a $100.0 million from a new secured convertible note due in 2015.
Billions of dollars created this behemoth, which had to crawl for a fraction of that money in hopes it will live again. Yellow went down the road of poor decisions as far as it could stretch. America is on that same road. Time to hit the brakes; even a jackknife would be better than that cliff ahead.
Pollsters in Canada were so wrong about yesterday's elections it brought back images of "Dewey Wins" headline in the Chicago Tribune after that paper rushed to get out its newspaper ahead of the competition and assumed Truman was going to lose. I was bummed out thinking the conservative government in Canada would be upended our forced into a collation that would hamstring their agenda. But a funny thing happened - conservatives won big time!
Canada is enjoying an economic resurgence that we can only watch with envy. The nation, riding skyrocketing commodities prices and sounder fiscal management has enjoyed solid growth and sports a 7.7% unemployment rate. In March, there were 24,000 construction jobs created and 64,000 over the past twelve months. Canada didn't have a $700 billion "shovel ready" stimulus plan. The victory points to incredible resolve by Canadians to further improve their future.
Stephen Harper will now have a free hand to lower taxes and cut spending. It's a clear mandate. In the meantime, the Quebec sovereignty party, Bloc, was crushed. Even French-speaking people want to be part of a winning team and game plan. But the biggest losers were the Liberals whose party lost a giant chunk of seats. It is an amazing story and one wonders if America will take the cue.
Hard decisions have to be made and voting in people that promise to spread around money that doesn't belong to them might sound attractive to some just as living in a candy factory sounds attractive to a child. But adults know better and hopefully in this country they will make decisions based on realities of life and love of their children's future.
By the way the Liberals actually forced the general election - they believed the polls.
There is another shift into Chinese names, even reverse mergers that have been so maligned. I'm hesitant to jump on that bandwagon not because I don't see tempting ideas, but the shorts have been so well funded, organized, and allowed to inflict havoc with immunity. In our market, it's becoming more difficult to wow Wall Street with earnings as beating on the top and bottom lines isn't enough for every company that has reported.
Futures are firming up nicely but under pressure that is typical for jobs report week. We sent out a ton of alerts already this morning on earnings and/or upgrades from ideas in the model portfolio overwhelmingly good to great. But earnings aren't the big story this week - its jobs or lack thereof.
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