It's hard to look at yesterday's session and deem that the glass was half-full by any means, but it could have been much worse. Investors bought some dear names on weakness but breadth was extremely weak, and there was a general lack of enthusiasm. Coupled with rising concerns about Europe, it makes for a witches brew that doesn't go down easily. In some ways, watching the train wreck in Europe allows the Street to ignore our own dire circumstances. There is no doubt America is wealthy and could propel itself into the next realm of prosperity, but government on every level is broke, and could stoop to stealing (oops "confiscating") wealth to cover debts.
In the meantime, individuals are saving more than they did during the economic boom time (yes, from 2003 to 2007 it was a pretty heady time), but there are many that still are struggling big-time. If banks and businesses, and even the average household, didn't have to worry so much about the misdeeds of elected officials eventually leading to higher taxes and additional bailouts, money would flow through the system. The hoarding is a major reason for the broken business cycle. Although the Fed has printed too much money and taken their balance sheet to the limit, cash isn't sloshing around on Main Street. A report from the National Labor Relations Board underscores how walls of worry and a lack of faith have resulted in more adults living day to day.
Coming up with $2G ain't easy
24.9% Could come up with $2,000 within 30-days
25.1% Probably could come up with $2,000
22.2% Probably unable to come up with $2,000
27.9% Certain they are unable come up with $2,000
19.05% Would have to pawn or sell stuff or take payday loan to put together $2G
Pulling Hair Out
The market trades as if investors are more frustrated than anxious. Yes, all that other stuff from the debt ceiling to the European crisis weighs on the market and its hot money traders, but I suspect would-be investors looking to find stocks to hold are watching from afar. They understand greatness is being repressed and attacked. I've heard the songs and read the poems, and yes we do romanticize the past. Right outside our office there is a phalanx of cameramen and reporters camping out for a glimpse of Dominique Strauss-Khan. The former head of the IMF is hiding out in the first building I worked in on Wall Street (71 Broadway).
Back in the day, I was so thrilled to be working on the Street even at the bottom of the totem pole, it was a dream come true. The place was electric, and often I could swear that I didn't move my feet from the subway station to my office, I was carried up by the crowd and enthusiasm. There was excitement next door yesterday because DSK might come out for air, but even if he ran outside and confessed, the excitement would be like comparing a candle to the stadium lights at Yankee Stadium. I'm sure this is how it feels across the nation. Even Silicon Valley with its hot IPOs and start-ups, isn't as electric as it was back in 1999.
Regular people instinctively understand we are not being as great as we could be, and they aren't coming back as a herd to the stock market until they believe they are investing in America's greatness. There has to be a general belief they, too, can be great and get rich.
While professional traders fret about risk, which is on one day and off the next, the masses are fretting about a fading glory. It doesn't have to be this way.
Bringing Money Home
In a piece on Bloomberg it was disclosed companies with representatives on President Obama's advisory council are pumping in a growing amount of money into overseas operations. This brings new meaning to the term "lip service" as it's the White House's Job Czar Jeff Immelt leading the way with jobs and investments outside the United States. There are 26 members of the President's Council on Jobs and Competitiveness, of which seven are with, or come from, multinational corporations. (There is only one person from the small business arena, Darlene Miller of Permac Industries, which won the U.S. Chamber of Commerce small business of the year award in 2008. There is one academic and two heads of unions on the council, too.)
Those seven companies have almost doubled the amount they've reinvested in the last four years. General Electric (NYSE:GE) reinvested $94.0 billion in 2010, up from $47.0 billion in 2006. At GE, 54% of the company's 287,000 employees work outside the U.S. The company gets 47% of revenue from the U.S., down from 56% in 2005. Overall, the public companies represented on the council pumped in $197.0 billion into "permanently reinvested earnings" last year, up from $103.0 billion in 2005. When allowed to repatriate earnings from overseas operations in 2005, U.S. corporations brought billions of dollars back, including $6.2 billion by Intel (NASDAQ:INTC) alone.
It's clear these companies have to invest around the world to remain competitive. It's also clear the tax code is being used to punish the success of these companies. I guess the Administration has backed itself into a corner with the insinuation that if oil companies gave up $4.0 billion in tax breaks (85% of which are standard for industrial businesses) gas prices would tumble, making the likelihood of pushing for real tax breaks for multinational corporations out of the question as it would be deemed hypocritical. I'm not sure which, if any, members of the council is asking for tax breaks to bring home money earned around the globe but Microsoft (NASDAQ:MSFT), Cisco (NASDAQ:CSCO), and Pfizer (NYSE:PFE) were some of the names mentioned that have been lobbying .
The message is clear, somehow we have to bring money back home, and the only way to do that would be to limit the tax haircut. Even with lower taxes it's difficult for multinational companies to justify not investing in their hottest markets. With that in mind, I really want to have the biggest companies in the world headquartered here, rooting them on rather than making it harder to compete.
China's Next Move, Pakistan's Latest Diss
I wonder if China could hold out until we cut defense spending to the bone or if it's too tempting to begin establishing a military presence around the world. China has already tinkered with military establishments in Africa, where it's investing billions of dollars, but now the country is being lured by Pakistan. Our ally in the Middle East is asking China to build a naval base in the southwestern port of Gwadar. In addition, a deal is in the works for Pakistan to purchase 50 JF-17 fighter jets at $1.0 billion, and maybe J-10 stealth fighters, too. Topping it off is six submarines at $3.0 billion to be delivered over 10 years.
Hong Kong Rising
While China flexes its muscles beyond currency manipulation, Hong Kong is setting the world on fire economically. Last year, the Hong Kong exchange led the world in IPOs with 87 offerings raising $57.7 billion. Yes, LinkedIn (LNKD) was exciting, but the company only raised $350.0 million while Glencore raised $10.0 billion through a duel listing on London and Hong Kong. Now, Prada is looking to raise $2.0 billion through a Hong Kong IPO. I can only hope the company's infamous timing isn't a bad omen. Prada had plans to go public several times before but postponed because of extraordinary conditions.
Then there is Yandex, the "Russian Google", which will raise $1.26 billion and trade at a PE multiple almost twice that of Google (NASDAQ:GOOG). The company made $29.0 million in first quarter profits as earnings climbed 62% year over year.
The Odyssey Part 1,400
The war of words continues as overnight we got more lines drawn in sand littered with rubble and broken promise. ECB member Christian Noyer called the Greek situation a "horror story." He says there can be no restructuring, adding that "there's no solution possible" and any efforts to soften the blow and mitigate conditions would leave Greek debt "ineligible as collateral."
The leader of Greece's New Democracy party has rejected the government's call for another round of austerity.
Now Goldman (NYSE:GS) likes crude oil, specifically Brent crude, so much they want people to buy the Dec 2012 ICE future contracts. The new target for crude is $130.00 a barrel because of lingering issues in MENA and other factors. Oh, Morgan Stanley (NYSE:MS) has turned bullish, too. I can't keep up with Goldman's calls anymore, if I didn't know better, I would swear they were playing the general public.
Equity futures act better this morning although enthusiasm seems to be capped as investors are still very leery about all of those unknowns. A month ago worries became a ramp, now they've become speed bumps.