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Moola...More Moola For the Sacred Cows By Charles Payne

While all eyes are on the debt ceiling debate, few people are analyzing the drama at the Federal Aviation

Administration. Yesterday, 4,000 workers at the FAA were furloughed because funding couldn't get through Congress. Key personnel including flight safety folks, TSA, and air traffic controllers are still working, but that's about it. Over the weekend Ray LaHood, the nation's Transportation Secretary, warned of all the job losses from things like stalled construction projects (apparently there are $2.5 billion in ongoing projects right now) and all the economic destruction. His pronouncements were not unlike those uttered by so many with respect to hiking the debt ceiling.

In short, when you connect the dots it's the end of the world.

Here's the thing, the House of Representatives passed a bill that would serve as a stop-gap measure to keep the department working. But, the Senate is balking and the White House has threatened a veto. So, what's the problem? Actually, there are a couple of problems, and both cast light on central issues at the heart of the debt ceiling debate. Expensive, sacred cows are not up for debate. And nothing is as sacred as unions and airports/railroads that we don't need.

Unions - The National Mediation Board changed the rules for employees in railroad and airline industries to unionize easier. Now, a company can become a union shop if a simple majority of those casting votes agree. Before the Obama Administration made this change, the rule for 75 years was that a simple majority of workers had to vote for unionization. There is a serious distinction here, and I bet sixty years ago when management had their scabs and favored workers, no union would have agreed to allow decisions based only on a handful that might cast a vote. This push dovetails with the war launched by the NLRB on businesses and states.

Even trade deals are being held hostage because of a program to provide union workers with 154 weeks of unemployment benefits.

Rails and Airlines - The Essential Air Service Program needs to be altered according to the House, whose bill now states that subsidies can go to small airports that are more than 90 miles away from medium and large airports. These subsidies now cost U.S. taxpayers $200.0 million a year. It seems more than reasonable that taxpayers shouldn't be subsidizing airports that are less than a couple hours away from another, larger, airport. I've already written about the debacle in Spain where half of the 43 international airports are sitting idle and the country sports 20% unemployment. China's high speed rail program is $276.0 billion in debt because nobody in China can afford the fares. The Shanghai to Beijing line costs $34.0 billion alone.

It was a real ambitious plan to lay down 16,000 miles of track, using 117 million tons of concrete and creating hundreds of thousands jobs. Just like Spain's building boom there was massive job creation in China's rail system, and now there are few takers and job vacancies for people that actually know how to operate a train that goes 220 miles per hour.

The fiscal responsibility part of the debt ceiling debate has completely vanished. This has nothing to do with our credibility and everything to do with sacred cows. There is a single-minded vision of what America should look like without regard to its threat to existing entitlement programs or the likelihood of creating new entitlement programs. Just as we have been told we'll like the healthcare law (I guess the further it's rammed down your throat the easier it is to digest) eventually I guess the White House believes we'll be enthralled with shiny high speed rails even if we don't ride them.

To me, the economic part of the debate seems clear. We must stop spending money that we don't have or we will lose our AAA credit rating and while not defaulting, it would cost so much to service the debt we wouldn't have enough money left over to build model trains.

Real Reason No Room to Cut Entitlements

These sacred cows are the reason we can't extract more concessions from entitlement programs. In the meantime, Harry Reid is saying all we have to do is wind down the wars and keep spending like there's no tomorrow. His so-late-to-the-party plan is disingenuous and insulting. The public is smarter than it has been in the past. Sure, most people don't know the details, hence the daily press conferences by the White House. The disc jockeys on a music station I flip to in the mornings were talking about the debt ceiling yesterday. They were getting all the facts mixed up but came out in support of President Obama's push to cut spending and debt. I guess using the Bully Pulpit has lots of benefits.

Now Go Home and Get Your Shine box!

Still, the Reid Plan and the way he delivered it yesterday brought to mind a scene of out that movie classic "Goodfellas." There was a scene when an old mobster is just out of prison and holding court in a bar to celebrate. He sees Tommy, all dressed up and looking much better than the shoeshine kid he knew before he headed to the joint. His comments embarrass Tommy, who says: "I guess you ain't heard...I don't shine shoes anymore." I think the days of politicians talking down to the American public are over, but, I guess Majority Leader Reid ain't heard...yet. Still, it's all about a sales job, or better yet, a snow job and that means low opinions for the intellect of the general public.

Of course, Republicans haven't helped their cause with an avalanche of proposals and even a secret deal President Obama tried to tweak at the last minute. The fact Boehner had to go back and present yet another plan belies the notion that previous carnations of a plan were not the best possible. In the meantime, Americans know it's serious and know it's dangerous, but can't get a handle on the right solution because there will be a better one tomorrow. But, everyone understands maxing out a credit card and then seeking a new card to pay off the other(s). People understand pain and sacrifice. The American public can be swayed and sold, but they aren't buying it like they did in the past (see approval polls).

Nonetheless, Washington continues to say to the public: "Go home and get your shine box!"

Last night, President Obama said we are just trying to borrow money to pay past debts and not to spend, but even that sounds spooky. Borrowing to pay money we've borrowed in the past means we will have to borrow in the future and that doomsday scenario becomes a reality with no solutions down the road. It was another nice speech, and we all want to work together. But, not even injecting Ronald Reagan was enough to get a "big" deal that puts America deeper into debt. I'm less confident a deal will happen than I was yesterday morning. Still, part of me sees a last minute deal happening, although it would seem impossible after Obama and Boehner spoke last night.

Job Impresario Does it Again

It turns out Jeff Immelt is creating more jobs, which is the good news considering he is the White House Job Czar. The bad news is these 65 jobs will be created in Chengdu, China, where GE is relocating its Healthcare X-Ray division headquarters. Not to fear, the company says the 120 employees at current headquarters in Waukesha, Wisconsin will keep their jobs. GE is sitting on $79.0 billion, got TARP money, and has done little to create domestic jobs. To be sure, U.S. businesses must be positioned around the world as that's where the growth is, but since Immelt took the helm, GE has shed 34,000 U.S. jobs while creating 25,000 overseas jobs. I really don't get how Immelt could be Job Czar or even head of GE.

He hasn't done a great job at either one. If he were rank and file he probably would have lost his job a long time ago.

Speaking of China, its largest online search company posted giant earnings gains last night. (NASDAQ:BIDU) saw its earnings up 95% as online marketing customers climbed 17% to 298,000. Those customers enjoyed per rev customer gains of 53%. The company now controls 75.9% of online search share, up from 58.4% in 4Q09. Back then, Google had 35.6% share, which is now 18.9%, down from 19.2% in the first quarter. The earnings reflect strength in China, strength in the internet, and the good fortune of losing a formidable rival.

Morning Earnings Rundown: Retail
By: Brian Sozzi, Equity Research Analyst

* Good quarter and revenue guidance raise from Under Armour (NYSE:UA) today. Gross margin took a hit due to higher product costs, however. The stock has cooled off since Barron's gave it a thumbs down last month, not sure if the quarter was robust enough to reignite the bulls.
* Bad job by Lumber Liquidators (NYSE:LL) management with its guidance ranges for same-store sales. Way too wide, does not project confidence. This execution misstep is on top of an outright dismal quarter, headlined by an EPS print that missed lowered consensus estimates.
* Looks like one place bloated lawmakers found room to cut were budgets for office supplies. Office Depot (NYSE:ODP) noted weak sales to Federal and State accounts in the quarter. Good to know Uncle Sam is a penny pincher when it comes to pencils.
* One message among many from the retail earnings out this morning is that consumers remain reluctant to purchase big ticket items that tend to be charged on a piece of plastic.
* Simon Property (NYSE:SPG) hit all the marks in the second quarter: higher occupancy, higher sales per square foot, and higher rent rates.

More Earnings: Automakers
By: David Silver, Equity Research Analyst

Ford (NYSE:F) reported second quarter earnings this morning before the bell.  Excluding items, the company beat the Street on the bottom line, earning $0.65 per share compared to the Street's $0.60 per share consensus.  My forecast called for earnings of $0.61 per share, just above the Street's estimates.  Revenues were higher than expected as well, increasing double-digit percentages across the board despite only a 3.9% increase in worldwide volumes.  Costs increased, but that doesn't really come as a surprise, with higher steel, copper, and plastic prices, but another reason the company gave is actually a positive in my mind, higher capital spending in Asia.  It is similar to a drug company's research and development, that is investing in the future and the short-term only gaze of the market should see this as a positive.  The company is investing in China and India and the previous investments have been working, with market share in Asia Pacific increasing to 2.9% from 2.4% year over year and sequentially.  Operating income declined in every segment, save for North America, where it improved 0.5% ($10 million). 

I still like the company, it has pricing power (more so than any other automaker), and feel that the higher investments will see a strong ROIC over the next 12 months. Higher commodity costs are going to be here for a while, so the company (and UAW) needs to find how to make the U.S. automakers comparable cost wise.  In the afternoon Hotline yesterday, I spoke about a WSJ article that said labor experts say Ford now says its costs about $48 for an hour of UAW labor.  GM's cost is about the same and Chrysler's is $49. That compares to about $27 an hour at Volkswagen AG's new plant in Chattanooga, TN, and Hyundai Motor Co.'s plant in Montgomery, AL.  Operating income fell around the world, with only a $10 million increase in North America, and if Ford hopes to continue its successes from the past two years (nine straight quarters of profits), the unions will need to step up.

Today's Session

Earnings are coming in mixed at best, but the good news is once again the market hasn't taken the bait. The sky isn't falling this morning despite the rhetoric and sense of doom. We are sifting through the earnings reports to find trends and clues. Honestly, I'm looking for signs Americans are doing more than buying Apple products. On that note, technology looks pretty good, Texas Instruments (NYSE:TXN) notwithstanding.