Shout out to the Young America's Foundation- You are our hope and our future, thanks for being concerned citizens.
There is always a silver lining on Wall Street, you just have to find it, invent it, or manufacture it. Hey, come to think of it this sounds a lot like government, too. Yesterday the market staged a rather impressive rebound on hopes the Federal Reserve will ride in to save the day...even if it's only saved for a couple of days. Let's face it, if we had to name the market the last couple of years it would go like this:
2009: The Bounce
2010: Year of Mediocrity
2011: Rewarding Failure
You see, the rest of this year and next will see a ton of money (at least $1.0 billion) promoting the failures of the Administration and blaming everyone from the Tea Party to George Bush for things that can't be fast-talked away. In this environment, the stock market will seek out ways to rally in spite of our failed economy. If people are willing to overlook meager growth, high unemployment, tumbling education levels, and the nation sinking like a rock, then maybe they'll buy into another period of silver linings otherwise known as green shoots. Don't get me wrong, there are individual opportunities because some companies are rocking despite roadblocks erected by Washington.
But, here we are hoping that 24 hours from now the news will be the nation created more than 100,000 jobs in July. That would be after a whopping 18,000 in June.
The idea of settling for less, lowering the bar, permeates our entire society to the point where we are wallowing in mediocrity. We justify part of this quicksand of misery to the notion of fairness or leveling the playing field. Case in point is the growing scandal that is the Universal Service Fund, which spends more than $4.0 billion a year providing low income people with free cell phones and up to 250 free minutes per month. This program is starting to be called a "right" and must be supported by paying cell phone customers and/or taxpayers. The program is known as Lifeline (because people spend so much time chatting up life and death stuff on their cell phones), but has different handles depending on the provider.
Assurance operates in 27 states, and says 5.5 million people in Pennsylvania alone qualify for the program. Safelink operates in 39 states and has 2 million free phone customers (can you get something for free and still be a customer?). In its last quarterly filing, Leap Wireless bragged about its Cricket Lifeline product, now up to 40,000 customers (that word again) and expanding rapidly. Of course, Leap caters to the so-called "cost conscious" consumer which means for the most part, lower income consumers who spend a disproportionate amount of their income on cell phones. These customers often don't have credit for the kind of long term plans so they settle for short term, but more expensive, plans.
While it makes for higher margins, it also leads to less certainty for Leap and other carriers in this niche of the industry. But programs like Lifeline, which pays Assurance and Safelink $162 a year per customer, see it as easy money. Like anything involving would-be goodwill from the government, the program is rife with fraud and abuse. But, more important, is the disservice it does to the businesses and the recipients. The poor are just as poor as they've ever been decades after the New Deal and Great Society. To question these programs means someone is racist and evil, yet in the end, all they've done is trap millions of people across several generations into poverty. A livable poverty.
I started reading "The Myth Of the Robber Barons" by Burton W. Folsom yesterday, and the first chapter covers political capitalism versus market capitalism. The former was represented by Robert Fulton, whose monopoly to operate steamboats in the Hudson was challenged and ultimately upended by market capitalist Cornelius Vanderbilt. Right now, the Obama Administration is putting up a false economic plan that calls for mounds of political capitalism. From high speed rails where there is no demand to rural airports where there are no passengers. The alternative energy scam is the same kind of faux capitalism that could only work (temporarily) when true competition is squashed or discouraged.
In 2007, Leap shares were trading at $95.90; today they are $9.45 in premarket trading.
Another humane program run amok is the food stamp program, which now counts 45.8 million Americans. It is one of the social safety net programs that has become the main source of making ends meet for too many people. Talk of reforming it is greeted with howls of hating children. In Alabama, the number of recipients leapfrogged to 1,762,000 from 868,000 in part to devastating weather conditions. People that need temporary help are blessed to be on the program, but kids that are on it throughout their childhood learn money is free and comes without strings and responsibilities. They eat the wrong foods and even learn how to cash in the stamps from time to time to buy things like fresh sneakers.
It's also another program with tremendous fraud and abuse. It was just reported yesterday that Tori Jackson, a former city worker from Brooklyn, pled guilty to stealing $7,000,000 worth of food stamps using phony names and social security numbers.
The bottom line is we are melting toward the lowest common denominator, and that has become the mark of greatness. We play that game on Wall Street too; it's called the expectations game. Let's hope expectations are low enough tomorrow because it would be the only thing worth celebrating. Call it faux capitalism, political capitalism, or just phony baloney stuff. It's our world for now.
The Biotech Game Continues
Last night, Dendreon (NASDAQ:DNDN) was hammered by more than 62% in the aftermarket. The company's miracle drug may have proven to be a mirage. It was supposed to propel the stock to $100.00 a share, but instead it's another in a long line of biotech disasters. We actually had it as an open position on our Swing Strategies service and let it stop out on Monday. (It never had the revenue to be on the Hotline.) One of the red flags is persistent insider selling. It's a trend that goes back to 2005. Every time there was good news insiders dumped millions of dollars worth of stock. In fact, since 2005 insiders have sold $122,760,836 worth of stock.
Insider selling isn't always a red flag, but this game is amazing, and plays out over and over again.
It's another mess this morning with Europe taking down global markets on Italy's ever-growing problems. Actually, I shouldn't put it that way because it sounds like the White House blaming this economy on the Japanese earthquake and the debt ceiling debate. Then there is Japan, the export-driven economy has been forced to drive the value of its currency lower which has sent our dollar higher.
Corporate earnings and retail sales are mixed at best and there isn't a single name out there that's leaping out of the gate and has the coattails to bring the board market along for the ride. Yesterday's intra-day bounce was nice but key indices are still below their 200-day moving average as the charts have broken down dramatically.
Stocks in general are oversold and there are individual names that are screaming buys. But we are in panic mode (although not classic capitulation which might not happen since all the weaker hands never got back into this market) and need to let the dust settle. This isn't the time to run away nor is it the time to force the issue but there will be a bounce that could be highly profitable and there are names that should be bought and put on the shelf, too.