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Breakdown! By Charles Payne


I've already said it's not about valuations anymore, so what is the message of the market? Virtually all the economists and market experts I speak to think the market is oversold, and only technicians are looking for more downside. But, the fact is the market continues to tumble on the same news that's not really news, so we have to consider what the message of this market is. I think at this point the market has assumed something akin to an activist role. Stocks are trying to force tough decisions on both sides of the Atlantic and are also demanding more intervention. That doesn't mean propping up the euro but action that would trigger real economic growth, not simply a bailout of banks again.

Of course, it's not just banks but iconic American brands that seem to be falling like flies. Yesterday it was AMR Corp. (AMR), parent of American Airlines. On the heels of Eastman Kodak's (EK) disastrous session on Friday, bankruptcy rumors were swirling after a spike in pilots filing to retire. The airline industry is notorious for the amount of carriers that have gone out of business since Orville and Wilbur made that historic flight at Kitty Hawk. The stock closed off more than 30% at one point, and finished down more than 40%. There are so many cautionary tales for business, Americans, and America.

The company's roots go back to Charles Lindbergh's April 15, 1926 mail run for Robertson Aircraft, which eventually was acquired by The Aviation Corp. which consolidated several small airlines to form American Airways in 1930. This went onto become American Airlines in 1934. The company began trading on the NYSE on June 10, 1939. Its role in aviation is legendary, including giving up half its fleet to the military during WWII and hitting its 500 millionth passenger in 1982. Yesterday, the stock halted trading seven separate times.

Lessons Learned

Unions can destroy industries. Heavily unionized industries have been battered in recent years, leaving formerly successful businesses and companies like hollowed out oak trees decaying on the forest floor. Yellow Roadway (NASDAQ:YRCW) was once one of the biggest trucking companies in the world and is now hanging by a thread. The automobile companies paid exorbitant wages while their foreign rivals used the difference to add better features and competitive pricing. Steel companies in America should have dominated the world but instead are mostly also-rans currently struggling in this global economic slowdown.

Debt is a killer. AMR has almost $12.0 billion in debt not counting pension obligations. These debt obligations are a massive overhang just as Greece's debt obligations, more than 165% of GDP, have become an unmovable object. Debt is a monster when it gets out of hand, and I think our nation's debt is out of hand.

Bailouts do not work. Sure, the public relations spin has gone into overdrive trying to sell the notion bailouts worked, but when it's all said and done the bailouts of AIG, auto companies, and banks will prove to be failures on many levels. Some banks paid back the funds plus interest in an environment where they were able to use friendly accounting and got trillions of dollars in low interest loans from the Fed to go with rates so low making money was a no-brainer. When adding the amount of money financial companies along with GE were able to write-off from losses and TARP fees those would-be gains were diminished, and in some cases, wiped out.

Chrysler was bailed out in the 1980s and again in 2009. The airlines got $5.0 billion in cash and the government offered another $10.0 billion in loan guarantees. The Senate approved the bailout in a 96-1 vote, and many lawmakers tout its success. Yet, here we are again. Stock options netted the government $300.0 million from America West and US Airlines by the time the deal closed in 2006. Money was lost when ATA and Aloha Air went bankrupt. Here's the thing about making money on those deals. US Airlines shares peaked at $63.00 in 2006 and closed yesterday at $4.63. I wouldn't call that winning; Charlie Sheen wouldn't call that winning.


America doesn't have to be AMR Corp. Yet, both need help to escape the clutches of the Administration. Yesterday the CEO of United Airlines told Neil Cavuto on Fox his company and industry were paying higher tax rates than those hit by sin taxes. He mentioned alcohol, firearms, and tobacco and went on to say flying wasn't a sin. I'm not so sure. Moreover, there is a provision in the administration's new economic plan that calls for even more taxes on airlines in the form of landing fees to hit commercial and corporate jets.

Regulations, higher taxes, and misspent taxpayer funds have taken a tremendous toll on business' bottom lines and the psyche of investors.

It seems like it's all falling on deaf ears. Yesterday, President Obama said he had no regrets about the Solyndra scandal and the billions of taxpayer dollars being thrown at the solar industry. In addition, there was the admission the nation is "not better off" than four years ago, making the President the "underdog" in the next race for the White House. I get part of that is a way to motivate the base, but the other part speaks to some fears of investors and regular Americans that sense the White House has given up on legitimate fixes to working on the blame game.

President Obama went on to say in his ABC interview that Americans will vote for the candidate "who's got a vision," which I hope is wrong. It's time for vision and slogans to give way to concrete plans and approaches. In the meantime, President Obama lambasted Bank of America (NYSE:BAC) for its debit card fee, which I also find outrageous, but know it's a result of losing business opportunities from new rules and regulations via Dodd Frank and other Administration actions.
Let's face it we live in a very tacky world in part because it's more difficult to make money without running into a new rule or law. Moreover, consumers seem to handle the being picked off nickel and dime style ok rather than paying a bigger number up front.

But, it's not vision to destroy the spirit of our nation, and that's what's happening at warp speed. Our backs have been broken, the backs of business have been broken, the backs of homeowners have been broken, and the backs of young people have been broken. It's all reflected in the stock market that broke key support points in that last minute and collapsed yesterday.

Today's Session

It's amazing how the string of good to very good economic data releases has only been able to spark rallies that last for minutes, and each time they fade and the ensuing selloff gathers more steam.