Charles Payne's  Instablog

This day in age, being kind of blue is a permanent state, the psyche of America. Far from being cool, we are tied up in knots about so many things. In fact, we have become a nation of long-tailed cats in a room filled with rocking chairs.

Years of Blue

That melancholy aura continues to haunt the market, which seems to reflect a nation haunted by lingering questions and lingering doubts. Those self-doubts can't be dodged or avoided because of the never-ending cascade of disappointment and lack of leadership.

We began the new millennium with hope and joy as all the computers in the world didn't crash, the earth didn't stop rotating, but the stock market came unglued as the greatest bubble in a generation popped. Plus, there was the attack on 9-11 and a couple of wars.

It wasn't supposed to be this way.

The Sky Is Falling

In April 1999, Pantone announced its color of the century as Cerulean or sky blue for a variety of reasons, including a reflection of the past and an exciting future (see sidebar). Pantone pointed to the psychological impact of gazing at the blue sky and that sense of peace and tranquility it brings to the human spirit. Essentially, we would be looking for solace in a new high tech world and that meant keeping our heads to the sky. Here's the thing, we look at the sky and it looks like it is falling. In fact, it is falling, and it's one thing you could get bipartisan support on, but the reasons it's falling are where people disagree.

I abhor the notion that successful people are the reason for this blue phase in American history, and that somehow government-forced redistribution of wealth is the solution. In fact, I think that would be the dagger in our soul and turn the skies black. This is really about the West in general, after a remarkable run of dominating the rest of the planet resting too long on its laurels and making assumptions of future success without planning for future success. The crazy thing is we don't have the guts to do things required, so future generations have a chance at greatness. In Europe, there is a massive backlash against austerity even in places where it's been in place for a month or so.

These Europeans understand how dangerous and selfish their actions are for their children and how conditions they leave for them will make their lives worse, not better.

(click to enlarge)

It's amazing how much more confident the Chinese are for their children than we are in America, and yet, the only answer we get is tax the rich.

Our Own Private Greece

Governor Jerry Brown of California took to www.youtube.com to push for even higher taxes after it became clear revenue assumptions for Caifornia were wildly off the mark. Previously, the state told the world its budget deficit would be $9.2 billion, that was in Janaury, now the number is $16.0 billion. The governor blamed everything except mindless spending. California was once the Golden State, and if you are a Hollywood star, Silicon Valley engineer, or just arrived from a thrid world country, it's still the land of milk and honey. For everyone else, it's the land of broken promises and dashed potential. Actually, those in the "other" category have been moving out of the state in droves.

I'm talking about smart, innovative and productive people leaving to the tune of 850,000 between 2005 and 2009 and being replaced by unskilled immigrants and babies.

The solution from Governor Brown may sould familiar:

Increase taxes on incomes over $1.0million to 13.3% from current $10.3%
Increase taxes on households above $250,000
Increase sales tax to 7.50% from 7.25%

California already has the highest taxes for individuals and sales, and sports an A- credit rating. There are too many promises and too many obligations and too many pipedreams like the high speed rail that Governor Brown insists should still be done.

Do We Love our Children

In Europe and America, there's a growing feeling of hysteria
Conditioned to repond to all the threats
In the rhetorical speeches of the Soviets
Mr. Krushchev said we will bury you
I don't subscribe to this point of view
It would be such an ignorant thing to do
If the Russians love their children too
Sting

In his anti-nuke song "Russians" Sting took on the Russians and Ronald Reagan, but the fact is, Reagan won the Cold War with steel determination. These days we hear talk of doing things to make life better for our children, but we keep doing the same stuff that will make their lives harder. The results from the Boston Consulting survey say it all-in nations where debt is out of control, unemployement is sky high, and the population is aging rapidly, they scream about the pain of austerity while admitting life will be touger for their children.

I just don't think people care as much or are willing to sacrifice as much as previous generations.

Today's Session

The market limped out of yesterday's session, but well off the lows. Today, it should get help from an Internet one-two punch. Groupon (GRPN) may not be a Ponzi scheme after all and Facebook isn't having trouble getting people to buy its IPO. Groupon soared in the aftermarket on its earnings report that is actually becoming less and less transparent, and Mark Zuckerberg & Co. upped the IPO to a new range of $34 to $38 potentially making it worth $100.0 billion before the first shares change hands in the open market. Economic data came in mostly in line nothing exceptional but no disaster either.

The CPI results should encourage those praying for more Fed intervention.

The Facebook buzz is helping the market today as well.

The planet
Spotted owls and Horned toads
Women
College Students
Retirees
Blacks
Latinos
Illegal immigrants
Gays
Lesbians
Union workers

I think someone ran the numbers and said if we can cobble together enough special interest groups or victims groups we can stay in power forever. I saw the Avengers this weekend and it's the exact opposite. Instead of telling great people with amazing gifts they are warriors and should stand tall and make it happen, the narrative from the White House to Meet the Press is you are all under attack and only the government can save you. Moreover, in addition to saving you, any transgressions or mistakes on your part will be overlooked. From unprotected sex to dropping out of high school, you shouldn't be burdened with the worst possible outcome. If we can kill off the Republicans, we'll all dine on manna from rich folks and evil corporations.

For generations, the best individual investment anyone could make was a college degree. Now it's talked about like a curse because it costs a lot of money. It's an investment and it comes with no guarantees, but you would rather have that degree and $200,000 in debt than a high school diploma and no debt. In the meantime, we are supposed to be pissed at JP Morgan for losing $2.0 billion. If they always won, would we say the game was rigged? If you can't lose on a hedge then we wouldn't ever need them. The real deal is it's a chase for those that hate Wall Street to scream murder and those that backed the bail out to save face. The scheme didn't work and will never work.

If you don't want Wall Street to take excessive risk then stop bailing them out.

Perpetuating Victimhood

The thing about creating a mindset of victimization is you have to stoke it from time to time. It doesn't take a lot of work but you have to ring fence possibilities of things getting better beyond higher minimum wage and longer term unemployment. What if the victims see a different light-one that says you don't have to cower and in fact you can take advantage of the greatness of this nation rather than hating those that are climbing that ladder of success? This is the battle liberals have with keeping black people, especially young men, cowering for crumbs. Make no mistake, selling government versus self-reliance has been a huge win for liberals but there is a dilemma.

Rap music

Of course there's the violence, misogyny and every other word is the "n" word. But that's not what bothers liberals, and to be honest, I'm not sure it ever really did. Sure Tipper Gore made a name for herself, but the richer she and Al got the less I heard from her, although if she were ever left waiting for her delayed private jet because Jay Z jumped the line, she could get offended again. In the meantime, there is a campaign to re-domesticate the black man. This is like the left's version of Jim Crow. They can't legally stop these rappers from spitting lyrics about being and getting rich so they will intensify the negative campaign. I don't think it's going to work, but you never know.

I read an article in FT this weekend that complained about luxury rap that has propelled Kanye West and others to the top of the heap. It begins with how West took over the entire top floor of one of London's most prestigious hotels, relegating members of the royal family to lower floors. The article talks about the weed and the noise, but the heart of the matter is how rap has moved from its roots. In other words, how could these guys be talking about fabulous wealth and living the ultimate high life when black unemployment is so high? Of course, the article was sprinkled with the usual stuff about the 99% and the insensitivity of Kanye and company.

"In a time of economic hardship we are bedazzled by the way it conflates black power and wealth worship. It's a document of our times, an expression of a broken system we don't want to fix. Up there on the top floor, "the voice of this generation" does indeed have a message for the rest of us."

If rap music consisted of crying about racism and the mean world where there is no mobility, we would never hear a peep from the media. But all of a sudden, black people are starting to think they can have nice stuff ... I'm mean real nice stuff. This past Saturday there were more dark skinned people Mother's Day shopping at Louis Vuitton than white people. On one hand, I think it's dangerous for anyone to buy things they can't afford, but on the other hand, why shouldn't the sky or Louis be the limit?

Well, the more people that think they can own this stuff the less they will be satisfied with food stamps and public housing. Make no mistake, luxury rap is more dangerous to poverty pimps and the left than "gangsta" rap ever was.

The article quotes Chuck D from Public Enemy as the voice of reason, and while his street creed is impeccable, I like music that celebrates success more than killing policemen. The fact is only a handful of people knew about rap before I did as I hung out at a particular McDonald's in the Bronx in the mid 1970s that was one of the first spots to create the genre. I think rap grew out of music like James Brown's "Black and I'm Proud" and from Muhammad Ali boasting that he was the greatest at a time when a black servant in movies was afraid to the go to cellar because it was dark. It came from the same drive that made graffiti the voice of a generation.

I always loved the notion of someone getting on the microphone and saying I'm great and I don't need to wait for the powers that be that think all leading men and women look the same to provide the stamp of approval. Of course, it hasn't always been smooth sailing as rap's message of economic freedom is muffled with the notion that it's possible by dropping out of school. Plus, there isn't enough room for everyone to rap or play ball. Like I said, I hate the "n" word riddles in every song these days and some of the lyrics are just plain dumb. But I love the American Dream that includes owning a passport and traveling around the world. Particularly as Al Sharpton whines that a lack of identification is a racist plot.

Huddled Masses

Your huddled masses yearning to breathe free
The wretched refuse of your teeming shore...
Emma Lazarus

America once welcomed the rest of the world through its golden door lit by the torch of the Statue of Liberty, but these days we are being told we are all the huddled masses. That somehow we are the wretched refuse living in fear of a guy that used to bully kids in prep school. How can America regain its greatness if we are told greatness is a bad thing in the first place? How can we ignite the economy when we are told consumerism is vulgar?

How can we spark that engine when we are all hiding and waiting, when so many special interest groups are being told the glow they see isn't from a torch of liberty but the evil aspects of capitalism?

This is the new New Colossus, a country being ripped apart through a campaign of fear and envy. A country that creates new victim groups while trying to hold down old victim groups that might spin out of the grips of victimization.

When the media spends its time saying the worst thing about an ass like Kanye West is flaunting his wealth and the worst problem in the nation is that Mitt Romney might have been a jerk in high school, we are all in a lot of trouble. We are nothing more than a bunch of huddled masses.

Today's Session

The media spent all weekend hammering away at the JP Morgan trade, trying desperately to make a mountain out of a molehill. JP Morgan invented the CDS Credit Default Swap and is supposedly the best on the street at understanding and managing risk, so in that regard, maybe this whole thing is newsworthy, but a 2% loss on a given trade isn't a big deal or atypical. I didn't hear one person discuss simply never bailing out banks again. Instead the idea is to castrate the banks in a way that saps their vigor and independence. I'm not sure how this latest salvo on banks, profits, and risk will help the economy.

But this is a not-so-veiled attempt to provide an excuse to nationalize banks. The reason we don't break them up is because politicians salivate over the prospect of controlling them. This is really dumb. It's a white swan event. In the meantime while we are rubbernecking JP Morgan, which is like slowing down on the highway to watch someone change a flat tire there is a pile up ahead that could slow progress for years. The Europe disaster is getting worse-again. Spain and Italy raised money, but it wasn't cheap. Yields are now:

6.23% Spain
5.86% Italy

None of this news changes the fundamentals at many companies that are doing great things, but all stocks will be punished today. This is what we want, although not easy or pain-free, this is when we get the chance to buy great names at discounts. That said, I'm not forcing the issue because we know cheap can always get cheaper especially when all the attention is focused on the wrong area.

Today's stories revolve around an easy enough theme of getting so big for your britches you lose touch with the rest of the world.

A few weeks ago a lot of stories popped up about the London Whale trading with JP Morgan whose positions were north of $100.0 billion and sending alarms all over the nation. As a single trader that is a lot of money and a lot of hedging and risk. That kind of money means the firm had to have positions that essentially were betting against its own customer. That was the narrative out of Washington as there was an immediate outcry from some to make the Volker rule stronger or beef up Dodd Frank. These rules ostensibly were supposed to protect customers but really a direct attack on bank profits.

Apparently the London Whale lost more than $2.0 billion on a bad hedge that backed up a bet on recovery in Europe. In many ways this is just part of the job, and the idea of losing money on a hedge is normally no big deal-par for the course. But this is about so much more. A contrite Jamie Dimon had to pause between collecting "man of the year" awards to hold a conference call where he called the loss "egregious" among several other choice words. I think his anger was aimed more at Washington than at the Whale as he understands at this precise moment in time his firm has served up more ammunition for lawmakers to tighten the noose on investment banks.

Ironically, you would think Washington would be happy to see the latest smartest guy on the street take a hit. In fact, I'm confused about outrage that comes when a Wall Street firm makes a couple billion is only matched when that same firm loses a couple of billion. Go figure. There is no doubt the sole goal of corralling Wall Street has been misplayed by all from day one. It's an amazing contradiction. President Obama and company aren't trying to kill the banks other than their reputation they want the money and power of these banks. It's like owning the prized bull at the state fair, but these bulls have the attitude and cunning of Moby Dick-and only BAC and C are willing to be pranced around for the crowd's pleasure.

So, Washington keeps pumping in money while layering more rules at the same time, at once fattening its prize but empowering the belligerence of these very banks. At the same time it's the little people (in this piece I guess the analogy would be the krill) whose needs go unmet. Many key Washington lawmakers are stuck in their own little bubble, moved by ideology and hatred for businesses that has made their decision-making a myopic crusade akin to chasing the big whale even as they pass other opportunities and put their own people at greater risk. If Washington uses this $2.0 billion loss for even more egregious (to borrow a word) rules, they will get no closer to owning the banks, and America will get no further to healing.

Fattening up the Banks

Not only has Washington given your tax money to prop up banks, the Fed has provided them with trillions in low cost loans and bailouts. All the quantitative actions (money printing) haven't worked because that Fed money goes to banks that have used it to fatten up their own balance sheets, hike salaries and restore bonuses. They are paying dividends and buying back stock all great things in a normal business environment but not cool if it's coming from funds that should be finding its way to Main Street. TARP had no strings attached and now that it's become the personal piggy bank of President Obama future bailouts (there will be more somewhere down the road) will be structured the same.

Remember no fine print was great for banks and for the administration which continues to tout the auto bailout the way banks are buying back stocks-in other words all success. Yet, here we stand in a nation that is not living up to its potential. In a nation that's awash in a sea of food stamps, unemployment checks, and general despair. Sadly the Federal Reserve can only pump out more money to these very banks in the hope they get so sated they finally push money out to would-be small business, would-be home buyers, and good customers that have been treated badly. As for this stupid trade, I have to say it's stupid to think a trader no matter how smart and connected will not take a 2% hit from time to time. The real story is knowing you can take a hit like that because the Fed is going to pump in fresh cash.

Of course because nobody can make money in this environment from the saver to the Wall Street firm because interest rates are so low. For banks it means taking on the kind of risk that makes them parishes on Main Street but normally out of jealousy when those bets pay off big time. The fact is Main Street should be pissed their money was used to bail out banks, the Fed keeps bailout out banks and while saving accounts accumulates dust, Wall Street banks get bailed out on a daily basis. Keep in mind I have written over and over again the change in FASB in March 2009 helped to set this scenario up as assets can be marked to make believe.

By the way there are other things going on and I know people that think this whole thing is a distraction from another serious development. I'll have more on Monday.

Keep Forgetting

Last night President Obama made a comment about forgetting how bad the recession was, and while it was clear he was suggesting things are so much better now it backfires for many reasons.

It was a house of cards, and it collapsed in the most destructive worst crisis that we've seen since the great depression. And sometimes people forget the magnitude of it, you know? And you saw some of that I think in the video that was shown. Sometimes I forget. In the last six months of 2008, while we were campaigning, nearly three million of our neighbors lost their jobs. Eight hundred thousand lost their jobs in the month that I took office. And it was tough. But the American people proved they were tougher.

First, how the hell can such a compassionate guy forget about the recession that might be over on paper but is truer for as many Americans now as it was back in late 2008? Moreover, it speaks to a serious kind of arrogance that comes with a zillion rounds of golf, hobnobbing with Hollywood royalty and campaigning every day since the inauguration. It's been a selfish crusade for president Obama he the Captain Ahab and a second term Moby Dick.

Today's Session

Banks will get hit, but I wonder if there could be rotation elsewhere. I'm watching Apple as a defensive play along with other tech names. That would be an odd reversal of fortune, but there is already so much money on the sidelines, and additional selling could trigger an avalanche that longs may want to avoid. We aren't going to force the issue this morning. I like the early pre-market action in NASDAQ futures but not enough to take the plunge.