THANK YOU ERIC HOLDER ... MAY I HAVE ANOTHER? (FINAL EDITION)
By Charles Payne, CEO & Principal Analyst
6/2/2010 9:09:38 AM Eastern Time
A boot on the throat isn't enough as the Administration has made it official, launching both civil and criminal probes into BP. On the same day influential democratic leader Robert Reich writes an op-ed saying the government should put BP into temporary receivership, the next shoe drops late in the day with the U.S. Attorney General saying "if we find evidence of illegal behavior, we will be forceful in our response." What the heck does that mean? Well, Reich cited General Motors and AIG as two successful government takeovers that have established precedence for outlandish government grabs. Fact is both of those are still unmitigated disasters with respect to how much taxpayer money went into them. There is no doubt giant fleet sales to the U.S., government along with other types of manipulation, will make GM look better. However, it's not a true success story.
Laws were broken, contracts were broken, and government was elevated to the role of picking winners and losers in industry based on union membership. Taxpayers got zip from TARP, but the spin has focused on how successful the plan has been. Hogwash! I've always hated those rosy stories on how great TARP has worked out and how it saved the world. Too bad more people don't realize how close the announcement and implementation of TARP pushed the world to the brink. The former CEO of Wells Fargo (WFC) says his and other bank stocks dropped 80% after the plan was announced. Instead of failed banks taking their lumps we were made to assume all banks were in trouble. So, when the strong banks made a ton of money from infinitesimally low interest rates (the carry trade was like taking candy from a baby...taking a nap) and another $2.0 trillion in Fed loans and assorted programs, we were told it was all TARP.
Then there is AIG, selling off crown jewels, the company could very well make money in some far off year. But, is that success? The same kind of risk this Administration labels "reckless" was conservative compared to the $23.0 trillion once at risk to backstop banks. Now, the FHA is backing loans with 3.5% down and mortgage payments up to 50% of a borrower's pay. Still, it's all being touted as successful. These quasi-nationalization programs are bad for capitalism, bad for free markets, and do not work. A scare has spread like the Ebola virus as the door is open to snatching a company because it might have lied about some things. Then there is the suggestion the company could fix the oil leak faster if the President was really in charge. Hogwash! The President said he is in charge and there is no way BP isn't going to do what it's told.
The "Top Kill" effort was killed by orders from the Administration. If BP did illegal things then it should be punished, but right now we need to fix the leak, not falling White House poll numbers.
Reich's Five Point Plan
BP says it has spent $1.0 billion so far on the leak. Now, could they have spent more? I'm sure they could have, but the federal government has been much slower in its efforts to help states and preserve the shoreline. BP is using a risky strategy...duh what else is left? I guess the oil could be sweet-talked into acting nice but that approach hasn't worked with North Korea or Iran. What other strategy is BP supposed to be implementing? Why would BP want the leak to continue? Why wouldn't it try everything to get this resolved? This op-ed piece was a well-timed chess move toward checkmate otherwise known as nationalization. Coupled with Holder's announcement, which amounted to a call of "check," the markets rightfully freaked out.
Economic turmoil was the perfect cover to exercise polices rooted in a disbelief in free markets, but stabilization made it more difficult to get the masses behind radical change. Maybe the Administration thinks a second round of turmoil could provide cover for the next step in the agenda. That means grabbing oil company profits (don't have to wait for windfall gains) via taxes and regulatory fees, pushing cap and trade before November elections and, if push comes to shove, taking over a major company in the industry. It's a good way to get everyone else to play ball. As Sean Connery said in The Untouchables, "that's the Chicago way." In the meantime, the stock market has a glass jaw, reflecting question marks about the European economic meltdown, China economic slowdown, and American economic sabotage.
In homage to Al Haig, President Obama has already said he is in charge here, now. Last week's press conference was a roll of the dice, hoping "Top Kill" would work, thereby connecting Obama's appearance to a miraculous fix. That White House luck ran out so it's off to Plan B, which is continued public flogging of BP and then taking them over. If BP admits they broke the pipe as a terrorist attack they would be better treated. Nobody feels sorry for BP, but no sane investor wants to see the White House takeover the company, either.
Energy stocks took it on the chin all session long as BP opened under tremendous pressure. In addition to possible criminal and civil investigations into the entire industry (it's hard to imagine BP being the only company to operate in a certain way just as it's hard to imagine Goldman was the only company to sell CDO products even as they shorted them) news that China is slowing hurt the industry, too. Coal stocks, the worst performing niche in May, took the hardest hit. This homegrown energy source could be the last fossil fuel standing one day. Until then, it's a good proxy for the global economy and needs to lead the market higher, not drag it lower.
Another source of tension is escalating anxiety in the Middle East. The deaths in the commando raid are tragic. Video I saw of the incident showed incredible self-restraint by commandos under full assault, one was even hurled off of the ship. But the deaths will serve hate-mongers to stir the pot. America's lukewarm embrace of Israel isn't going to help the situation. Then there were reports of Lebanon firing on Israeli war planes. This is a situation that needs decisive action as a middle of the road approach will only make things worse. That whole pensive and cool thing isn't always better than acting swiftly. The stakes are higher than ever before, somehow peace must come to the Middle East.
Economic Data
Challenger, Gray & Christmas
While not a market moving report per se, it was encouraging that planned firings dropped 65.0% in May according to outplacement firm Challenger, Gray & Christmas. What is even more interesting is the nod to planned firings being back at pre-recession levels.
The Market
There is no doubt the market wants to rebound, but there is no doubt the market is on edge and the first response to adversity is to flee. The first response to doubt is to flee. It doesn't have to be this severe. For now, however, it is. From tongue lashing to reform, the war against business is beginning to scar.
