1/4/2010
By Charles Payne, CEO & Principal Analyst

Welcome to 2010 everyone, which for most is symbolically uplifting as it not only turns the page on the calendar but also ends a ten-year period that has been a disaster for the stock market, has seen the nation humbled, and is now at odds over so many things. This year, there are big and bold trends that are unsustainable. Because they are unsustainable, how they are resolved will be the key to the economic success of the nation. For me, government intervention such as new rules, regulations and spending, along with the mortgage market and unemployment, will be the key factors of 2010.

Government intervention was one the biggest stories in 2009 and it will continue to be the invisible hand of the master puppeteer in 2010. Considering how difficult it was for Democrats to get healthcare passed even though they didn't need any help from Republicans one can only imagine there is little political will to tackle things like Cap and Trade and other controversial bills. But, this administration is on a mission, and will follow their agenda no matter the consequence to the party. Perhaps the biggest news of last year was when the EPA official labeled greenhouse gases as a danger to human health ahead of the President's arrival at the big climate conference in Copenhagen. The move sent a message to like-minded policymakers around the world that the White House will do its part with or without Congress or the blessing of the American people. This is frightening as it means America's ability to compete and to take advantage of its own natural resources will be harmed beyond repair.

There is a very good chance that we will see the EPA begin a campaign against American businesses that we require immediate action to retrofit plants, build new plants and buildings, and install procedures that hit the bottom line hard. In business, there is a natural evolution to doing things by outlawing fully functional buildings, which will result in jobs losses. Another area the EPA will come down hard is the area of drilling. Already, the agency is considering serious restrictions of shale gas drilling using hydraulic fracturing, or "fracking." There is a bill winding through Congress that looks like it will not pass that aims to limit this technique, but the EPA is going to cast a large shadow. Already, Chesapeake Energy (CHK) has backed down from a desire to use fracking on parts of its Marcellus shale properties in New York. Considered a godsend to the industry, experts say that the shale holds as much as 500 trillion cubic feet of natural gas. Considering New York State consumes 1.1 trillion cubic feet of natural gas a year, such potential means an energy source that could last several centuries could go untapped.

I realize that there have been complaints about damage to water supplies near drilling sites employing fracking, but I also understand the industry has made great strides and significantly lowered potential harm from some of the fluids, including diesel that includes benzene which is known to cause cancer. I've read articles on how fracking has actually been used to extend the life of drinking water wells. So, what's this really all about? The stakes are high, but it's not medical concerns that are driving the debate per se.

This is about power and shaking down industry, but along the way it also means smaller corporate profits and costs that must be passed along to the end user on Main Street. The grand scheme is to create enough animosity that caps on profits will come out of the government, pushing business closer toward a communal role in society. Look for czars and agencies controlled by the Executive Branch to leapfrog Congress and try to force their will and agenda.

I spoke about the growth of government on my radio show "The Charles Payne Show" and its dangers. These dangers are among the most prominent facing the nation and its foundation. Government spending is necessary in many areas, including public safety, but there comes a point when it becomes harmful to society, and that's where we are now. The Heritage Foundation featured an article written by Daniel Mitchell and published March 15, 2005, that outlined the different kinds of costs associated with too much government spending. The ones that stand out the most to me:

When the Great Depression began in 1929 government spending was only 11.27% of total GDP. When the war was won in 1945 government spending was 52.97%, and 20.46% by 1948, as the nation was a couple years away from becoming the preeminent economic power in the world. Interestingly, military spending soared as a percentage of GDP: * 1941= 5.6% * 1942= 17.8% * 1943= 37.0% * 1944= 37.8% * 1945= 37.5% That brings us to 2009, where government spending has exploded! Only WWII saw higher government spending as a percentage of the GDP. This is simply unsustainable, and one of the greatest threats to the long-term economic health of the nation. Yet, I fear that it's all about spending, redistribution of wealth, and power. Risk be damned!

Charles Payne
Wall Street Strategies