6/4/2012
By Charles Payne

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Fanciful Facades?

I love the spunk of the market today given that wave after wave of selling was rebuffed.  Investors have found a spot to nibble on, even if they are only focused on a few names.  The NASDAQ found the most buying interest, with key names leading the way:

Apple (AAPL)

Amazon (AMZN)

Priceline (PCLN)

The market was able to glom onto repeated rumors of emergency meetings and immediate action to stave off disaster in Europe.  Indeed there has been confirmation from interested parties about a greater sense of urgency.  I'm not sure how long the stock market can hold up on jawboning alone.  For now, it helped because this could have been a disastrous session.  We are sharpening our pencils and looking at open ideas with the knowledge macro conditions are different and growth will be slower, but we are also trying to understand how much of that is already reflected in current stock prices and valuations. 

I still think this is mostly a vote of no-confidence on leadership around the world that has sent consumers and investors into hiding.

Compelling Stuff

Auto Nation's May sales were up 45% year over year.  Although auto sales will not be the blowout many assumed a couple months ago, the fact is cars/trucks are 11 years old on average and financing is easy as there has been a giant boom in subprime auto loans.  The news from the company is great, and even at a hair fewer than 14.0 million, auto sales augur for higher valuation for this company/stock.

The stock is changing hands at just a 13 PE, 0.81 PEG, one third sales, and two times book.   I'm still not sure why the street hates the stock so much, but there is a 21% short position.  Nonetheless, this is a name my subscribers are in, and while there is no urgency to buy anything at this very second this looks like a perfect value idea.

Political Note

For all the talk of the auto bailout working, I worry US auto-makers are losing share rapidly, and if there is another financial crisis in America, there will have to be another "successful" bailout. 

Afternoon Observations

Master Plan

There always seems to be a master plan waiting to be deployed, yet it's obvious that none have ever worked long enough to deserve that moniker.   Still, over the weekend a German newspaper, Die-Welt, said there is such a plan in the works.  I say it's been part of an overall plan all along but the implementation hasn't gone the way architects once thought.   The Euro was going to level the playing field in Europe and mitigate the economic engine of Germany.  Maybe it would have worked if members had discipline and made commitments made by Germany – of course if that were the case then there would never be a need for the Euro in the first place.

Be that as it may that was the plan – it backfired. 

Now, if the Euro is to survive a lot of nations will have to cede more sovereign rights.   I see it happening.  This will be a closer banking union to go with political (EU) and military (NATO) after that I suspect health care etc.  With central planning for these important components of nations we move closer to a United States of Europe. 

* Military (NATO 28 members)

* Political (EU 27 members)

* Banking (Euro 17 members)

Questions include how many participants will there be?  Not all EU members are going to go for this deal although the core nations:

* Belgium

* France

* Italy

* Luxembourg

* Netherlands

* Germany

All are going to say yes and the majority of the 17 Euro nations will be in as well.  Mario Monti hinted he's okay with it and so too did Mariano Rajoy of Spain.  The logistics can't be hammered out overnight, but the Street needs to think this is at the top of the agenda at the upcoming EU summit later this month. 

Charles Payne
Wall Street Strategies