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Morning Commentary

Got to Be the Rhythm - No Doubt About It

By Charles Payne, CEO & Principal Analyst
3/14/2013 7:04 AM
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Question of the Week

Why is the stock market up and Obama's popularity down?

Post your answer below.

Blow horns you sure sound pretty
Your violins keep movin' to the nitty gritty
When you hear the scratch of the guitars scratchin'
Then you'll know that rhythm carries all the action, so
Woah yeah

Turn the Beat Around

Hear that drumbeat? It's the continued conversion of Wall Street into believers, which makes me just a tad nervous. I'm not one of these guys that base their opinions on star alignment or disdain for the crowd, but I have to tell you for all the talk of the average investor being late to the party, the "pros" are always tardy as well. The thing is these pros control a lot of buying and can buy lots of air time to promote the ventures of investing even if they had a sea of "hold" ratings during the giant rally. One of the smartest guys I know, who is always bullish, called for Dow 18,500 yesterday.

It could happen, but fundamentals in America would have to get a whole lot better. In fact, the biggest threat to the rally is the American economy.

On that note there is no way the economy can live up to its potential over the next four years, but that doesn't mean it can't edge higher and even gain some momentum. Oddly some think such a statement is an endorsement of current economic policy when it's the exact opposite. The notion the economy wasn't built to last was bought by a whole lot of people looking for a greater chunk of wealth once the loot was passed around. As it's working out, capitalism is fighting back even if it has one hand tied behind its back. But my basic thesis on the market still reflects more on global growth than domestic bliss.

That said, he Street is getting excited about the US economy, and more jumped on the bandwagon after monthly retail sales came in better than expected.  Yes, Americans laid out more dough than the pundits figured, but man it wasn't the kind of outlays that makes people happy.  In fact, while the worst may be over the lingering pain and healing process still have a way to go. 

It doesn't help that even after paring $1.3 trillion in debt, so much disposable income is going to fill up the gas tank.

Gas stations (+5.0%) and motor vehicle and building materials (+1.1%) each saw marked increase in retail spending last month.

The good news is we came into 2013 carrying a lot less debt. In fact, the amount it takes to service household debt as a percentage of monthly disposable income hit 10.38, the lowest on record (since 1980). People remember and aren't simply feeling the need to spend even if they have more wiggle room-hence the reemergence of the zero down economy.

It's hard to watch television or listen to the radio and not hear amazing offers. We are creeping back to the days when you could leave your apartment with no money in your wallet and return home with a new house, car, and furniture. We are slowly taking the bait. Non-housing debt climbed three straight quarters and even though people are reluctant to get new credit cards some of that other stuff looks tempting. I must say the American consumer is more disciplined; maybe we just get so angry at the pump we fill it out and go home.

Still, as trends continue there will be a greater feeling of freedom as more people shed the monkey of outrageous debt only to be seduced into doing it all over again. It's like a hot Latin beat in a nightclub off the beach where the rhythm carries all the action and we get carried away. Delinquencies are lower save for student loans, bankruptcies have decreased and loan demand is edging higher.

The economy looks better but I am not sure we are looking at 3.0% GDP this year but a consumer that lives more and more for today could add fuel to the rally. 18,500 ... I'm not thinking that far out but the beat is turning around.

I have been saying for the last couple of years the market would move higher on the economy-but not America's economy. The world is buying tons of products and equipment from IBM, Latin America can't get enough Whirlpool washers and dryers, Caterpillar gets 70% of its revenue outside the US and the parent company of Taco Bell and KFC lives and dies on news about its restaurants in China.

That said, the American public is correct to be frustrated. While nobody thinks we are going to become Greece overnight more and more people see that's the path we're on and don't have to be. In the meantime President Obama blundered badly on sequestration by selling fear across the nation when people were looking for hope and a game plan.

The American public is ready to rock and roll and needs the sign and motivation from the top. At some point it's not enough to be jealous of someone else's wealth when you can create your own under the right circumstances. The America of old.

So, the stock market is up mostly on earnings and also the Fed but most of that printed money goes to buy treasuries because our government is spending a trillion more per year than it takes in...

Both worlds are valid in my opinion. Main Street should be pissed and Stocks of great multinational American companies should be higher.

It's just a natural inverse ratio. The Dow dropped 7% when it became clear that an Obama victory was assured, which made that a perfect buy point. Since then, Obama has wasted the first 100 days on pointless pyrotechnics and the GOP finally developed a backbone. So it's all downhill from here for the President and that's good for the market. That is, until we begin feeling the full impact of Obamacare and continued governmental gridlock. The results of that can't be good.

Dennis Howard on 3/14/2013 10:39:19 AM
Obama: Socialism
Stock Market: Capitalism

George Adams on 3/14/2013 11:02:15 AM
I think you are right on, but if next quarter earnings are down, and the trend is your friend when we go away in May, will we come back in June to play? Thank you for your service one Air Force vet to another.

Charles Dean on 3/14/2013 11:41:38 AM
The whole problem with our economy is
"lack of confidence"....that will NOT
change until there are new residents at 16OO Pensylvania Ave. Does the word'
Impeachment ring a bell ?????

tom wayne on 3/14/2013 11:54:08 AM
We do not trust Obama or the administration to tell us the truth or act in the best interest of the people.....political power and the push for progressive ideology seems to be the main focus.

Faye on 3/14/2013 12:33:50 PM
Market: the money the Fed prints has to to someplace, why not the market.

Obama; what was obvious to some prior to Obama's first election is gradually. dawning to others as he under performs, (never submits a budget) lies ("I'll cut the deficit in half, the country's debt is not a problem, taxes will not go up on those making less than $250,000,etc. etc), finds the U.S. Constitution a minor inconvenience. Obama won reelection by a well run campaign directed effectively at young voters think spending others peoples money is OK, along with those that live off the government. Plus the GOP ran an ineffective campaign.

Tom Ayer on 3/14/2013 1:50:08 PM
Obama's poll numbers are down because he is still campaigning and people are craving leadership. We continue to lurch from one "crisis" to another and people are getting weary of it (including those who voted for him).

The stock market is up because of Ben Bernanke and his technicolor printing machine.

Michelle on 3/14/2013 2:12:30 PM
People are beginning to remember they are citizens of a great country founded on a premise that people are exceptional not the government or any one leader. Are we taking back yielded ground? Time will tell.

Bernie Dickson on 3/14/2013 2:38:08 PM
The market is influenced by reality.

Patricia Flynn on 3/14/2013 2:57:31 PM
Stock market is up because Bernacke is keeping interest rates low. Obama's rating is down because he speaks with a forked tongue and more people realize it.

Pat on 3/14/2013 3:56:32 PM
the "public" both parties, are beginning NOT to believe Obama with his BS and therefore move forward in spite of him and his cronies!!!

Charlie S on 3/14/2013 4:10:44 PM
I believe with the current oil extraction technology we will be pumping the majority of our own oil which will translate into huge benefits to the economy. The transfer of wealth will subside and our economy will reap the benefits of keeping that money on shore.

George Scritchfield on 3/14/2013 5:16:13 PM
The market is up because the feds are trashing the dollar,and growing of overseas countries. The market no longer goes up and down with the US economy, just because the market goes up DOES NOT mean the US economy is getting better.

Steve Tolbert on 3/15/2013 10:27:10 AM
The answer is simple really. The market is driven by business despite what Obama is going to do. Although Obama keep trying to take credit. The people are starting to get what is, and is not, going on with this administration.

Mr. Rachford on 3/15/2013 2:39:09 PM

People and companies have decided that they have to move on even though he was re-elected. Whether they agree or not with his positions, it's about survival. I'm sure the QE is helping the market and the constituency are not making the connection with the president and economic growth.

His stance on the sequester was a loser for him and people are finally looking at this as his first real defeat. In spite of the help of the press.

Chris F on 3/20/2013 2:19:31 PM
Great leaders are rarely appreciated until much later, but you can already see the effects of his business friendly policies despite the right wing lunatics that say he hates business.

Trey on 3/20/2013 5:44:47 PM

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