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Hotline Sample Report
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11/24/2009 9:26:35 AM Eastern Time
Not the Worst Recession Since…(Final Edition)
By Charles Payne, CEO & Principal Analyst
When I hear that this is the worst economic period in America since the Great Depression I don't believe it. There are all kinds of statistics used to make that point, but I think most of the 1970s and the early part of the 1980s were much more difficult. The was the same level of unemployment, coupled with sky high inflation that was answered with drastic action by the Fed and bold action by the President. Government wasn't touted as the solution but as part of the problem. On the ground, the nation was falling apart after the four years under Jimmy Carter. Pessimism was sky high. Arab oil states declared war on the West via the use of oil as a weapon, which dovetailed at the same time President Carter lobbed a profit windfall tax on domestic oil companies. (Our dependence on foreign oil spurted higher and never looked back.)
But, one of the things that really stands up, and economists or politicians rarely mention, is the crime that went along with the feeling of desperation. Tough crime laws and sentencing helped to drive overall crime lower, but the fact is that even as we have gone back into a period of ten percent unemployment it is unlikely crime will spike or murder will retest the all-time high rate of 10.2% reached during Jimmy Carter's last year in office. This is a tough economy, but we can be thankful that the streets aren't littered with purse-snatchers and soulless murderers, although the hardest hit cities are leaning that way. I do worry about the spike in murders in particular, and crime in general, especially in big cities. In fact, with 15 states and 116 cities (including 18 in California) enduring double-digit percentage unemployment and several lingering at 9.0% plus, it only means there is sure to be a pickup in crime.
There are some indicators that harkens back to the Great Depression, and the record box office over the weekend is not unlike 1939 when "Gone With the Wind" roared into theaters. (Of course, something tells me that one hundred years from now when critics rank the best feature films ever "Gone With the Wind" will be somewhere in the top ten and "New Moon" wouldn't make a top 1,000 list...I'm just saying.) Many blame Prohibition, which began January 16, 1920 for a spike in U.S. murder rates. Those rates peaked at 9.7 per 100,000 in the population. Prohibition was repealed in 1933 (some states kept the law until 1936). And murder rates began to slide. Make no mistake, while there is a correlation to crime committed in relationship to bootlegging, the plunge in the unemployed played a significant role. Prohibition wasn't an issue when the murder rate surged again and peaked during the Carter administration.
To paraphrase another President..."It's the economy, stupid."
As homeownership increased and the unemployment rate declined the murder rate in America eased to multi-decade lows. That's even with a rightwing NRA loving Republican in office for eight years.
Crime per 100,000 peaked at 5,950 in 1980, and almost reached that point again (5,898) in 1991.
Yesterday, the President said that the economy was in "good shape" because of its core strengths...someone should let him know those core strengths begin with an unapologetic belief in God, a knowledge that success is within anyone's grasp and it shouldn't be greeted with shame and demonization and the notion that our strength has evolved from our failures. Ironically, when John McCain made a similar statement during the campaign he was called out of touch. I also think that the President's actions belie his words because he has shown little faith in the market to resolve current challenges. The President points to the nation's universities, innovations, and dynamic workforce as the "core strengths." Those are strengths, but not the core. Go back to Jamestown and witness how the early settlers starved through those first few winters, even resorting to cannibalism.
They didn't get government help but instead used their survival skills and determination. It's all about pulling one's self up by their bootstraps.
By the way, during his comments on the economy President Obama was surrounded by Defense Secretary Gates and State Secretary Clinton…where was Treasury Secretary Geithner?
News out of Russia yesterday was that their central bank bought 500,000 ounces of gold, bringing their total to 606.5 tons. As part of that country's $434.43 billion in gold and foreign reserves 4.7% is in gold.
Today's Session
Yesterday, the market got its cue from the weak dollar and bored money. I'm serious, investors are sort of like teenagers at a party. When the hip kids start to light up...cigerettes (silly) at some point they're going to have to do the same. It's called peer pressure in high school, and its called peer review in the world of professional investing. One thing is for sure, it's hard to get away with the idea of having idling cash on hand if your fund isn't up at least 10.0%, and even that is going to be difficult to resist.
After the close yesterday, the much anticipated earnings results from Hewlett Packard (HPQ) lived up to the anticipation. The company, started by a couple of entrepreneurs with $500.00, posted earnings of $1.14 per share on $30.8 billion in revenue, beating consensus of $1.13 per share and $30.4 billion, respectively. I was most impressed with the non-GAAP gross margin of 11.8%, up from 10.1% a year earlier. The company echoed the theme of many in the technology space that businesses are still playing it close to the vest. With that said, it seems like the news from Hewlett Packard may not have the coattails to single-handily lift tech stocks.
Other Earnings Highlights:
* ADI earned $0.36 per share on $572.0 million, beating consensus of $0.26 per share and $524.0 million.
* ZLC lost $1.80 per share on $329.0 million as same-store sales decreased 6.8%; the Street was looking for a loss of $2.02 per share and $319.0 million.
* HNZ posted earnings of $0.76 per share on $2.67 billion in revenue; consensus was $0.69 per share and $2.63 billion.
* DSW blew away the Street, posting earnings of $0.60 per share as same-store sales soared 9.0%.
* AEO posted results that were in line with the Street at $0.21 per share.
* MDT earned $0.78 per share, beating the Street by $0.04, as revenue rose 8.0% overall and 12.0% outside the U.S. (now 40.0% of total revenue) FY10 guidance high-end was $3.22 per share from $3.20 per share previously; Street was at $3.15 per share.
We will touch on this morning's 3Q GDP revision more in the afternoon Hotline report. The 3Q reading was revised down to 2.8% growth from the 3.5% growth previously stated, coming in slightly below consensus of 2.9%. Overall, the report was an indication that the U.S. recovery will have its fits and starts, and that unpredictability should be expected. Within the numbers, non-residential contribution was a greater weight than prior estimates, as were imports. Consumer spending was also a tad weaker.
Long Idea: GOLDMAN SACHS GROUP INC (THE) (GS) @ $171.64
Click here to view the trading alerts that followed this recommendation
| Entry Price |
Entry Limit |
Stop Loss |
Trading Target |
Target |
Long-term Target |
Options |
| $171.64 |
see comments |
$160.00 |
$196.00 |
$210 |
N/A |
N/A |
| Type |
Option Symbol |
Entry Price |
Strike Price |
Expiration Date |
| Call |
GPY100717C00 |
$9.30 |
$180.00 |
7/17/2010 |
BACKGROUND: The Goldman Sachs Group, Inc., together with its subsidiaries, provides various investment banking, securities, and investment management services to corporations, financial institutions, governments, and high-net-worth individuals worldwide. Its Investment Banking segment offers financial advisory services, including advisory assignments with respect to mergers and acquisitions, divestitures, corporate defense activities, restructurings, and spin-offs; and underwriting services, including equity underwriting and debt underwriting. The company's Trading and Principal Investments segment engages in market making in, trading of, and investing in commodities and commodity derivatives, including power generation and related activities; credit products, such as credit derivatives, investment-grade corporate securities, high-yield securities, bank and secured loans, municipal securities, emerging market and distressed debt, public and private equity securities, and real estate; currencies and currency derivatives; interest rate products consisting of interest rate derivatives and global government securities; money market instruments, including matched book positions; and mortgage-related securities and loan products. This segment also provides equity securities, derivative securities, futures, and options clearing services; market-making and specialist services in equity securities and options; and insurance services, as well as involves in principal investments activities. Its A
SKINNY: Goldman continues to be a dominant force among financial services companies. In its most recent earnings conference call, the Company's management conveyed that within several of its market making businesses, Goldman is experiencing elevated market share with margin dynamics that are deemed very attractive. In fact, the company's performance since the recovery began showcases the depth and diversity of its businesses. Recent economic trends have not been sufficient to halt the company's execution prowess though the price has stalled a bit. This provides an attractive entry opportunity on the formidable company that is likely to be a clear winner when the crisis has passed. The stock has room to $196 in the intermediate term and $210 longer term. Risk adverse investors should use $160 as a stop loss.
| Analyst Coverage |
| UBS Reiterated to Buy |
Deutsche Securities Initiated to Buy |
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