Late Friday the market, which had been exhibiting rare intra-day resolve, stumbled into the close as word came that BP’s “Top Kill” effort was being suspended. As we now know, the attempt failed, and now this tragedy enters into a different realm. As the oil is gushing through the earth, the emotions of the nation are moving along as if walking in a pool of water. It will take a toll on many people, and it’s a reminder of our frailty. It is also going to be a test of our resolve.
I’ve written many times about the softer underbelly this nation has developed. It’s as if we expect things to go our way all of the time. In war, our tolerance level of lost lives is low enough to encourage those that control North Korea and Iran to dismiss all of our threats. Our lower tolerance for financial pain has emboldened the Chinese in a steadfast position of flaunting an unfair currency peg and playing stupid on the heretofore North Koreans.
Now the nation is going to have to deal with heartbreaking images of birds covered in oil and dying sea life. This is going to help those that think we should abandon offshore oil drilling, and that is going to be a serious mistake. As it stands now, our holy- than- thou approach to energy has seen massive fossil fuel tie ups that would lock us out of prime sources for decades. Maybe by then solar-powered cars will take be commonplace, but I don’t think that will be the case.
In the meantime, an energy-hungry world will ultimately send the price of crude oil sky-high. This would please some in the Administration determined to see us driving itty-bitty cars to save Mother Earth and boast of how successful the auto bailout was. Our economic recovery is wobbly and questionable. Our economy is ripe for another recession between now and 2012, and the easiest catalyst would be runaway oil prices. Of course, standards need to be reviewed, but not drilling is a mistake.
Speaking of a wobbly recovery, five additional banks went under on Friday at a cost of $317.0 million to the FDIC. Interestingly one failed bank, Granite Community of Granite Bay California (in the Sacramento area), was sold to a TARP bank that missed an interest payment last year.
The practice of TARP banks buying others is a slap in the face to taxpayers, but another slick way to prop up the industry. We saw it right out of the gate when PNC got $7.7 billion and immediately paid $5.2 for National City, which somehow didn’t qualify for TARP even though more than 700 other banks did. More recently, Stearns Bank used its $25.0 million in TARP funds to pick up five failed banks. As for Granite, it was acquired by Tri Counties Bank, which posted a loss of $1.1 million in its second fiscal quarter but rang up $2.9 million, giving it the green light to make the purchase. Tri Counties will add the four branches to its already existing 58 branch network. In the meantime, of the publicly traded banks that took/owe TARP funds 84 have commercial real estate loans 300% plus of total capital and construction, and land development loans 100% of total capital.
I’m not sure what the criteria is when the Administration picks winners and losers but it’s a crime that taxpayer funds are used.
Today’s Session
In addition to the failure of “Top Kill”, the market is dealing with a myriad of issues, including:
> Lower PMI in China suggests lower demand in Europe and domestically.
> Euro under pressure early this morning as continent continues to grapple with direction and handling of crisis.
> Israeli commandos move to stop flotilla trying to break through Gaza blockade. Those attacked have been hit with metal bars, live fire, and chairs among other things; the turmoil has resulted in 10 deaths. Benjamin Netanyahu canceled a meeting with the White House, although it’s unlikely White House will even realize it was cancelled.
There is a chance selling could stall or reverse with a solid number from ISM, although I must say expectations seem a little high to me. The Street is looking for a headline number of 59.0.
Charles Payne is the CEO and Principal Analyst of Wall Street Strategies . This post was republished, with permission, from his company’s column, WStreet Market Commentary.
