Grits and Gravy

Charles Payne
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Posted: Mar 15, 2012 12:01 AM

Vinny: What's…what's this over here?
Cook: You never heard of grits?
Vinny: Sure, sure, I heard of grits, I just actually never seen a grit before

And the beat goes on with the GOP primary after Mitt Romney fell flat last night despite his attempts to connect with southern voters. His faux southern drawl and astonishment with grits, reminiscent of the scene from My Cousin Vinny didn't work, maybe talking about cheese grits was too over the top. In so many ways, the Santorum victories point to the fact voters are aware of issues beyond the economy and want someone they feel will not implement laws that mitigate or completely take away individual rights. The other storyline is Americans are rejecting political pandering. I can handle pandering over food and even colloquialisms but not when it comes to the economy.

Pandering, however, has become a national pastime and is no longer the sole possession of politicians and your good-for-nothing brother-in-law. The Federal Reserve has become the master of pandering, and Wall Street has become a master of enabling and encouraging such pandering. Hey, it works until it doesn't work. The one-two punch yesterday of the FOMC news and results from the so-called stress tests provided the catalyst the market had been seeking for a couple of weeks. It's true neither event was a surprise, but they offered green lights. For the market, it allows investors to play stocks knowing the Fed will ignore inflation and stay the course on accommodation.

Punked!

For banks, it allowed the strong among them to escape the yoke of the government. Of course the test itself seemed dubious from the start. Heck, most banks paid back TARP with interest (although writing off tax losses makes the notion of taxpayers making money disingenuous) and have been begging lawmakers to move out of the way. Jamie Dimon cemented (maybe re-cemented) his reputation as The Man by letting the world know JP Morgan passed their stress test with flying colors. When the company announced a 415.0 billion share buyback (412.0 billion this year) and hiked its dividend to $0.30 from a nickel, it thumbed its nose at the Fed.

By punking the Fed, which wanted to release results of the Fed stress test after the close on Thursday, Jamie Dimon signaled banks in general may be ready to pump money into society. (They better be ready because more than half a dozen banks announced buybacks and or dividend hikes. This is going to anger those that hate the notion the rich get richer but also puts pressure on banks to lend more or as much as Dodd-Frank will allow them to lend.) The news sent the market off to the races-creating panic buying that's sure to continue.

Four banks did fail the stress test:

Ally (a.k.a. GMAC)
Sun Trust (STI)
Metlife (MET)
CitiGroup (C)

True Grit and True North

The market is exhibiting true grit, decoupling from Main Street, but maybe this rally gets so parabolic it positively influences Main Street.

That's the hope of the Federal Reserve, whose indifferent attitude toward gasoline prices would seem to be an affront to every household in the nation. Ben Bernanke says it's temporary at worst and hinted it's self-correcting. This is the risk the Fed is taking. Bernanke is cool with massive inflation that could become uncontrollable in order to shock life into the economy. Between this gambit and stress test parameters that pointed to Armageddon, the reality is the Fed is quaking in its boots. The scary irony is all this Fed accommodation is sending prices for everyday items so high it could hold back any positives that might otherwise come from a spike in the wealth effect.

But for the stock market, Fed accommodation is ambrosia for investors or better yet—like grits with gravy.

The expectations game has worked again, allowing for massive cheering for the kind of growth that's more than a year behind typical post-recession recoveries. On the other hand, the US economy is already built to last, and in my mind this delayed enthusiasm would have occurred sooner if not for all the anti-capitalism rhetoric and policies.

Getting Cooked with Gas 

The White House put out a great looking piece on their website that bragged about drilling rigs and oil production during the administration. It was very disingenuous since 100% of that growth came from decisions made during the Bush years. Furthermore, drilling has been slowed dramatically under this administration which flip-flopped early on drilling off the continental shelf and used the Gulf oil disaster to stop shallow water and onshore drilling efforts. The page hints that a ton of land has been offered, but the industry has declined to take it. I wonder if this land was desired by the industry in the first place and only offered because it would be rejected.

The icon for fuel efficient automobiles is a car with an electric cord and plug dangling. It's not going to happen unless energy prices are substantially higher (hybrids are only 2% of total car sales), and it means a massive increase in electricity. On that note, there is no way windmills and solar panels are going to make up the difference, even if this pipedream was doable.
The chart does suggest clean energy will double by 2025, but that would only be a drop in the bucket. Ironically, the White House expects a big spike in windmills even as 14,000 lay dormant in America-collecting dust but saving birds.

The reality is 99.9% of Americans will never see the chart on www.Whitehouse.gov, but they all are already feeling the impact of higher gasoline prices. I wonder when we'll hear famous people complain about higher gas prices, like the infamous rant from P. Diddy back in August 2008:

"As you know, I do have my own jet, but I've been having to fly back and forth to LA pursuing my acting career. Now, if I'm flying back and forth twice a month, that's like $200,000, $250,000 round trip. I'm back on American Airlines."