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MV Weather Report: Financial Stocks Variable With a Good Chance of Executive Salary Caps


Rain or shine, we review the day's biggest stock stories.


Stocks were briefly given a boost when reports came out that US services contracted at a slower pace in January. But good news quickly turned bad, and before traders knew it, a selloff was underway.

Costco (COST) lowered its second-quarter guidance. ADP reported the loss of 552,000 private-sector jobs in January (the estimates called for 508,000) and news broke in Washington about President Obama's plans to limit executive pay at banks that borrow Troubled Asset Relief Program (TARP) funds.

The proposal left some outraged. Here is Professor Bennet Sedacca's view on the salary cap:

Is it Communism? I have already made my feelings know about Socialism, so I won't go there.

From my early days in college studying Economics, I stumbled upon the Laffer Curve, which is a curved graph that illustrates the theory that, if tax rates rise beyond a certain level, they discourage economic growth, thereby reducing government revenues.

I have to say that as a free-market guy, I don't like the idea of capping anyone's salary, even in the NFL. It simply does not encourage folks to work hard, like 70% taxes in the 70s which had Arthur Laffer come up with his concept.

I recall vividly growing up in New Jersey and my dad working in the Big Apple, and his net take-home pay was $0.20 on the dollar. So he didn't bother to create more tax revenue.

This anti-business stuff is the last thing we need. You want to punish them? Throw them in jail. Or don't pay preferred dividends. But folks need to be
encouraged, not discouraged to fix this problem.

If I sound disgusted, it is because I am.

Toddo weighed in with some thoughts of his own: "The question I'm wrestling with is, with the pending salary caps, how much human capital will migrate to the buy side and take their shot in the hedge fund world?"

For more on the proposed salary cap, check out what Professor's Bill Feingold and Kevin Depew had to say.

Whatever your opinion, it seemed like the market was unsure how to interpret the news of limited executive compensation. Bank of America (BAC), Wells Fargo (WFC) and JPMorgan (JPM) all traded down, while the brokers, Morgan Stanely (MS) and Goldman Sachs (GS) traded strong. It seems like a massive move in the financials may be coming up fast.

Finally, the barrage of earnings reports are slowing down. I'd listen to what Mastercard (MA) and Kellog (K) have to say tomorrow before the bell. Check out the Trading Radar for more.

Have a good night, Minyans!

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No positions in stocks mentioned.

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