The Emperor indeed has no clothes

4/27/07

Many have implied it, but no one is willing to say it, probably because our politicians and pundits have plenty to lose by doing so. Since I have nothing at stake here, I’ll go ahead and say what no one else will say in polite company: We have a doofus for a President.

On what bases do I make this claim? There is the obvious: With no military experience, he started a war on the counsel of advisers with no military experience in a country neither he nor they understood for reasons that neither he nor they could articulate He did so without an exit strategy or plan for peace. He cannot, or refuses to, see that his Excellent Adventure has been a military disaster without parallel in terms of its widespread and long-lasting ramifications for the nation that spawned it.

Then there are the personal traits: There is his omnipresent sophomoric chortle that substitutes for a laugh and that emerges at the most inappropriate times. He has an utter inability to construct an intelligible English sentence, even when one is written for him. He lacks even the rudiments of knowledge of history. Desperately trying to avoid the helpless, Ralph Cramden’s been caught, bug-eyed look that emerged in the first Gore debate, he portentously poses and postures when he is trying to make a point and knows that he is ineluctably failing. He never seems to be able to make his goofy facial expressions match the words that emerge from his desultory brain. He is forever substituting bravado for brains and clichés for analysis. He is not even worthy of being called a charlatan, because a charlatan at least claims a degree of knowledge or skill that he lacks. Bush positively revels in his ignorance, deeming it a trait that somehow makes him ideal for the most powerful and solemn responsibility on earth.

There is also his utter lack of achievement or accomplishment. Before he became governor of Texas, with the help of his father’s formidable political apparatus, he had achieved…nothing, other than consistent failure and stupefication. He is merely the churlish child of a rich and powerful man who is overly indulgent of his children.

Many, especially those of the generation that preceded mine, would ask something like “How can you possibly call the President of the United States a doofus? Have you no respect for the office?” Once upon a time, such an argument had some weight, back when one had to be a man of substance and intelligence to convince an electorate that took the responsibilities of self-government seriously that one was worthy of the awesome responsibility that comes with the highest office on the planet. Now, the president of the United States is merely the person whose spinners and handlers are better at winning over an apathetic, ill-informed, television-addled electorate than are the spinners and handlers of the mountebank with the next largest bankroll. Our last batch of presidents has been an assortment of carnival barkers and preening poltroons. There are no more Eisenhowers, Roosevelts, Coolidges, or Trumans.

H.L. Mencken once observed, even back in the ‘20s, that “The American people get the government they deserve…and they get it good.” He must have been envisioning George W. Bush.

Stressed out? My kids? Surely you jest!

The local newspaper in the ultimate suburb in which I reside ran simultaneous articles on how our kids are stressed out and the advent of yet another “upscale” mall serving the conspicuous consumers who populate our burg. Like George Washington Plunkett, “I seen my opportunities and I took ‘em,” sending the below letter to the editor:


4/26/07

The Wednesday 4/25 Sun contained a perspicacious cover article on our kids’ being stressed out by, inter alia, too much competition in school and sports and the pressure of living up to “that perfect image.” The same issue contained news of a nascent “lifestyle center” on our southern border in Plainfield, The Shops at the Polo Club, which will be anchored by an upscale Von Maur department store and contain not just any old grocery or clothing stores but a “gourmet” grocery store” and a “specialty fashion retailer.”

What a happy confluence of events! Upscale Naperville parents can stroll the aisles of this latest monument to the sybariticism that characterizes our society while ruminating on the possible causes of their kids’ being stressed out by the pressure of having to live up to “that perfect image.”

Ah, the irony afforded by juxtaposition!


Mark Quinn

Mr. Kerkorian bellies up to the Chrysler bar...again

4/7/07

FULL DISCLOSURE: I REMAIN LONG THE JANUARY ’08 DCX 80 PUTS.

On Thursday, Kirk Kerkorian made a $4.5 b bid for Chrysler though his investment company, Tracinda, causing DCX to trade up $4.23 to $84.80. Obviously, I have a few comments:

• I, and many other observers, should have seen this one coming, given both Kirk Kerkorian’s and Jerry York’s histories with Chrysler and their frustration at being able to do very little with their recent GM foray.
• The $4.5 b bid is substantially below the numbers that were bandied about as possible Chrysler bids earlier in the week, which reached as high as $9 b, with more sober numbers clustering around $6-$7 b. In my opinion, all are too high, even the $4.5 b.
• Tracinda’s bid is lower than it looks. The deal is contingent on, inter alia, DCX sharing Chrysler’s $15 b in unfunded ORB (“other retiree benefit”) obligations. How much would Tracinda like DCX to kick in? Note that GM was asking for a $1 b contribution in its quasi-bid for Chrysler. One could easily see Tracinda asking for a contribution large enough to make the net price for Chrysler negligible, which would be about right for Chrysler.
• Jerry York reportedly was not given the same detailed data that other bidders for Chrysler received and consequently was forced to do his own research which, given Jerry York’s typical approach, he would have done anyway. Reportedly, he finds value in Chrysler’s minivans, pickup trucks, and SUVs, primarily Jeeps. Jerry York probably knows the car business as well as anyone, but I have a hard time concurring with his conclusions. Why?

1. Chrysler is a strong, though no longer dominant, player in minivans. More important, the minivan market is shrinking. In 2000, 1.4 million minivans were sold in this country. In 2006, 971 thousand minivans were sold. So even if Chrysler were still the dominant player in minivans, this would be a difficult franchise on which to base one’s company.
2. The SUV market is imploding in favor of crossovers. Jeep hasn’t been a strong performer in SUVs for a number of years and has almost completely missed the crossover market.
3. I agree pickup trucks are a strong product, the, or among the, strongest sellers at all of the Big 3. But the Dodge Ram finishes third among the Big 3’s pickup truck offerings. 3rd out of three does not make one a franchise player.
   
   Mr. York apparently agrees with me that the rest of Chrysler’s product lines are weak performers. So if he is arguing, and I don’t think he is, that Chrysler’s only value lies in minivans, SUVs, and pickups, I would agree, with the exception of the SUV portion of the argument.

The Pontificator

A tax increase is inevitable

4/5/07

Blessed Triduum and Easter!

This is a letter I sent to the Wall Street Journal on 4/5/07:


The Wall Street Journal almost had it right in its 4/5/07 editorial entitled “The Coming Tax Increase.” Tax increases are indeed coming, but they were made inevitable long before the Democrats re-implemented “pay-as-you-go.” Tax increases were made inevitable by the fiscal profligacy of the Congress, which, until this year, had been in Republican hands since 1994, and the unwillingness of our current GOP president to veto a spending bill. Because of this shameless display of fiscal debauchery, taxes will have to be increased if we ever hope to achieve fiscal balance.

One can argue, as the Wall Street Journal incessantly does, that we can grow our way out of these deficits. While deficits are currently heading down as a result of natural revenue increases, we are far from a balanced budget, which should have been achieved some time ago, given the relatively robust performance of the economy over the last few years. Growing our way out of deficits would necessitate spending restraint. Where in recent history does the Wall Street Journal find grounds for optimism on this front? Any realistic look at the spending tendencies of either party tells us that taxes must be raised, as they were in the ‘90s, if we are ever to balance the budget. Despite new age approaches to public finance, both the populace in general and the financial markets seem to agree that balancing the budget, at least over the cycle, is a goal worth achieving.

No one likes tax increases, especially we fiscal conservatives who have grown so disenchanted with the performance of the party that pretends to be our champion. However, until our politicians learn to be prudent with the public purse, tax increases are in our future no matter who wins in 2008.



The Pontificator

More on a bid for Chrysler

4/3/07

FULL DISCLOSURE: I AM LONG JANUARY ’08 DCX 80 PUTS

Some readers have responded to my comments regarding DCX’s being a great short with what on the surface looks like a great, if rhetorical, question, which goes something like this (I can’t quote from memory):

If you are right and Chrysler is worth very little or nothing, wouldn’t it be a big positive for DCX if they got $4-$6 billion, or more, for Chrysler?
(Note: Yesterday (4/2), German newspaper Welt am Sonntag, reported that one of the bids could reach an astounding $9 billion.)


My reply is multi-faceted:

1. Sure, being able to sell Chrysler for a huge premium over its minuscule real value would be a big plus for DCX if DCX could get such a premium. While I don’t think the hedge fund managers preparing Chrysler bids are as smart (or at least not as knowledgeable about the car business) as they and their cheerleaders in the financial press seem to think, they are not stupid, either. The lower bids coming in from bidders far better positioned to evaluate Chrysler (i.e., GM and Magna) have to be giving these guys pause. Even if a huge bid should come in, due diligence and final negotiations would take months, plenty of time for buyers to, er, reevaluate their bids once other formerly interested parties have drifted away and moved on to other opportunities to, as Ron Gettelfinger would put it, strip and flip.
2. Some of the proposed deals reportedly are structured such that DCX will retain a piece of Chrysler, partly in order to insure further cooperation and parts and technology sharing between Chrysler and Mercedes. So DCX may not rid itself entirely of Chrysler problems by means of a deal for its US arm.
3. Even if Chrysler is sold, the DCX investor will be left with Mercedes. When did Mercedes become such a prize? Remember, as recently as 2005, Mercedes was the sick partner, losing $660 million, which had to be carried by Chrysler, which was making $2 billion. Though is has improved somewhat on this score, Mercedes is still plagued by quality problems. The luxury car market is very crowded. The car market itself will be very tough in the upcoming year as the economy slows and as the typical car buyer’s (including the luxury car buyer’s) piggy bank is drained; i.e., the value of his or her home, and the ability to borrow against it, declines.
4. Even if none of the prior three points prove valid, there is always the old “buy on rumor, sell on fact” rule.
   

So DCX remains a great short. As I said before, however, if one could short the Chrysler buyer, if there is one, that would be an even better short. Given the range of buyers, though, Magna is the only potential buyer that could be shorted, and I suspect Magna won’t pay up for Chrysler.

The Pontificator

Couldn't the oracle see this one coming?

4/1/07

Last week at the pre-contract negotiation UAW convention in Detroit, President Ron Gettelfinger expressed disappointment at the slow pace of labor negotiations at Delphi. He presumably was expressing his disgust at the refusal of management to be conciliatory because, when asked what the union was doing regarding concessions, he stated “I’m though with that.”

One can understand Mr. Gettelfinger’s obdurate stance, given that among the first actions Steve Miller took when he assumed the reins of the bankrupt Delphi were to:

1. Ask labor to take a roughly 65% reduction in pay to $10 per hour, and
2. Reward the very executives who had guided Delphi on its odyssey to bankruptcy with huge bonuses and pay increases, arguing that doing so was necessary to retain top flight talent. Hmm.

One can also understand why Mr. Gettelfinger feels he can be so apparently recalcitrant. Appaloosa and Cerberus, two hedge funds who are attempting to purchase Delphi, have dropped a great deal of bargaining power into Mr. Gettefinger’s lap. Why they did it is a mystery.

The Cerberus/Appaloosa bid for Delphi is contingent on, inter alia, Delphi’s reaching a deal with its workers to reduce wages and other benefits and improve efficiency. Contrary to the apparent assumptions of the big money people who put these deals together, union people are not stupid. The Delphi deal, and the scores, if not hundreds, of millions that the hedgies think it will ultimately put in their pockets, won’t go through if the unions don’t agree to a deal. This has put the UAW and the other Delphi unions in the proverbial catbird seat. If Mr. Gettelfinger says “no deal,” there will be no deal and Cerberus and Appaloosa can watch the millions they think they will make on Delphi fly out the window. Understandably, the UAW will ask for everything it can get.

One can argue that the alternative is bankruptcy court ordered abrogation of existing contracts. This should give the UAW the motivation to bargain realistically with Delphi. But court ordered abrogation was always the alternative here, long before the hedge funds took an interest in Delphi. The downside hasn’t changed. The UAW’s leverage in its efforts to avoid that downside, and achieve a richer upside than was previously available, has been vastly increased.

No matter what feels about the relative merits of the arguments of Mr. Miller and Mr. Gettelfinger, one has to ask, from a pure poker playing perspective, why the hedge funds have dealt Mr. Gettelfinger a full house when he was holding a pair of deuces, and playing that hand quite well.

The Pontificator

"Come to Circuit City, where service is state of the art"

4/1/07

Circuit City is firing 3,400 workers that its seven figure management has decided make too much money. Some make as much as a whopping $18 per hour, but others who were let go, like Dan Cavazos, featured in a 3/31 Sun-Times article, make about $12.40 hour. How dare these people, who face a demanding and often cranky public on a daily basis, make such unfathomable riches, reaching into what could be a larger bonus pool for Circuit City top brass? The fired workers were not given the opportunity to take less pay, but could re-apply for jobs at the lower pay scale after a waiting period deemed suitable by the corporate titans who employ them.

The lesson here is clear: Go to the right schools, schmooze the powers-that-be kiss the right hindquarters while kicking the corresponding anatomical bits of your employees (i.e., get in the corporate “club”), and you will make huge money while enjoying lifelong job security. Even if you somehow lose your job, other members of the club will take care of you. How many “highly skilled, professional managers” who have run Fortune 500 companies into the ground are now drawing seven and eight figure pay packages at other such companies or at sinecures in the investment banking world? On the other hand, start from the bottom, work hard, remain loyal, take good care of your customers, and get fired.

Two thoughts should be borne in mind:

• One can’t blame capitalism for this shameful outcome. This isn’t capitalism. This is corporatism, in which markets aren’t free but are gamed in favor of a corporate elite. Consequently, the fruits of the once great American production machine are increasingly being seized by those who have put themselves in charge. Our country has been moving away from capitalism and toward corporatism for years, and it will ultimately, along with decay in non-economic areas, prove our undoing.
  
• The next time some deep thinker who says he or she if “pro-market” but who is really pro-business (There is a huge difference.) says that unions are no longer needed because enlightened employers know that success depends on a satisfied, motivated work force, remember the workers at Circuit City who have been left to the visionary tender mercies of the kleptocrats who run Circuit City.
  
  The Pontificator