8/28/08
The Wall Street Journal reported this morning that GMAC has cut off Bill Heard Enterprises, a privately held, $2.1b, 14 store, multi-state Chevy dealer. (I have not verified that all of Heard’s stores are Chevy stores, but at least some are Chevy stores.) GMAC cited the dealership’s weakening credit profile for its actions, and Heard is highly unlikely to be the last dealership to be denied access to financing by GMAC.
Is there perhaps something else at work here? One of the problems that the Big 3 has is a huge surfeit of dealers. Could this be a way to eliminate stores without having to buy out dealers? Indeed, one of the Heard’s likely responses to GMAC’s action will be to close a few of its dealerships.
Cutting off dealerships who could be construed as financially marginal would appear to be both financially prudent and Machiavellian for the strapped Big 3.
Thursday, August 28, 2008
Wednesday, August 27, 2008
WHO WILL WIN THE BUCKET OF WARM (SPIT)?
8/27/08
With Barack Obama’s selection of Joe Biden as his running mate, and other developments in this fast moving presidential race, I am starting to rethink the wisdom of part of my 8/18/08 commentary.
As loyal readers will recall, I proffered in that post that
“Biden and Bayh would be good, safe choices.”
Clearly, I am not rethinking that portion of the post. However, I also stated
“So this leaves us with the front runners as the preferred choices: Crist, Pawlenty, and Romney. Are any of these men especially attractive? Probably not. But none would cost McCain (Did you know he was a POW in Vietnam?) the election, as would some others. Further, an attention getting “surprise” candidate is a lot less advisable now that it looks like McCain (Did you know he was a POW in Vietnam?) actually has a chance.”
But now I am rethinking this assertion. (Note that I said “assertion,” not “prediction.” I am out of the political prediction business. I was not, and am not, attempting to predict whom either Obama did or McCain (Did you know he was a POW in Vietnam? And I’ll only do it once this time; I know it gets tiresome, or so people, especially my wife, tell me. But it’s so much fun!) will select. I am only asserting whom they should select.) I think that Senator McCain would do well to select Senator Kaye Bailey Hutchison as his running mate, or at least that he should not pick Mitt Romney.
The first reason that Hutchison would be a good pick is the obvious one: McCain is trying to woo disgruntled Hillary Clinton supporters, the hard core of which is women about my age and perhaps a little older, women who were in the vanguard of the feminist movement and who are understandably upset that Hillary was not selected as her Party’s standard-bearer. (It appears at this juncture that, as this race tightens, or worse, a LOT of Democrats, even many with no particular affinity for Hillary, are upset that Hillary was not selected as her Party’s standard-bearer, but, alas, it’s too late baby, it’s too late, but (they) really did try to make it. But I digress. At least I do so parenthetically and lyrically.) One would like to think that no rational voter, man or woman, who was an ardent supporter of Hillary would vote for John McCain because he chose a woman as his running mate, but, when considering the typical American voter, the adjective “rational” is not the first that comes to mind.
The second reason that Hutchison appears to be a good pick, or at least that Romney is not a good selection, is that John McCain is experiencing an increasing amount of well deserved “detached rich guy” flak of late. If he selects Romney, he will have selected yet another guy who is open to such criticism.
However, a Romney selection would have a perhaps even more dire effect on the Republican ticket. If the GOP runs with a McCain/Romney ticket, it will be running with two guys who were proverbially born on third base and think they hit triples. Though both McCain and Romney have achieved things, some might even say great things, in their lives, who can argue that Mitt Romney would be a multi-millionaire financier were his father not George Romney or that John McCain would have ever been let near a fighter plane, if his flight record was as bad as reported, were his father and grandfathers not admirals, the former the Commander of the U.S. Pacific fleet? Further, who would argue that McCain would have been a big shot senator had his wife not inherited a bundle from her father and thus been able to finance her husband’s campaigns? A McCain/Romney ticket would reek of inherited privilege, and contribute to the caricature, again, increasingly well deserved, of the GOP as the party not of the little guy striving to get rich but of the born rich seeking to get richer.
Pawlenty would still be a good pick. Crist has his downsides, especially the pervasive stench of obsequiousness that seems to surround him, and you don’t hear much about Crist of late anyway. But Hutchison seems to be a better pick, given what McCain is trying, probably vainly, to do with the “women’s vote,” which itself betrays at least a bit of largely justified condescension that transcends gender. In any case, Romney doesn’t look like nearly as strong a choice as he appeared even one week ago.
With Barack Obama’s selection of Joe Biden as his running mate, and other developments in this fast moving presidential race, I am starting to rethink the wisdom of part of my 8/18/08 commentary.
As loyal readers will recall, I proffered in that post that
“Biden and Bayh would be good, safe choices.”
Clearly, I am not rethinking that portion of the post. However, I also stated
“So this leaves us with the front runners as the preferred choices: Crist, Pawlenty, and Romney. Are any of these men especially attractive? Probably not. But none would cost McCain (Did you know he was a POW in Vietnam?) the election, as would some others. Further, an attention getting “surprise” candidate is a lot less advisable now that it looks like McCain (Did you know he was a POW in Vietnam?) actually has a chance.”
But now I am rethinking this assertion. (Note that I said “assertion,” not “prediction.” I am out of the political prediction business. I was not, and am not, attempting to predict whom either Obama did or McCain (Did you know he was a POW in Vietnam? And I’ll only do it once this time; I know it gets tiresome, or so people, especially my wife, tell me. But it’s so much fun!) will select. I am only asserting whom they should select.) I think that Senator McCain would do well to select Senator Kaye Bailey Hutchison as his running mate, or at least that he should not pick Mitt Romney.
The first reason that Hutchison would be a good pick is the obvious one: McCain is trying to woo disgruntled Hillary Clinton supporters, the hard core of which is women about my age and perhaps a little older, women who were in the vanguard of the feminist movement and who are understandably upset that Hillary was not selected as her Party’s standard-bearer. (It appears at this juncture that, as this race tightens, or worse, a LOT of Democrats, even many with no particular affinity for Hillary, are upset that Hillary was not selected as her Party’s standard-bearer, but, alas, it’s too late baby, it’s too late, but (they) really did try to make it. But I digress. At least I do so parenthetically and lyrically.) One would like to think that no rational voter, man or woman, who was an ardent supporter of Hillary would vote for John McCain because he chose a woman as his running mate, but, when considering the typical American voter, the adjective “rational” is not the first that comes to mind.
The second reason that Hutchison appears to be a good pick, or at least that Romney is not a good selection, is that John McCain is experiencing an increasing amount of well deserved “detached rich guy” flak of late. If he selects Romney, he will have selected yet another guy who is open to such criticism.
However, a Romney selection would have a perhaps even more dire effect on the Republican ticket. If the GOP runs with a McCain/Romney ticket, it will be running with two guys who were proverbially born on third base and think they hit triples. Though both McCain and Romney have achieved things, some might even say great things, in their lives, who can argue that Mitt Romney would be a multi-millionaire financier were his father not George Romney or that John McCain would have ever been let near a fighter plane, if his flight record was as bad as reported, were his father and grandfathers not admirals, the former the Commander of the U.S. Pacific fleet? Further, who would argue that McCain would have been a big shot senator had his wife not inherited a bundle from her father and thus been able to finance her husband’s campaigns? A McCain/Romney ticket would reek of inherited privilege, and contribute to the caricature, again, increasingly well deserved, of the GOP as the party not of the little guy striving to get rich but of the born rich seeking to get richer.
Pawlenty would still be a good pick. Crist has his downsides, especially the pervasive stench of obsequiousness that seems to surround him, and you don’t hear much about Crist of late anyway. But Hutchison seems to be a better pick, given what McCain is trying, probably vainly, to do with the “women’s vote,” which itself betrays at least a bit of largely justified condescension that transcends gender. In any case, Romney doesn’t look like nearly as strong a choice as he appeared even one week ago.
Sunday, August 24, 2008
COUNT YOUR CHANGE BEFORE LEAVING THE COUNTER
8/24/08
There has been much justified criticism of the Obama campaign’s mantra of “Change” since that particular piece of pabulum surfaced at the beginning of the campaign. The main objection to the banal “Change you can believe in” and other such trifles is that it is so much cotton candy for the mind, an ethereal surfeit of political pap that means nothing. Obama loyalists will argue that “Change” is only a tagline and that voters should examine Senator Obama’s position papers for the “meat” of the argument. But most people don’t do so, and those that do are, unless having drunk a particular candidate’s kool-aid, recognize that even the position papers are mere shallow wish lists that end up being honored almost exclusively in the breach. Even a simple tag line needs more than the innocuous, and increasingly boring, “Change.”
There is a bigger problem, however, that may lift the ceaseless repetition of “change” from the banausic to the baleful for the Obama campaign. Not only can “change” mean anything (to what? from what?) and thus means nothing, but most people, and certainly most voters, mirabile dictu, don’t want much change. Think about it. Yes, we have problems, plenty of them. And many (but certainly not all; mirrors are called for here) of those problems can be laid at the feet of the Bush administration and its Republican henchmen. However, for all our problems, we have a pretty good deal in the United States in 2008. Life may not be quite as good as it was a few years ago, but it still beats life just about anywhere else in the world, especially for the middle class homeowners who constitute the vast majority of the electorate.
People say they want “change,” but one suspects they really want it only if it is undefined (so that it can be whatever they want it to be) and limited. Yeah, maybe trim around the edges a bit, but don’t cut it all off. But the incessant repetition of the amorphous “change” tagline may have already reached the point at which people fear having too much shorn off their figurative pates.
There has been much justified criticism of the Obama campaign’s mantra of “Change” since that particular piece of pabulum surfaced at the beginning of the campaign. The main objection to the banal “Change you can believe in” and other such trifles is that it is so much cotton candy for the mind, an ethereal surfeit of political pap that means nothing. Obama loyalists will argue that “Change” is only a tagline and that voters should examine Senator Obama’s position papers for the “meat” of the argument. But most people don’t do so, and those that do are, unless having drunk a particular candidate’s kool-aid, recognize that even the position papers are mere shallow wish lists that end up being honored almost exclusively in the breach. Even a simple tag line needs more than the innocuous, and increasingly boring, “Change.”
There is a bigger problem, however, that may lift the ceaseless repetition of “change” from the banausic to the baleful for the Obama campaign. Not only can “change” mean anything (to what? from what?) and thus means nothing, but most people, and certainly most voters, mirabile dictu, don’t want much change. Think about it. Yes, we have problems, plenty of them. And many (but certainly not all; mirrors are called for here) of those problems can be laid at the feet of the Bush administration and its Republican henchmen. However, for all our problems, we have a pretty good deal in the United States in 2008. Life may not be quite as good as it was a few years ago, but it still beats life just about anywhere else in the world, especially for the middle class homeowners who constitute the vast majority of the electorate.
People say they want “change,” but one suspects they really want it only if it is undefined (so that it can be whatever they want it to be) and limited. Yeah, maybe trim around the edges a bit, but don’t cut it all off. But the incessant repetition of the amorphous “change” tagline may have already reached the point at which people fear having too much shorn off their figurative pates.
“…WORKIN’ FOR THE MAN EVERY NIGHT AND DAY”
8/24/08
Below is a letter I wrote to our local paper in response to an article on public sector pensions. See my 11/16/07 post, in which I related this issue to the Drew Peterson case.
Thanks.
Mark
8/24/08
The headline article by Mike Mitchell in the 8/24 Naperville Sun asks “Can cities afford to keep pensions?” The answer is “No,” but for reasons only hinted at in the article.
In its lead sentence, the article states “While many (emphasis mine) employees in the private sector sock away part of their incomes in 401(k)s and IRAs for retirement, full-time government employees can bank on a pension that is guaranteed to support them for the rest of their lives.” This contention understates the case. Not many, but, rather, most (soon to be almost all) private sector employees no longer have access to defined benefit (“DB”) plans. Therein lies the reason that cities, and other state and local governmental bodies, can no longer afford to keep their rich pension systems. While no one likes paying taxes, perhaps especially property taxes, taxpayers tolerated the huge chunk of their taxes that went toward pensions back when those taxpayers were getting pensions themselves. Now that the DB plan has gone the way of the dodo bird in the private sector, taxpayers have very little tolerance for the even larger, and growing, portion of their taxes going toward paying a benefit that they have no hope of receiving.
It is political will, rather than a cold calculation of debits and credits, that will render generous public pension systems untenable in the near future.
Mark Quinn
Naperville
Below is a letter I wrote to our local paper in response to an article on public sector pensions. See my 11/16/07 post, in which I related this issue to the Drew Peterson case.
Thanks.
Mark
8/24/08
The headline article by Mike Mitchell in the 8/24 Naperville Sun asks “Can cities afford to keep pensions?” The answer is “No,” but for reasons only hinted at in the article.
In its lead sentence, the article states “While many (emphasis mine) employees in the private sector sock away part of their incomes in 401(k)s and IRAs for retirement, full-time government employees can bank on a pension that is guaranteed to support them for the rest of their lives.” This contention understates the case. Not many, but, rather, most (soon to be almost all) private sector employees no longer have access to defined benefit (“DB”) plans. Therein lies the reason that cities, and other state and local governmental bodies, can no longer afford to keep their rich pension systems. While no one likes paying taxes, perhaps especially property taxes, taxpayers tolerated the huge chunk of their taxes that went toward pensions back when those taxpayers were getting pensions themselves. Now that the DB plan has gone the way of the dodo bird in the private sector, taxpayers have very little tolerance for the even larger, and growing, portion of their taxes going toward paying a benefit that they have no hope of receiving.
It is political will, rather than a cold calculation of debits and credits, that will render generous public pension systems untenable in the near future.
Mark Quinn
Naperville
Wednesday, August 20, 2008
‘DIS GUY DON’T LIVE OVER BY CHICAGO
8/20/08
An ill-informed article in today’s (i.e., Wednesday, 8/20’s) Wall Street Journal arguing that Barack Obama “play(s) by Chicago rules” provided me the opportunity to write a letter to that esteemed paper regarding one of my favorite subjects: Chicago politics. The letter is reproduced below:
8/20/08
In his 8/20/08 screed lambasting Barack Obama as one who “played by Chicago rules,” David Freddoso writes: “In the 2006 election, reformers from both parties attempted to end the corruption in Chicago’s Cook County government. They probably would have succeeded, too, had Mr. Obama taken their side.” Mr. Freddoso then goes on to castigate Obama for endorsing neither independent Democrat Forrest Claypool nor Republican Tony Peraica in their respective races against two generations of the reliably Machine Stroger family.
By making that statement, Mr. Freddoso displays an utter lack of knowledge of Chicago politics. First, anyone who thinks that one election could “end the corruption in Chicago’s Cook County government” is incredibly naïve, ill-informed, or both. Corruption in Cook County government did not start with the late John Stroger; it is longstanding and endemic. Insiders are fond of saying things like “You think the city (Chicago) is corrupt? Hell, it’s Minnesota compared to the county (Cook)!” Whether the Strogers or nominal reformers Forest Claypool or Tony Peraica headed the County Board would have had little impact on the pervasive culture of corruption in Cook County, either because that corruption is so deeply rooted or because Mr. Claypool or Mr. Peraica, as do most Chicago “reformers,” would likely have grown comfortable, and corrupt, once he won the big prize. Remember Jane Byrne or Jim Dvorak? Mr. Freddoso probably doesn’t.
Second, whether Mr. Obama had “taken their (the reformers’) side” would have meant virtually nothing in the County race or in some general crusade for clean government in Chicago and Cook County. In Chicago, a U.S. Senator, even a rock star like Barack Obama, ranks far behind the mayor, the county finance committee chairman (even if he were not the Mayor’s brother), the county board president, and many aldermen and/or ward committeemen on the clout list. Sure, a Senate seat is considered important, largely because a good Senator can bring plenty of federal money for the local political machinery to distribute, but its holder has little or no impact on local elections. Obama’s endorsement of either Claypool or Peraica would have had negligible impact in liberal areas of the city and county that would have gone for Claypool anyway, zero or negative impact in White ethnic Machine wards, and only marginally more impact in Black wards dominated by powerful Machine committeeman and that would have gone for Stroger in any case.
There is indeed something to Mr. Freddoso’s overall argument that Mr. Obama is perfectly comfortable playing ball with the Cook County Regular Democratic Organization and its colorful, perhaps nefarious, denizens, though probably not as much as Mr. Freddoso would have one believe. More important, we are about to see many articles castigating Mr. Obama as some sort of Machine hack or pawn of Mayor Daley. If one is to make this only somewhat strained argument effectively, one should know something about how politics works in Chicago. Mr. Freddoso, if this article is any evidence, does not.
Mark Quinn
Naperville, IL
An ill-informed article in today’s (i.e., Wednesday, 8/20’s) Wall Street Journal arguing that Barack Obama “play(s) by Chicago rules” provided me the opportunity to write a letter to that esteemed paper regarding one of my favorite subjects: Chicago politics. The letter is reproduced below:
8/20/08
In his 8/20/08 screed lambasting Barack Obama as one who “played by Chicago rules,” David Freddoso writes: “In the 2006 election, reformers from both parties attempted to end the corruption in Chicago’s Cook County government. They probably would have succeeded, too, had Mr. Obama taken their side.” Mr. Freddoso then goes on to castigate Obama for endorsing neither independent Democrat Forrest Claypool nor Republican Tony Peraica in their respective races against two generations of the reliably Machine Stroger family.
By making that statement, Mr. Freddoso displays an utter lack of knowledge of Chicago politics. First, anyone who thinks that one election could “end the corruption in Chicago’s Cook County government” is incredibly naïve, ill-informed, or both. Corruption in Cook County government did not start with the late John Stroger; it is longstanding and endemic. Insiders are fond of saying things like “You think the city (Chicago) is corrupt? Hell, it’s Minnesota compared to the county (Cook)!” Whether the Strogers or nominal reformers Forest Claypool or Tony Peraica headed the County Board would have had little impact on the pervasive culture of corruption in Cook County, either because that corruption is so deeply rooted or because Mr. Claypool or Mr. Peraica, as do most Chicago “reformers,” would likely have grown comfortable, and corrupt, once he won the big prize. Remember Jane Byrne or Jim Dvorak? Mr. Freddoso probably doesn’t.
Second, whether Mr. Obama had “taken their (the reformers’) side” would have meant virtually nothing in the County race or in some general crusade for clean government in Chicago and Cook County. In Chicago, a U.S. Senator, even a rock star like Barack Obama, ranks far behind the mayor, the county finance committee chairman (even if he were not the Mayor’s brother), the county board president, and many aldermen and/or ward committeemen on the clout list. Sure, a Senate seat is considered important, largely because a good Senator can bring plenty of federal money for the local political machinery to distribute, but its holder has little or no impact on local elections. Obama’s endorsement of either Claypool or Peraica would have had negligible impact in liberal areas of the city and county that would have gone for Claypool anyway, zero or negative impact in White ethnic Machine wards, and only marginally more impact in Black wards dominated by powerful Machine committeeman and that would have gone for Stroger in any case.
There is indeed something to Mr. Freddoso’s overall argument that Mr. Obama is perfectly comfortable playing ball with the Cook County Regular Democratic Organization and its colorful, perhaps nefarious, denizens, though probably not as much as Mr. Freddoso would have one believe. More important, we are about to see many articles castigating Mr. Obama as some sort of Machine hack or pawn of Mayor Daley. If one is to make this only somewhat strained argument effectively, one should know something about how politics works in Chicago. Mr. Freddoso, if this article is any evidence, does not.
Mark Quinn
Naperville, IL
Tuesday, August 19, 2008
SEARCHING FOR THE NEXT BILL MILLER?
8/18/08
The smart money seems to indicate that Barack Obama will be announcing his running mate sometime this week. I’m no longer in the political prediction business, so I won’t try to predict whom Obama will select. However, I will say that he would be smart to select either Joe Biden or Evan Bayh. Both are safe and both bring credibility and stature to the ticket. Tim Kaine, the other apparent front runner, makes Obama’s Achilles heel, inexperience, even more vulnerable and would be so blatantly political that it would further expose Obama’s contention that he is the candidate of “change” (whatever that means) as the lukewarm gruel that it is. I still don’t know why Bill Richardson dropped off the favorite list; he would appear to be an excellent candidate. Perhaps he is being eyed for Secretary of State in an Obama administration, but Senator Obama ought to bear in mind that if he does not become president, he will not be able to select the Secretary of State. Hillary? Initially I would have said too much baggage for too little return. However, now that this race is tightening, she tends to make more sense. But why take a chance? Biden and Bayh would be good, safe choices.
The more interesting speculation surrounds McCain’s (Did you know he was a POW in Vietnam?) choice of a VP. Should McCain (Did you know he was a POW in Vietnam?) win, he will in all likelihood be a one term president, so, in selecting a VP, John McCain (Did you know he was a POW in Vietnam?) is selecting the successor, or at least the successor candidate, of a President McCain (Did you know he was a POW in Vietnam?)
with an even higher degree of certainty than past presidential candidates have picked their successors in their selections of their running mates. On the other hand, until recently, most observers thought that a President McCain (Did you know he was a POW in Vietnam?) was a long shot, so the selection of VP perhaps was not thought to be as momentous as such selections have historically been. But now that the race has tightened, the dynamics of the situation have changed, and several points should be made, all of which reinforce the advisability of making a “safe” choice in a (relatively) daring fashion. Again, I’m making no predictions. I’m out of that business. I’m only pointing out what I think would be advisable, not what is necessarily probable.
First, McCain (Did you know he was a POW in Vietnam?) should announce his selection during the Democratic convention in order to steal some of the Democrats’ thunder. Some might argue that doing so would constitute dirty pool, but, given the direction in which this campaign appears to be headed, making a major announcement during the Democratic convention will appear, in retrospect, to have been a relatively minor breach of etiquette.
Second, this race is getting tight and thus there is no reason for McCain (Did you know he was a POW in Vietnam?) to throw the Hail Mary. While someone like Carly Fiorina, Meg Whitman, Joe Lieberman, or Mike Huckabee might have made sense if this race were a long shot, now that it appears to be a horse race, caution should be the watchword. So those four should be out; they probably weren’t under serious consideration anyway.
Third, the reason that John McCain (Did you know he was a POW in Vietnam?) is in this race is twofold. First, and less important, there is a clear perception that McCain (Did you know he was a POW in Vietnam?) will be a one term president, and, this perception goes, how much damage can a one termer really do? This is clearly a specious argument; a one termer can start World War III as easily as can a two-termer, and, after all, that is most people’s real, albeit probably (hopefully?) exaggerated fear about John McCain. (Did you know he was a POW in Vietnam?)
The one term president argument becomes more formidable when combined with the second, and more important reason that McCain (Did you know he was a POW in Vietnam?) is still in this race, to wit: John McCain (Did you know he was a POW in Vietnam?) is in this race because he, or his people, have successfully played on the fears people have regarding Barack Obama. There is plenty to be afraid of in Barack Obama, among them his youth and inexperience and the growing perception that he might be an empty suit who reads the teleprompter very well. For me, the biggest thing to fear about Obama is his apparently fervent belief in the omniscience of government and his consequent apparent desire to complement that perceived omniscience with omnipotence. Mine is not the fear, however, that will make a difference in this campaign. Let’s be blunt about it: the biggest fear that a lot of (I didn’t say “most;” I said “a lot of,” enough to make a difference in a general election operated under the auspices of the Electoral College) people have about Barack Obama is not his liberalism or his inexperience but his race. Does anyone think that Hillary won West Virginia or Kentucky because voters in those states love Hillary? Whether we as a nation want to admit it, there are plenty of people who simply will not pull the lever for a Black man, resulting in the Bradley effect’s still being very much alive and, consequently, this race being a lot closer than even the polls show, or perhaps even tipping toward McCain. (Did you know he was a POW in Vietnam?)
Given that McCain (Did you know he was a POW in Vietnam?) can remain in this race only if he keeps fear alive, he needs to select a running mate who will reinforce the unspoken theme of “Be safe; vote for a relatively conservative white guy.” Such a cautious selection is especially advisable because, should John McCain (Did you know he was a POW in Vietnam?) become president, his VP will probably be the next president. This only reinforces the Machiavellian wisdom of avoiding Meg Whitman, Carly Fiorina, or Bobby Jindal. (See my 6/15/08 post on the utter folly of selecting Governor Jindal.) This also would make Joe Lieberman a poor choice, but Mr. Lieberman’s largely liberal voting record on domestic issues also would cause apoplexy among the GOP base even if his name were John Smith and he were a rector of the Episcopal Church. Tom Ridge is also probably out for ideological reasons, though his apostasy from Rightist Writ has its origins in only one issue. So this leaves us with the front runners as the preferred choices: Crist, Pawlenty, and Romney. Are any of these men especially attractive? Probably not. But none would cost McCain (Did you know he was a POW in Vietnam?) the election, as would some others. Further, an attention getting “surprise” candidate is a lot less advisable now that it looks like McCain (Did you know he was a POW in Vietnam?) actually has a chance.
Making a safe choice would be the smart move for either candidate. I would complete the paraphrase from the greatest movie ever made, but that would require stating that either Obama or McCain “was always the smarter one.” That I can’t do.
The smart money seems to indicate that Barack Obama will be announcing his running mate sometime this week. I’m no longer in the political prediction business, so I won’t try to predict whom Obama will select. However, I will say that he would be smart to select either Joe Biden or Evan Bayh. Both are safe and both bring credibility and stature to the ticket. Tim Kaine, the other apparent front runner, makes Obama’s Achilles heel, inexperience, even more vulnerable and would be so blatantly political that it would further expose Obama’s contention that he is the candidate of “change” (whatever that means) as the lukewarm gruel that it is. I still don’t know why Bill Richardson dropped off the favorite list; he would appear to be an excellent candidate. Perhaps he is being eyed for Secretary of State in an Obama administration, but Senator Obama ought to bear in mind that if he does not become president, he will not be able to select the Secretary of State. Hillary? Initially I would have said too much baggage for too little return. However, now that this race is tightening, she tends to make more sense. But why take a chance? Biden and Bayh would be good, safe choices.
The more interesting speculation surrounds McCain’s (Did you know he was a POW in Vietnam?) choice of a VP. Should McCain (Did you know he was a POW in Vietnam?) win, he will in all likelihood be a one term president, so, in selecting a VP, John McCain (Did you know he was a POW in Vietnam?) is selecting the successor, or at least the successor candidate, of a President McCain (Did you know he was a POW in Vietnam?)
with an even higher degree of certainty than past presidential candidates have picked their successors in their selections of their running mates. On the other hand, until recently, most observers thought that a President McCain (Did you know he was a POW in Vietnam?) was a long shot, so the selection of VP perhaps was not thought to be as momentous as such selections have historically been. But now that the race has tightened, the dynamics of the situation have changed, and several points should be made, all of which reinforce the advisability of making a “safe” choice in a (relatively) daring fashion. Again, I’m making no predictions. I’m out of that business. I’m only pointing out what I think would be advisable, not what is necessarily probable.
First, McCain (Did you know he was a POW in Vietnam?) should announce his selection during the Democratic convention in order to steal some of the Democrats’ thunder. Some might argue that doing so would constitute dirty pool, but, given the direction in which this campaign appears to be headed, making a major announcement during the Democratic convention will appear, in retrospect, to have been a relatively minor breach of etiquette.
Second, this race is getting tight and thus there is no reason for McCain (Did you know he was a POW in Vietnam?) to throw the Hail Mary. While someone like Carly Fiorina, Meg Whitman, Joe Lieberman, or Mike Huckabee might have made sense if this race were a long shot, now that it appears to be a horse race, caution should be the watchword. So those four should be out; they probably weren’t under serious consideration anyway.
Third, the reason that John McCain (Did you know he was a POW in Vietnam?) is in this race is twofold. First, and less important, there is a clear perception that McCain (Did you know he was a POW in Vietnam?) will be a one term president, and, this perception goes, how much damage can a one termer really do? This is clearly a specious argument; a one termer can start World War III as easily as can a two-termer, and, after all, that is most people’s real, albeit probably (hopefully?) exaggerated fear about John McCain. (Did you know he was a POW in Vietnam?)
The one term president argument becomes more formidable when combined with the second, and more important reason that McCain (Did you know he was a POW in Vietnam?) is still in this race, to wit: John McCain (Did you know he was a POW in Vietnam?) is in this race because he, or his people, have successfully played on the fears people have regarding Barack Obama. There is plenty to be afraid of in Barack Obama, among them his youth and inexperience and the growing perception that he might be an empty suit who reads the teleprompter very well. For me, the biggest thing to fear about Obama is his apparently fervent belief in the omniscience of government and his consequent apparent desire to complement that perceived omniscience with omnipotence. Mine is not the fear, however, that will make a difference in this campaign. Let’s be blunt about it: the biggest fear that a lot of (I didn’t say “most;” I said “a lot of,” enough to make a difference in a general election operated under the auspices of the Electoral College) people have about Barack Obama is not his liberalism or his inexperience but his race. Does anyone think that Hillary won West Virginia or Kentucky because voters in those states love Hillary? Whether we as a nation want to admit it, there are plenty of people who simply will not pull the lever for a Black man, resulting in the Bradley effect’s still being very much alive and, consequently, this race being a lot closer than even the polls show, or perhaps even tipping toward McCain. (Did you know he was a POW in Vietnam?)
Given that McCain (Did you know he was a POW in Vietnam?) can remain in this race only if he keeps fear alive, he needs to select a running mate who will reinforce the unspoken theme of “Be safe; vote for a relatively conservative white guy.” Such a cautious selection is especially advisable because, should John McCain (Did you know he was a POW in Vietnam?) become president, his VP will probably be the next president. This only reinforces the Machiavellian wisdom of avoiding Meg Whitman, Carly Fiorina, or Bobby Jindal. (See my 6/15/08 post on the utter folly of selecting Governor Jindal.) This also would make Joe Lieberman a poor choice, but Mr. Lieberman’s largely liberal voting record on domestic issues also would cause apoplexy among the GOP base even if his name were John Smith and he were a rector of the Episcopal Church. Tom Ridge is also probably out for ideological reasons, though his apostasy from Rightist Writ has its origins in only one issue. So this leaves us with the front runners as the preferred choices: Crist, Pawlenty, and Romney. Are any of these men especially attractive? Probably not. But none would cost McCain (Did you know he was a POW in Vietnam?) the election, as would some others. Further, an attention getting “surprise” candidate is a lot less advisable now that it looks like McCain (Did you know he was a POW in Vietnam?) actually has a chance.
Making a safe choice would be the smart move for either candidate. I would complete the paraphrase from the greatest movie ever made, but that would require stating that either Obama or McCain “was always the smarter one.” That I can’t do.
Monday, August 18, 2008
“DINSDALE…DINSDALE!”
8/18/08
CNBC included a segment after today’s close featuring food company analysts from Sanford Bernstein and D.A. Davidson. As do many of you, I have CNBC on during the trading day, but have the volume muted and/or go about my business while CNBC is on and hence I don’t catch everything. Usually, when a segment comes on that looks like it will be especially interesting, I turn on the volume and almost invariably have missed the speakers’ names. Unless that speaker is known to me either through repeated appearances in the financial media, personal acquaintance, or friendship, I have no idea who is speaking. Given the tone of many of my commentaries, that is probably a quite fortunate thing, but that is another issue.
In this instance, the Bernstein analyst was trumpeting the food stocks. The stated reason for her enthusiasm is that the food companies have gotten religion and are hedging their exposures to higher food prices.
Hmm…
This seems like an awfully peculiar argument at this point in the commodity cycle, or at any time, for that matter. What if the food companies are not hedging with any degree of acuity and are doing so at an especially poor time? One could make the argument (and I am not; no predictions on commodity prices at this time) that, depending on the method of hedging these companies are employing, they could be locking in what, in retrospect, might look like historically high prices. If this were to be the case, companies’ hedging their exposure to commodity prices would be a very good reason NOT to buy the stocks.
The alert interviewer, Maria Caruso-Cabrera, brought up a very similar point when she asked the Davidson analyst how we could know that the food companies would hedge skillfully and effectively. He replied that hedging is nothing new for the food companies, stating that they have been doing so for years.
Hmm…
If indeed the food companies have been hedging for years, and I have no reason to think they haven’t been, why are those companies citing rising commodity prices as a reason for their earnings’ being under pressure (to put it politely)? Apparently, the food companies, taken as a whole, are not all that skillful in hedging. Consequently, the “buy the food companies because they have gotten religion on hedging” argument looks weaker still.
I don’t write this to comment on food companies. I have traded several through the years, most recently Lifeway Foods (LWAY), a very small cap stock that has treated me very well and in which I now have only a very small position due to my fervent belief in the old adage that no one ever went broke taking a profit. But positions in food stocks have been rare in either my investment or trading portfolio, and LWAY was a special situation rather than a bet on the food stocks. The point is that I have no special expertise in food companies, other than my rather prodigious (and increasingly obvious) enthusiasm for virtually any of their products.
My object in writing this post, then, is not to comment on food stocks but, rather, to point out that the investment world is given to fad chasing. One of those perennial fads is “hedging.” With commodity prices (until recently) soaring toward the stratosphere, those who hedged effectively, most famously Southwest Airlines, were awarded financially and with the adulation of their peers. So everyone wants to get on the bandwagon. Furthermore, investment people want to sound smart in order to justify their (in most, but certainly not all, cases) grossly out of proportion to their value pay packages, so they like to throw around buzzwords like “hedging.” But saying that one engages in hedging is like saying that one intends to invest in mutual funds. It means nothing until one gets more specific, does so skillfully, and has a bit of luck with one’s timing.
CNBC included a segment after today’s close featuring food company analysts from Sanford Bernstein and D.A. Davidson. As do many of you, I have CNBC on during the trading day, but have the volume muted and/or go about my business while CNBC is on and hence I don’t catch everything. Usually, when a segment comes on that looks like it will be especially interesting, I turn on the volume and almost invariably have missed the speakers’ names. Unless that speaker is known to me either through repeated appearances in the financial media, personal acquaintance, or friendship, I have no idea who is speaking. Given the tone of many of my commentaries, that is probably a quite fortunate thing, but that is another issue.
In this instance, the Bernstein analyst was trumpeting the food stocks. The stated reason for her enthusiasm is that the food companies have gotten religion and are hedging their exposures to higher food prices.
Hmm…
This seems like an awfully peculiar argument at this point in the commodity cycle, or at any time, for that matter. What if the food companies are not hedging with any degree of acuity and are doing so at an especially poor time? One could make the argument (and I am not; no predictions on commodity prices at this time) that, depending on the method of hedging these companies are employing, they could be locking in what, in retrospect, might look like historically high prices. If this were to be the case, companies’ hedging their exposure to commodity prices would be a very good reason NOT to buy the stocks.
The alert interviewer, Maria Caruso-Cabrera, brought up a very similar point when she asked the Davidson analyst how we could know that the food companies would hedge skillfully and effectively. He replied that hedging is nothing new for the food companies, stating that they have been doing so for years.
Hmm…
If indeed the food companies have been hedging for years, and I have no reason to think they haven’t been, why are those companies citing rising commodity prices as a reason for their earnings’ being under pressure (to put it politely)? Apparently, the food companies, taken as a whole, are not all that skillful in hedging. Consequently, the “buy the food companies because they have gotten religion on hedging” argument looks weaker still.
I don’t write this to comment on food companies. I have traded several through the years, most recently Lifeway Foods (LWAY), a very small cap stock that has treated me very well and in which I now have only a very small position due to my fervent belief in the old adage that no one ever went broke taking a profit. But positions in food stocks have been rare in either my investment or trading portfolio, and LWAY was a special situation rather than a bet on the food stocks. The point is that I have no special expertise in food companies, other than my rather prodigious (and increasingly obvious) enthusiasm for virtually any of their products.
My object in writing this post, then, is not to comment on food stocks but, rather, to point out that the investment world is given to fad chasing. One of those perennial fads is “hedging.” With commodity prices (until recently) soaring toward the stratosphere, those who hedged effectively, most famously Southwest Airlines, were awarded financially and with the adulation of their peers. So everyone wants to get on the bandwagon. Furthermore, investment people want to sound smart in order to justify their (in most, but certainly not all, cases) grossly out of proportion to their value pay packages, so they like to throw around buzzwords like “hedging.” But saying that one engages in hedging is like saying that one intends to invest in mutual funds. It means nothing until one gets more specific, does so skillfully, and has a bit of luck with one’s timing.
Thursday, August 14, 2008
LOOKS GOOD ON ME, THOUGH
8/14/08
This morning’s Wall Street Journal reports that Condoleezza Rice, in a news conference on Wednesday, 8/13/08, reflected the Bush administration’s tone on the Russian military action in Georgia when she stated:
“This is not 1968 and the invasion of Czechoslovakia, where Russia can threaten a neighbor, occupy a capital, overthrow a government, and get away with it. Things have changed.”
Hmm…
Apparently “things have changed” only since 2003.
This morning’s Wall Street Journal reports that Condoleezza Rice, in a news conference on Wednesday, 8/13/08, reflected the Bush administration’s tone on the Russian military action in Georgia when she stated:
“This is not 1968 and the invasion of Czechoslovakia, where Russia can threaten a neighbor, occupy a capital, overthrow a government, and get away with it. Things have changed.”
Hmm…
Apparently “things have changed” only since 2003.
Monday, August 11, 2008
THE DEVIL WENT DOWN TO GEORGIA?
8/11/08
The war (let’s call it what it is) between Georgia and Russia, ostensibly over South Ossetia, has led to several thoughts:
---The fighting is already being portrayed by many, but especially by John McCain, who seems to yearn and pine for the good old days of the Cold War, as another episode of the evil Russians attempting to snuff out freedom, democracy and all that is good in a tiny, defenseless neighboring state. This may very well be the case. There is no doubt that Russia, historically and understandably suspicious, some might say paranoid, would like to keep at least a sphere of influence in the former Soviet republics and would like to check Western, and especially American, influence on its borders. With their growing power and oil wealth, Mr. Putin and his minions have shown inordinate eagerness for muscle flexing. Further, President Mikheil Saakashvili of Georgia, while lately displaying growing signs of authoritarianism, does have some democratic bona fides. So the “Russia as the ravenous bear” scenario does have some plausibility.
However, before we completely buy the “intransigent and aggressive Russia snuffing out an embryonic, defenseless, innocent democracy” story, let’s make sure, or as sure as we can, of a few things:
First, that Mr. Saakashvili is a democrat, pro-market leader and not yet another U.S. stooge whose shortcomings, or worse, are overlooked because he does the bidding of the current U.S. administration. Remember that Georgia has (or had, until troops were called home to defend their own nation (perhaps we could learn something here)) the third largest contingent of foreign troop in Iraq and that those troops were sent there under heavy pressure, in all its forms, from the Bush administration. Also remember that we have supported some especially malodorous stooges in the past, including Rhee, Stroessner, Diem, Thieu, Batista, Reza Pahlavi, Somoza, and, ironically, Saddam Hussein, as long as they have done our bidding. It appears that it would be more than unfair to place Mr. Saakashvili in such reprehensible company, but let’s restrain ourselves before we put him in the company of, say, George Washington, Thomas Jefferson, and Nelson Mandela.
Second, that the south Ossetians, who are largely ethnic Russians, really want to be part of Georgia rather than a part of Russia. Despite Russian, and especially Soviet, history, it is not unimaginable that people might want to be part of Russia.
Third, that the Georgians did not provoke this conflict. We still don’t know who started this one.
---The Germans, and, to a lesser extent, the French, did us a great favor by effectively vetoing Georgian membership in NATO. Had Georgia been allowed to join NATO, we would have been obligated by treaty to join this conflict, possibly inciting World War III over South Ossetia. In practice, the NATO treaty, which calls on all members to treat an attack on one as an attack on all, would have been ignored before Americans were called on to die for Tskhinvali, but such abrogation, too, would have had negative consequences.
---The most overriding thought, though, is that the RUSSIANS AND THE GEORGIANS have a problem, and we should all hope and pray that THEY work it out.
The war (let’s call it what it is) between Georgia and Russia, ostensibly over South Ossetia, has led to several thoughts:
---The fighting is already being portrayed by many, but especially by John McCain, who seems to yearn and pine for the good old days of the Cold War, as another episode of the evil Russians attempting to snuff out freedom, democracy and all that is good in a tiny, defenseless neighboring state. This may very well be the case. There is no doubt that Russia, historically and understandably suspicious, some might say paranoid, would like to keep at least a sphere of influence in the former Soviet republics and would like to check Western, and especially American, influence on its borders. With their growing power and oil wealth, Mr. Putin and his minions have shown inordinate eagerness for muscle flexing. Further, President Mikheil Saakashvili of Georgia, while lately displaying growing signs of authoritarianism, does have some democratic bona fides. So the “Russia as the ravenous bear” scenario does have some plausibility.
However, before we completely buy the “intransigent and aggressive Russia snuffing out an embryonic, defenseless, innocent democracy” story, let’s make sure, or as sure as we can, of a few things:
First, that Mr. Saakashvili is a democrat, pro-market leader and not yet another U.S. stooge whose shortcomings, or worse, are overlooked because he does the bidding of the current U.S. administration. Remember that Georgia has (or had, until troops were called home to defend their own nation (perhaps we could learn something here)) the third largest contingent of foreign troop in Iraq and that those troops were sent there under heavy pressure, in all its forms, from the Bush administration. Also remember that we have supported some especially malodorous stooges in the past, including Rhee, Stroessner, Diem, Thieu, Batista, Reza Pahlavi, Somoza, and, ironically, Saddam Hussein, as long as they have done our bidding. It appears that it would be more than unfair to place Mr. Saakashvili in such reprehensible company, but let’s restrain ourselves before we put him in the company of, say, George Washington, Thomas Jefferson, and Nelson Mandela.
Second, that the south Ossetians, who are largely ethnic Russians, really want to be part of Georgia rather than a part of Russia. Despite Russian, and especially Soviet, history, it is not unimaginable that people might want to be part of Russia.
Third, that the Georgians did not provoke this conflict. We still don’t know who started this one.
---The Germans, and, to a lesser extent, the French, did us a great favor by effectively vetoing Georgian membership in NATO. Had Georgia been allowed to join NATO, we would have been obligated by treaty to join this conflict, possibly inciting World War III over South Ossetia. In practice, the NATO treaty, which calls on all members to treat an attack on one as an attack on all, would have been ignored before Americans were called on to die for Tskhinvali, but such abrogation, too, would have had negative consequences.
---The most overriding thought, though, is that the RUSSIANS AND THE GEORGIANS have a problem, and we should all hope and pray that THEY work it out.
Saturday, August 9, 2008
“HAIL, HAIL FREEDONIA!”
8/9/08
Senator and presumptive Democratic nominee for President Barack Obama, delivering this morning’s Democratic response to the President’s Saturday morning radio address, joined the ever growing chorus of American public officials and ordinary citizens, from both the right and left (whatever those two terms mean any more) in calling for the Iraqi “government” (whatever that is) to pay for the rebuilding of Iraq.
On its face, this argument makes eminent sense. With Iraqi oil production reaching pre-war levels and the price of oil still astronomically high by historical standards, the Iraqis are quickly building huge dollar reserves, most of which are invested outside the country in safe, short term investments. The Iraqi “government” claims that its budgetary systems are still not up to the task of deploying the growing windfall and the challenges of investing the money properly are beyond its expertise at this points. With the lethargic, at best, state of the U.S. economy and our astronomical federal budget deficit, it is frustrating for American taxpayers to be expected to foot the bill to rebuild Iraq. Americans of all political stripes take the Iraqi protestations as so much balderdash with a degree of legitimacy, and demand that the Iraqis begin to pay for things. After all, our President told us that this war would be self-financing.
The frustration and anger among the U.S. citizenry and governing class is understandable, but badly misplaced. Imagine, for a moment, that we are not dealing with our own country, but with some mythical superpower. Call it Freedonia. Freedonia invades a distant country, call it Fenwick, with little provocation for reasons that seemed murky at the time of the invasion and grow to seem outright duplicitous as the war and the ensuing occupation continue. Scores, if not hundreds, of thousands of Fenwickians are killed; more are injured. Cities, infrastructure, and the economy are destroyed. Supplies of Fenwick’s major export, (a product, by the way, to which Freedonians are addicted, according to Freedonia’s prime minister) are impaired to the point at which Fenwick’s ability to survive, let alone recover from the damage wrought by the Freedonian invasion, is destroyed. After awhile, things settle down, but only in a relative sense. Exports of Fenwick’s major product resume, enabling Fenwick to begin, and only begin, to get on its feet economically after the devastation wrought by the Freedonian invasion. Freedonia then presents Fenwick with a bill for the destruction Freedonia has wrought and demands payment.
We would be, quite correctly, utterly appalled at Freedonia’s actions, which sound remarkably likes the tactics of the Gestapo and the Red Army, which were known to make families of the victims of their horrifics pay for the bullets, gas, etc., used to murder their loved ones, or of the Roman legions, who made the relatives of their victims clean up the gore that resulted from the Romans’ especially cruel methods of execution or less drastic punishment. Yet these are exactly the actions of our government in Iraq: our government destroyed the Iraqi economy, killed hundreds of thousands of Iraqis, left their infrastructure and their ability to recover in a shambles, and now we are demanding that the Iraqis pay to clean up the utter destruction we have wreaked on them and denigrating the Iraqis as being “ungrateful” because they are reluctant to pay.
Mr. Bush started this war, with little or no provocation, for reasons that keep changing but have never been clear. When he started this war, he had tremendous support from both Democratic and Republican members of Congress and the overwhelming support of the American people. To use a trite expression, we broke it, we bought it. We are already living with the human consequences of Mr. Bush’s adventure, which, again, met little opposition from the Democrats. The financial consequences, though not nearly as ghastly, are huge and will continue far into the future. And they are consequences we will surely bear.
Perhaps the prospect of paying for our leader’s potvaliance, which neither the citizenry nor the “opposition” party did anything noticeable to check, will dull the enthusiasm of the American people for the next jingoistic adventure proposed by a misguided, uninformed, reckless, gormless president. We can only hope.
Senator and presumptive Democratic nominee for President Barack Obama, delivering this morning’s Democratic response to the President’s Saturday morning radio address, joined the ever growing chorus of American public officials and ordinary citizens, from both the right and left (whatever those two terms mean any more) in calling for the Iraqi “government” (whatever that is) to pay for the rebuilding of Iraq.
On its face, this argument makes eminent sense. With Iraqi oil production reaching pre-war levels and the price of oil still astronomically high by historical standards, the Iraqis are quickly building huge dollar reserves, most of which are invested outside the country in safe, short term investments. The Iraqi “government” claims that its budgetary systems are still not up to the task of deploying the growing windfall and the challenges of investing the money properly are beyond its expertise at this points. With the lethargic, at best, state of the U.S. economy and our astronomical federal budget deficit, it is frustrating for American taxpayers to be expected to foot the bill to rebuild Iraq. Americans of all political stripes take the Iraqi protestations as so much balderdash with a degree of legitimacy, and demand that the Iraqis begin to pay for things. After all, our President told us that this war would be self-financing.
The frustration and anger among the U.S. citizenry and governing class is understandable, but badly misplaced. Imagine, for a moment, that we are not dealing with our own country, but with some mythical superpower. Call it Freedonia. Freedonia invades a distant country, call it Fenwick, with little provocation for reasons that seemed murky at the time of the invasion and grow to seem outright duplicitous as the war and the ensuing occupation continue. Scores, if not hundreds, of thousands of Fenwickians are killed; more are injured. Cities, infrastructure, and the economy are destroyed. Supplies of Fenwick’s major export, (a product, by the way, to which Freedonians are addicted, according to Freedonia’s prime minister) are impaired to the point at which Fenwick’s ability to survive, let alone recover from the damage wrought by the Freedonian invasion, is destroyed. After awhile, things settle down, but only in a relative sense. Exports of Fenwick’s major product resume, enabling Fenwick to begin, and only begin, to get on its feet economically after the devastation wrought by the Freedonian invasion. Freedonia then presents Fenwick with a bill for the destruction Freedonia has wrought and demands payment.
We would be, quite correctly, utterly appalled at Freedonia’s actions, which sound remarkably likes the tactics of the Gestapo and the Red Army, which were known to make families of the victims of their horrifics pay for the bullets, gas, etc., used to murder their loved ones, or of the Roman legions, who made the relatives of their victims clean up the gore that resulted from the Romans’ especially cruel methods of execution or less drastic punishment. Yet these are exactly the actions of our government in Iraq: our government destroyed the Iraqi economy, killed hundreds of thousands of Iraqis, left their infrastructure and their ability to recover in a shambles, and now we are demanding that the Iraqis pay to clean up the utter destruction we have wreaked on them and denigrating the Iraqis as being “ungrateful” because they are reluctant to pay.
Mr. Bush started this war, with little or no provocation, for reasons that keep changing but have never been clear. When he started this war, he had tremendous support from both Democratic and Republican members of Congress and the overwhelming support of the American people. To use a trite expression, we broke it, we bought it. We are already living with the human consequences of Mr. Bush’s adventure, which, again, met little opposition from the Democrats. The financial consequences, though not nearly as ghastly, are huge and will continue far into the future. And they are consequences we will surely bear.
Perhaps the prospect of paying for our leader’s potvaliance, which neither the citizenry nor the “opposition” party did anything noticeable to check, will dull the enthusiasm of the American people for the next jingoistic adventure proposed by a misguided, uninformed, reckless, gormless president. We can only hope.
Friday, August 8, 2008
TALK BACKWARDS
8/8/08
Back in the Spring when the dollar was trading at record lows against the euro and multi-year loans against the yen, the stock market/economy bulls told us how terrific the weak dollar was for the U.S. economy and for stocks. That callow argument, which completely ignored the U.S.’s status as a huge and getting more in hock by the minute debtor, came straight from the econ textbooks of the ‘70s: our weak dollar would make our exports more competitive and currency translation would have a eupeptic effect on the earnings of American multinationals. But this particular post does not deal with the merits of that argument.
Now that the dollar is strengthening at a breathtaking pace (up over 3% this week vs. the euro), the bulls are arguing that a strong dollar is terrific for the U.S. stock market/economy. Part of this protean argument is that a strong dollar puts downward pressure on commodity prices. This is a more formidable argument than the almost risible contention that a weak dollar helps us by making our export more competitive, but, again, the purpose of this particular post is not to argue the merits of the various arguments regarding the salubriousness, or lack thereof, of a strong dollar for our economy and equities markets.
So, if you’re a bull, a weak dollar is good for the economy/stock market and a strong dollar is good for the economy/stock market. Sure, this argument is contradictory on its face, but I am convinced that such cant is not duplicitous but merely a reflection of human nature. We all tend to talk our positions. We all have a tendency to decide what we think on largely subjective or visceral grounds and then find facts and “logical” arguments to support those positions. The task of a good investor, trader, or an open minded, inquisitive human being is to overcome this tendency and work from the facts to an opinion rather than the other way around. To paraphrase St. Paul, we have all fallen short in this endeavor. But the best of us at least try to put the argument before the conclusion once in awhile.
The late great Chicago folksinger Steve Goodman ended his classic “Turnpike Tom” with the old and obscure adage that “We only fall for lies and stories when we really want to.” One of life’s tasks is to stop wanting to fall for lies and stories and instead seek the truth.
Back in the Spring when the dollar was trading at record lows against the euro and multi-year loans against the yen, the stock market/economy bulls told us how terrific the weak dollar was for the U.S. economy and for stocks. That callow argument, which completely ignored the U.S.’s status as a huge and getting more in hock by the minute debtor, came straight from the econ textbooks of the ‘70s: our weak dollar would make our exports more competitive and currency translation would have a eupeptic effect on the earnings of American multinationals. But this particular post does not deal with the merits of that argument.
Now that the dollar is strengthening at a breathtaking pace (up over 3% this week vs. the euro), the bulls are arguing that a strong dollar is terrific for the U.S. stock market/economy. Part of this protean argument is that a strong dollar puts downward pressure on commodity prices. This is a more formidable argument than the almost risible contention that a weak dollar helps us by making our export more competitive, but, again, the purpose of this particular post is not to argue the merits of the various arguments regarding the salubriousness, or lack thereof, of a strong dollar for our economy and equities markets.
So, if you’re a bull, a weak dollar is good for the economy/stock market and a strong dollar is good for the economy/stock market. Sure, this argument is contradictory on its face, but I am convinced that such cant is not duplicitous but merely a reflection of human nature. We all tend to talk our positions. We all have a tendency to decide what we think on largely subjective or visceral grounds and then find facts and “logical” arguments to support those positions. The task of a good investor, trader, or an open minded, inquisitive human being is to overcome this tendency and work from the facts to an opinion rather than the other way around. To paraphrase St. Paul, we have all fallen short in this endeavor. But the best of us at least try to put the argument before the conclusion once in awhile.
The late great Chicago folksinger Steve Goodman ended his classic “Turnpike Tom” with the old and obscure adage that “We only fall for lies and stories when we really want to.” One of life’s tasks is to stop wanting to fall for lies and stories and instead seek the truth.
Thursday, August 7, 2008
“BUY A CAR, GET A CHECK!”
8/7/08
This morning’s (i.e., 8/7/08’s) Wall Street Journal reports that Chrysler is in discussions with Nissan about jointly producing a mid-sized sedan. Since Chrysler has already entered into a similar deal with Nissan on pickup trucks and subcompact cars, and with China’s Chery Automobile on subcompacts, the Journal concludes, quite correctly, that Chrysler is well on its way to becoming a marketer of cars made by others.
In my 81/08 post, I referred to Chrysler’s product line as “pathetic,” which probably understates the case. So it is good news that Cerberus is addressing this potentially fatal shortcoming; carmakers, after all, have to produce good cars, or at least refrain from producing awful cars, in order to survive. However, think about the major flaw, at least for Chrysler, in the apparent strategy of becoming a marketer of other people’s cars. This might work when selling products from Chery Automobile. But Nissan (or virtually any other brand)? What customer says:
“I don’t want to buy a crappy Nissan. I want to buy a high quality Chrysler!”
or
“I don’t trust those malingerers and lazy louts at Nissan! I want to buy a quality car! I want a Dodge!”
or
“I can’t be seen in a Nissan; what will the neighbors think! Give me a Chrysler!”?
The problem with a simple branding strategy is that the brand one brings to the table must have some cache. The cache of any Chrysler brand (with the possible, and only possible, exception of Jeep, the appeal of which has been dwindling for at least the last ten years) is long gone. No one aspires to own a Dodge.
Perhaps the next big idea to emerge from the Cerberus braintrust (which one would have thought, with Jim Press and Wolfgang Bernhard, inter alia, in the fold, should be quite formidable) will be to bring back the Plymouth and DeSoto brands.
This morning’s (i.e., 8/7/08’s) Wall Street Journal reports that Chrysler is in discussions with Nissan about jointly producing a mid-sized sedan. Since Chrysler has already entered into a similar deal with Nissan on pickup trucks and subcompact cars, and with China’s Chery Automobile on subcompacts, the Journal concludes, quite correctly, that Chrysler is well on its way to becoming a marketer of cars made by others.
In my 81/08 post, I referred to Chrysler’s product line as “pathetic,” which probably understates the case. So it is good news that Cerberus is addressing this potentially fatal shortcoming; carmakers, after all, have to produce good cars, or at least refrain from producing awful cars, in order to survive. However, think about the major flaw, at least for Chrysler, in the apparent strategy of becoming a marketer of other people’s cars. This might work when selling products from Chery Automobile. But Nissan (or virtually any other brand)? What customer says:
“I don’t want to buy a crappy Nissan. I want to buy a high quality Chrysler!”
or
“I don’t trust those malingerers and lazy louts at Nissan! I want to buy a quality car! I want a Dodge!”
or
“I can’t be seen in a Nissan; what will the neighbors think! Give me a Chrysler!”?
The problem with a simple branding strategy is that the brand one brings to the table must have some cache. The cache of any Chrysler brand (with the possible, and only possible, exception of Jeep, the appeal of which has been dwindling for at least the last ten years) is long gone. No one aspires to own a Dodge.
Perhaps the next big idea to emerge from the Cerberus braintrust (which one would have thought, with Jim Press and Wolfgang Bernhard, inter alia, in the fold, should be quite formidable) will be to bring back the Plymouth and DeSoto brands.
“OH, YEAH, HE’S ALWAYS GOOD FOR IT. PULL THE CAR OVER HERE. I WANT TO TALK TO ROCKY.”
8/7/08
An especially revelatory article appearing on page A3 of today’s (i.e., 8/7/08’s) Wall Street Journal outlined the results of an analysis prepared for the Journal by the FDIC. The major conclusion of the study was that 0.91% of the prime mortgages originated in the first quarter of 2007, well after problems in the mortgage market, or at least in the sub-prime market, were common knowledge, were “seriously delinquent,” i.e., either in foreclosure or at least 90 days past due within twelve months of origination. This was almost three times the 0.33% of prime mortgages originated in the first quarter of 2006 that were “seriously delinquent” with twelve months of origination. One can easily conclude that the problems in the mortgage market were not being addressed with any degree of alacrity, but the problem is worse than it appears.
The Journal notes that
“One piece of good news…is that loans originated in the fourth quarter of 2007 and early 2008 appear to be performing better.”
…but not as much better as one would have hoped. Quoted in the article is Frederick Cannon of Keefe Bruyette who says
“The more conservative lenders were scaling back in 2007, but the more aggressive lenders were expanding.”
This expansion in aggressive lending came about, as the article posits, because mortgage originators who could see that the last call was about to be announced bellied up to the bar and guzzled as much as they could before figurative closing time. (My terminology, not the article’s.) So we had a bunch of loans made with especially easy terms to get in just under the wire.
However, this last minute binge by aggressive lenders is only part of the problem. There should not be much comfort in knowing that “conservative” lenders were pulling in the reins as the mortgage problem became apparent. Why? Because loans that looked good, even in late 2007 and 2008, may turn out to be not so good after all because of the economic aftershocks of the earlier phases of the “mortgage crisis.” All those supposedly good loans are destined to underperform at rates far higher than could be predicted from history because of the condition of the economy courtesy of our economy’s finally having to deal with the dyspeptic consequences of our (at least) ten year credit binge.
Besides mortgages continuing to go bad at rates “no one could have predicted” (Just call the Pontificator Captain Nemo.), the “mortgage crisis” is not only a “mortgage crisis” by any means, as I have been arguing since at least early 2006 . We still have to contend with credit cards, commercial loans, car loans, etc.
The woods are only getting thicker.
8/7/08
An especially revelatory article appearing on page A3 of today’s (i.e., 8/7/08’s) Wall Street Journal outlined the results of an analysis prepared for the Journal by the FDIC. The major conclusion of the study was that 0.91% of the prime mortgages originated in the first quarter of 2007, well after problems in the mortgage market, or at least in the sub-prime market, were common knowledge, were “seriously delinquent,” i.e., either in foreclosure or at least 90 days past due within twelve months of origination. This was almost three times the 0.33% of prime mortgages originated in the first quarter of 2006 that were “seriously delinquent” with twelve months of origination. One can easily conclude that the problems in the mortgage market were not being addressed with any degree of alacrity, but the problem is worse than it appears.
The Journal notes that
“One piece of good news…is that loans originated in the fourth quarter of 2007 and early 2008 appear to be performing better.”
…but not as much better as one would have hoped. Quoted in the article is Frederick Cannon of Keefe Bruyette who says
“The more conservative lenders were scaling back in 2007, but the more aggressive lenders were expanding.”
This expansion in aggressive lending came about, as the article posits, because mortgage originators who could see that the last call was about to be announced bellied up to the bar and guzzled as much as they could before figurative closing time. (My terminology, not the article’s.) So we had a bunch of loans made with especially easy terms to get in just under the wire.
However, this last minute binge by aggressive lenders is only part of the problem. There should not be much comfort in knowing that “conservative” lenders were pulling in the reins as the mortgage problem became apparent. Why? Because loans that looked good, even in late 2007 and 2008, may turn out to be not so good after all because of the economic aftershocks of the earlier phases of the “mortgage crisis.” All those supposedly good loans are destined to underperform at rates far higher than could be predicted from history because of the condition of the economy courtesy of our economy’s finally having to deal with the dyspeptic consequences of our (at least) ten year credit binge.
Besides mortgages continuing to go bad at rates “no one could have predicted” (Just call the Pontificator Captain Nemo.), the “mortgage crisis” is not only a “mortgage crisis” by any means, as I have been arguing since at least early 2006 . We still have to contend with credit cards, commercial loans, car loans, etc.
The woods are only getting thicker.
Friday, August 1, 2008
“HOW MUCH WOULD IT COST ME TO ACQUIRE THAT ONE...A MONTH, I MEAN"
8/1/08
Chrysler’s decision to get out of the leasing business, and decisions by GM and Ford to throttle back their leasing activity to the point at which leasing of trucks from either of the Public Big Two will probably no longer be an option, will probably turn out to be a fateful, if not a fatal, decision.
Leasing has been sold with a number of anodyne bromides, from the ridiculous “Why pay for the portion of a car you aren’t using?” to the slightly less risible “You shouldn’t finance a depreciating asset” to the plausible argument that there are legitimate business reasons for leasing that have almost everything to do with the tax code and very little to do with the inherent virtues of leasing. But the real reasons for leasing, if we are to be honest with ourselves, are twofold:
· Leasing, because of its relative opacity, allows car manufacturers to discount their products without being sufficiently blatant about it to destroy the cache of the product being discounted. This is especially important for “luxury” carmakers, for which cache is the most salient selling point. This, combined with the second bullet point, is why leasing started with luxury carmakers and remains, on a percentage basis, far more common among luxury marques than it is among more pedestrian marques.
· Leasing lowers the purchaser’s (Be assured, a lessee is indeed a purchaser, not a renter. Leasing is merely another means of financing a purchase.) down and monthly payments, enabling the consumer to drive more car than he or she could otherwise afford. This is by far a more salient “advantage” to leasing than the first bullet point.
Despite my transparent feelings about leasing, leasing has without a doubt worked out very well for those who used a lease to finance their car purchase. Those of us who have eschewed leasing have missed out on some really good deals. How can I say this with such definitiveness? A slightly more than casual reading of any domestic car manufacturer’s financial statements reveals the big losses that leasing has engendered. When a consumer turns in his leased car and it is worth less than the assumed residual value at the end of the lease, the leasing company, a captive of the car manufacturer in most cases, takes the hit. The carmaker’s loss is the consumer’s gain; it is as simple as that. In fact, it is leasing’s having been such a good deal for the consumer which has led to the recent sharp curtailment (elimination, in Chrysler’s case) of leasing at the domestic auto manufacturers. Furthermore, these losses from leasing are not a recent development; such losses have been a hardy perennial at the car company’s financing arms for years. The recent decimation in SUV prices that has led to astronomical losses on leasing of late (e.g., $716mm in 2Q ‘08 at GMAC) have merely been the straw that has broken the banal camel’s back.
So it would appear that effectively exiting leasing, or at least exiting disadvantageous leasing, is a smart move on the part of the dowagers of Detroit. However, there is a major problem: Many, probably most, people driving $30, $40, or $50 thousand cars cannot afford the cars they are driving. In fact, the same might legitimately be said of even less expensive cars. IF IT WEREN’T FOR LEASES THAT ARE DISADVANTAGEOUS TO THE CAPTIVE FINANCE COMPANIES, PEOPLE COULD NOT POSSIBLY BE DRIVING THE CARS THEY ARE DRIVING. Think about it: how many people can legitimately afford a $40,000 car? How many $40,000 cars (or vehicles) are on the road? The latter is far higher than the former. This is a problem not limited to the Big 3 by any means; Lexus, Infiniti, and Acura probably would not exist were it not for leasing, and Mercedes, BMW, Audi, Jaguar, and all the “lesser” brands would be selling far fewer cars, or, in a few cases, would not be doing business at all, in the United States. The key difference, of course, is that Toyota, Nissan, Honda, et. al., can afford to continue leasing, especially with their more durable resale values. GM, F, and Chrysler cannot.
The Big 3 were faced with a Hobson ’s choice: continue taking a bath on leasing or sell far fewer cars, especially far fewer expensive, profitable vehicles. They chose the latter, but I’m not sure it makes any difference.
This of course, leads to the question that I have been asked a lot lately: Are any of the Big 3 going bankrupt? Though I have not been sanguine about the Big 3 for awhile (See the following posts: 3/24/07, 3/31/07, 4/3/07, 5/14/07, 5/15/07, 9/19/07, and especially 11/13/07.), if you had asked me that question a year ago, or even six months ago, I would have replied “No” rather emphatically, mostly because bankruptcy, given the importance of the warranty in a car sale, is the very last resort for a carmaker. (The warranty issue can probably be circumvented because third warrantors can be brought into the process, but using a third party would be expensive and cumbersome under any circumstances and virtually, but not completely, impossible in a bankruptcy situation. That is another post for the future when time is more readily available.) However, the way things look now, the last resort may be the only resort for at least one, and maybe all, of the Big 3. Chrysler scares me the most because of its pathetic product line, huge (despite the denials of its owners) financial leverage, and the motivations of its new owners as financial players. But it would not be completely ridiculous to postulate bankruptcy for either GM or F. Not completely ridiculous, but still far-fetched, especially for F, long my favorite of the Big 3.
Chrysler’s decision to get out of the leasing business, and decisions by GM and Ford to throttle back their leasing activity to the point at which leasing of trucks from either of the Public Big Two will probably no longer be an option, will probably turn out to be a fateful, if not a fatal, decision.
Leasing has been sold with a number of anodyne bromides, from the ridiculous “Why pay for the portion of a car you aren’t using?” to the slightly less risible “You shouldn’t finance a depreciating asset” to the plausible argument that there are legitimate business reasons for leasing that have almost everything to do with the tax code and very little to do with the inherent virtues of leasing. But the real reasons for leasing, if we are to be honest with ourselves, are twofold:
· Leasing, because of its relative opacity, allows car manufacturers to discount their products without being sufficiently blatant about it to destroy the cache of the product being discounted. This is especially important for “luxury” carmakers, for which cache is the most salient selling point. This, combined with the second bullet point, is why leasing started with luxury carmakers and remains, on a percentage basis, far more common among luxury marques than it is among more pedestrian marques.
· Leasing lowers the purchaser’s (Be assured, a lessee is indeed a purchaser, not a renter. Leasing is merely another means of financing a purchase.) down and monthly payments, enabling the consumer to drive more car than he or she could otherwise afford. This is by far a more salient “advantage” to leasing than the first bullet point.
Despite my transparent feelings about leasing, leasing has without a doubt worked out very well for those who used a lease to finance their car purchase. Those of us who have eschewed leasing have missed out on some really good deals. How can I say this with such definitiveness? A slightly more than casual reading of any domestic car manufacturer’s financial statements reveals the big losses that leasing has engendered. When a consumer turns in his leased car and it is worth less than the assumed residual value at the end of the lease, the leasing company, a captive of the car manufacturer in most cases, takes the hit. The carmaker’s loss is the consumer’s gain; it is as simple as that. In fact, it is leasing’s having been such a good deal for the consumer which has led to the recent sharp curtailment (elimination, in Chrysler’s case) of leasing at the domestic auto manufacturers. Furthermore, these losses from leasing are not a recent development; such losses have been a hardy perennial at the car company’s financing arms for years. The recent decimation in SUV prices that has led to astronomical losses on leasing of late (e.g., $716mm in 2Q ‘08 at GMAC) have merely been the straw that has broken the banal camel’s back.
So it would appear that effectively exiting leasing, or at least exiting disadvantageous leasing, is a smart move on the part of the dowagers of Detroit. However, there is a major problem: Many, probably most, people driving $30, $40, or $50 thousand cars cannot afford the cars they are driving. In fact, the same might legitimately be said of even less expensive cars. IF IT WEREN’T FOR LEASES THAT ARE DISADVANTAGEOUS TO THE CAPTIVE FINANCE COMPANIES, PEOPLE COULD NOT POSSIBLY BE DRIVING THE CARS THEY ARE DRIVING. Think about it: how many people can legitimately afford a $40,000 car? How many $40,000 cars (or vehicles) are on the road? The latter is far higher than the former. This is a problem not limited to the Big 3 by any means; Lexus, Infiniti, and Acura probably would not exist were it not for leasing, and Mercedes, BMW, Audi, Jaguar, and all the “lesser” brands would be selling far fewer cars, or, in a few cases, would not be doing business at all, in the United States. The key difference, of course, is that Toyota, Nissan, Honda, et. al., can afford to continue leasing, especially with their more durable resale values. GM, F, and Chrysler cannot.
The Big 3 were faced with a Hobson ’s choice: continue taking a bath on leasing or sell far fewer cars, especially far fewer expensive, profitable vehicles. They chose the latter, but I’m not sure it makes any difference.
This of course, leads to the question that I have been asked a lot lately: Are any of the Big 3 going bankrupt? Though I have not been sanguine about the Big 3 for awhile (See the following posts: 3/24/07, 3/31/07, 4/3/07, 5/14/07, 5/15/07, 9/19/07, and especially 11/13/07.), if you had asked me that question a year ago, or even six months ago, I would have replied “No” rather emphatically, mostly because bankruptcy, given the importance of the warranty in a car sale, is the very last resort for a carmaker. (The warranty issue can probably be circumvented because third warrantors can be brought into the process, but using a third party would be expensive and cumbersome under any circumstances and virtually, but not completely, impossible in a bankruptcy situation. That is another post for the future when time is more readily available.) However, the way things look now, the last resort may be the only resort for at least one, and maybe all, of the Big 3. Chrysler scares me the most because of its pathetic product line, huge (despite the denials of its owners) financial leverage, and the motivations of its new owners as financial players. But it would not be completely ridiculous to postulate bankruptcy for either GM or F. Not completely ridiculous, but still far-fetched, especially for F, long my favorite of the Big 3.
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