4/29/09
One of the eminent “experts” (whose name I didn’t catch; I was in the car and, unlike 99% of Americans, or at least 99% of the Americans I encounter on the road, I prefer to concentrate on driving when I am behind the wheel and hence didn’t write down this notable’s name, and I had more important things to hold in the increasingly limited space in my memory.) on CNBC this morning, commenting on this morning’s unexpectedly strong consumer spending numbers in an otherwise generally dismal GDP report (Yes, I know those inventories are just going to snap back and everything is going to be wonderful in the Fall. Pass me that kool-aid, will ya?), said (I can’t quote, but I can paraphrase):
The good news is that as soon as consumers get money, they spend it.
He went on to say that the U.S. personal savings rate, which is now at about 5% (The Chinese savings rate is at least four times as high. The comparison is not very apt; given our different stages of development, no one expects the U.S. savings rate to be as high as the Chinese saving rate. But 5% is by no means a large or onerous savings rate.), should now stabilize or drop. This was, according to this wise man, even more good news.
Hmm…
Meanwhile, the government is going to borrow over $1 trillion per year for the next few years, but obviously not from us. Let’s hope our friends (soon to be our masters) in Asia are in their usual magnanimous mood and/or that a fuse doesn’t blow on the printing presses at the Fed.
This economic downturn, the result of the bills finally coming due on twenty years of financial profligacy, presented our once great nation a golden opportunity to come to terms with the irresponsibility that landed us in this slop in the first place and to return to the thrifty ways of our ancestors that enabled us to build the capital base that made this country the world’s foremost economic power. Instead, we chose the hair of the dog of more spending in order to “solve” our economic “problem.”
When will we ever learn?
Wednesday, April 29, 2009
Tuesday, April 28, 2009
WELCOME TO GOVERNMENT MOTORS
4/28/09
There are so many problems with the reorganization plan GM announced yesterday that the world itself could not contain the books that would have to be written to adequately address them. In the interest of time, and moving along on the myriad other things I have to accomplish, I’ll concentrate on only the most salient problems.
According to the plan outlined by Fritz Henderson yesterday, the government will own at least 50% of the new GM. Even if the unsecured bondholders pursue the sensible, and predictable, course and reject the offer of 10% of the equity in GM in exchange for their $27b of bonds outstanding, thus throwing this whole thing into bankruptcy court, the government will still own a very substantial, though perhaps not a majority, of the equity in GM.
The conflict presented by government control of GM is glaring. In order to survive, GM must, at least for the next several, and probably more, years, produce big pickup trucks and SUVs, the types of vehicles that the Obamacrats loathe. The government will encounter immense pressure from the bi-coastal wings of the Democratic Party to produce “green” vehicles, the degree of emeraldness, if you will, decided by government bureaucrats or, worse, Congresspersons from what was once called the quiche and chablis wing (Okay, so I’m an old guy who has no fear of showing his age.) of the Democratic Party, people who would no sooner ride in the front seat of a domestic vehicle than they would shop at Wal-Mart. Don’t believe for a minute that the government will play a “hands-off” role in GM; the government cannot resist its busybody impulses under any circumstances, and GM, the archetypical American manufacturing corporation, will prove too tempting as a laboratory for every crackpot, ill-conceived notion germinating in the febrile minds of the overeducated and underschooled political types who inhabit Washington, D.C.
So the government will be forcing GM to produce cars that, certainly at current gas prices, few want to buy and to eschew cars that give it a chance of returning to profitablity. The results are predictable: GM, trying to serve its government masters rather than its potential customer base, will produce cars that pile up on the lots of dealers who are forced to take them. With GM thus continuing to hemorrhage money, the government will be forced to take action by doing one of three things:
--shoveling more money into GM.
--putting huge subsidies on the purchase of those vehicles the Obamacrats have deemed sufficiently virtuous, or
--forcing Americans to buy cars they don’t want to buy through CAFÉ mandates or outright banning of vehicles deemed anathema by the government.
Ugly enough. However, there is another conflict: the UAW will own 39% of GM under the Henderson plan and will own a substantial stake of the company under any circumstances. Not only would this run counter to the owner/worker division of duties and stakes that has served our country so well for the last 200 or so years, but it would set up an inherent conflict between the two major shareholders in the new GM. The workers at GM, mirabile dictu, would like to work. But if the government forces the company to produce cars designed in the offices of congressional staffers and in the west wing of the White House, the chances of these workers actually working rapidly diminish. The UAW, and the elements of the Democratic Party who represent them in the nation’s industrial heartland, will be pushing for GM to produce vehicles people want. The government, and the bi-coastal elements of the Democratic Party will be pushing for GM to produce vehicles that no one who eschews granola and Birkenstocks wants and no one without a Hollywood star’s salary can afford without a massive government subsidy. Since a house divided against itself cannot stand, conflict and federal subsidies designed to mollify that conflict will prevail at GM. Welcome to Government Motors.
I used to think that I would like to own stock in a post-bankruptcy GM, but that assumed that GM would follow the path hewn by Rick Wagoner and Bob Lutz, a course that went a long way toward making the General competitive with its foreign competition and with Ford. But now that the government, the goals of which would be almost completely opposed to those of profit seeking investors, will hold a large stake in a post Chapter 11 GM, I would avoid the new GM like a case of the swine flu.
There are so many problems with the reorganization plan GM announced yesterday that the world itself could not contain the books that would have to be written to adequately address them. In the interest of time, and moving along on the myriad other things I have to accomplish, I’ll concentrate on only the most salient problems.
According to the plan outlined by Fritz Henderson yesterday, the government will own at least 50% of the new GM. Even if the unsecured bondholders pursue the sensible, and predictable, course and reject the offer of 10% of the equity in GM in exchange for their $27b of bonds outstanding, thus throwing this whole thing into bankruptcy court, the government will still own a very substantial, though perhaps not a majority, of the equity in GM.
The conflict presented by government control of GM is glaring. In order to survive, GM must, at least for the next several, and probably more, years, produce big pickup trucks and SUVs, the types of vehicles that the Obamacrats loathe. The government will encounter immense pressure from the bi-coastal wings of the Democratic Party to produce “green” vehicles, the degree of emeraldness, if you will, decided by government bureaucrats or, worse, Congresspersons from what was once called the quiche and chablis wing (Okay, so I’m an old guy who has no fear of showing his age.) of the Democratic Party, people who would no sooner ride in the front seat of a domestic vehicle than they would shop at Wal-Mart. Don’t believe for a minute that the government will play a “hands-off” role in GM; the government cannot resist its busybody impulses under any circumstances, and GM, the archetypical American manufacturing corporation, will prove too tempting as a laboratory for every crackpot, ill-conceived notion germinating in the febrile minds of the overeducated and underschooled political types who inhabit Washington, D.C.
So the government will be forcing GM to produce cars that, certainly at current gas prices, few want to buy and to eschew cars that give it a chance of returning to profitablity. The results are predictable: GM, trying to serve its government masters rather than its potential customer base, will produce cars that pile up on the lots of dealers who are forced to take them. With GM thus continuing to hemorrhage money, the government will be forced to take action by doing one of three things:
--shoveling more money into GM.
--putting huge subsidies on the purchase of those vehicles the Obamacrats have deemed sufficiently virtuous, or
--forcing Americans to buy cars they don’t want to buy through CAFÉ mandates or outright banning of vehicles deemed anathema by the government.
Ugly enough. However, there is another conflict: the UAW will own 39% of GM under the Henderson plan and will own a substantial stake of the company under any circumstances. Not only would this run counter to the owner/worker division of duties and stakes that has served our country so well for the last 200 or so years, but it would set up an inherent conflict between the two major shareholders in the new GM. The workers at GM, mirabile dictu, would like to work. But if the government forces the company to produce cars designed in the offices of congressional staffers and in the west wing of the White House, the chances of these workers actually working rapidly diminish. The UAW, and the elements of the Democratic Party who represent them in the nation’s industrial heartland, will be pushing for GM to produce vehicles people want. The government, and the bi-coastal elements of the Democratic Party will be pushing for GM to produce vehicles that no one who eschews granola and Birkenstocks wants and no one without a Hollywood star’s salary can afford without a massive government subsidy. Since a house divided against itself cannot stand, conflict and federal subsidies designed to mollify that conflict will prevail at GM. Welcome to Government Motors.
I used to think that I would like to own stock in a post-bankruptcy GM, but that assumed that GM would follow the path hewn by Rick Wagoner and Bob Lutz, a course that went a long way toward making the General competitive with its foreign competition and with Ford. But now that the government, the goals of which would be almost completely opposed to those of profit seeking investors, will hold a large stake in a post Chapter 11 GM, I would avoid the new GM like a case of the swine flu.
Monday, April 20, 2009
LET THE GOOD TIMES ROLL?
4/20/09
The Pontificator has been quiet of late, primarily because I’ve been working on what are hopefully the final stages of getting my novel into print. But, having a tendency to get foul of mood when not pontificating, I felt compelled to take a break from editing to write this (and the immediately preceding, or following, depending on one’s perspective) piece, that one on the great Paul Volcker:
It’s awfully difficult for me to share the bullishness about stocks and the economy that seems to be all the rage of late. Reasons for my refusal to join the “Happy, happy, joy, joy” crowd whose Stepford approach to the U.S. economy had a great deal to do with dunking us in this economic gruel include:
--Maybe the housing market is coming back, but the evidence from the suburban paradise in which I reside is sharply to the contrary. The route to the field on which my son plays his “home” soccer game takes us through “tear down” country in Naperville, the section of town in which the sturdy, yeoman homes that served this town so well in its formative years have been torn down and replaced by gargantuan monuments to the fiscal obtuseness of their owners. Never have I ever seen so many “For Sale” signs on such a brief trip as I did heading to yesterday’s outdoor season opener. Even more ominously, many of those “For Sale” signs have been replaced by “For Rent” signs, signals that the owners have given up trying to unload their monstrosities but remain desperate for cash.
Sure, this is purely anecdotal evidence. But one of the skills that allowed me to call the market and economic debacle, from which we are not yet recovering, long before the coddled and comfortably ensconced “experts” was my ability to keep my eyes open and draw appropriate conclusions from what I was seeing rather than seek ways to turn up the volume on the Wall Street hosanna chorus.
--Even if the housing market is improving, some combination of the following four should blow up in the next several months with devastating consequences both for the real economy and for the psyche of investors who really think we have turned the corner on the aftermath of a twenty year display of financial foppery:
--life insurance companies, primarily through their variable life and annuity contracts.
--credit cards—big time.
--municipal bonds
--commercial real estate
These have already blown up, you say? Think again.
--On the public policy side, debasing the currency and demolishing the already ravaged federal budget in order to encourage the types of behaviors that got us into this soup in the first place is, er, not the way to solve our current problems.
Aren’t you happy that I’ve returned to spread my particular brand of boundless enthusiasm?
The Pontificator has been quiet of late, primarily because I’ve been working on what are hopefully the final stages of getting my novel into print. But, having a tendency to get foul of mood when not pontificating, I felt compelled to take a break from editing to write this (and the immediately preceding, or following, depending on one’s perspective) piece, that one on the great Paul Volcker:
It’s awfully difficult for me to share the bullishness about stocks and the economy that seems to be all the rage of late. Reasons for my refusal to join the “Happy, happy, joy, joy” crowd whose Stepford approach to the U.S. economy had a great deal to do with dunking us in this economic gruel include:
--Maybe the housing market is coming back, but the evidence from the suburban paradise in which I reside is sharply to the contrary. The route to the field on which my son plays his “home” soccer game takes us through “tear down” country in Naperville, the section of town in which the sturdy, yeoman homes that served this town so well in its formative years have been torn down and replaced by gargantuan monuments to the fiscal obtuseness of their owners. Never have I ever seen so many “For Sale” signs on such a brief trip as I did heading to yesterday’s outdoor season opener. Even more ominously, many of those “For Sale” signs have been replaced by “For Rent” signs, signals that the owners have given up trying to unload their monstrosities but remain desperate for cash.
Sure, this is purely anecdotal evidence. But one of the skills that allowed me to call the market and economic debacle, from which we are not yet recovering, long before the coddled and comfortably ensconced “experts” was my ability to keep my eyes open and draw appropriate conclusions from what I was seeing rather than seek ways to turn up the volume on the Wall Street hosanna chorus.
--Even if the housing market is improving, some combination of the following four should blow up in the next several months with devastating consequences both for the real economy and for the psyche of investors who really think we have turned the corner on the aftermath of a twenty year display of financial foppery:
--life insurance companies, primarily through their variable life and annuity contracts.
--credit cards—big time.
--municipal bonds
--commercial real estate
These have already blown up, you say? Think again.
--On the public policy side, debasing the currency and demolishing the already ravaged federal budget in order to encourage the types of behaviors that got us into this soup in the first place is, er, not the way to solve our current problems.
Aren’t you happy that I’ve returned to spread my particular brand of boundless enthusiasm?
“…AND TOMORROW’S GONNA BE A REALLY GOOD DAY, ANTHONY…” PART II
4/20/09
In a forum in Nashville over the weekend, Paul Volcker challenged Fed Vice-Chairman Donald Kohn on the Fed’s stated objective of a 2% inflation rate. As the great Mr. Volcker put it:
“I don’t get it. (By setting a 2% inflation objective, the Fed is) telling people in a generation they’re going to lose half their purchasing power.”
Paul Volcker is the type of person who made America great, the type of person who was formerly so common but is now pitifully rare, especially in Washington and on Wall Street.
Too bad the Obama administration won’t give Mr. Volcker anything to do, preferring the counsel of such insecure trend trodders as Larry Summers, Preppy Timmy Geithner, and Obsequious Ben Bernanke.
In a forum in Nashville over the weekend, Paul Volcker challenged Fed Vice-Chairman Donald Kohn on the Fed’s stated objective of a 2% inflation rate. As the great Mr. Volcker put it:
“I don’t get it. (By setting a 2% inflation objective, the Fed is) telling people in a generation they’re going to lose half their purchasing power.”
Paul Volcker is the type of person who made America great, the type of person who was formerly so common but is now pitifully rare, especially in Washington and on Wall Street.
Too bad the Obama administration won’t give Mr. Volcker anything to do, preferring the counsel of such insecure trend trodders as Larry Summers, Preppy Timmy Geithner, and Obsequious Ben Bernanke.
Friday, April 3, 2009
ON A CLEAR DAY YOU CAN SEE GENERAL MOTORS
4/3/09
A valued friend and college buddy sent me an e-mail in which he asked my opinion regarding the possibility and the implications of a GM bankruptcy. My answer was sufficiently insightful, if I may say so myself, to merit a post:
4/3/09
It looks like some kind of bankruptcy is baked in the cake for GM; earlier this week, we read about the "Good GM, Bad GM" plan that looks like it could only be achieved in the context of a bankruptcy. The naive and starry-eyed Obamacrats are talking about a "quick rinse," as if a GM bankruptcy could be so simple.
Further, if the bondholders don't want to play ball, GM could impose a settlement on them, which would almost surely lead to bankruptcy. The bondholders know they have the Bush/Obama administration by the short hairs here because Obama, owing so much to the UAW specifically and to organized labor in general, would like to avoid a bankruptcy, and certainly a "conventional" bankruptcy, if doing so is at all possible because anything like a “conventional” bankruptcy, in addition to wiping out the equity holders and giving the bondholders, certainly the unsecured bondholders, a huge haircut (or maybe a decapitation), would also have a severe, negative impact on the pay packages of current UAW workers and the retirement benefits of its former workers. It looks like the latter is a foregone conclusion in any case; the stock going into the VEBA, whether it is existing GM stock or stock in the proposed "Bad GM" should prove quite worthless. (And, no, I don't know how Obama dances around the politics of that one.)
On the positive side, GM might emerge from bankruptcy the low cost producer. (That "might" has two meanings here; it might emerge from bankruptcy and it might emerge from bankruptcy the low cost producer.) When you combine that position with the enormous progress the General has made in product, global reach, etc. under Rick Wagoner and Bob Lutz, the new GM would be a terrific company; I'd be interested in buying stock in the new company. The only thing I would do with the existing stock is short it, which is impossible at the moment--no stock to borrow.
I touched on this issue earlier this week in the Pontificator, but only from the standpoint of Rick Wagoner's firing.
I think I'll put this response up on the Pontificator as a post.
A valued friend and college buddy sent me an e-mail in which he asked my opinion regarding the possibility and the implications of a GM bankruptcy. My answer was sufficiently insightful, if I may say so myself, to merit a post:
4/3/09
It looks like some kind of bankruptcy is baked in the cake for GM; earlier this week, we read about the "Good GM, Bad GM" plan that looks like it could only be achieved in the context of a bankruptcy. The naive and starry-eyed Obamacrats are talking about a "quick rinse," as if a GM bankruptcy could be so simple.
Further, if the bondholders don't want to play ball, GM could impose a settlement on them, which would almost surely lead to bankruptcy. The bondholders know they have the Bush/Obama administration by the short hairs here because Obama, owing so much to the UAW specifically and to organized labor in general, would like to avoid a bankruptcy, and certainly a "conventional" bankruptcy, if doing so is at all possible because anything like a “conventional” bankruptcy, in addition to wiping out the equity holders and giving the bondholders, certainly the unsecured bondholders, a huge haircut (or maybe a decapitation), would also have a severe, negative impact on the pay packages of current UAW workers and the retirement benefits of its former workers. It looks like the latter is a foregone conclusion in any case; the stock going into the VEBA, whether it is existing GM stock or stock in the proposed "Bad GM" should prove quite worthless. (And, no, I don't know how Obama dances around the politics of that one.)
On the positive side, GM might emerge from bankruptcy the low cost producer. (That "might" has two meanings here; it might emerge from bankruptcy and it might emerge from bankruptcy the low cost producer.) When you combine that position with the enormous progress the General has made in product, global reach, etc. under Rick Wagoner and Bob Lutz, the new GM would be a terrific company; I'd be interested in buying stock in the new company. The only thing I would do with the existing stock is short it, which is impossible at the moment--no stock to borrow.
I touched on this issue earlier this week in the Pontificator, but only from the standpoint of Rick Wagoner's firing.
I think I'll put this response up on the Pontificator as a post.
Subscribe to:
Posts (Atom)
