Friday, November 21, 2008

Dow Tumbles yet again.

Wow, just when you though it couldn't get any worse......

Today stocks once again came under late selling pressure after talks to save the auto industry went no where. This seems extremely similar to the Lehman situation.

Congress today refused to give away more cash until the car makers came up with a plan to get themselves out of this mess. Clearly this is a two headed problem, one is that the industry has refused to keep up with the times. Smaller more economical cars are needed and the industry have provided few options. Also labor has crippled them. The benefits that these workers receive are far and away better then and other labor union (I am all for getting all you can but this is getting to an all or no thing game here...and no thing is knocking on the door)and it has prevented the companies from getting out from under. But something else I read about today, which I have totally missed is how the credit crunch has effected these companies. These companies are unable to sell their debt on the open market to raise cash. Just as I wrote about small businesses being unable to fund themselves this is exactly what is happening to the auto makers. The Democrat's never even to a vote on the issue.

Democratic leaders scrapped votes on the auto rescue, postponing until next month a politically tricky decision on whether to approve yet another unpopular bailout at a time of economic peril, or risk being blamed for the implosion of an industry that employs millions and has broad reach into all aspects of the U.S. economy.
"Until they show us the plan, we cannot show them the money," Speaker Nancy Pelosi, D-Calif., said at a hastily called news conference in the Capitol.

I can only assume that this is because they knew they did not have enough votes to get it through. Now it will wait till December, but I fear that the public will be less sympathetic to a bailout then, as the economy deteriorates and more people are out of work struggling to provide a decent holiday for their families.

Talk about bad publicity, all three automaker CEO's took separate private flights to Washington at an estimated cost of $20,000 each. Whether they deserve to travel this way or not is up for debate, but it is a public relations nightmare. It was reported that Rahm Emanuel, the new chief of staff for President elect Obama, was seen flying coach recently. Again I certainly feel that he should be in First Class, but here is a guy who understands public perception and is doing his best to put a good face on the new administration.

Ford and GM said they would put a plan together and I expect it will be done quickly.

"Yes, we're kicking the can down the road, because that will give us the opportunity to do something positive," Reid said. "But that will only happen if they get their act together."

The White House on the other hand wants to let the automakers tap the fuel-efficiency loans for their short-term cash needs. Lets just hope this doesn't become a war between the political parties.

And now for the latest rumour.....Citi bank to be broken up and JPMorgan and Goldman taking a piece. WOW! This after Prince Alwaleed bin Talal boosted his stake in the bank. Unfortunatly it did little good.

Good Luck and Good Currency Trading.



Anonymous Anonymous said...

I think the proper way to view Al Waleed bin Talal's stake is through the lens of prospect theory. Unless he has some secret game plan that will turn his staggaring losses (and the squandering of what should be investments in the public domain of his own nation) into profits, I don't see a very easy way out for him. It's almost like he's at the roulette table in Monte Carlo, dontcha think?

I'm not really concerned about the recent low made in today's "plunge" -- if we break 7000, I think that's when I'll start to worry. But this is a matter of perspective. If I had thrown all my money at Citi and other giants that are now trading in the single digits, I would be a very depressed man...and possibly looking to add to my losing positions...perhaps like Al Waleed bin Talal.

As for the auto companies, they had it coming sooner or later. As did many other industrial giants in the US. I could make a pretty strong case that something like this should have happened in the late 80s. I have no idea how they survived -- unless it really boiled down to the big three fooling the US public that they had really changed. I haven't seen a good car come out of the US in my lifetime. By good car, I mean one that holds its value, does not have silly mechanical issues or manufacturing defects, and has good finishing work. Even the more expensive US cars look cheap to me in conspicuous ways. And they always seem to be imitating other automakers -- while trying to hide the fact. It all seems contrived to me.

And don't get me started on the unions. Some of those workers on the production line merely guide parts into place, with all the heavy lifting accomplished by automation, and yet they are getting more then $25/hr! (Not including benefits!) Others merely insert rivets or bolts all day. How can we be competitive at those prices when an equally skilled worker in Asia or Latin America costs 1/4th of their US counterprats, and much less in many cases?

These cheaper labor pools can put together a fuel-efficient car just as well as Detroit can. So I'm not sure a loan to retool would help at this point. I think, rather, that a complete revolution in the auto industry is needed -- something that puts an American product on the market which cannot be produced anywhere else. In short, *innovation*. Not innovation as the marketing hacks have us believing in so that we buy the same damn piece of sausage we bought ten or twenty or thirty years ago -- but true innovation.

Putting lipstick on a pig is not innovation. It is not reform. It is simply putting lipstick on a pig. I could also argue that the suppliers in the entire chain need to learn a hard lesson as well. These times are painful -- extremely for some of us -- but they also present tremendous opportunities to set the US economy up for long term success -- and perhaps another sustained economic boom, provided the foundation of that boom is built on prosperity that is actual, that is something real, and not leveraged speculations.

This will require an enormous change in the way we think about things -- the way we educate our children, the way we consume, the way we work, the way we relate with each other and the rest of the world, etc. We should have been doing this years ago. We were warned many years ago. Now events have conspired to force change upon us. So I say roll with it.

7:32 AM  
Blogger Banker said...


I agree about the automakers having it coming sooner or later. I try to buy American whenever I can, BUT my latest car, a 2004 Ford Sport Trec needed a new tramsmission after 30,000 miles (in 3.5 yrs therefore no warranty)!

That is not good quality.

Obama picking Geithner will help the markets. First he is already deeply envovled in the management of the crisis and second simply because Obama has picked someone. I do believe that the markets are closer to a bottom then to a top and that market stabilization should occur soon. Well at least I hope so.


9:20 AM  

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