Bear or Bullsh*t?

The markets are changing and depending on who you talk to (or which way the wind is blowing) we have a bear/bull market coming.  What you do with that information is up to you, but most “analysts” seem to think that the end is still a ways off and that the market is going to capitulate for months to come.

And, frankly, I’m okay with that.  The Dow was up over 200 points today – and to me that’s  a good thing.  But, if it drops 400 points tomorrow, that’s okay, too.  I’m neither bull nor bear, but I am a writer that wonders – what’s it matter?  Bear market?  Bull market?  Who really cares?

The answer to that is obvious – investors and news media care.  Investors so that they have an excuse for their successful guessing or misplaced optimism, and the news media because nothing sells like confusion (unless it’s blood, gore, or Britney Spears, of course.)  In this time, when consumers, investors, and even our leadership is shocked and running around like a three legged frog on the highway, bad news sells because in the absence of something positive, the average person is going to grab onto whatever they can find.

My take – bear or bullshit – it doesn’t matter; the media is going to help with your decision.

Ranter

According to SpendingPulse, a macro-economic report offered by Mastercard, retail and service sales from Nov. 1 until Dec. 24 showed retail sales down between 5.5 percent and 8 percent. Half of the decline in overall sales can be attributed to the 40 percent drop in the price of gas compared with December 2007. Excluding gasoline, sales were down 2 percent to 4 percent.

Their report concludes that 2008 was “one of the most challenging holidays shopping seasons in decades” with very few segments showing any strength.  E-commerce declined a meager 2.3% compared to apparel (19-21%) and electronics (26%), although I have to wonder how many of these numbers have to do with the declining prices on electronics and clothing in general.  The American consumer has come to expect 25% off day-to-day with sales starting at 50% or more, and it would seem that, at least for now, some retailers are going to respond or perish.

For our family – I would suggest that we spent moderately less this year, including less on our friends, co-workers, and charities that we’ve supported in the past.  Part in response to changing market conditions and partly because the media, the stores we shop in, and the services that we use are approaching things differently than in years past.  It’s as if they’re saying, “well, we know your money is short, so we expect you to buy less.”  Retailers are expecting to take a beating and it would seem as though they’re even asking for it.

Next year, I want fanfare, decorations, full-priced fare, and a season worthy of spending my hard earned money.  It’s about more than just gifts – it’s about the season, the spirit and the excitement of the holidays.  If retailers aren’t going to give consumers that excitement – I expect consumers aren’t going to give them their hard earned dollars.

Ranter

Now it would seem, like AIG, the US will take stakes in the Big Three, effectively buying into the companies and restricting their use of the money and ultimately limiting their ability to be competitive in a rapidly changing auto marketplace.  More enjoyable still is that many think a “car czar” will be required to “oversee” the Big Three and their use of the money.  Kenneth Feinberg’s name is being thrown around for this position, but besides being a lawyer and having some experience with the 9/11 victim’s compensation fund it doesn’t seem to me that he knows his head from a hole in the ground when it comes to cars.  What makes peope think that just because someone works for the government or is appointed to a role that they can accomplish that role without training, experience, and inside knowledge that would allow them to determine good from bad?

Sure, from the outside, with our 20-20 vision for what has happened in the past, it’s easy to see that all of the Big Three have made mistakes and bad decisions.  They’ve been wasteful, possibly short-sighted, and maybe even a little top-heavy (sounds like our government at times, doesn’t it?), but I believe that it’s going to take those same people to at least point us in the direction of what is to come.  Anything less than that and you’ve got someone guessing at what makes sense and what doesn’t.  GM management seems to know this, and I suspect that Chrysler and Ford have a good inkling, too.

“To blame the American automobile executives for this frankly is ridiculous,” GM Vice Chairman Mr. Lutz said, suggesting an unforseen downturn in the economy and housing market are the culprits. “How were we supposed to forecast this when the government doesn’t forecast it and the financial institutions couldn’t?”

On the good side (said with sarcasm), though, considering there are so many things for them to worry about, everyone seems to be in agreement that all auto-manufacturers should get rid of their private planes.  They media has focused on this, while forgetting how painful flying commercial for a senior management team can be.  Heck, I bet they write in the agreement that they even have to fly commercial and forfeit their frequent flier miles, too.

Ranter

First a little history, the phrase “perfect storm” originated with the 1997 book The Perfect Storm, and was cemented into most minds by the 2000 movie of the same title which starred George Clooney.  The phrase the perfect storm refers to the simultaneous occurence of events which, taken individually, would be far less powerful than the resulting combination of events.  Such occurrences are rare by their very nature, and any slight change in any one event would potentially lessen its overall impact.

Not surprisingly with all the turmoil in nature and financial markets recently, the phrase was awarded the top price by Lake Superior State University in their 2007 list of words that deserve to be banned for overuse.

Unfortunately, there is no better description today for what is going on in the economy and why it has become such a worldwide problem.  Headlines from today’s news and web sites show the obvious problems:

CNNMoney.com – “Big Three Plead for $34 billion from Congress.”
Wall Street Journal -  “Bernanke Urges Actions on Foreclosures.”
MarketWatch.com -  “Thirty Thousand Are Being “Right Sized” Right Out of Jobs.”

These are serious, and unless someone takes the reigns and owns up to the solving the underlying issues it’s not going to get better any time soon.  Some of you are probably wondering what that means, and that’s where my rant begins.  Everything I hear about lately involves handouts, buying worthless paper, and taking a loan that may or may not be enough and may or may not be repaid.  Not one article talks about putting people to work, improving our infrastructure, or investing these billions that we’re using in the bailout to build a better America.

We’ve lost our touch – America used to be an economic powerhouse.  Much of this was attributable to our military, but it also included our banking, manufacturing, technical, and pharmaceutical strengths.  Today we’re outsourcing, learning from other countries, and gambling on the future with derivatives and other crazy financial tools.  Major Wall Street firms are failing because they forgot the core tenants of business, including, don’t spend what you don’t have and don’t buy into anything that you don’t understand.  Many of these stoic organizations were quite literally gambling with your savings.  Through it all, the “rescue” starts with the people responsible for creating the catalyst for the downfall of the financial markets and bankrupting the average American.  They should be shunned and publicly humiliated for what they’ve done, and instead their cronies in Congress start by bailing them out and covering their losses.  These banks and investors are being rewarded for their own failures as the government not only offers financial salvation but creates a term for their spoils, toxic assets, so they can con scare Americans into believing that they’ve done the right thing.

The solution isn’t in these bailouts, and while there clearly haven’t been problems like this before, history tells us what might work to resolve this problem.  Instead of trying to buy banks out of this problem by covering their past losses, the government needs to put a “New Deal 2009″ program into place that takes from Roosevelt’s plan and initiates programs that will people people back to work, reform business and financial practices, and improve the American infrastructure.  Stop pork-barrel spending, wasteful government programs, and funding foreign countries and their wars.  Start helping states, promoting equality in foreign trade, raising money through duties and import taxes, and improve legislation to prevent financial companies from gambling with their assets and investor’s monies.

Frankly, I don’t think Bernanke (and obviously not Bush) are the people to drive this forward, and I am only somewhat hopeful that Obama will quickly get a solution in place, but I have to believe that something will read history and come up with some ideas that have worked.  It obviously can’t start with UncensoredRants.com, but my opinions can’t be alone here, either.  The average American has to use their voice and hold the torch for what they believe in.  Mine is lit – is yours?

Ranter

In normal times, this might not be such a big deal.  Chrysler went into bankruptcy a few decades ago and emerged as a better, stronger company.  But, times have changed, and the underlying problem is the same no matter what industry we’re talking about – lenders are remiss to help companies before they get into trouble and even less likely to help those in bankruptcy.  Congress seems to be missing these facts as they continue to grill the Big Three, and while I’m not in support of a bailout, it is time to consider a loan or rescue package that will allow these companies to survive.

Interestingly enough, CNN recently polled 1100 people by telephone only to find that 61% of them oppose a bailout of the auto indusustry.  Their conjecture is that the American consumer is burnt from the Troubled Asset Relief Program and its enormous size, leaving them feeling as though $35 billion just isn’t enough to worry about.  Unfortunately, my belief is that much of the problem Detroit is experiencing today stems from the same set of problems that is troubling Wall Street – lenders aren’t lending.  They’re not lending to each other, they’re not lending to other businesses, and most importantly for Detroit they’ve made it difficult to get loans for consumers wanting to buy new cars.  Add to that the market turmoil, the media’s continued blaring horns claiming how bad the economy is, and increasing layoffs and you’ve got the “perfect storm” for taking out a Big Three player.

Apparently I’m not the only one considering the devastation that this would cause world-wide, and Keith Wendell of Johnson Controls recently pointed out the obvious:

“Should one of the Detroit 3 fail, a significant number of supplier failures would occur and become unmanageable,” he said. These companies also supply parts to foreign automakers that assemble cars in the United States.

From an economist:

Economist Zandi urged Congress to provide the $34 billion. “Without any government help, the Big Three will quickly end up in bankruptcy and be effectively liquidated, resulting in hundreds of thousands of layoffs at just the wrong time for the sliding economy,” he said.

With recent actions it would also seem that the Big Three are willing to do whatever it takes to open their books and even as far as government oversight to save their companies.  Even though they haven’t been the smartest about their efforts, their persistence and similarity of message seems telling to me.  Couple that with a roughly 30% drop in sales compared to a year ago, it’s looking very bleak for these companies.  The only one that seems to be somewhat safe, if you believe Alan Mulally, president and CEO of Ford, is Ford, and even he is going to Washington to secure loans in case of a more serious downturn.

Only time will tell where this ends up, but for the sake of our economy, the jobs of people surrounding the auto industry, and the future of manufacturing in America I hope that the people reviewing these decisions know what they’re doing.  If they don’t, the world will suffer.

Ranter

Of course, like most days I still watched the news and read up on what was going on.  There was just so much going on it was almost overwhelming.  My favorite articles on Friday had to do with the multitude of perspectives surrounding Black Friday.  The irony between them made me laugh, even knowing that one was nothing to laugh about.

The Associated Press is running an article with the headling reading “Black Friday shoppers out in force, but cautious.”  And, not four headlines below that is Bloomberg’s more dramatic headline reading, “Wal-Mart Worker Dies in Stampede at New York Store.”  Wow, that doesn’t seem so cautious to me, but hopefuly you can see the irony.

Apparently a crowd of bargain hunters numbering hundreds was demanding Wal-Mart open early and pressing against their large glass doors.  When the night stock clerk went to open the store in the morning he was trampled by early morning shoppers trying to get into Wal-Mart to take advantage of their Black Friday deals.  What’s scary is even as the emergency crews were working to save the man people were still pushing and shoving to get by and into the store.

Perhaps it is just my naivete, but this is appalling to me, and I am sickened by the thought that people could cause this to happen.  What’s happened to the spirit of the season?  And, yet, at the same time, I blame the retailers that have created this frenzy regarding “deals” that have to fall on this one day.  Why not open it up for a few days and allow consumers to enjoy the holiday shopping experience.  It’s obvious that at least one employee would have gotten a chance to enjoy more of the holidays.

So my take away from this Thanksgiving and Black Friday… slow down, enjoy the experience, perhaps pay a few pennies more, and live.

Ranter

Black Friday came to be, because it was typically the day that most retailers moved from being “in the red” to being “in the black” or profitable.  Most retailers could see upwards of 50% of their annual sales between tomorrow and Christmas.  Which, of course, explains why stores may seem so empty the other 11 months of the year.  Funny thing, though, with all the discounting, it doesn’t look like many of the big box merchants are going to see their hoped for profits.  Take 75% off anything, as some clothing merchants are talking, and there’s very little margin left for profit.

At the same time, merchants are drasticaly reducing their workforce to reduce their labor costs.  This will likely mean, even with fewer shoppers, that lines will be long and service poor.  To me, those are the bitter truths that stick with me for the rest of the year and explain why companies like Mervyn’s and Circuit City are going out of business and filing for bankruptcy.  The tighter money gets, the more consumers want to get for their money and that includes service.  If they want lesser service they will go where they expect less – Wal-Mart, TJ Max, etc.

Where this separation between price and quality becomes much more well defined when you drop in convenience, which is why I question the viability of one trick pony companies like Toys R Us.  In economic times like this, it’s impossible to imagine that consumers would go to Toys R Us to buy their toys, as they might have in years past, instead of picking them up for less at Wal-Mart, where they are already buying clothing, household items, and necessities.  Wal-Mart already has a 23% marketshare in the toy business, and in a recessionary market like this I imagine that will pick up considerably as we get through the final few days before Christmas.

So where does that leave us?  My wife will be out there bright and early tomorrow trying to get some good deals, and she’ll be visiting bankrupt retailer Mervyn’s, even knowing that they’re not intending to have any really good Black Friday deals.  She will also be visiting the mall, Kohl’s, and Target.  From past experience, she’ll be coming home with plenty of stuff we need… and quite a bit we don’t, but nobody will accuse our family of not doing our part to prop up the economy this holiday season.

Happy Thanksgiving to everyone – may you day and Black Friday be everything you could hope for.

Ranter

The Big Three Are Looking for $25 Billion Plus to Help Weather a Longer Than Expected Recession

I talked yesterday about my feelings surrounding the auto-bailout for Chrysler, Ford and General Motors, and the more I read about what Congress is doing and the debates that are flying around the more frustrated I get.  Now CNN is reporting that Congress wants the automakers to show how they plan on spending their bailout dollars before they’re willing to offer any.  Generally speaking this isn’t a bad idea, but what I find most frustrating is that they haven’t publicly asked the same from companies like AIG or banks taking money from the already approved $700 billion bailout.  Doesn’t it seem logical that any company coming to Uncle Sam for a loan/bailout would be held to the same standards?

At the same time they’re asking for $25 billion in taxpayer money – these auto company CEOs are idiots.  They all came from the same state in their own private luxury jets.  The average American will never see first class, let alone the inside of a private luxury jet, and while continuing to pay their taxes will probably end up eating Mac-and-Cheese to get through this depression recession and these beggars can’t even share a ride or fly commercial.  That’s saying two things – they are neither green nor frugal, and that should be disconcerting to everyone.  These companies need to get both quickly and those changes need to start at the top.

I’ve voiced my opinions about what needs to be done for the economy, and now I would like to talk about what needs to be done for the auto-industry to succeed.  My experience is limited, my economic knowledge is nill, but I am a consumer and do understand that there are obvious changes that should be visisble to anyone with half an interest in fixing these problems.

• Become Competitive With Toyota and Honda. The Big 3 have lost their edge.  Americans have lost their faith in these companies and it’s not going to get better for them overnight.  With few exceptions, the American auto industry has lost its vision, quality, and competitiveness in today’s market.  Their cars are dated, of lower quality, and often priced higher than the foreign competitors.  Until they realize that the competition isn’t amongst each other they will never reach a level of success that can sustain the industry.
• Reduce Costs and Long-Term Obligations. A huge problem with the Big Three right now is simple – the Unions.  They’ve done an outstanding job of increasing the costs of their members through collective bargaining, but in times like this they’re a roadblock to solving the big problems that face all three manufacturers.  In order to survive these companies are going to have to reduce their medical expenses, reduce their pension costs, and reduce their labor costs.  If the Union isn’t going to work with them to make these changes it’s going to be a nearly impossible battle for these companies.
• Reduce Their Corporate Perks and Salaries. Being the president of Ford can be a very, very rewarding job.  But the payroll numbers are only half the story, and looking back to the Lee Iacoca days of Chrysler it’s obvious that the private lunchrooms, limousines in waiting and private air travel are going to have to be cut.  The extravagant car shows, announcements and excessive advertising will have to be dropped, too.  Salaries for all levels will have to be adjusted to help these companies survived and the people at the top will need to accept that for a while it’s going to be very, very lean.
• Improve the Car Buying Experience. If you asked most Americans if they would prefer to buy a new car or go to the dentist and I would be willing to bet that a very high percentage would prefer to visit the dentist to have their teeth pulled without Novocaine.  Buying a car has become that bad of an experience – especially for domestic brands.  GM did a good thing with Saturn – their one-price structure – and it worked very well.  Why they wouldn’t bring that out company-wide, I still don’t understand.  Using Scion as an example – everything is spelled out for you.  From the cost of each service to the cost of every accessory.  You don’t need to negotiate and you don’t need to worry about being taken advantage of.  This model works and it works well – generally the consumer will appreciate being treated like an adult and the margins for the dealers, while not huge, will not vary, which means that they can consistently budget for their business.

These are obviously a non-auto-executives ideas.  I don’t know anything about the car business, but I do know what it takes to succeed in business and these guys aren’t doing it.  They need help and they need to take their thousands of employees and become lean and mean to become competitive again.  For now, I am simply saying loan them the money and give them a chance to deal with lean times.  If they then fail, at least it’s not for lack of trying.

Ranter

These plans are as optimistic as TARP, with the Federal Reserve Bank offering as much as $200 billion to purchase securities backed by consumer debt (credit cards, auto loans, student loans, etc.).  The Treasury will then insure up to $20 billion against losses (is this confusing yet?) and then the Federal Reserve will purchase up to another $500 billion in mortgage backed securities from Fannie Mae, Freddie Mac and Ginnie Mae (lets call them the three stooges).  As if that’s not enough, the Fed will also buy another $100 billion in direct debt issued by those firms.  And that’s it for Tuesday.

The best part – this time the Fed has a plan for where the money is coming from – the fed is going to make it from thin air increase their reserves.  Added to the other $700+ billion back in October, and now we’re talking about a lot of money, and from this seat nothing seems to have changed.  Obviously, as the country prints more money to increase their reserves they reduce the value of the American dollar world-wide, ultimately reducing the value of our exports and increasing the cost of our imports – not good for a country in recession.  How this plays out with the rest of the world experiencing similar problems and similar bailouts is yet to be seen, but considering this is really what can be called a credit starved recession it’s unlikely to see how the heavily indebted United States will come out of this without significant long-term issues.

The hope and potential upside here is that the Federal Reserve’s action will significantly improve the residential housing market, improving consumer confidence, improving asset values for banks, and hopefully promoting consumer spending through the purchase, construction, improvement and redecorating that comes with home ownership.  If it doesn’t, it will just be one more thing that the government tried, which like it or not is probably preventing a full-on global depression at a scale unlike anything we’ve ever seen before.

Obviously, I am hopeful for the best here and believe that at some point the banks, consumers, and small businesses that drive our economy are going to have to stabilize and eventually grow.  There will be a considerable amount of time between that growth and where we are today, but even a moderate stabilization would do wonders for consumer confidence, global confidence, and the American dream.

Ranter

In typical GM fashion, there is a spin and a feeling, and in this case more than most they don’t mesh.  The announcement is saying to me “GM is broke, and Buicks aren’t selling – Tiger or not.”  The PR machine is spinning out a mutual, amicable separation:

“Tiger is expecting a second child in his family and he’s looking for more time in his schedule,” said Peter Ternes, G.M.’s director of communications for sales, service and marketing. “At the same time, General Motors is looking to cut costs… we both agreed that we would part our ways.”

After ten years of Buick ads and the automaker’s logo on his golf bag, it’s definitely going to be a change for the average golf fan, but in the big scheme of things it’s obvious that someone else will pick up Tiger Woods and his bag will not remain promotion-free for long.

Now if GM, while they’re seeking a loan from taxpayers, would only stop running their “Get You the Loan You Want” advertising, then all would be well.  But, that might be hoping for a little too much.

Ranter