News of the finance

Giving our insolvent banks and companies a last breath is forcing us to swallow water. Listen, if we let the irresponsible ones fall, we will have a smarter population, a higher confidence in government and a suspicion about free market that we should have been thinking about even when we were a bull market. The ‘invisible hand,’ the one Adam Smith said can correct the flow of labor, supply, demand etc, if I understand correctly, can also go numb, if the government cuts circulation of these or makes new ones. What should be done with the bonuses he is taking away from AIG is something productive, but only if you say where you’re putting the bonuses. You need to throw it back in the crooks’ faces in the form of increased competition and increased incentive to compete in the marketplace.

The whole plan to shave away costs to the American public must be reintroduced to the people in ways the voter can understand. So far, the only economic news which comes up out of the broken record player is one-sided. No one has any idea where money is going, because right now it is sitting, or it is written down. People need recognizable numbers, locations and hope that that money is worth more in terms of happiness in the long run. There seems to be no avenues for profit, but for long-term investment there are plenty. Let’s hope that these drone thingamuhjiggies which take out al-Qaeda in Pakistan are not the new reinvestment plan. No one is weighing numerical costs of war and government aided stabilization with long-term standard of living gains to be made all over the world and a reality check to be driven home to those who banked on the American dream without saving a penny in the bank.

I think that I may have spotted a pattern here.

Gordon Brown takes over the ‘golden inheritance’ from the last Conservative government. Everything goes well until he spends all the money but by that time he is PM so it is not really his fault!

Also during that period Brown had no clue at all  that many of the financial institutions were busy destroying themselves for the benefit of the directors and that this would cause the  UK could go into recession.  But when he finds out he rushes around the place thinking of policies that could help and implementing some of them!

Also during that period Brown had no clue at all that many of the MPs were abusing the expenses system. But when he found out he immediately orders an inquiry to find out the best way to pay the MPS for being MPs.

It is beginning to look like Brown is only capable of reacting to situations once they appear in the newspapers!

But I don’t know why he has not reacted to the energy companies not reducing the price of the energy that they supply despite the wholesale costs dropping significantly! Maybe it is because it does not effect him directly!

Cars, Banks and Confusion

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Posted on Mar 30, 2009

By Eugene Robinson

    Through a series of logical decisions, the Obama administration has maneuvered itself into an illogical and uncomfortable place. The president is telling Detroit to shape up or die while at the same time politely asking Wall Street, whose recklessness and greed caused this economic crisis, if it would be so kind as to accept another heaping helping of taxpayer funds.

    General Motors and Chrysler have been ailing companies for decades. But they wouldn’t be in extremis, hemorrhaging money as never before, if consumer demand hadn’t fallen off a cliff. And why did people suddenly stop buying cars? Because they either can’t get credit or don’t think it wise to make a major purchase with the economy in such dire straits.

    Both the credit crunch and the reluctance of consumers to spend what money they have left are the direct result of Wall Street’s atrocious misbehavior. Yet the administration’s plan for rescuing the banking sector involves generous inducements, big subsidies and the opportunity for wealthy investors to become much wealthier while assuming very little risk. There are reasons for structuring the bank bailout this way, and there are reasons to take a get-tough attitude with the auto companies. But the juxtaposition is galling—and, for many autoworkers, potentially devastating.

    “We cannot continue to excuse poor decisions,” President Obama said Monday as he laid down the law to Detroit. But it’s hard to reconcile that declaration with policies that seem to excuse, if not reward, unspeakably poor decisions made on Wall Street.

    I can’t argue with the administration’s decision to force GM chief executive Rick Wagoner to resign. It was encouraging, even, to see the White House employ that kind of muscle, given the fact that the president now has to oversee so much of the economy. But shouldn’t the first public flogging have involved one of the bankers who got us into this predicament? On Friday, the day when Wagoner got his walking papers, the biggest cheeses on Wall Street came to the White House for a cordial meeting. All still had their jobs when they left.

    Wagoner’s crime was in not getting GM out of an untenable situation that he inherited, though it should be noted that he has been with the company for more than 30 years, plenty long enough to be considered part of the problem. His defenders say that in recent years he demonstrated that he had seen the light about what kind of cars Americans want to buy, and they also point to his success in gaining market share for GM abroad. Maybe there was no way for him to get the company out from under its crushing “legacy” costs for retiree benefits. But if he made any headway at all at changing the company’s culture and turning GM into a lean, green, car-making machine, it’s not evident.

    Obama gave GM a 60-day deadline to come up with some kind of radical restructuring plan that would ensure a viable future for the company. That was a better deal than he offered hapless Chrysler, which has just 30 days to complete a merger with Italy’s Fiat or face dissolution.

    Given that Daimler-Benz couldn’t make a go of Chrysler, it’s hard to imagine that Fiat would do better—assuming that a deal between the firms can even be reached. The company that gave us the minivan, one of the most successful innovations in the history of the industry, is probably toast.

    GM, on the other hand, has what amounts to a guarantee from the White House that it will continue in some form, even if it fails to reinvent itself before the deadline and has to go through bankruptcy. In any event, the GM of the future is likely to be smaller than the GM of today. It is almost certain that some plants will have to be closed and some product lines discontinued.

    Maybe this is the least disruptive solution for GM’s work force. It is worth pointing out, however, that the $17.4 billion the federal government has given GM and Chrysler since the bottom fell out of the automotive market last fall is dwarfed by the more than $1 trillion we’ve poured into the financial sector.

    Our tough-love message to the banks: Would you mind, possibly, lending some of that money we gave you? If it’s not too much trouble, that is. And would you like another pillow?

    Eugene Robinson’s e-mail address is eugenerobinson(at)washpost.com.   

    © 2009, Washington Post Writers Group

President Obama has forced the resignation of GM’s CEO and is requiring strict conditions before the government gives more money to GM and Chrysler. Here are two critiques in the article:

“This nationalization of business may prove to be folly,” warned Louis E. Lataif, dean of Boston University’s School of Management and a former president of Ford Eu rope, a division of the American automaker now based in Germany. “The notion that anybody in Washington knows how to run the auto industry in Detroit is laughable. And I don’t think they know how to run the banks either.”

This is the extension of the ‘but that’s socialism’ argument. As my father always used to say, I don’t care what you call a policy just whether it makes sense or not. This Washington Monthly article shows that government has successfully run businesses for short periods in the past:

But here’s the funny thing: any honest reading of history suggests that the federal government has quite an impressive record of rescuing institutions considered too big to fail. In addition to almost routine workouts of failed banks conducted in good and bad times by the Federal Deposit Insurance Corporation and other regulators, the list includes many large industrial companies as well. In 1971, for example, Congress extended emergency loans to failing aircraft builder Lockheed and wound up not only saving a company vital to America’s national defense and export manufacturing base, but earning a net income for the Treasury of $5.4 million in loan fees.

The main example is Conrail, which took a company that had fallen apart and made it into one that was profitable and necessary.

The second type of argument is:

James G. Boyle, who runs a GMC truck dealership in Hudson and a Toyota dealership in Portsmouth, N.Y., said he believed government has a role as lender of last resort - but shouldn’t meddle in business. “If you’re going to lend the money, lend the money and get out of the way,” he said. “Aside from the US military, I can’t think of any part of the government that I’d want to solve any problem for me.”

Besides the fact that he thinks that things like food safety should be left up to the food industry as it was in the days of The Jungle, he doesn’t seem to know how private or public banks work. Does he think that banks don’t put conditions on loans? Has he ever looked at how the IMF works?

There’s a third argument that comes up in the comments to the Globe article: we should just let them go bankrupt. In theory I agree with this, but sometimes it’s more than a little problematic. The case of Penn Central (which became Conrail) gives a good example:

It all came crashing down in May 1970. Because of Penn Central’s creative bookkeeping, few on Wall Street saw it coming. The exposure to the company’s revolving loans was so great that it required a dramatic intervention by the Federal Reserve to prevent a meltdown of Wall Street’s commercial paper market. President Richard Nixon, after refusing to take a call from his panicked transportation secretary, allowed the company to go into bankruptcy. Eventually, however, he determined that it was too big to fail; hundreds of thousands of jobs, as well as key industries like steel and auto manufacturing, were at stake. And so Penn Central received bundles of emergency loans.

The idea is that if a company is really big, its failure will cause the failure of other companies that are healthy–they’re too big to fail. It’s hard to say if that’s true for GM or Chrysler, but it’s possible. Obama seems to be taking the middle road here. My one quibble here is that Obama (and Bush before him) seems to have no problem demanding that the employees of the car companies take big cuts in pay and benefits, but doesn’t see the need to do the same for the banks or AIG. This is despite the fact that financial workers make more than automotive workers.

“How to find a job.” That’s the cover story in the new Fortune, out this week.

Here’s one place to find a job: Workout firms that help companies in trouble. Fred Crawford, the CEO of AlixPartners, came by Fortune’s offices late last week and talked about his buoyant business. “We have 850 people, and we’ve been growing 20% to 30% a year for the past decade. We think that’s sustainable.”

The elite in this down and dirty business of corporate restructuring include AlixPartners and Alvarez & Marsal, the outfit that’s now in charge at bankrupt Lehman Brothers (honcho Bryan Marsal replaced Dick Fuld as Lehman’s CEO in January). At AlixPartners, Crawford is a hybrid of sorts: He earned his chops at other consulting firms helping relatively healthy companies like Procter & Gamble (PG), Fedex (FDX), Coca-Cola (KO) and Disney (DIS) build their top lines.

Now, at AlixPartners, he’s selling two main types of services: turnaround/restructuring (where past clients  include DeLorean in 1984, Detroit in 1994, and later Enron, Refco, WorldCom and Kmart) and “business performance improvement.” The latter service is for companies that want to stay out of the former category. Among the companies on that roster today: Borders and Saks. Beleaguered Borders’ (BGP) stock has fallen from $25 in 2007 to under $1. Meanwhile, Saks’ (SKS) stock decline has been almost as steep, to $1.88.

Working with–and making money from–a wide range of companies, struggling and really sick, gives Crawford a good view on the economy. So what’s his outlook for recovery? Not good.

Crawford mainly follows three indicators: unemployment, housing values and consumer spending and saving. The latter is most critical, he says–and he’s worried based on the findings in an AlixPartners survey of 5,000 U.S. households, completed in March. Americans say that even after the recession ends, their spending will return to just 86% of pre-recession levels. “That would take a trillion dollars out of the U.S. economy annually,” says Crawford, admitting that he finds that big of a spending dip hard to imagine.

Even so, he says, people who predict a recovery this year “are just dead wrong.” He adds: “I think this will be a severe recession with a long tail on it.” And where will crisis strike next? Regional banks, Crawford predicts. Gloom, he says, is “the new normal.”

Why are the NETWORK Anchors and Reporters such scatterbrains about the stock market?

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DISCLAIMER: Nothing within here should be construed or implied as investment advice. Consult your broker or financial advisor before you commit any funds. These are opinions, and the expressed or implied opinions are those of the publisher, and information is compiled from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Readers should never assume that recommendations, made now or in the future, will equal performance of recommendations made in the past. The market is full of RISK, and readers assume all liability for any financial decisions and/or investments they make.

3 Steps Ahead of the Crowd !

Just Stop Listening To Them!

Do network anchors and floor reporters actually know anything about the Dow Jones Industrial Average or its stock market history?

I’d have to say NO !

They “read” copy that’s prepared for them - and that’s probably okay. BUT, when they add the phrase, “The market was SHARPLY lower today” - it shows their lack of knowledge about what they are reading.

And, if they are wrong about their interpretation of the Dow Jones Industrial Average, what else are they wrong about?

Yesterday, after President Obama announced the firing of the CEO of General Motors, the market opened about 250 points lower. Even without the firing, the market would STILL have opened 250 points lower - because there were NO BUYERS the day before at the higher level.

AND, the market stayed at that level ALL DAY. It didn’t go lower because there were no more sellers, and it didn’t go higher, because there were no buyers.

The market always drops to a lower level when there are no buyers at the current level.

After that, and for almost the rest of the day, all that was going on was calm “trading” of stocks among mutual funds. No buyers. No sellers. And, certainly NO PANIC, whatsoever - as the news programs would like you to believe.

That’s it. Maybe a few nervous nellies sold some stock - those that jump every time a news anchor sneezes about the market. Nothing else happened.

BUT, here’s the problem:

A 250-point drop on the Dow is equivalent to about a drop of 75 cents for $20 stock. That ISN”T “sharply lower” - by any stretch of the imagination. It’s just the normal bid and asked spread - between buyers and sellers - something that news anchors and reporters know little about.

CBS, NBC, and ABC, (plus all the cable channels) announced that the market was “sharply lower”, or some such interpretation. That was sheer nonsense. The fact was, that, hardly anybody did anything in the market yesterday because of Obama’s decision.

Yesterday was a non-effectual day for the market, except for maybe General Motors, which had already lost most of its luster a long time ago.

C’mon folks - STOP Listening to reporters! They don’t have a clue about what the Dow Jones Industrial Average is all about.

The Average was started over 100 years ago with 12 industrial companies, only one of which is still part of the ORIGINAL Dow. Since then, the Average, (which isn’t an average, at all ), has expanded to 30 companies, and is dollar-weighted.

That means that a high-priced stock, like IBM (in the $90’s) has much more influence on the “average” than a $3 stock like General Motors.

In the meantime, they have added a divisor into the calculations, so today’s average can be compared to the original average - 113 years ago. Why they even do that anymore, is beyond me. It makes no sense.

Do you compare you salary today to your great-grandfather’s salary? A $5 increase to your salary today would probably mean very little, but a $5 increase to your great-grandfather’s salary (a hundred years ago) would be huge.

See the difference?

The actual numerical average of today’s average is all relative - dating back to what the average was in 1896. Compared to 1896, a 250-point advance or decline might seem gigantic, but, compared to the year 2001 on the Dow, it isn’t.

TV reporters and anchors (and tv gurus) don’t get it at all. They get blown away by a 250-point drop in the Dow.

If you compared your weight today to your weight when you were only 1 year old, then 2 pounds would seem like a lot. But, when you compare your weight today to what you weighed last year, it might not be very much.

THAT’s what the Dow Jones Industrial Average is comparing - yesterday (in 2009), to 113 years ago, in 1896.

By today’s standards, 250 points is nothing - but the difference between the bid and asked prices. But, don’t try to explain that to a news anchor or a floor reporter. Their egos are wayyyy too big to understand it.

Got it?

A rise or decline of 250 points is negligible - and NONE of the television gurus, anchors, or reporters understand that. Don’t let their SHARPLY LOWER comments affect you. They don’t know what they are talking about.

Following yesterday’s “sharply lower” price, today, the market was up, at one point, about 45 points (on the back of a “sharply lower” day, yesterday).  45 points on the Dow is less than a dime for a $20 stock.

If you don’t believe that, check the price of ANY of the Dow Jones stocks, either on the net or in the newspaper. They will all be “relative”, and proportional to the $20 stock.

If a $20 stock dropped $3, THAT would be SHARPLY LOWER - but 75 cents is not.

Brokers love the reporting of these “big” advances and declines (like 250 points) on the Dow, because it “HYPES” the public into action - into believing something that is not true - and that’s good for their business and commissions.

Raving about 250 points on the Dow, in either direction, is about as close as you can come to “snake oil” deception as you can get - and you’d think reputable reporters and anchors would know better.

This has been another Stock Market EXPOSED -

STAY TUNED !

Jack

P.S. Investing in the stock market is not something you should do casually. It’s all about buying and selling. Some people you talk to, (or listen to), know nothing. Some have vested interests to get you into the market 24/7, (like brokers and financial advisors) - and then leave you twisting in the wind.

Only you can pick out the “scatterbrains” from the real professionals. Learn HOW TO IMPROVE YOUR INVESTMENT STRATEGY at http://www.fburg-online.com

We called the market BEFORE the 6,000 point drop.

We called the Oil Bubble to Burst at $142/bbl BEFORE it dropped to $37/bbl.

We’re now re-stating our position that GOLD (as we predicted earlier) will fade into oblivion!

( See our Video on YouTube.com)

Of course, Speculators (especially Oil and Gold) ALWAYS criticize us, though we’re not wrong. It’s AMAZING how good our techniques for predicting everything from Gold, to the Dollar, to Interest Rates, to Commodites, and, to the Stock Market, really are!

Maybe if Bernie Madoff had checked with us, he wouldn’t be in jail today.

Our philosophy is that knowing WHEN to STAY OUT OF THE MARKET is just as important as WHEN to GET INTO THE MARKET.

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