Random thoughts

GM’s effort to target Toyota’s  customers  in the midst of their record recall notice seems in poor taste, especially in light of the record amount of taxpayer money that is now supporting GM.  This is like the arrogant rich kid who brags about being  smart when he was just lucky enough to inherit daddy’s money.  Kudos to Honda for expressly rejecting this tactic and Ford for just making money without taxpayer funds.   This is a big debit to GM’s karma account. Remember how many Toyotas are manufactured in this country.

Has anyone ever heard a peep from this administration about the government’s  responsibility for the economic crash, or do we just keep adding to the list of corporate demons?  First the oil companies, then insurance companies, then the health care providers and then the banks and financial institutions.  I need oil companies, insurance companies, health care providers and banks because they provide stuff and  services I need and want. I wish I could say this about the government .

After reading and writing about the financial crisis, I realize that the best analysis is devoid of political and partisan scapegoating.  The causes  were multiple and extended back more than 25 years. While much is clear in hindsight, at the time there were seemingly rational reasons for every stupid step toward the cliff.  How do smart people make such stupid mistakes?  One small stupid step at a time.

I have observed that there is an innate sense of trust on the social networking sites, especially Facebook.  We have connected with people we haven’t seen in decades, and there is an instant sense of trust.  Rules of etiquette on Facebook are unwritten but seemingly obvious just the same.  I wonder if the hours we spend on Facebook comes at the expense of television viewing.

With a more substantial majority than either party has enjoyed in decades and control of the White House, the Democrats have failed to pass any of the legislative initiatives other  than the stimulus package early in 2009(and the absurd cash for clunkers program) . It seems that either the bills they are trying to pass stink or that they must be incredibly politically incompetent.

During the 1970’s the sudden and enormous wealth of the Arab World as a result of the oil cartel OPEC, made everyone think they would rule the world. Raising oil prices as a result of the US aid to Israel during the 1973 Yom Kippur War (disproving the myth that we only fight for oil), the oil shieks were reported on lavish shopping sprees at Harrods’s in Great Britain handing out 100 dollar bills as tips.

In the 1980’s the Japanese were in the ascent. They bought the Pebble Beach Golf Club, and management consultants tried to copy the Japanese miracle as Japanese cars spelled disaster to the Detroit auto industry.

In the 1990’s the Japanese bubble burst and they have yet to recover.  We refer to their lame policies to reignite their economy as the lost decade. The 1990’s was the American decade. The dot.com boom, the internet industry, billion dollar hotels in Las Vegas, stunning victory in Desert Storm, and a budget surplus showcased American economic strength.

The first decade of the millennia was the Chinese decade. They discovered capitalism, hosted the Olympics, began to develop a middle class, and began an industrial growth that fueled a boom in commodity prices. But the Chinese economic growth was fed from the top down, not from the bottom up the way an enduring capitalist economy develops. While we saw our banks crash as a result of revaluing inflated assets, such market adjustments are prevented in China and their banking system in more vulnerable than their government allows to show.

Who will dominate the new decade?  India.

India’s capitalism is more bottom up.  British rule has left in place institutions of property rights and law that are essential to developing capitalism.  Like China, India has cultural shackles to grow out of, but they may be more ready for capitalistic growth than the northern neighbor.

My best performing stock of 2009 was Tata Motors, the GM of India (the old non government owned GM); up over 230%. (Suntrust was the second best.)

We are entering India’s decade.

In  the American Metal  Market magazine Commercial Metals Company’s (CMC) metal fabrication division noted a drop in earnings to a $’17.3 million LOSS  in the most recent fiscal  quarter (three months ending Nov 30) from a profit of $66.6 million in the same period a year ago. Tonnage is down 32% and prices are down 34%.

Most metal fabricators are seeing similar results.  This highlights my previously stated point that our primary economic problem is not lack of credit but a lack of profits. Entire lines and companies are being mothballed until there is some uptick in construction and there is simply too much inventory to see this happening anytime soon.

For a few months I received auction notices for large fabrication shops about every week.

Imagine the impact of Commercial Metal’s report multiplied by thousands of companies.   My eyes tell me unemployment is getting worse, while the Bureau of Labor Statistics tell me it is getting better; I believe my eyes.

This excess inventory of buildings and housing was created before this administration, and the hardest thing to do at this point is nothing, but this is probably the best long term solution.  Efforts to prop up prices while inventory is still too high will only kick the problem down the road.

One idea would be tax credits for demolishing old buildings. This goes against my grain of economic common sense, but it would solve a problem of oversupply.

Obama is now pressuring the banks to make loans to stimulate the economy.  Yet again we have the government creating a crisis and then blaming the private sector.

The banks are in the business if making loans. They should not be encouraged to make reckless loans; that is what fomented the crisis to begin with.  Fannie Mae and government pressure to extend housing loans to unqualified buyers was the core cause of the melt down.

Businesses are not growing and expanding because they cannot get loans, but because they cannot make money.  Part of this is because of gross over building in the construction market, largely as a result of misguided Federal policy. Largely it is because of the uncertainty from the pending Union Card Check Bill, Cap and Trade, and the pending health care reform.

Tax increases, the expiration of the Bush tax cuts, threatened increases in the estate tax, and higher capital gains taxes are all major job killers.  None of this is the fault of the banks.

The destruction in home values which was a common source of collateral for many small business loans,  is a result of government policy.

Businesses do not borrow unless they perceive the risk environment to be favorable.  Every step to take more of the profits makes the incentive to take a risk and create a job less favorable.  If the president wants to know why unemployment is still high and business growth is so slow he doesn’t need a meeting with the banking industry, he needs a mirror.

By preventing assets from reaching their market levels, the administration risks making the recession last longer than it should.

The uncertainty in all of the radical bills proposed in the first year has businesses behaving like a deer in the headlights.  They are afraid to invest in such an uncertain environment, yet many cannot afford to close. They cut expenses as much as they can and hope they can hold on until the market turns.

They see a poor risk/ reward proposition and thus refrain from growing, and they refuse to die. They are neither living nor dead.

We are in the middle of a Zombie Economy.