Tuesday, December 30, 2008

Right Hand, Meet Left Hand

This Bloomberg column by John Berry reveals what I have discovered in the last few days talking to businessmen and bankers - while you read in the headlines that politicians are demanding that banks lend out the money they have received from the federal government, bank regulators are riding herd on banks to rein in lending to the point where many banks have "no new customer" policies. That is right, regulatory forces are driving banks to cease doing business. This is bad, very bad. The US government has bent every sail to get liquidity flowing back into the market and unfreeze credit. Ben Bernanke and Henry Paulson have risked their reputations and a great deal of our government's credibility to do this, and an army of bureaucrats, an immovable groupthinking herd, could be undermining the whole endeavor. If someone doesn't get ahold of the guys and gals who actually go into the field and talk to banks, and instruct them to ease off, credit will remain tight and the federales will have to be even more easy to compensate for what isn't happening on the ground, which has major risks for us in the longer term. This regulatory beast must be brought on board with the program.

Friday, December 19, 2008

"Petrobras Is Our Space Program"

That's how a top Petrobras official termed it. It's about national greatness. Will a country like Brazil countenance massive demand destruction for oil, the likes of which we are getting a taste of today, at the expense of their 'space program'. No. Count Brazil out of anything but the phoniest and most meaningless global action on climate change.

Wednesday, December 17, 2008

Is Mulally Playing Good Poker?

Time to revisit a June call I made - short oil and go long Ford. Obviously the first call was brilliant, the second one, not so much. But I wouldn't give up on Ford just yet. Did you notice that when the momentum for a government bailout of Detroit was at its greatest, Ford was at the table begging away. Then as the momentum subsided it shifted its stance to 'we may not necessarily need the money'. After the bailout crashed and burned in the Sausage Factory, we only seem to be hearing about the plight of GM and Chrysler. Now we are stuck in a holding pattern; the administration "stands ready" to do something, we just don't know what. Yet the clock ticks supposedly precious minutes away. So what is happening? I think the Bush administration is letting things play out to the bitter end before it ponies up the dough as the DIP financing in a prepackaged bankruptcy. It's calling GM's bluff - will it really be out of cash by the end of the year? - and the UAW's bluff - will they really give up nothing as the company sails into a formal Chapter 11 bankruptcy? By playing this string out, the White House will get the best of both worlds - getting to hand the Detroiters some money and averting a massive dislocation in the economy but also making the UAW to take a haircut. Remember, each of the Detroit 3 essentially get the same deal out of the UAW. Once the first UAW contract gets ripped up in a prepack, the other two will be right in line to renegotiate. So, Ford can get the new UAW deal, whatever it is, without having to take the government money and a bankruptcy. Ford could be playing this hand pretty well and is still a reasonable speculation at these levels.

BREAKING: Chrysler is done.

Bring It On Dave!

Now that our unelected (to current office) former philanderer/cokehead Governor, who made all the right noises about the state's fiscal situation early, is revealing himself to be nothing more than the typical irresponsible liberal pol with his shocking tax-everything plan, I am putting down my marker - I will buy everything I can in New Jersey or I won't buy it at all. Wine, beer, gas, diet soda, clothes. I am NJ bound Big Dave. I might even figure out a way to get my iTunes downloads in the Garden State.  Life insurance and cable will be tricky - anybody got any ideas?

Thursday, December 11, 2008

More Anti-Capitalist Distortion From Al Hunt & Co.

Wow, I had a post all ready to go on this, but while I dilly-dallied the Calafia Beach Pundit honed in on the exact same rubbish and said exactly what I was thinking. Hey, I'm all for criticizing the World Bank, but if anybody thinks the World Bank promotes free market policies rather than centrally planned socio-economic experimentation, they are smoking something illegal.

Friday, December 05, 2008

'Fight the Power' Corporate America!

The news that the union bosses at the United Auto Workers have agreed to eliminate the "jobs bank" program at the Big (Now Little) Three automakers is evidence of two things. The first is that stupid, uneconomic policies eventually must answer to reality and the iron laws of economics. The second is that although uneconomic schemes are ultimately accountable to economic reality, they can persist for a looooong time (the jobs bank dates from 1984, the Soviet Union lasted for 75 years). I put the blame for the second phenomenon squarely on the backs of corporate management. Too often management knows full well the ultimate consequences of bad policy but, for a variety of reasons, convince themselves that they can live with it. This is a big mistake. Over time, the bad policy destroys the health of a franchise and when you are forced to address the problem, time has allowed the the connection between root cause and problem to become tenuous. To wit, it is hardly a unanimous opinion that the jobs bank and uncompetitive wages are the core problem at the Detroit 3, because the media has told folks for years that Detroit's problem is that they don't make something like the Toyota Prius. This is nonsense on stilts, but time has eroded the link between the stupidity of paying people not to work and Detroit's problems, and allowed for alternative theories to embed into the public consciousness (btw, Toyota losses money on the Prius).

The remedy is to link bad policy with its consequences immediately so that cause and effect are undeniably associated, and the ultimate damage to the franchise is avoided. With several bad policies on the wishlist of our left-wing controlled government, here are a few strategic moves that managements should consider if these policies become the law of the land.

Card Check - If "card check" becomes law and a majority of workers at your store or factory sign cards to certify a union, close the store or shut down the factory. Don't intimidate your workers or threaten or do anything underhanded, just announce plans to shut it down as a rational response to potential unionization. It will hurt the bottom line and be onerous, but ask your shareholders if they want to be the next Detroit. There are plenty of 'right to work' states to do business in, let alone foreign countries. Nobody has a right to any job over another human being.

Climate Change Legislation - Calculate the cost of compliance with any climate change legislation on a per unit basis and make that cost transparent to your customers. A half of a penny on every can of Pepsi or $100 on every new car...whatever it is, put it right there on the package. Let the buying public know that climate change legislation costs them on everything, everytime they buy.

Universal Healthcare - Take the increased costs out of cash wages and show the numbers to all of your employees. Stuff a leaflet in every paycheck that says, "Universal healthcare mandates costs us $X per employee over our previous healthcare arrangements, thus your cash wages have been reduced or your potential raise been scaled back by an equivalent amount. Please note you are earning the same but your compensation comes more in the form of healthcare than cash remuneration."

Thursday, December 04, 2008

Revisiting Iran at $45 Oil

Remember when the conventional wisdom was that no one should bomb Iran because it would drive up oil prices? It was said that Iran would block the Straits of Hormuz and cripple the global economy. Well, by the same token then, with the world economy already crippled and oil prices so incredibly low, it would seem that now is the perfect time to bomb Iran. This, of course, is all on the presumption that every diplomatic avenue has been pursued and been proven to be a dead end. Perhaps so, perhaps not. At the very least it seems like a good time to make Iran think it is going to get bombed.

Wednesday, December 03, 2008

Upside of Recession

I'm certain he isn't but if you believe the media, Bush seems kinda blase about the economy. Why? Because the US will get through it intact, but very likely not these guys. In the long run, this is good for the world.

Tuesday, December 02, 2008

Oh (Shit), Canada!

This guy could be the next leader of Canada. Watch and weep for our northerly neighbors and largest trading partners.

Recession in America

Further evidence that we average folks are tyrannized by the chronic silliness of the academic economic establishment - the NBER officially declared we have been in recession for about a year. For starters, smart people know that by the time that the NBER gets around to declaring a recession, we are likely already on our way out of it. Notwithstanding where we are today (probably in a recession that began in August) the major laugh riot point about this NBER declaration is that they gave tremendous weight to the employment numbers to conclude that we have been in recession for a year citing that employment peaked in December of 2007. Well yes, employment peaked long ago at an incredibly high level, perhaps even an unsustainable level. Alot of marginal workers - the kinds of folks who don't always show up to work or are frustratingly hard to train or are rude to customers or steal - found work because companies had enough business not to be too exacting in their hiring practices. With business coming back to sustainable levels or worse, marginal employees won't be needed or wanted by employers. Is the NBER to have us believe that reverting from boom times where even the least capable among us found work back to the mean is a recession? Forget output, forget productivity. What if unemployment was at 0% and then went to 3% in a year. Is that a recession? Maybe if you are the NBER, but I'll take that kind of recession anyday compared to what we got in the 1970s and early 80s. That, my friends, is the world of academic economists, blinded to clear common sense thinking by their theories and models.

Oh, and Greg Mankiw - he of anything going against "expert" (read: academic economists) opinion is either ignorant, mendacious or hubristic - today tells us that said experts really don't know and are still just guessing. I guess that is why we have politics, to settle questions that economists can't.

UPDATE: Russ Roberts agrees, the profession ought to be more modest.

UPPDATE: More here.