The Automatic Ripple
I promise we'll sell lots of cars!!
I think it was Senator Dodd who started off the introduction yesterday with the automakers. At the the time, I was busy trading in some of the big retail names like JCG, M, TIF and DECK which were up significantly at the start of the trading day. I managed to catch Dodd’s line about how the Wall Street bailout crowd never had to beg like the automakers were doing. I’m not entirely convinced that the conparison is the same though. At this moment, I believe we should let the free market do what it needs to do with any of the big three. I’m not cold hearted about a failing industry and all those people who will lose their jobs. At the same time, I’m also not worried that the economy and the world will dive into a depression just because we didn’t bail them out. Why? The free markets are already saying that the big three suck. I own two German made vehicles which are solid as a rock and I readily admit that there are times when I wish and feel a little guilty for not driving a Hummer or a Ford pickup. The fact is, I’ve been in American cars and you know what? They are far inferior to the Japanese and the German ones. Sorry. I know the truth hurts and it hurts me too because I would rather be driving an American car but I’m not going to make a financial choice based on patriotism. There’s other ways to be patriotic like not begging for money to keep a poor industry going. C’mon! We’re Americans for goodness sake. Our best asset, perhaps our number one asset, is our imagination and then our resolve to see our dreams come alive. We cannot settle for just mediocre or last place. As a taxpayer, my vote is for no.
It’s all very complicated but where do we stop? Let’s face it, if the Big Three was really the Micro Three we wouldn’t even be talking a bailout or loan or however you can spin it. What I mean is that the automakers line of reasoning is a fear based model that goes something like this: “If we fail and have to close our doors than all of our employees would be out of work.” That’s a fact. Then comes the ripple. The suppliers and then what about the exclusive dealerships? All gone. Freaking really scary, right. Can’t deny that these won’t happen. The thing is, right now, if you have the courage to read the financial papers you’ll read that the exact same thing is happening. People are getting fired in every single industry and not just in small percentages. Citigroup’s over 50,000 count just makes you want to puke. I noted to a colleague yesterday that on the surface, on average, these big company layoffs are well over 10% and as high as 18% as was the case in JEF yesterday. 18%. Wow. So, automakers aside, the rest of the world already started their own worst case scenario, that is, the Big Three’s selling point to the taxpayers if you will, but it’s all happening a little bit slower. What does this mean? Simple. If you lose your job in the financial industry, for example, chances are that you won’t be substituting that same job in another company. In a strong economy you could. That goes the same for an automaker. If GM closes, chances are the autoworker won’t be substituting his or her job in the same industry anytime soon. There is no difference.
What about the ripple then? Let’s look at the guy who loses his financial job. It’s just a hunch but I don’t think that guy will be spending any discretionary income in, most likely, the retail industry. New shirt? New shoes? No way. Whatever he has now will have to do. Nothing new. Therefore, the financial guy has a different ripple but a ripple nontheless over his suppliers much like an automaker.
The point I’m trying to convey is thus:
THE MARKETS MUST CORRECT NATURALLY. As Art Cashin loves to say, the patient is sick but we are bleeding him to death. In other words, no matter what we do or how much money we throw at this thing, it’s bigger than all of us. I don’t believe it’s something to fear though. Definitely not. It’s exciting because it’s crunch time. It’s time to show the world what it means to be an American. That’s exciting to me. It’s patriotic.
On the bright side of things, I traded some of the homebuilder names again like PHM and MTH. Have you noticed something interesting about these stocks? I have. They are all still publicly traded! Don’t you find that exciting? I mean, when the history books finally gets the ink dry on this mess and your great grandkids are reading about this era, won’t the housing industry take the bulk of the blame for causing this slippery slope? I think it’s very promising for equities in general that these guys are still around, still trading and have (at least for now) trading at some sort of bottom. At least for now.
