Archive for March 23rd, 2009

The American craving for small cars …

March 23, 2009

Ken’s Take: How often do you hear: “the Detroit 3 just make gas guzzlers … not the small, fuel efficient cars that Americans want.”  Maybe some day …

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Excerpted from WSJ, “Industry’s Big Hope for Small Cars Fades”, March 23, 2009

Last summer, when gas cost $4 a gallon, buyers snapped up small cars so fast that dealers couldn’t keep them in stock. Ford decided to convert some truck plants to make small cars. GM added an extra shift at its Lordstown, Ohio, plant that makes the Chevy Cobalt, a diminutive sedan. Import brands also pumped up their production of small models.

Now, with gas prices half that level, almost 500,000 fuel-thrifty models are piled up unsold around the country. Practically every small car in the market is stacked up at dealerships.

The turnabout comes at a bad time for the struggling U.S. car industry, which has revamped factories and shifted product plans to produce more small cars in coming years.

“I don’t think Americans really like small cars,” said Beau Boeckmann, whose family’s Galpin Ford in southern California is the country’s largest Ford dealer. “They drive them when they think they have to, when gas prices are high. But we’re big people and we like big cars.”

AutoWay Honda in Clearwater, Fla.,  has a whole row of Civic hybrids that draw little interest.

Over the five months ended in February, industrywide sales of small cars totaled 718,000. That was down 28% over the same period in 2008, but small cars grew to 18.4% of total market, up 2.1 points from the year-earlier period.

Full article:
http://online.wsj.com/article/SB123776430557508813.html#mod=testMod

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Posted in Autos - Travel, Environment - Green, Mktg - Consumer Behavior | 1 Comment »

‘Oppressive, unjust and tyrannical’ … but retribution is so, so sweet

March 23, 2009

Ken’s Take: Over the weekend, engaged in a family debate.  Everybody agreed that the AIG FP hedgers were scum. Rest of family thought the bonuses should be reclaimed by whatever means it takes.  Period.  I argued that once contracts are broken to allow retroactive, punitive taxation is ok’d for one group of folks, there’s no room for complaint when the guns get pointed at you.  We’ll see …

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Excerpted from WSJ, “A Smoot-Hawley Moment?”, March 23, 2009

Bottom line: The Congressional action on AIG and banks is oppressive, unjust and tyrannical.

When does a single policy blunder herald much larger economic damage?

Sometimes it’s hard to know ahead of time. Few in Congress thought the Smoot-Hawley tariff was a disaster in 1930, but it led to retaliation and a collapse of world trade.

The question amid Washington’s AIG bonus panic is whether Congress’s war on private contracts and the financial system is a similarly destructive moment.

It is certainly one of the more amazing and senseless acts of political retribution in American history.With such a sweeping assault on contracts and punitive taxation,

Congress is introducing an element of political risk to economic decisions that is typical of Argentina or Russia. The sanctity of U.S. contracts has long been one of America’s competitive advantages in luring capital, a counterpoint to our lottery tort system and costly regulation.

Meanwhile, the 90% tax rate marks a return to the pre-Reagan era when Congress and the political class behaved as if taxes didn’t matter to growth or incentives. It is a revival of the philosophy of redistributionist “justice” in the 1930s, when capital went on strike for an entire decade.

Full editorial:
http://online.wsj.com/article/SB123776465612908965.html

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A new market force: Government induced ‘systemic risk’

March 23, 2009

Ken’s Take:

The Congressional act placing a retroactive confiscatory income tax on the understandably unpopular AIG FP bonuses is already beginning to have an impact — an impact that will certainly slow the untangling of the financial mess, and may even thwart it entirely.

All the Friday Wall Street chatter was about how the government can — on a whim — change the rules of the game in midstream, ditching contracts and agreements when it (the government) wakes up and realizes that its programs are ill-onceived and under-analyzed (i.e. unread) before enactment.

So, word has it that the government was soliciting 200 hedge funds to buy toxic securities as part of a public-private partnership.  Reportedly, only 3 have signed up — and it’s my bet that they did so before Thursday’s Congressional action and head for the exits.  (It’s ok for them to back out since deals aren’t deals any more).

Similarly, reasonably sound companies that took TARP funds because they were coaxed to do so by the government (think Northern Trust) are scrambling to find ways to pay back the money and walk away from TARP.  Reportedly, companies targeted with the TALC program (think student and consumer loans) are doubting whether government assistance is worth the pain.

Bottom line: in one svelte blame-dodging move Congress managed to put the recovery effort back to about square one. 

Way to go Nancy & Barney.

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Posted in Financial Crisis, Obama Administration, Taxes | 1 Comment »

Why does he always have to use that “trope” ?

March 23, 2009

“Trope”: a common or overused theme or device.

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Excerpted from WSJ, “The unbearable lightness of Obama’s administration”, Peggy Noonan, March 20, 2009

There is something insubstantial and weightless in the administration’s economic pronouncements and policies.

The president seems everywhere and nowhere, not fully focused on the matters at hand. He’s trying to keep up with the news cycle with less and less to say.

The administration seems buffeted, ad hoc. Policy seems makeshift, provisional.  “The administration has an economic program. But there is, so far, no clear statement of the thinking behind the program.”

This in part is why the teleprompter trope is taking off.

Mr. Obama uses it more than previous presidents. No one would care about this or much notice it as long as he showed competence, and the promise of success. 

But the teleprompter trope has taken off: Why does he always have to depend on that thing?

The fact is that Mr. Obama only has two jobs, but they’re huge. The first is to pull us out of an economic death spiral—to save the banks, get them lending, fix the mortgage mess, address unemployment, forestall inflation. TARP, TALF, financial oversight and regulation of Wall Street—all of this is enormously complex, involving questions of scale, emphasis and direction. All else—windmills, green technology, remaking health care—is secondary. The economy is the domestic issue now, and for the next three years at least.

Mr. Obama’s second job is America’s safety at home and in the world.

These are the two great issues, the economic crisis and our safety. In the face of them, what strikes one is the weightlessness of the Obama administration, the jumping from issue to issue and venue to venue from day to day.

Isaiah Berlin famously suggested a leader is a fox or a hedgehog. The fox knows many things but the hedgehog knows one big thing. In political leadership the hedgehog has certain significant advantages, focus and clarity of vision among them. Most presidents are one or the other. So far Mr. Obama seems neither.

Leadership is needed here. Not talkership, leadership.  

Full commentary:
http://online.wsj.com/article/SB123750000839989123.html

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There is a new Web site where the President’s teleprompter shares its thoughts in a breathless White House diary. It’s bummed that it has to work a news conference next week instead of watching “American Idol,” it resents being dragged to L.A. in Air Force One’s cargo hold “with the more common electronic equipment.” It also Twitters: “We are in California! One of the interns gave my panels a quick scrub and I’m ready to prompt for the day.” And: “Waiting for my boss’s jokes to get loaded for Leno!”

Teleprompter blog:
http://baracksteleprompter.blogspot.com

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Banks Turning Away from TARP

March 23, 2009

 Ken’s Take: The retroactive conficatory tax on bonuses will insure a rush to TARP doors … shooting the program smack dab in the foot …

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Excerpted from CNNMoney.com, “Banks: Take My TARP. Please!”, by David Ellis, March 12, 2009

Just weeks after Congress removed a key hurdle that prevented banks from paying back funds from the Troubled Asset Relief Program, or TARP, some banks are already queuing up with checks in hand.

So far, three banks have formally declared their intentions to pay back the government, and the list doesn’t include the dozens of institutions that were approved for government aid, but subsequently decided to turn down the money.

But even more banks are poised to return TARP money, including some of the nation’s largest.

PNC and US Bancorp, as well as JPMorgan Chase and Goldman Sachs, have been stating they hope to return the funds as quickly as possible. A repayment by those four alone would return an estimated $49.2 billion to government coffers.

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Some institutions have argued that it is too costly to keep government capital on their books at a time when banks in general have been resistant to make new loans as the economy sours and more Americans lose their jobs.

Other banks have suggested that the recently passed stimulus package, which included a measure aimed at reining in bonuses for senior executives and top earners at banks that got TARP funds, would harm their firms even further.

Others worry that regulators or lawmakers could change the accompanying terms of the government’s capital purchase program as they see fit in the future.

For example, some fear that banks which have received TARP funds could be pushed to make certain types of loans or fulfill some sort of loan quota, following the ongoing public outcry that banks are not lending.

Edit by DAF

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Full article:
http://finance.yahoo.com/banking-budgeting/article/106724/Banks-Take-My-TARP-Please!

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Outliers’ KFS … Speak up if the plane is going to crash

March 23, 2009

This is one of several posts extracting some key points from the book Outliers: The Story of Success by Malcolm Gladwell, Little Brown, 2008

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Gladwell’s Observation

Historically (until recently), Korean airlines have had a disproportionate number of major commercial plane crashes.

Gladwell says that it’s because flight crew members are too deferential to the captains and downplay or sugar coat information that they give them.  It’s called “mitigated speech” — a result of a culturally high PDI (power distance index). 

When a culture’s PDI is high, deference to authority figures is high.  So, subordinates are reluctant to speak up — even in a crisis.

So, instead of yelling “pull up we’re too damn  low”, a co-pilot might ask “are we on the glideslope, sir?”.  So, critical information is either not conveyed, is conveyed casually, or requires an extra analytical step (or two) for its importance to be decoded.  Valuable time is lost in the process — sometimes fatally.

The countries with the highest PDI are: Brazil, Korea, Morocco, and Mexico.

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Important Note: the air lines in high PDI countries are aware of this dynamic (now) and train their flight crews accordingly.  So, not to worry.

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