A couple of comments about the market and the Auto Industry.
The unemployment numbers came out today; the worst one month job loss since December 1974.
That brought total unemployment up to 6.7%, the highest since the early 80's.
The market didn't go down that much on that data. We were off 60-80 points in early trading.
Unemployment is a lagging indicator and I think those numbers are already discounted.
The bigger drag short term is GM and the others.
It is uncertain what will happen to GM and the bailout. Wall Street hates uncertainty.
My guess is that we will get some sort of bailout/restructuring.
My biggest concern is that in their earnestness to punish the UAW that Congress not force a plan on GM that wipes out the debt holders.
If we wipe out the GM debt, Congress is going to have to give AIG another $100 billion or so. The reason for this is an instrument called a Credit Default Swap known colloquially as Bond Insurance. There is insurance on all of those bonds and AIG is on one side of most of them. Startlingly, bond holders were able to enter into these transactions for more than what they owned. Some holders may have insured their auto bonds for twice what they were worth. The cost of paying out those losses could be monstrous.
Additional costs: every 500,000 of jobs lost costs 10-20 billion in unempolyment benefits.
As much as I agree that GM and the others need to be restructured and the UAW contracts have to be renegotiated, I hope that Congress looks at the cost of not doing something and sees the obvious truth that the cost of letting these companies go into bankruptcy could be far greater than $34 billion.
On our side, we own cheap stocks. We own more cheap stocks than we did 3 months ago, 6 months ago, 1 year ago, and 18 months ago. We have been buyers here at these low levels. In my mind that was and is the smart thing to do.
The unemployment numbers came out today; the worst one month job loss since December 1974.
That brought total unemployment up to 6.7%, the highest since the early 80's.
The market didn't go down that much on that data. We were off 60-80 points in early trading.
Unemployment is a lagging indicator and I think those numbers are already discounted.
The bigger drag short term is GM and the others.
It is uncertain what will happen to GM and the bailout. Wall Street hates uncertainty.
My guess is that we will get some sort of bailout/restructuring.
My biggest concern is that in their earnestness to punish the UAW that Congress not force a plan on GM that wipes out the debt holders.
If we wipe out the GM debt, Congress is going to have to give AIG another $100 billion or so. The reason for this is an instrument called a Credit Default Swap known colloquially as Bond Insurance. There is insurance on all of those bonds and AIG is on one side of most of them. Startlingly, bond holders were able to enter into these transactions for more than what they owned. Some holders may have insured their auto bonds for twice what they were worth. The cost of paying out those losses could be monstrous.
Additional costs: every 500,000 of jobs lost costs 10-20 billion in unempolyment benefits.
As much as I agree that GM and the others need to be restructured and the UAW contracts have to be renegotiated, I hope that Congress looks at the cost of not doing something and sees the obvious truth that the cost of letting these companies go into bankruptcy could be far greater than $34 billion.
On our side, we own cheap stocks. We own more cheap stocks than we did 3 months ago, 6 months ago, 1 year ago, and 18 months ago. We have been buyers here at these low levels. In my mind that was and is the smart thing to do.
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