I recently had two separate dinners with two friends who are the most Conservative that I know. Both expressed common sentiments that President Obama was completely rudderless, and showed all of the markings of a "one-termer" in office. They both compared his tenure thus far to Jimmy Carter, and his inability to effectuate change, or articulate a clear message.
And in some respects they do have a point. However, comparing a President's handling of the economic disaster, after 9 weeks on the job, is hardly a fair comparison. And if I were to draw a parallel to past Presidencies, I would be more inclined to say that Obama has followed a closer path to that of Bill Clinton in 1993 (as I have discussed here in a number of previous posts).
But the sentiment to my friends is the same. They are both waiting patiently for this President to overreach, underperform, and be rewarded with a one-term tenure, followed by public outcry for more Conservative rule.
And why shouldn't Conservatives wait for such events to transpire? They have twice before. Carter's administration hastened Reagan's election, and Clinton's supposed overreach on taxes, health care, and gays-in-the-military hastened in the Republican revolution of 1994 in the Congress.
I warned both of my friends, however, that if Conservatives want to gain back the power in the halls of Congress or the White House, they will need to do more than wait patiently. Here's why:
1. Previous Republican victories have been brought about from leaders with big ideas--Reagan and Newt Gingrich both presented America with a set of bold choices to move the country in a visionary direction. It may not have been the direction everyone wanted to go, but it was clear, and it sounded better than the direction the country was headed at the time. I don't see a clear leader in today's Conservative movement articulating such a direction at this point.
2. The Demographics are getting worse--Everyone talks of the Reagan Revolution, but if the 1980 election were held today, Reagan would have only gotten 47% of the vote. Why? The country demographic today is less white and less rural than 30 years ago, and getting even less so by the day. Urban, non-whites don't tend to vote Republican. And the Republican party has not done a great job articulating why these folks should vote Republican (despite Michael Steele's efforts)
3. The "evidence" that Supply Side economics works is dubious to very uncertain--People point to Reagan's tax cuts in 1981, or Kennedy's in the 60's as evidence that tax cuts spur growth, no doubt. Unfortunately, no one seems to note Ford's tax cuts, Reagan's subsequent tax hikes, or even Clinton's tax hikes in these arguments. That's because there is little to any evidence that any of the activities noted here had an effect on the economy. Cutting taxes has been the winning campaign slogan for years for the GOP. Democrats couldn't beat it for 30 years. But now they can counter the argument. After all, Bush's tax cuts in 2001 and 2003, along with de-regulation, have led our system to the brink of collapse. Hey, that point may not be backed up by really good evidence either, but sadly, Supply Side Economics has an equally unclear track record as well. It's enough to muddy the once clear alternative to Democrats on economic policy.
4. Social wedge issues--This is going to be a tricky one. This message loses some punch if Sarah "my daughter is having a baby out of wedlock" Palin, or Newt "cheated on my wife while impeaching the President" Gingrich is delivering it. Even Reagan had more sense than to preach the morality. He let his colleagues do it for him.
5. Lack of a scandal...yet--Despite all the other arguments for a new Conservative revolution, what helped the last revolution was a complicit Democratic House Majority, who had gotten complacent in campaigning, and was mired in scandals like the House check cashing issues, or Dan Rostenkowski's legal mess. It was easy to point to the Democrats and call them profligate spenders and corrupt officials. Chris Dodd's issues notwithstanding, it is a much tougher argument for Republicans to make this time around. After all, it was they who were in power not too long ago, and it was their Congressmen and Women who were ensnared in things like the Abrahamoff scandal, and the Mark Foley affair, or David Vitter's escapades. Again, this is not to say that the Democrats haven't had their share of misbehavers, but it will be tough in 2010 or 2012 to depict the Democrats alone as the deviants. The last time I checked, both parties are lacking some in the morality department.
6. Still have to be something other than the party of "no"--It is seldom to never that a party wins power just by not being "the other guy". The Conservative faithful I know seem to think that just being the anti-Obama is enough to win back power. Let's be clear, if things get worse, that MAY be enough. But if things stabilize, the GOP will look back on 2012 much like the Democrats look back on 2004, and say "I can't believe we LOST to this guy!". People don't change for change's sake. You need to give them a reason to vote FOR your side.
So in the end, Conservatives have taken some heart that Obama has proven not to be infallible. However, their ideology, and political organization has a LONG way to go, to start to repair the brand, and be competitive once again. If my friends want their man back in power, they are going to have to do more than tell me why Obama stinks.
Thursday, March 26, 2009
Monday, March 23, 2009
Connecticut Senate--A test of GOP Philosophy
The recent geopolitical and economic events have presented a unique challenge to the Democratic Party. They haven't had a chance to lead this country as a single bloc since 1994, and that year was a particularly dismal performance for them, leading to the Republican take over of the Congress in the elections that fall.
Fast forward to 2009, and in a similar fashion, the Democrats have started to create their usual chaotic "circular firing squad", with the Senate blaming AIG excesses on Treasury, and Treasury blaming the Senate, and the House pushing through a piece of legislation that punishes AIG Executives. It probably isn't Constitutional, not to mention a little bit scary to the economic markets.
While I don't believe that AIG executives should receive bonuses for running their company, and the world economy, into the ground, I don't know that taxing their bonuses into oblivion is quite the right remedy. The Democratic Congress is starting to look like a bunch of alchemists, trying to create political gold from the piles of dung that have been left them by the previous administration. It is making them look bad.
All of this leads to an opening, albeit a small one, for the Republicans to start to take advantage of the chaos, and start to field a legitimate challenge for some Senate and Congressional seats in 2010. The place to start clawing some of those seats back? Connecticut.
Chris Dodd is vulnerable. No question. He has been in the Senate for 30 years, and has had some questionable mortgage and real estate deals surface in recent years. Not to mention the fact that he has lost a lot of credibility with the voters over his handling of the AIG situation (it was his effort that eliminated a provision to cap or eliminate bonuses being paid to AIG executives in the first place).
Dodd may step down, or not run again in 2010, which is possible. It is more likely, however, that he will stay, and fight on to be re-elected.
So the question is this, "will the Republican Party run to its base, or will it try to regain the majority again?" This is going to be the theme that gets played out across the country.
Let's start this debate by saying that Connecticut is NOT Texas, or Oklahoma. Everyone knows that. This is deep blue country. New England is not Supply Side-land, nor is it Evangelical in nature. Gay marriage is legal in Connecticut, and there is very little support to change the social biases here, from more Liberal to Conservative.
In a state like this, Republicans have not fared well. But they have been elected to statewide office. A Connecticut Republican looks very different from a Texas Republican. Tom Delay wouldn't get elected easily in Connecticut. But Rob Simmons could. Simmons is an ex-Congressman from the second district of Connecticut, and represents what many in Connecticut see as the old-line Republican. The old "Prescott Bush" Republican. Simmons is fiscally Conservative, but more liberal on the Social issues--Pro Choice, Pro-Gay Rights, etc. In early polling, Simmons is even to ahead of Dodd.
On the other hand, Conservative Pundit Larry Kudlow has also threatened to get into the race. Kudlow is a die-hard supply-sider--A Reaganite through and through. A true-believer, and a Conservative that would make Sean Hannity proud. He is also polling about 12 points behind Dodd in a two-way match up, and would likely lose to even a tarnished Chris Dodd.
So the question is this, "would the GOP prefer to take a risk in getting a 'true believer' into the seat, at the expense of a more moderate Senator, who would vote with the GOP 70% of the time?" Early indications are that Simmons is the odds on favorite. But the Republican party is run by the machinery, and leadership may decide that Simmons is not Conservative enough.
Republicans look at Connecticut and can't figure out why they used to do well there. After all, as recently as 2005, three out of five Congressmen were Republicans, and Republicans have owned the Governors mansion for about 16 years.
The problem, as I mentioned above, is that Connecticut Republicans were and are more moderate on social issues, and they didn't like the notion that their vote for Rob Simmons, Chris Shays, and Nancy Johnson were just going to support the likes of Roy Blunt, Tom Delay, Bill Frist, and George W. Bush. The issues that those leaders were pushing were all social agenda issues (prayer in schools, faith-based initiatives, Conservative Justices, etc). In the end, they made a decision in 2006 to put their morality above their pocket books. It didn't help that the party of fiscal responsibility had been so IR-responsible with their tax dollars. The choice was easy, and some very good, very moderate Congressmen and women lost their seats as a result of this.
But now the Republicans have (kind of) regained their voice as a party of fiscal sanity. It may be enough to get some seats back in the upcoming election, especially if the economy does not get better, or even worsens.
But winning elections is more than waiting for circumstances to go your way. The Democrats finally learned that putting up candidates that were right for their area of the country was more important than party purity. Congressmen like Heath Shuler of Tennessee, and Senators like Ben Nelson of Nebraska are a testament to a party that understands what Democrats in those states must look and act like. Shuler and Nelson can speak to the needs of their states and districts, and can show what a Democrat from their areas can truly represent.
Let's see if Republicans understand whether Senator Simmons sounds better than candidate Kudlow.
Fast forward to 2009, and in a similar fashion, the Democrats have started to create their usual chaotic "circular firing squad", with the Senate blaming AIG excesses on Treasury, and Treasury blaming the Senate, and the House pushing through a piece of legislation that punishes AIG Executives. It probably isn't Constitutional, not to mention a little bit scary to the economic markets.
While I don't believe that AIG executives should receive bonuses for running their company, and the world economy, into the ground, I don't know that taxing their bonuses into oblivion is quite the right remedy. The Democratic Congress is starting to look like a bunch of alchemists, trying to create political gold from the piles of dung that have been left them by the previous administration. It is making them look bad.
All of this leads to an opening, albeit a small one, for the Republicans to start to take advantage of the chaos, and start to field a legitimate challenge for some Senate and Congressional seats in 2010. The place to start clawing some of those seats back? Connecticut.
Chris Dodd is vulnerable. No question. He has been in the Senate for 30 years, and has had some questionable mortgage and real estate deals surface in recent years. Not to mention the fact that he has lost a lot of credibility with the voters over his handling of the AIG situation (it was his effort that eliminated a provision to cap or eliminate bonuses being paid to AIG executives in the first place).
Dodd may step down, or not run again in 2010, which is possible. It is more likely, however, that he will stay, and fight on to be re-elected.
So the question is this, "will the Republican Party run to its base, or will it try to regain the majority again?" This is going to be the theme that gets played out across the country.
Let's start this debate by saying that Connecticut is NOT Texas, or Oklahoma. Everyone knows that. This is deep blue country. New England is not Supply Side-land, nor is it Evangelical in nature. Gay marriage is legal in Connecticut, and there is very little support to change the social biases here, from more Liberal to Conservative.
In a state like this, Republicans have not fared well. But they have been elected to statewide office. A Connecticut Republican looks very different from a Texas Republican. Tom Delay wouldn't get elected easily in Connecticut. But Rob Simmons could. Simmons is an ex-Congressman from the second district of Connecticut, and represents what many in Connecticut see as the old-line Republican. The old "Prescott Bush" Republican. Simmons is fiscally Conservative, but more liberal on the Social issues--Pro Choice, Pro-Gay Rights, etc. In early polling, Simmons is even to ahead of Dodd.
On the other hand, Conservative Pundit Larry Kudlow has also threatened to get into the race. Kudlow is a die-hard supply-sider--A Reaganite through and through. A true-believer, and a Conservative that would make Sean Hannity proud. He is also polling about 12 points behind Dodd in a two-way match up, and would likely lose to even a tarnished Chris Dodd.
So the question is this, "would the GOP prefer to take a risk in getting a 'true believer' into the seat, at the expense of a more moderate Senator, who would vote with the GOP 70% of the time?" Early indications are that Simmons is the odds on favorite. But the Republican party is run by the machinery, and leadership may decide that Simmons is not Conservative enough.
Republicans look at Connecticut and can't figure out why they used to do well there. After all, as recently as 2005, three out of five Congressmen were Republicans, and Republicans have owned the Governors mansion for about 16 years.
The problem, as I mentioned above, is that Connecticut Republicans were and are more moderate on social issues, and they didn't like the notion that their vote for Rob Simmons, Chris Shays, and Nancy Johnson were just going to support the likes of Roy Blunt, Tom Delay, Bill Frist, and George W. Bush. The issues that those leaders were pushing were all social agenda issues (prayer in schools, faith-based initiatives, Conservative Justices, etc). In the end, they made a decision in 2006 to put their morality above their pocket books. It didn't help that the party of fiscal responsibility had been so IR-responsible with their tax dollars. The choice was easy, and some very good, very moderate Congressmen and women lost their seats as a result of this.
But now the Republicans have (kind of) regained their voice as a party of fiscal sanity. It may be enough to get some seats back in the upcoming election, especially if the economy does not get better, or even worsens.
But winning elections is more than waiting for circumstances to go your way. The Democrats finally learned that putting up candidates that were right for their area of the country was more important than party purity. Congressmen like Heath Shuler of Tennessee, and Senators like Ben Nelson of Nebraska are a testament to a party that understands what Democrats in those states must look and act like. Shuler and Nelson can speak to the needs of their states and districts, and can show what a Democrat from their areas can truly represent.
Let's see if Republicans understand whether Senator Simmons sounds better than candidate Kudlow.
Saturday, March 21, 2009
Where did Morality go?
The whole AIG debacle has been a truly sad story of American Greed. It has highlighted just where America has gone, since the days of World War II, the GI Bill, the Space race, and even the catharsis of the Watergate hearings and Nixon Resignation.
We have gone from a "team" mentality, united behind the flag, to a country of "me first"ers, looking to step on the necks of our neighbors to get a step ahead.
Even in the wake of receiving $180 Billion from the US Government, the AIG executives still had the nerve to hand out bonuses, and then to defend their actions, as if this was somehow a god-given right to receive this money. The defense has been that these bonuses were "contractual obligations", and breaking these contracts put into jeapordy all that we hold sacrosanct. But there is legal and there is sheer right and wrong. And the people receiving these million dollar bonuses ought to know that you don't receive bonuses for losing $60 Billion. People all over the world are cutting back, and are trying to do what's right.
This behavior, along with Merrill Lynch, and others, has shown this crowd to be truly un-American. I don't care what the legal arguments are, I am NOT particularly interested in hearing about which politician's fault it is, or who knew what when. I only know that somewhere between Watergate and today, people's sense of morality, of shame, and of right and wrong got corrupted. And it's time we started to get a sense of morality back.
We have gone from a "team" mentality, united behind the flag, to a country of "me first"ers, looking to step on the necks of our neighbors to get a step ahead.
Even in the wake of receiving $180 Billion from the US Government, the AIG executives still had the nerve to hand out bonuses, and then to defend their actions, as if this was somehow a god-given right to receive this money. The defense has been that these bonuses were "contractual obligations", and breaking these contracts put into jeapordy all that we hold sacrosanct. But there is legal and there is sheer right and wrong. And the people receiving these million dollar bonuses ought to know that you don't receive bonuses for losing $60 Billion. People all over the world are cutting back, and are trying to do what's right.
This behavior, along with Merrill Lynch, and others, has shown this crowd to be truly un-American. I don't care what the legal arguments are, I am NOT particularly interested in hearing about which politician's fault it is, or who knew what when. I only know that somewhere between Watergate and today, people's sense of morality, of shame, and of right and wrong got corrupted. And it's time we started to get a sense of morality back.
Thursday, March 19, 2009
Why GE's Announcement troubles me
I just read GE's CFO Keith Sherrin's comments about GE Capital, and how it will continue to be successful this year and how they, "...have enough capital to be able to weather a very adverse set of cases."
Additionally, GE Capital's CEO, Michael Neal told the investors, "Even in the worst case, we’re break-even to slightly profitable and we have no need for outside capital," following up this comment to the shareholders with, "We’ll try to convince you of that today. "
But the case for such profits is weak, and, as I have stated in earlier blogs, I don't understand why these companies won't come clean. Is missing expectations really better than setting lowered expectations?
Michael Neal and Keith Sherrin both make a compelling case for GE Capital's viability. Except that there is no indication that their economic projections have any basis in reality. Much like the Republican's are beating up on Peter Orzag and Barack Obama for what they call, "unrealistically rosy projections of the economy over the next few years", the GE executives are not painting a realistic picture of what they may face in the economy in the near future.
Let's take a look at what was reported by Bloomberg this morning:
"GE Capital’s reaffirmed outlook for 2009 net income of $5 billion in net income is based on a 1.8 percent decline in U.S. GDP. Based on the Fed "base case" scenario, GE Capital would earn $2 billion to $2.5 billion. Under what GE called the estimated Fed "adverse" case, with a 3.3 percent decline in GDP, profit at GE Capital would be zero, according to slides on the company’s Web site. "
That sounds pretty good, right? Even in a Fed "adverse" case, GE Capital would still be breaking even.
Only one problem:
The US Economic GDP decline last quarter? It was 6.2%. There's no tangible sign that this abysmal number has gotten much better in the months since. So if they were making $2-2.5 Billion in the "base case" scenario, and breaking even in the 3.3% declining GDP scenario (the "adverse" case), can we extrapolate that they would be LOSING about $2-3 Billion in what I would call the "reality" stress test scenario?
Honestly, this whole analysis looks like a smoke screen, and it troubles me three significant ways.
First, I don't think this story is being honest with the American people. John Stewart (whether you agree with him or not), made this point very well. People, including investors, rely on services like Bloomberg, Yahoo, CNBC, and others, to inform them of the goings on in the marketplace. a story like this would lead an investor, or casual reader, to believe that GE is sound, based upon certain assumptions. But doesn't really challenge any of the assumptions, and is therefore worse than uninformative. It is possibly misleading.
Second, I am concerned that GE would not be more honest with themselves, and their shareholders, in their stress test of the business, using more "unreasonable" assumptions than the lame scenarios that were presented here in this piece.
Third, if these are the stress test scenarios that Geithner is proposing, in his tests of the financial services giants, then we are all doomed. I have defended this guy, thinking that he has done the things he has needed to, in order to keep things afloat over there in Treasury. But if he stress tests these banks with "Adverse" case scenarios that are twice as rosy as the ACTUAL last quarter was, then what hope do we have that he will find issues at these banks and institutions?
This was like when General Motors said they needed a loan, because in their "worst case" scenarios, the US market would drop in 2009 to 10.5M autos sold, which was only a 20-30% decline from 2008 numbers. Did anyone really think that there was NO POSSIBILITY that they could fall further than that? Sure enough, in January, GM sales were down in the 40-50% range, and GM simply said "we didn't expect it would fall that much". Really? Why didn't you? Everyone with two eyes and a brain in this country could see that sales had fallen off a cliff. If GM couldn't see the same thing, they probably didn't deserve more funding.
And if GE and Bloomberg can't see that these break even scenarios for GE CAP are...well...GE CRAP, then they really do take us all for suckers...
Additionally, GE Capital's CEO, Michael Neal told the investors, "Even in the worst case, we’re break-even to slightly profitable and we have no need for outside capital," following up this comment to the shareholders with, "We’ll try to convince you of that today. "
But the case for such profits is weak, and, as I have stated in earlier blogs, I don't understand why these companies won't come clean. Is missing expectations really better than setting lowered expectations?
Michael Neal and Keith Sherrin both make a compelling case for GE Capital's viability. Except that there is no indication that their economic projections have any basis in reality. Much like the Republican's are beating up on Peter Orzag and Barack Obama for what they call, "unrealistically rosy projections of the economy over the next few years", the GE executives are not painting a realistic picture of what they may face in the economy in the near future.
Let's take a look at what was reported by Bloomberg this morning:
"GE Capital’s reaffirmed outlook for 2009 net income of $5 billion in net income is based on a 1.8 percent decline in U.S. GDP. Based on the Fed "base case" scenario, GE Capital would earn $2 billion to $2.5 billion. Under what GE called the estimated Fed "adverse" case, with a 3.3 percent decline in GDP, profit at GE Capital would be zero, according to slides on the company’s Web site. "
That sounds pretty good, right? Even in a Fed "adverse" case, GE Capital would still be breaking even.
Only one problem:
The US Economic GDP decline last quarter? It was 6.2%. There's no tangible sign that this abysmal number has gotten much better in the months since. So if they were making $2-2.5 Billion in the "base case" scenario, and breaking even in the 3.3% declining GDP scenario (the "adverse" case), can we extrapolate that they would be LOSING about $2-3 Billion in what I would call the "reality" stress test scenario?
Honestly, this whole analysis looks like a smoke screen, and it troubles me three significant ways.
First, I don't think this story is being honest with the American people. John Stewart (whether you agree with him or not), made this point very well. People, including investors, rely on services like Bloomberg, Yahoo, CNBC, and others, to inform them of the goings on in the marketplace. a story like this would lead an investor, or casual reader, to believe that GE is sound, based upon certain assumptions. But doesn't really challenge any of the assumptions, and is therefore worse than uninformative. It is possibly misleading.
Second, I am concerned that GE would not be more honest with themselves, and their shareholders, in their stress test of the business, using more "unreasonable" assumptions than the lame scenarios that were presented here in this piece.
Third, if these are the stress test scenarios that Geithner is proposing, in his tests of the financial services giants, then we are all doomed. I have defended this guy, thinking that he has done the things he has needed to, in order to keep things afloat over there in Treasury. But if he stress tests these banks with "Adverse" case scenarios that are twice as rosy as the ACTUAL last quarter was, then what hope do we have that he will find issues at these banks and institutions?
This was like when General Motors said they needed a loan, because in their "worst case" scenarios, the US market would drop in 2009 to 10.5M autos sold, which was only a 20-30% decline from 2008 numbers. Did anyone really think that there was NO POSSIBILITY that they could fall further than that? Sure enough, in January, GM sales were down in the 40-50% range, and GM simply said "we didn't expect it would fall that much". Really? Why didn't you? Everyone with two eyes and a brain in this country could see that sales had fallen off a cliff. If GM couldn't see the same thing, they probably didn't deserve more funding.
And if GE and Bloomberg can't see that these break even scenarios for GE CAP are...well...GE CRAP, then they really do take us all for suckers...
Tuesday, March 17, 2009
AIG--What more is there to say?
As Gordon Gecho represents the beginning of the "Greed is Good" credo of Wall Street during the 1980's, AIG and it's unrelenting grasp on the bonuses it is paying out for "retention of talent" hopefully represents the end of an era on Wall Street.
Not that I expect bonuses to become a thing of the past. Nor do I expect Wall Street firms to change their ways too dramatically. But finally, there seems to be a sense of balance in the universe, and that companies and people who can systematically bankrupt an industry do NOT get to continue to behave as if nothing happened, and walk away with taxpayer funded bonuses, simply because "that's the way it's always been done", or "we have a binding contract".
It is rare to find an issue that has so united Democrats and Republicans, rich and poor, majority and minority, men and women, as this one. The hubris, the gall, the sheer nerve of people to think that AIG should pay a PENNY of bonus with taxpayer money, after losing $60 BILLION last quarter, and passing out over $100 Billion in cash to the very same businesses that are also receiving TARP (read TAXPAYER) funds, just makes you wonder whether there is anyone over there on Pine Street with a grasp on reality.
And this is coming from a blogger who actually has supported the notion of TARP, and saving these institutions because the alternative is worse. After watching this behavior, how can anyone think that nationalization or Chapter 11 might NOT be a preferable alternative to shoveling more billions to this management crew?
As my only defense of Ed Liddy (who seems to be more and more related to g. Gordon Liddy these days...), he did not CREATE this mess. Fine. Well done. But it will be your face that ends up on the dart boards across America as the face of greed. And you have only yourself to blame on this.
Like anything else, it isn't AIG alone that represents the greed of Wall Street. John Thain and Ken Lewis took some of the brunt of the attention, but have quickly retreated into the background, as Thain agreed to pay back his office furnishings, and the enormity of the AIG shenanigans have dwarfed the Merrill Lynch bonus debacle.
But, much like Steve Bartman may not be responsible for the Cubs missing the 2003 World Series, or Bill Buckner isn't solely responsible for the Red Sox collapse in the 1986 World Series, at this point, it just doesn't matter. And it's starting to get hideous. AIG is going to be excoriated by the public until it does the only right thing it can. Make an agreement not to pay out the bonuses, and begin to eat some humble pie.
Not that I expect bonuses to become a thing of the past. Nor do I expect Wall Street firms to change their ways too dramatically. But finally, there seems to be a sense of balance in the universe, and that companies and people who can systematically bankrupt an industry do NOT get to continue to behave as if nothing happened, and walk away with taxpayer funded bonuses, simply because "that's the way it's always been done", or "we have a binding contract".
It is rare to find an issue that has so united Democrats and Republicans, rich and poor, majority and minority, men and women, as this one. The hubris, the gall, the sheer nerve of people to think that AIG should pay a PENNY of bonus with taxpayer money, after losing $60 BILLION last quarter, and passing out over $100 Billion in cash to the very same businesses that are also receiving TARP (read TAXPAYER) funds, just makes you wonder whether there is anyone over there on Pine Street with a grasp on reality.
And this is coming from a blogger who actually has supported the notion of TARP, and saving these institutions because the alternative is worse. After watching this behavior, how can anyone think that nationalization or Chapter 11 might NOT be a preferable alternative to shoveling more billions to this management crew?
As my only defense of Ed Liddy (who seems to be more and more related to g. Gordon Liddy these days...), he did not CREATE this mess. Fine. Well done. But it will be your face that ends up on the dart boards across America as the face of greed. And you have only yourself to blame on this.
Like anything else, it isn't AIG alone that represents the greed of Wall Street. John Thain and Ken Lewis took some of the brunt of the attention, but have quickly retreated into the background, as Thain agreed to pay back his office furnishings, and the enormity of the AIG shenanigans have dwarfed the Merrill Lynch bonus debacle.
But, much like Steve Bartman may not be responsible for the Cubs missing the 2003 World Series, or Bill Buckner isn't solely responsible for the Red Sox collapse in the 1986 World Series, at this point, it just doesn't matter. And it's starting to get hideous. AIG is going to be excoriated by the public until it does the only right thing it can. Make an agreement not to pay out the bonuses, and begin to eat some humble pie.
Saturday, March 14, 2009
Why Stewart's Fight with Cramer Matters
Up until Thursday night, I found the whole "battle" between John Stewart and CNBC's Jim Cramer a little silly. After all, both Cramer and Stewart both have similar points of view on the geo-political landscape. And the fight had elicited some supporters that Cramer felt notably uncomfortable with--Rush Limbaugh being the most vocal.
I also felt bad for Jim. After all, I like him because I can relate to his positions. He is critical of the President and the Treasury Secretary because he wants them to succeed, not because he disagrees with their ideology. He isn't like Larry Kudlow, who wants the President to change his positions to match a purely capitalist philosophy. Cramer is a pragmatist, with real ideas to get the economy moving again.
But Cramer is also a stock analyst, and pundit. And stock analysts are graded on a curve. 55% success for Cramer translates into millions of dollars in profits. But he's going to be wrong almost as much as he's right, and any sophisticated investor (and most of the rest of us) understands that.
Which is why up until Thursday night, I was on Cramer's side, against Stewart. I felt John Stewart was taking advantage of some of Cramer's calls on investments, and using him as the poster child for irresponsible behavior. It seemed a little disingenouous to me.
Cramer took it that way too. And he was a little miffed. After all, we have all seen his rants in front of Erin Burnett from earlier last year, where he exclaims "they know NOTHING", as he basically calls the market crash. That took guts, and in that, most important call, Cramer got it right. From his perspective, why is HE being singled out, when he's been righter, and more honest than many other investment pundits?
So I watched the Daily Show on Thursday, looking to see Stewart backpedal some. After all, he's not an investment analyst. I thought he'd have Cramer on, and they would joke around for 5 minutes. Instead, I saw the most honest dialogue on the investments topic that I have witnessed since the crash last fall. And it was truly cathartic.
What we saw was an honest questioning of Wall Street by Stewart, and how their behavior sunk the fortunes of millions of Americans, and perhaps billions around the world. While Cramer couldn't speak for all of Wall Street, it was the most informative question and answer from representatives of Wall Street and Main Street talking about what happened, and what could be done to prevent a repeat of this behavior from happening again.
Stewart showed an understanding of what had tripped up Wall Street, and called out CNBC for acting as the enabler, or marketing wing of these investment banks, over the years. Cramer talked about the fact that the CNBC reporters had been very much lied to and duped over the years, and that they had NOT spent enough time searching for the truth. It was easier to take the CEO's word for it.
In the end, the Cramer/Stewart feud was hardly a battle royale between two bitter enemies. Rather it the first honest dialogue between the titans of Wall Street, and the common man, as to why we were in this mess. It certainly made me feel a little better, to watch the Wall Street guy come clean, and admit that he had to do better next time.
If the markets continue to swing up, and the economy recovers over the next year or two, I will point to this moment as the beginning of the reckoning in this country, where greed and hubris were finally confronted. I am hopeful that this could mark a turning point, from which this country can start to rebound from the free fall of the past 6 months. That is something I think we can all hope for.
I also felt bad for Jim. After all, I like him because I can relate to his positions. He is critical of the President and the Treasury Secretary because he wants them to succeed, not because he disagrees with their ideology. He isn't like Larry Kudlow, who wants the President to change his positions to match a purely capitalist philosophy. Cramer is a pragmatist, with real ideas to get the economy moving again.
But Cramer is also a stock analyst, and pundit. And stock analysts are graded on a curve. 55% success for Cramer translates into millions of dollars in profits. But he's going to be wrong almost as much as he's right, and any sophisticated investor (and most of the rest of us) understands that.
Which is why up until Thursday night, I was on Cramer's side, against Stewart. I felt John Stewart was taking advantage of some of Cramer's calls on investments, and using him as the poster child for irresponsible behavior. It seemed a little disingenouous to me.
Cramer took it that way too. And he was a little miffed. After all, we have all seen his rants in front of Erin Burnett from earlier last year, where he exclaims "they know NOTHING", as he basically calls the market crash. That took guts, and in that, most important call, Cramer got it right. From his perspective, why is HE being singled out, when he's been righter, and more honest than many other investment pundits?
So I watched the Daily Show on Thursday, looking to see Stewart backpedal some. After all, he's not an investment analyst. I thought he'd have Cramer on, and they would joke around for 5 minutes. Instead, I saw the most honest dialogue on the investments topic that I have witnessed since the crash last fall. And it was truly cathartic.
What we saw was an honest questioning of Wall Street by Stewart, and how their behavior sunk the fortunes of millions of Americans, and perhaps billions around the world. While Cramer couldn't speak for all of Wall Street, it was the most informative question and answer from representatives of Wall Street and Main Street talking about what happened, and what could be done to prevent a repeat of this behavior from happening again.
Stewart showed an understanding of what had tripped up Wall Street, and called out CNBC for acting as the enabler, or marketing wing of these investment banks, over the years. Cramer talked about the fact that the CNBC reporters had been very much lied to and duped over the years, and that they had NOT spent enough time searching for the truth. It was easier to take the CEO's word for it.
In the end, the Cramer/Stewart feud was hardly a battle royale between two bitter enemies. Rather it the first honest dialogue between the titans of Wall Street, and the common man, as to why we were in this mess. It certainly made me feel a little better, to watch the Wall Street guy come clean, and admit that he had to do better next time.
If the markets continue to swing up, and the economy recovers over the next year or two, I will point to this moment as the beginning of the reckoning in this country, where greed and hubris were finally confronted. I am hopeful that this could mark a turning point, from which this country can start to rebound from the free fall of the past 6 months. That is something I think we can all hope for.
Tuesday, March 10, 2009
Can we face the doomsday scenario?
As we continue on our seemingly unstoppable progression towards S&P ZERO, I have been asking myself what the doomsday scenario is, and whether it can be stopped at this point. Nouriel Roubini seemed to indicate a march to Dow 5000, and a couple of scenarios that spelled further declines from here, including a 36 month long recession. I actually found that prognosis somewhat optimistic, given what has been happening. But I am more concerned about the economy than the markets, so I'd prefer to see jobs, commerce, and real estate recover. The markets will follow suit, and even lead the parade, but it needs something to believe in.
Right now, there isn't the political will to impose a second stimulus, as long as John "the fundamentals of the economy are strong" McCain is going to get everyone riled up about the "ungodly amount" of $7B in pork barrel spending. This means that the only real remedy left may be to go big in the other direction. Companies do this all the time to manipulate their earnings. If they are going to meet earnings expectations, due to a good quarter, companies may take the opportunity to get some things off the balance sheet (goodwill, bad capital project expenditures from past years, etc). If they can't make their numbers, and are facing a bad quarter, companies can sometimes throw everything but the kitchen sink into the bad numbers, and just write off the result as a one time abysmal failure, and use the disaster as a springboard for future success. It's more risky, but we may be approaching this position as our alternative.
What does throwing in the towel look like? How's this scenario.
It's all possible. And as things get worse, these options become more and more of a potential reality. The question is, can we recover from such a scenario? This chain of events could lead to unemployment approaching 13-15%, Dow 2,500, A federal deficit in the $2-3 Trillion range, and that fails to even account for rising crime rates, diminished education options, and geopolitical fall out in places like Afghanistan, Russia, or even Mexico.
There are things the President and Congress can do. They can break mortgages, and offer 4% 30 year options for ALL homeowners. They can guarantee orderly bank reorganizations. They can continue deficit spending, and they probably will start to consider other alternatives, including tax cuts, or holidays. Health care reform probably won't come quickly, or provide an economic benefit right away, but putting the building blocks in place for a health care solution could help to speed the economic recovery, should that happen. And investors with money are starting to scoop up excess housing capacity, and equities. Companies that are truly bullet-proof will start to form the basis of a new economy. The investors who "got it right" will begin to rebuild wealth in the form of invested capital. The government can incentivize these investors and companies to put their money to good use, in the form of tax incentives.
But it is going to take time. My concern is that the train is already running over us right now. And we are just waiting until all of the boxcars finish leaving tire tracks on us. I'd like to see the President do more to try to get us off the tracks.
Right now, there isn't the political will to impose a second stimulus, as long as John "the fundamentals of the economy are strong" McCain is going to get everyone riled up about the "ungodly amount" of $7B in pork barrel spending. This means that the only real remedy left may be to go big in the other direction. Companies do this all the time to manipulate their earnings. If they are going to meet earnings expectations, due to a good quarter, companies may take the opportunity to get some things off the balance sheet (goodwill, bad capital project expenditures from past years, etc). If they can't make their numbers, and are facing a bad quarter, companies can sometimes throw everything but the kitchen sink into the bad numbers, and just write off the result as a one time abysmal failure, and use the disaster as a springboard for future success. It's more risky, but we may be approaching this position as our alternative.
What does throwing in the towel look like? How's this scenario.
- AIG is left to fail, sending shockwaves of liability exposure, and bad investment holdings across the world. Household named Insurers all take crippling hits to their surplus, and some have to simply go out of business.
- Citibank and Bank of America are "nationalized", which is really more of a Chapter 11 receivership than anything. Further wealth (if anything is left) is wiped out for all shareholders. Smaller banks are taken over by the FDIC at a rate of 5-10 a week.
- Chrysler is put into Chapter 7 (liquidation).
- GM is put into Chapter 11 (reorganization), and comes out leaner, and possibly stronger. But as many as two million jobs are lost in the mix.
It's all possible. And as things get worse, these options become more and more of a potential reality. The question is, can we recover from such a scenario? This chain of events could lead to unemployment approaching 13-15%, Dow 2,500, A federal deficit in the $2-3 Trillion range, and that fails to even account for rising crime rates, diminished education options, and geopolitical fall out in places like Afghanistan, Russia, or even Mexico.
There are things the President and Congress can do. They can break mortgages, and offer 4% 30 year options for ALL homeowners. They can guarantee orderly bank reorganizations. They can continue deficit spending, and they probably will start to consider other alternatives, including tax cuts, or holidays. Health care reform probably won't come quickly, or provide an economic benefit right away, but putting the building blocks in place for a health care solution could help to speed the economic recovery, should that happen. And investors with money are starting to scoop up excess housing capacity, and equities. Companies that are truly bullet-proof will start to form the basis of a new economy. The investors who "got it right" will begin to rebuild wealth in the form of invested capital. The government can incentivize these investors and companies to put their money to good use, in the form of tax incentives.
But it is going to take time. My concern is that the train is already running over us right now. And we are just waiting until all of the boxcars finish leaving tire tracks on us. I'd like to see the President do more to try to get us off the tracks.
Sunday, March 8, 2009
Sunday Morning Political Round Up--Four Steps back to Sanity
As brutal as this economic downturn has been (and it has been), there were at least four steps towards sanity that give me hope that things will start to get better. At least in the long term:
1. Nationalization of Banks--Watching Lindsey Graham and Chuck Schumer on Meet the Press, agreeing on the idea of bank nationalization was a first step towards sanity. I was also heartened by their candidness about what nationalization is, and what it isn't:
What it is: Banks being taken over, management being removed, bad assets being stripped out, the new bank, with the more solid assets, is recapitalized, re-privatized, with new management.
What it isn't: Banks being RUN by the federal government
This was helpful, and I think that with such a definition in mind, the Geithner plan makes more sense. These "stress tests" of banks can possibly help to determine which banks can survive with simply more capital, and which cannot survive without nationalization. This is a better idea than just throwing more and more money at these banks endlessly. I think this is a good start.
2. Newt stepping up to take control of the party--With Newt's appearance on "This Week", he is clearly laying down a marker that Rush Limbaugh is NOT the leader of the party. That, in fact, HE is the ideological leader, and is fast becoming the face of the party. Unlike Rush, Newt is far more skilled in the ways of Washington, and will bring to the debate ideas, and constructive choices for people. I may not agree with Newt on many of his positions, but he has thoughtful ideas, and provides the kind of loyal opposition to the Democrats that we need right now. Limbaugh's approach is simply too divisive, too angry for a constructive debate. I am encouraged that the Republican leaders took a look around last week, and decided that they needed to get into the fray. The credible contenders--Tim Pawlenty, Newt Gingrich, et al--were able to push some of the pretenders out of the picture--the Michael Steele's, the Mark Sanfords. Thankfully, we don't have a party of Rush to deal with going forward here. Let's hope anyway.
3. Second Stimulus--I am not suggesting a second stimulus would work. However, I am encouraged that the government is not going to sit back and do nothing. I think it is very important that our leaders are keeping an active eye on how things are going, and is doing what it can to fix things. Peter Orzag was surprisingly candid, in my opinion, about the fact that they will change their approach, as the facts and circumstances on the ground change. Obama has taken this approach in his foreign policy in Iraq, and has taken the same approach on economics. Wonderful.
4. Health Care will continue to be debated--Despite protests from panelists on Meet the Press and on Stephanopolous, health care has been coming to the forefront more and more. I am surprised that people don't see the link between the health care issue and the economy. I am glad it is being debated. I am glad that these issues are finally being put front and center, and we can hear the issues for what they are, and perhaps even come to a solution to better our country. What's wrong with this?
People can disagree with me, but I think that our current President has challenged our Congress, and civic leaders to take on more challenging issues of the day. I think this weekend has shown me that people CAN step up, have serious discussions, and arrive at real solutions.
It's giving me some hope...
1. Nationalization of Banks--Watching Lindsey Graham and Chuck Schumer on Meet the Press, agreeing on the idea of bank nationalization was a first step towards sanity. I was also heartened by their candidness about what nationalization is, and what it isn't:
What it is: Banks being taken over, management being removed, bad assets being stripped out, the new bank, with the more solid assets, is recapitalized, re-privatized, with new management.
What it isn't: Banks being RUN by the federal government
This was helpful, and I think that with such a definition in mind, the Geithner plan makes more sense. These "stress tests" of banks can possibly help to determine which banks can survive with simply more capital, and which cannot survive without nationalization. This is a better idea than just throwing more and more money at these banks endlessly. I think this is a good start.
2. Newt stepping up to take control of the party--With Newt's appearance on "This Week", he is clearly laying down a marker that Rush Limbaugh is NOT the leader of the party. That, in fact, HE is the ideological leader, and is fast becoming the face of the party. Unlike Rush, Newt is far more skilled in the ways of Washington, and will bring to the debate ideas, and constructive choices for people. I may not agree with Newt on many of his positions, but he has thoughtful ideas, and provides the kind of loyal opposition to the Democrats that we need right now. Limbaugh's approach is simply too divisive, too angry for a constructive debate. I am encouraged that the Republican leaders took a look around last week, and decided that they needed to get into the fray. The credible contenders--Tim Pawlenty, Newt Gingrich, et al--were able to push some of the pretenders out of the picture--the Michael Steele's, the Mark Sanfords. Thankfully, we don't have a party of Rush to deal with going forward here. Let's hope anyway.
3. Second Stimulus--I am not suggesting a second stimulus would work. However, I am encouraged that the government is not going to sit back and do nothing. I think it is very important that our leaders are keeping an active eye on how things are going, and is doing what it can to fix things. Peter Orzag was surprisingly candid, in my opinion, about the fact that they will change their approach, as the facts and circumstances on the ground change. Obama has taken this approach in his foreign policy in Iraq, and has taken the same approach on economics. Wonderful.
4. Health Care will continue to be debated--Despite protests from panelists on Meet the Press and on Stephanopolous, health care has been coming to the forefront more and more. I am surprised that people don't see the link between the health care issue and the economy. I am glad it is being debated. I am glad that these issues are finally being put front and center, and we can hear the issues for what they are, and perhaps even come to a solution to better our country. What's wrong with this?
People can disagree with me, but I think that our current President has challenged our Congress, and civic leaders to take on more challenging issues of the day. I think this weekend has shown me that people CAN step up, have serious discussions, and arrive at real solutions.
It's giving me some hope...
Saturday, March 7, 2009
When will American Business Get REAL?
I am so tired of companies today, not being straight with America, or with our Government. I don't think the country has an issue with bailing out companies--as long as there is an honest assessment of the facts, the projections, and a viable case that the money will be paid back. I am not sure I would have even conceded that point a year ago, but these are unprecedented times, so I am willing to be honest about where we are these days.
I am still waiting for companies to be honest about their true financial strength. The sooner these companies come clean--even to themselves--about what kind of risk they truly face, the sooner we can start to fix the problems of the day. Without that kind of catharsis, we will continue to erode into a Japan-like 20 year malaise, slowly eroding any hope that America's best days lie ahead.
What is my idea of honesty? It's complicated, but surprisingly simple. I want to see companies stress test their balance sheets using UN-fair scenario testing. Not Monte-Carlo rules. Not using a weighted average. I don't want to know what happens to a company's financial strength if the stock market goes down another 10% from here. I want to understand what happens if it drops another 50%, or even another 70%! Why? Because let's face it--Dow 3300, or S&P 350 isn't much more than about 3-4 more weeks of the current trend we are on. Companies painting rosy projections have not taken into account the snowballing effect that negative returns create--sapping further strength in assets once held as unassailable. Credit and market risk downgrades beget further erosion, payrolls decrease, robbing these companies of their greatest strengths--human capital--and brand goodwill disappears.
It doesn't have to be this way. But companies have to take a TRUE stock in what assets and value they have. THEY HAVE TO BE HONEST! Here's two examples of companies NOT being honest about their true values, and how they, and the American Tax payer is suffering as a result.
Case 1--General Motors--
I read GM's plan, published in December of 2008, which laid out its plans to regain solvency, profitability, and a long-term sustainable business proposition. It was thoughtful on a number of levels, and sobering in its willingness to make cuts to people's salaries.
However, it was completely misleading to the members of Congress, and in the end, will cost taxpayers AND workers dearly. What did GM get wrong, that everyone seems to have missed?
Honesty on one simple fact: Expected Market demand
GM used what they assessed to be a "reasonable estimate of market demand for the US auto market of 12 million cars being sold in the US in 2009, moving up to 15 million by 2012. The downside scenario was 10.5 moving to 12.8 million cars sold by 2012.
But the estimates were completely rosy, and couldn't conceive of an economy that could possibly shrink 6.2% in a quarter. Demand did fall significantly during 2008 from 2007, and went down to somewhere in the neighborhood of 13-14 million cars sold in 2008, from closer to 16 million in the years leading up to 2008. The fact that GM would consider the "WORST CASE" scenario to be only a drop of car sales from 13 million cars to 10.5 million cars is completely ignoring reality. Based on that scenario, it asked the Federal Government for $17 Billion in loans and guarantees. But sales have fallen off a cliff. Tightening credit and a scary economic picture has meant people have avoided buying new cars by a far larger margin than simply the 25-30% that GM felt was the worst case situation. And anyone watching this could see that being a real problem with the argument. I even wrote a blog about this the DAY I read the plan.
The results have been entirely predictable. GM sales dropped over 50%, not just 25-30%. It is in trouble, and is likely going into Chapter 11. Millions will lose their jobs over this. The Government's $17 Billion loan package may get recouped, if we're lucky. Hopefully Chapter 11 can help GM reorganize into something that can save some of those millions of jobs lost, but it won't look like it did. Chrysler's been dead man walking for years, so they aren't even worth addressing in this scenario.
All of this carnage could have been dealt with if a GM stress test scenario was more dire. This would have been much more informative for the Congress, and the American people. The decisions of what to do could have been debated in December, when a plan to either save GM, or put it out of its misery, could have been made using realistic sales projections. But no one was willing to do it then, opting for the best case, lowest cost, least resistance option. It led to more trouble, a harder decision, more jobs lost, more money spent.
Case #2--General Electric--
I have to disclose that I own 136 shares of this company. At $7/share, it isn't enough to bias my position on this matter. I am basically going to make the point here that GM is already gone. But GE can save itself by doing a REAL stress test, and figuring out what it will take to survive the current market conditions. Here's the background:
GE is a company that is still making money--it made $17B in profit last year. It has a diverse portfolio of businesses, ranging from NBC/Universal Studios, to Jet Engine builders, to plastics providers, to appliance makers, to a financing business--GE Capital. Sounds like a business in good shape, right? So why is the stock tanking?
Well, let's look at the balance sheet. $50 Billion in Retained Earnings is nice, but with $450 Billion of Liabilities, there are a lot of debts to be paid for this business. In years past, this wouldn't be a huge issue. However, if the assets, or investments, underlying the $500B balance sheet are really only worth, say, $350B, then there is a $100 Billion shortfall of assets to pay liabilities.
This is scary, but not devastating. The company is still making a profit (for now, at least), and can use those profits to help eliminate those debts over the upcoming years. But what I'd like to see GE do is stress test those assets with the assumption that 60% of the assets are impaired. Now the asset base is only worth $200B. Can GE survive with a $250 Billion shortfall in its assets that are capable of paying off future debts? Does it have a plan to be able to survive such a scenario (refinance loans, seek government assistance, sell of parts of the business)?
I want to give GE some credit. They have a management team and employee base that is second to NONE. I used to work there, and of my four different employers, GE was hands down the most impressive, smartest group. But being smart doesn't make up for hubris. And if GE thinks they are smarter than everyone else, and that doing a scenario such as I have laid out is silly and stupid, they will regret it.
If they use their heads, they will stress test their asset base, assuming a 60% impairment, and make a determination if they can survive a $300 Billion write down. If they can, they should publicly explain that they are that solid, and could withstand even that doomsday scenario. The markets would LOVE this.
GE is only an example, though. Companies are going to need to be able to prove this strength to shareholders over the next year, or risk being driven to zero by the investors demanding such assurances. At that point, we could start to take stock in what kind of strength we really have in this economy, and start to build around the winners.
Nasim Taleb talks about the "Black Swan" effect in the market place. This idea that simply because people had never seen a black swan before, that one couldn't exist. Until someone saw one, and then suddenly, it was a probability. In investments, scenario testing is no good if companies don't stress test their balance sheets for doomsday scenarios, simply because "it's never happened before". It's time to start having companies stress test for doomsday scenarios. I don't necessarily need to know the results immediately, but I do need to know that the strong companies out there are doing this, and actively taking steps to support their financial positions with more cash and less debt.
In my opinion, without such honesty from companies, Obama's stimulus plans won't be effective, and Larry Kudlow's tax policies won't help much either. People need to believe in their enterprises again. Time to start being soberingly honest about where these companies stand, and where they are going.
It's going to suck for a while. I can't say it any other way. But earning back trust has to be top priority. Just ask the Japanese. After 20 years, their stock market has gone from close to 40,000 to around 7,500. I don't think that's a track record anyone in America wants to copy.
I am still waiting for companies to be honest about their true financial strength. The sooner these companies come clean--even to themselves--about what kind of risk they truly face, the sooner we can start to fix the problems of the day. Without that kind of catharsis, we will continue to erode into a Japan-like 20 year malaise, slowly eroding any hope that America's best days lie ahead.
What is my idea of honesty? It's complicated, but surprisingly simple. I want to see companies stress test their balance sheets using UN-fair scenario testing. Not Monte-Carlo rules. Not using a weighted average. I don't want to know what happens to a company's financial strength if the stock market goes down another 10% from here. I want to understand what happens if it drops another 50%, or even another 70%! Why? Because let's face it--Dow 3300, or S&P 350 isn't much more than about 3-4 more weeks of the current trend we are on. Companies painting rosy projections have not taken into account the snowballing effect that negative returns create--sapping further strength in assets once held as unassailable. Credit and market risk downgrades beget further erosion, payrolls decrease, robbing these companies of their greatest strengths--human capital--and brand goodwill disappears.
It doesn't have to be this way. But companies have to take a TRUE stock in what assets and value they have. THEY HAVE TO BE HONEST! Here's two examples of companies NOT being honest about their true values, and how they, and the American Tax payer is suffering as a result.
Case 1--General Motors--
I read GM's plan, published in December of 2008, which laid out its plans to regain solvency, profitability, and a long-term sustainable business proposition. It was thoughtful on a number of levels, and sobering in its willingness to make cuts to people's salaries.
However, it was completely misleading to the members of Congress, and in the end, will cost taxpayers AND workers dearly. What did GM get wrong, that everyone seems to have missed?
Honesty on one simple fact: Expected Market demand
GM used what they assessed to be a "reasonable estimate of market demand for the US auto market of 12 million cars being sold in the US in 2009, moving up to 15 million by 2012. The downside scenario was 10.5 moving to 12.8 million cars sold by 2012.
But the estimates were completely rosy, and couldn't conceive of an economy that could possibly shrink 6.2% in a quarter. Demand did fall significantly during 2008 from 2007, and went down to somewhere in the neighborhood of 13-14 million cars sold in 2008, from closer to 16 million in the years leading up to 2008. The fact that GM would consider the "WORST CASE" scenario to be only a drop of car sales from 13 million cars to 10.5 million cars is completely ignoring reality. Based on that scenario, it asked the Federal Government for $17 Billion in loans and guarantees. But sales have fallen off a cliff. Tightening credit and a scary economic picture has meant people have avoided buying new cars by a far larger margin than simply the 25-30% that GM felt was the worst case situation. And anyone watching this could see that being a real problem with the argument. I even wrote a blog about this the DAY I read the plan.
The results have been entirely predictable. GM sales dropped over 50%, not just 25-30%. It is in trouble, and is likely going into Chapter 11. Millions will lose their jobs over this. The Government's $17 Billion loan package may get recouped, if we're lucky. Hopefully Chapter 11 can help GM reorganize into something that can save some of those millions of jobs lost, but it won't look like it did. Chrysler's been dead man walking for years, so they aren't even worth addressing in this scenario.
All of this carnage could have been dealt with if a GM stress test scenario was more dire. This would have been much more informative for the Congress, and the American people. The decisions of what to do could have been debated in December, when a plan to either save GM, or put it out of its misery, could have been made using realistic sales projections. But no one was willing to do it then, opting for the best case, lowest cost, least resistance option. It led to more trouble, a harder decision, more jobs lost, more money spent.
Case #2--General Electric--
I have to disclose that I own 136 shares of this company. At $7/share, it isn't enough to bias my position on this matter. I am basically going to make the point here that GM is already gone. But GE can save itself by doing a REAL stress test, and figuring out what it will take to survive the current market conditions. Here's the background:
GE is a company that is still making money--it made $17B in profit last year. It has a diverse portfolio of businesses, ranging from NBC/Universal Studios, to Jet Engine builders, to plastics providers, to appliance makers, to a financing business--GE Capital. Sounds like a business in good shape, right? So why is the stock tanking?
Well, let's look at the balance sheet. $50 Billion in Retained Earnings is nice, but with $450 Billion of Liabilities, there are a lot of debts to be paid for this business. In years past, this wouldn't be a huge issue. However, if the assets, or investments, underlying the $500B balance sheet are really only worth, say, $350B, then there is a $100 Billion shortfall of assets to pay liabilities.
This is scary, but not devastating. The company is still making a profit (for now, at least), and can use those profits to help eliminate those debts over the upcoming years. But what I'd like to see GE do is stress test those assets with the assumption that 60% of the assets are impaired. Now the asset base is only worth $200B. Can GE survive with a $250 Billion shortfall in its assets that are capable of paying off future debts? Does it have a plan to be able to survive such a scenario (refinance loans, seek government assistance, sell of parts of the business)?
I want to give GE some credit. They have a management team and employee base that is second to NONE. I used to work there, and of my four different employers, GE was hands down the most impressive, smartest group. But being smart doesn't make up for hubris. And if GE thinks they are smarter than everyone else, and that doing a scenario such as I have laid out is silly and stupid, they will regret it.
If they use their heads, they will stress test their asset base, assuming a 60% impairment, and make a determination if they can survive a $300 Billion write down. If they can, they should publicly explain that they are that solid, and could withstand even that doomsday scenario. The markets would LOVE this.
GE is only an example, though. Companies are going to need to be able to prove this strength to shareholders over the next year, or risk being driven to zero by the investors demanding such assurances. At that point, we could start to take stock in what kind of strength we really have in this economy, and start to build around the winners.
Nasim Taleb talks about the "Black Swan" effect in the market place. This idea that simply because people had never seen a black swan before, that one couldn't exist. Until someone saw one, and then suddenly, it was a probability. In investments, scenario testing is no good if companies don't stress test their balance sheets for doomsday scenarios, simply because "it's never happened before". It's time to start having companies stress test for doomsday scenarios. I don't necessarily need to know the results immediately, but I do need to know that the strong companies out there are doing this, and actively taking steps to support their financial positions with more cash and less debt.
In my opinion, without such honesty from companies, Obama's stimulus plans won't be effective, and Larry Kudlow's tax policies won't help much either. People need to believe in their enterprises again. Time to start being soberingly honest about where these companies stand, and where they are going.
It's going to suck for a while. I can't say it any other way. But earning back trust has to be top priority. Just ask the Japanese. After 20 years, their stock market has gone from close to 40,000 to around 7,500. I don't think that's a track record anyone in America wants to copy.
Wednesday, March 4, 2009
2010 Senate Elections--Update Watch
Usually, these Senate Races aren't all that interesting. But the upcoming races are all just too fascinating to watch. Or maybe it's more like watching a slow-motion train wreck. I can't decide which is going to be more fun to watch. Here's the top dozen or so on my mind, with recent news:
Kentucky--Jim Bunning's bizarre antics lately have led the party to believe that he is simply NEVER going to retain that seat. Their best hope is that he stays put until 2010, sees that it is hopeless, and drops out early, so that a better candidate can take on a surprisingly strong Democratic field challenging for the seat. A Democrat in that seat? Hard to believe, given the trend of the state. But very possible.
Connecticut--Chris Dodd is on the hot seat in CT for a number of reasons. A preferential loan received from Countrywide. A chairman seat presiding over the economic debacle. 5 terms in office. Unfortunately, the GOP has to convince a prominent candidate to run against him, and that seems to be a challenge in Connecticut, which is as blue as blue states get. If Chris Shays, or even Governor Jodi Rell is willing to step in and run, it could be interesting.
New Hampshire--Judd Gregg is not running again, and recent events surrounding the questionable relationship he has with the funding secured for projects too close to his family, could be contributing to that decision not to run. With John Sununu's recent conflict of interest embarrassment on the TARP administration team, there really isn't another prominent Republican to take on two or even three viable Democratic candidates. This seat will change hands.
New York--Schumer is fine, but Kirsten Gillibrand could face a primary, and then a tough election fight from Peter King (R) of Long Island. Where are all the Republicans in New York? What happened? This used to be a state with guys like Al D'amato in the Senate, and George Pataki in the Governorship. Sign of the times. The moderate Republican seems to be a thing of the past, I guess.
Pennsylvania--Specter should win here, but health is always a concern, and Pennsylvania has good Democrats to put up a good fight. Equally compelling will be to see whether Specter faces a primary battle from the right. Conservatives may consider him a judas after siding with the President on the budget battle. Rick Santorum reared his head recently, in support for Rush Limbaugh's "I hope he fails" campaign.
Ohio--Good race to succeed George Voinovich. Once again, a dying breed of Republican Moderate will likely be replaced with a Democrat. Barring any further deterioration of the employment and industrial base, anyway.
Florida--Could be an interesting race. Jeb Bush won't run. Charlie Crist could think about it, but after his support of the stimulus, it's unlikely. This could be a free for all, and a fun race to watch. I'll score this a "pick-'em"
Louisiana--David Vitter should win this seat. I just find it interesting that Mr. Moral Values, and Mr. DC Madam can co-exist, without feeling even a tinge of hypocrisy. Still, this is a redder state by the day, and Vitter should win easily.
Alaska--Lisa Murkowski will probably win, but I like to ask the question as to whether Sarah Palin would take this opportunity to go after the seat. There are some decent Democrats, but this seat will stay Republican. Senator Palin would certainly be a lot of fun to write about, though.
Hawaii--If Gov. Linda Lingle (R) decided to run against the ancient Daniel Inouye, she could win. She is an appealing candidate. I'll give her a better chance to win than people think. But she has to run first.
Nevada--remember when Republicans had Nevada tagged as the target to go after Harry Reid with? Seems like a long time ago. Repubs have a lot of targets now. Unfortunately for them, so do the Dems. Seems to be about an even split. Reid should win, unless the economy really goes south.
Illinois--Time for Roland Burris to leave. A special election would probably pit Richard Daley (D) against Rep Mark Kirk (R), and Daley probably has the edge. Except that Illinois is pretty upset with the Democratic machine right now, and Daley is the face of Illinois politics as much as anyone. Still if Daley wins a special election (if one is called in the first place), he'd be a shoo-in for re-election in 2010. If not, he may struggle to beat Mark Kirk in a general election. I'll give this a toss up status too.
Lots to keep an eye on. I'll update this in a few months...
Kentucky--Jim Bunning's bizarre antics lately have led the party to believe that he is simply NEVER going to retain that seat. Their best hope is that he stays put until 2010, sees that it is hopeless, and drops out early, so that a better candidate can take on a surprisingly strong Democratic field challenging for the seat. A Democrat in that seat? Hard to believe, given the trend of the state. But very possible.
Connecticut--Chris Dodd is on the hot seat in CT for a number of reasons. A preferential loan received from Countrywide. A chairman seat presiding over the economic debacle. 5 terms in office. Unfortunately, the GOP has to convince a prominent candidate to run against him, and that seems to be a challenge in Connecticut, which is as blue as blue states get. If Chris Shays, or even Governor Jodi Rell is willing to step in and run, it could be interesting.
New Hampshire--Judd Gregg is not running again, and recent events surrounding the questionable relationship he has with the funding secured for projects too close to his family, could be contributing to that decision not to run. With John Sununu's recent conflict of interest embarrassment on the TARP administration team, there really isn't another prominent Republican to take on two or even three viable Democratic candidates. This seat will change hands.
New York--Schumer is fine, but Kirsten Gillibrand could face a primary, and then a tough election fight from Peter King (R) of Long Island. Where are all the Republicans in New York? What happened? This used to be a state with guys like Al D'amato in the Senate, and George Pataki in the Governorship. Sign of the times. The moderate Republican seems to be a thing of the past, I guess.
Pennsylvania--Specter should win here, but health is always a concern, and Pennsylvania has good Democrats to put up a good fight. Equally compelling will be to see whether Specter faces a primary battle from the right. Conservatives may consider him a judas after siding with the President on the budget battle. Rick Santorum reared his head recently, in support for Rush Limbaugh's "I hope he fails" campaign.
Ohio--Good race to succeed George Voinovich. Once again, a dying breed of Republican Moderate will likely be replaced with a Democrat. Barring any further deterioration of the employment and industrial base, anyway.
Florida--Could be an interesting race. Jeb Bush won't run. Charlie Crist could think about it, but after his support of the stimulus, it's unlikely. This could be a free for all, and a fun race to watch. I'll score this a "pick-'em"
Louisiana--David Vitter should win this seat. I just find it interesting that Mr. Moral Values, and Mr. DC Madam can co-exist, without feeling even a tinge of hypocrisy. Still, this is a redder state by the day, and Vitter should win easily.
Alaska--Lisa Murkowski will probably win, but I like to ask the question as to whether Sarah Palin would take this opportunity to go after the seat. There are some decent Democrats, but this seat will stay Republican. Senator Palin would certainly be a lot of fun to write about, though.
Hawaii--If Gov. Linda Lingle (R) decided to run against the ancient Daniel Inouye, she could win. She is an appealing candidate. I'll give her a better chance to win than people think. But she has to run first.
Nevada--remember when Republicans had Nevada tagged as the target to go after Harry Reid with? Seems like a long time ago. Repubs have a lot of targets now. Unfortunately for them, so do the Dems. Seems to be about an even split. Reid should win, unless the economy really goes south.
Illinois--Time for Roland Burris to leave. A special election would probably pit Richard Daley (D) against Rep Mark Kirk (R), and Daley probably has the edge. Except that Illinois is pretty upset with the Democratic machine right now, and Daley is the face of Illinois politics as much as anyone. Still if Daley wins a special election (if one is called in the first place), he'd be a shoo-in for re-election in 2010. If not, he may struggle to beat Mark Kirk in a general election. I'll give this a toss up status too.
Lots to keep an eye on. I'll update this in a few months...
How Low Can the GOP go?
I am struggling to find the words to say here. Is this the Grand Old Party that I have grown up with? The Reagan-loving, Alex P. Keaton, Gordon Gecho, Cap Weinberger, Arthur Laffer party--the party of economic prosperity, traditional values, the "in-crowd" of your local high school. This is what the party has become? I am beyond amazement, I am into total depression.
I feel like I am in an early scene of King Lear, watching capitulation to a King who has not the mental capacity, nor the strength that he may think he has...
What is happening here? The Party, with 41 sitting senators, over 20 sitting State Governors, and close to 180 Congressmen and women have all taken a back seat to a hideous, obese, angry, divisive, gregarious mouthpiece, rather than speak for themselves? The Phil Gingrey apology to Rush was brutal enough, but now to watch the Governor Mark Sanford, and more hideously, RNC CHAIRMAN Michael Steele beg, scrape, and crawl on his belly back to Rush Limbaugh, to apologize, is just obscene.
The Democrats are delighting in this. Check out their website, with a mock letter of apology for anyone in the Republican Party who doesn't speak glowingly of the Great Rushmore.
http://www.dccc.org/content/sorry
Sadly, though, the GOP has gone from a party of ideas, of thinkers, of fiscal sanity and leadership, to a feckless bunch of second stringers, who are blatant and obedient followers (ditto-heads, to the uninitiated) of an ideology of dogmatic extreme allegiance to all things Conservative. Pro-choicers, pro-gun regulators, non-Christians (or faith followers), Euro-philes, Alternative Energy believers, Global Warming believers, Immigration reformists, fiscal pragmatists--all not need apply. Even if you are only ONE of those things, you are not ideologically pure enough for Rush, the leader of the Party. Michael Steele? Consider your efforts to broaden the appeal of the party ON HOLD INDEFINITELY. Charlie Crist? Arnold? Jodi Rell? Arlen Specter, Susan Collins? Dead to Conservatism.
At this rate, the Conservatives will rate somewhere near the Natural Law Party in terms of popularity. And the hypocrisy is starting to become blatant. A thrice married, ex-drug addict, fired from ESPN for racially insensitive remarks (because the ESPN sports channel is certainly part of the conspiracy, right?) blowhard is the only spokesperson for the party these days. The fact that the rest of the party would quake in fear of this guy should tell you something about the Rush followers.
And I have listened to this guy a lot over the years. I find his work increasingly boring, shrill, half informed, and well articulated. Isn't that Rushbo's issue with Obama?
The whole thing is pathetic. I can't take it anymore. I can't decide if I want this party to fail miserably, under Rush's tutelage, or succeed, and we will have to all bow to the round mound of intolerance. Either way, I am rooting for America to succeed. I don't really care if an ideology is hurt in the process. I can believe there is a minority of 20% of people who are "dittoheads" at heart, and really believe that they would rather see Conservatism succeed than America come back under Obama, and Democratic rule. But this notion that if they can only convince people, like Reagan did, to come back to Conservatism, everything would be great, is simply a misjudgement of the world around them. 24 years after the great Reagan landslide, things are different, the world has changed, and all that is truly left of the Reagan ideology is this bitter, angry shell of divisiveness, embodied by this grotesque hate and fear monger.
Republicans tie their future success to this guy, at their own peril.
I feel like I am in an early scene of King Lear, watching capitulation to a King who has not the mental capacity, nor the strength that he may think he has...
What is happening here? The Party, with 41 sitting senators, over 20 sitting State Governors, and close to 180 Congressmen and women have all taken a back seat to a hideous, obese, angry, divisive, gregarious mouthpiece, rather than speak for themselves? The Phil Gingrey apology to Rush was brutal enough, but now to watch the Governor Mark Sanford, and more hideously, RNC CHAIRMAN Michael Steele beg, scrape, and crawl on his belly back to Rush Limbaugh, to apologize, is just obscene.
The Democrats are delighting in this. Check out their website, with a mock letter of apology for anyone in the Republican Party who doesn't speak glowingly of the Great Rushmore.
http://www.dccc.org/content/sorry
Sadly, though, the GOP has gone from a party of ideas, of thinkers, of fiscal sanity and leadership, to a feckless bunch of second stringers, who are blatant and obedient followers (ditto-heads, to the uninitiated) of an ideology of dogmatic extreme allegiance to all things Conservative. Pro-choicers, pro-gun regulators, non-Christians (or faith followers), Euro-philes, Alternative Energy believers, Global Warming believers, Immigration reformists, fiscal pragmatists--all not need apply. Even if you are only ONE of those things, you are not ideologically pure enough for Rush, the leader of the Party. Michael Steele? Consider your efforts to broaden the appeal of the party ON HOLD INDEFINITELY. Charlie Crist? Arnold? Jodi Rell? Arlen Specter, Susan Collins? Dead to Conservatism.
At this rate, the Conservatives will rate somewhere near the Natural Law Party in terms of popularity. And the hypocrisy is starting to become blatant. A thrice married, ex-drug addict, fired from ESPN for racially insensitive remarks (because the ESPN sports channel is certainly part of the conspiracy, right?) blowhard is the only spokesperson for the party these days. The fact that the rest of the party would quake in fear of this guy should tell you something about the Rush followers.
And I have listened to this guy a lot over the years. I find his work increasingly boring, shrill, half informed, and well articulated. Isn't that Rushbo's issue with Obama?
The whole thing is pathetic. I can't take it anymore. I can't decide if I want this party to fail miserably, under Rush's tutelage, or succeed, and we will have to all bow to the round mound of intolerance. Either way, I am rooting for America to succeed. I don't really care if an ideology is hurt in the process. I can believe there is a minority of 20% of people who are "dittoheads" at heart, and really believe that they would rather see Conservatism succeed than America come back under Obama, and Democratic rule. But this notion that if they can only convince people, like Reagan did, to come back to Conservatism, everything would be great, is simply a misjudgement of the world around them. 24 years after the great Reagan landslide, things are different, the world has changed, and all that is truly left of the Reagan ideology is this bitter, angry shell of divisiveness, embodied by this grotesque hate and fear monger.
Republicans tie their future success to this guy, at their own peril.
Tuesday, March 3, 2009
Investment Strategy--Darkest before Dawn
Investment strategy seems to be perpetually counter intuitive. In other words, despite our best intentions to "buy low and sell high", most of us seem to do exactly the opposite. Why is this? The reasons are too numerous to list here, but I can point to some reasons to believe that better days are ahead, for investments, for the economy, and for my personal sanity.
So back to the original point. I use the following as examples to illustrate the point at which you know the markets are in for a turn:
Example 1:
It was 1999, and I was working on a project in San Francisco. Each week or two, I'd fly into the airport there, and take a cab all the way into downtown. The cabbies out there are a talkative bunch, and an interesting array of personalities. Yet at that point in time, the cabbies were all taking turns asking me which tech stock I should buy, and telling me about funds, or positions that had made them money.
I should have known then that the tech boom had jumped the shark. But being young and naive, I thought, "hey, what's the worst that can happen? My Cisco Systems stake could drop 20% or so, and then I'll be back on my way to riches and early retirement".
Well, I was wrong, Cisco (along with many others) dropped from $80/share to about $15/share, and I eventually cashed out at $19/share, using the money to pay off my car loan a few years later.
As I studied what went wrong, I thought to myself that the signs of exuberance were all there--unsustainable P/E ratios, market euphoria, everyone in the world saying it was time to continue to pile on the investments in the market, tech was king, etc. Perhaps the next time I saw the world piling into an economic party, I should take it as a sign to get out while the gettin's good.
Example 2
Fast forward to 2006. I am at a party, and a friend starts asking me whether Interest only loans are a good idea for flipping houses. This time I was spending more time in New York and Boston, but again, some of the cabbies were asking about REITS, and other Real Estate mortgage deals. The cabbies again! I started thinking it was time to protect myself against real estate. I also pulled most of my personal investments from the market by early 2007, using the money to build a cash reserve. I was concerned. But I left the 401k in the markets, just in case I was wrong.
Well, I wasn't wrong, and as a result, I only suffered on retirement savings. Which is a hollow victory, when I consider what I could have done to avoid a mere 25% loss on my 401k holdings since 1/1/08.
So we have determined that conventional wisdom (in the form of cabbies and non-finance oriented friends) is the sign of when to EXIT the market place. Could this logic be equally applied to when to ENTER the market?
This morning, driving into work, I was flipping radio stations between the local d-jays and Bloomberg. All the news was bad. Everyone is getting out. The local d-jay was saying he was considering moving his retirement savings out of the market, despite having held on this long. It sounded like complete capitulation to me. Even my co-workers are asking about when to get out.
To my way of thinking, this is a sign that the bottom is soon. That's a little different from saying the bottom is a few points away. I think, from a timing perspective, the bottom is coming. It is getting to its darkest point. The dawn cometh though, and that right soon.
For the first time in months, I am optimistic about the market place, but there is one thing in particular I'd like to see first--Irrational Depression.
Not to be confused with Irrational Exuberance, The Irrational Depression I am looking for is starting to shape up. If companies like JP Morgan, and GE can hold onto profitability, and we can see P/E ratios continue to drop into the mid-single digits, these are signs that the market is getting ready to buy.
And we aren't far.
So back to the original point. I use the following as examples to illustrate the point at which you know the markets are in for a turn:
Example 1:
It was 1999, and I was working on a project in San Francisco. Each week or two, I'd fly into the airport there, and take a cab all the way into downtown. The cabbies out there are a talkative bunch, and an interesting array of personalities. Yet at that point in time, the cabbies were all taking turns asking me which tech stock I should buy, and telling me about funds, or positions that had made them money.
I should have known then that the tech boom had jumped the shark. But being young and naive, I thought, "hey, what's the worst that can happen? My Cisco Systems stake could drop 20% or so, and then I'll be back on my way to riches and early retirement".
Well, I was wrong, Cisco (along with many others) dropped from $80/share to about $15/share, and I eventually cashed out at $19/share, using the money to pay off my car loan a few years later.
As I studied what went wrong, I thought to myself that the signs of exuberance were all there--unsustainable P/E ratios, market euphoria, everyone in the world saying it was time to continue to pile on the investments in the market, tech was king, etc. Perhaps the next time I saw the world piling into an economic party, I should take it as a sign to get out while the gettin's good.
Example 2
Fast forward to 2006. I am at a party, and a friend starts asking me whether Interest only loans are a good idea for flipping houses. This time I was spending more time in New York and Boston, but again, some of the cabbies were asking about REITS, and other Real Estate mortgage deals. The cabbies again! I started thinking it was time to protect myself against real estate. I also pulled most of my personal investments from the market by early 2007, using the money to build a cash reserve. I was concerned. But I left the 401k in the markets, just in case I was wrong.
Well, I wasn't wrong, and as a result, I only suffered on retirement savings. Which is a hollow victory, when I consider what I could have done to avoid a mere 25% loss on my 401k holdings since 1/1/08.
So we have determined that conventional wisdom (in the form of cabbies and non-finance oriented friends) is the sign of when to EXIT the market place. Could this logic be equally applied to when to ENTER the market?
This morning, driving into work, I was flipping radio stations between the local d-jays and Bloomberg. All the news was bad. Everyone is getting out. The local d-jay was saying he was considering moving his retirement savings out of the market, despite having held on this long. It sounded like complete capitulation to me. Even my co-workers are asking about when to get out.
To my way of thinking, this is a sign that the bottom is soon. That's a little different from saying the bottom is a few points away. I think, from a timing perspective, the bottom is coming. It is getting to its darkest point. The dawn cometh though, and that right soon.
For the first time in months, I am optimistic about the market place, but there is one thing in particular I'd like to see first--Irrational Depression.
Not to be confused with Irrational Exuberance, The Irrational Depression I am looking for is starting to shape up. If companies like JP Morgan, and GE can hold onto profitability, and we can see P/E ratios continue to drop into the mid-single digits, these are signs that the market is getting ready to buy.
And we aren't far.
- GE with a P/E ratio under 5
- Cisco with a PE of 11.5 despite continuing its profitable ways, fabulously favorable current ratios, and little to no short term debt.
- Microsoft with a PE ratio under 10, with large cash and short term holdings, in excess of its debt loads. It still saw revenues and profits in the multiple billions of dollars.
At some point here, these positions become too good to pass up. I am not suggesting we are there yet, and that there isn't another leg down to come. Nor am I in a position to recommend even the stocks I have listed above. Don't buy them on my say-so. But as the market continues to get cheap simply due to people running for the exits, it may be time to stop, look around, and ask yourself one question,"why do I always seem to buy high and sell low?"
Personally, these moments of capitulation give me hope that better times are ahead, and if I can just get through these times, that perhaps we can build a better tomorrow on the lessons being learned today. At this point, I'd settle for a nice Spring day! Winter's lasted long enough, hasn't it?
Monday, March 2, 2009
GOP has only one choice--Newt MUST Step Up
Desperate times call for desperate measures. And times these days could be classified as desperate. The economy is in shambles. None of the economic ideas of the day seem to be working. News gets worse on an hourly basis, as one company after another seems to be blowing up. I don't even want to pick up the newspaper these days.
For a Republican, times are truly unwatchable. There hasn't been a beloved leader in the party for years, and the folks in charge these days lack a spine, a common message, or a coherent argument for their point of view. They have allowed the opposition to pigeon-hole all ideas into a common theme--that any Republican ideas have been tried and have failed during the Bush years. Basically, the legacy of George Bush is one that the GOP will spend huge amounts of time and resources overcoming.
After watching CPAC this past week, I was both amused and saddened at the whole charade. These events were more comical when the smug but kind of useless musings of Ann Coulter and others could be written off to the notion that the GOP was still the party of ideas, and somewhat in charge of things. Those two notions are gone now. And the GOP has completely lost control of their messaging machine. They are now seen by America as the party of fiscal IRresponsibility, the Party of "NO", and now they are seen as the party that didn't want to do ANYTHING while the Economy tanked. They are even allowing Democrats to paint them as the cause of the failures in the Economy, and Barack Obama as the troubled savior, come to slowly piece back together the mess the GOP hath wrought upon the country. Is it any wonder that all of the polls have Brand R somewhere south of Dick Cheney-land, in terms of popularity?
So, to stem the tide of the political party, and to help avoid a third electoral lambasting at the hands of the Democrats in 2010, I suggest that the GOP turn to an oldie but a goodie--Newt Gingrich--and beg for a new plan to bring the party back.
"But Newt's old, and was run out of town 10 years ago..." you may say. That's true. However, the current crop of GOP leaders and hopefuls are too old, too timid, too freaky, or too dimwitted to take control of this party. Consider the front runners:
Sarah Palin--please. If George W. Bush proved anything, it's having a president that you would want to have a beer with, isn't the best way to choose a leader. Palin is just a better looking female W.
Bobby Jindal--A more serious leader, but he's got a LOT of credibility to make up for after that horrendous introduction to the nation in his rebuttal to Obama's address to Congress. Too young.
Mitt Romney--the hair. Good grief. And bringing in an East coast, wall street elite into this environment should go over like a lead balloon...
Mitch McConnell--He really does look like a turtle. And his power to effectuate change has been reduced to whining on the talk shows about the lack of cooperation with Harry Reid. Not exactly inspiring rhetoric.
John Boehner--Awfully tan for a guy in Washington in early March. Honestly, what does this guy do other than use language that would rival a 16 year old girl? (listen to his speeches and imagine a high-school junior on the pep squad delivering them. Scary isn't it!?) It may be time for him to EXIT leadership, rather than seek higher office...
Eric Cantor--While politically adept in his party, Cantor's appearances on the talk shows have NOT been impressive, and he does NOT offer any sort of inspirational message of ideas, optimism, or hope.
Mark Sanford--not taking any stimulus money? He'll be crucified if he takes any now, and his state will crucify him if he doesn't. Way to box yourself in, Gov!
Rush Limbaugh--If you want the party to truly be a marginalized, regional party, just keep pushing, Rush. By the way, what happened to that diet? You look like an angry, fat, white guy who is just bursting to scream "COMMIE" at anyone with the audacity to have an idea that doesn't mesh with yours. Remember, it's easy to criticize. Not so easy to lead.
This brings me back to Newt. Sure he was busy impeaching Bill Clinton for having an affair while he, himself was having one. Sure, he was cast by the left as the bogeyman for shutting down government over a battle on medicare costs. But he also led his party to prominence in the 90's, and was able to lead the country to a fiscal path that balanced the budget, and set up an economic environment to create 20 million new jobs.
Newt is an idea factory all to himself. This is a guy with true vision for the country, whether you agree with him or not. And we may need some bold leadership, if the current administration continues to react slowly, and timidly, as they have shown recently.
I think the GOP faithful has shown itself to be fractured, lurching, antagonistic, and united only in its opposition to the current Democratic leaders in Washington. If they are not careful, they will be completely marginalized in the next election--unless a leader can step up and offer a truly viable alternative to the voters. Newt, your party needs you. It's time to step up.
For a Republican, times are truly unwatchable. There hasn't been a beloved leader in the party for years, and the folks in charge these days lack a spine, a common message, or a coherent argument for their point of view. They have allowed the opposition to pigeon-hole all ideas into a common theme--that any Republican ideas have been tried and have failed during the Bush years. Basically, the legacy of George Bush is one that the GOP will spend huge amounts of time and resources overcoming.
After watching CPAC this past week, I was both amused and saddened at the whole charade. These events were more comical when the smug but kind of useless musings of Ann Coulter and others could be written off to the notion that the GOP was still the party of ideas, and somewhat in charge of things. Those two notions are gone now. And the GOP has completely lost control of their messaging machine. They are now seen by America as the party of fiscal IRresponsibility, the Party of "NO", and now they are seen as the party that didn't want to do ANYTHING while the Economy tanked. They are even allowing Democrats to paint them as the cause of the failures in the Economy, and Barack Obama as the troubled savior, come to slowly piece back together the mess the GOP hath wrought upon the country. Is it any wonder that all of the polls have Brand R somewhere south of Dick Cheney-land, in terms of popularity?
So, to stem the tide of the political party, and to help avoid a third electoral lambasting at the hands of the Democrats in 2010, I suggest that the GOP turn to an oldie but a goodie--Newt Gingrich--and beg for a new plan to bring the party back.
"But Newt's old, and was run out of town 10 years ago..." you may say. That's true. However, the current crop of GOP leaders and hopefuls are too old, too timid, too freaky, or too dimwitted to take control of this party. Consider the front runners:
Sarah Palin--please. If George W. Bush proved anything, it's having a president that you would want to have a beer with, isn't the best way to choose a leader. Palin is just a better looking female W.
Bobby Jindal--A more serious leader, but he's got a LOT of credibility to make up for after that horrendous introduction to the nation in his rebuttal to Obama's address to Congress. Too young.
Mitt Romney--the hair. Good grief. And bringing in an East coast, wall street elite into this environment should go over like a lead balloon...
Mitch McConnell--He really does look like a turtle. And his power to effectuate change has been reduced to whining on the talk shows about the lack of cooperation with Harry Reid. Not exactly inspiring rhetoric.
John Boehner--Awfully tan for a guy in Washington in early March. Honestly, what does this guy do other than use language that would rival a 16 year old girl? (listen to his speeches and imagine a high-school junior on the pep squad delivering them. Scary isn't it!?) It may be time for him to EXIT leadership, rather than seek higher office...
Eric Cantor--While politically adept in his party, Cantor's appearances on the talk shows have NOT been impressive, and he does NOT offer any sort of inspirational message of ideas, optimism, or hope.
Mark Sanford--not taking any stimulus money? He'll be crucified if he takes any now, and his state will crucify him if he doesn't. Way to box yourself in, Gov!
Rush Limbaugh--If you want the party to truly be a marginalized, regional party, just keep pushing, Rush. By the way, what happened to that diet? You look like an angry, fat, white guy who is just bursting to scream "COMMIE" at anyone with the audacity to have an idea that doesn't mesh with yours. Remember, it's easy to criticize. Not so easy to lead.
This brings me back to Newt. Sure he was busy impeaching Bill Clinton for having an affair while he, himself was having one. Sure, he was cast by the left as the bogeyman for shutting down government over a battle on medicare costs. But he also led his party to prominence in the 90's, and was able to lead the country to a fiscal path that balanced the budget, and set up an economic environment to create 20 million new jobs.
Newt is an idea factory all to himself. This is a guy with true vision for the country, whether you agree with him or not. And we may need some bold leadership, if the current administration continues to react slowly, and timidly, as they have shown recently.
I think the GOP faithful has shown itself to be fractured, lurching, antagonistic, and united only in its opposition to the current Democratic leaders in Washington. If they are not careful, they will be completely marginalized in the next election--unless a leader can step up and offer a truly viable alternative to the voters. Newt, your party needs you. It's time to step up.
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