Who Is the Government Going to Bail Out Today?

It appears we are back to 2008-type trading; guess what the government is going to bailout next, and place your bets. The only irony in watching these stocks soar is knowing people in the supplier industry and these companies themselves and realizing what shape they are in while their stocks surge. As we said last week, [Jun 4, 2009: Detroit's Woes Wound an Army of Suppliers], there will be a lot of fallout in the multi-thousand supplier base, but as with banks, it appears the government will protect the largest.

And this is exactly the type of information having a bevy of friends from Goldman Sachs within government provides - you know exactly where to place your chips. Not that this type of thing ever happens. And we wonder how Goldman had only 8 losing days on their trading desk in all of first quarter 2009. (talent of course, not information flow) If you want some bemusement feel free to check out this piece on Huffington Post on how to properly sleep with the government [Government Sachs - Goldman's Close Ties to Washington Arouse Envy, Raise Questions] The "relationship" map within that story, not to mention the literal list of all the names intermixed in government.... is staggering.

But I digress! No matter what shape the companies are in today, as with Sequenom (SQNM), all that matters is a technical intraday breakout or a huge volume spike, and away we go... daytraders pile in. Today's winners are Lear (LEA) +50%, American Axle (AXL) +30% and Dana (DAN) +20%. The speculative fervor in low-price stocks continues on. This is the sideshow; the real money will be made when the government picks the winners of its next round of largess, and the information is kept "top secret" (no leaks) so those with connections won't be able to alert their trading desks.

Anyhow back to the resurgent* auto supplier business. Look at those volume spikes the past 2 days! Yowsers - one point about "American" Axle (AXL) - last I read in the local paper a few weeks ago "American" Axle is in the process of closing American plants and moving operations to Mexico.

• U.S. auto supplier American Axle & Manufacturing Holdings Inc (AXL) is set to close the largest axle plant in its Detroit-area manufacturing complex and move production to Mexico, a United Auto Workers union official said on Tuesday.
• "People are very upset about losing their jobs,""They're very upset that a company with the word 'American' in its name is moving jobs to Mexico." (while it is ironic, there is a very simple solution - "Mexican Axle" is just a little whiteout away - just remember, the profits stay in the country. Wait, did I say profits?)
• Alford said American Axle had informed the UAW the plant would close by mid-July and production would move to Guanajuato, Mexico, by the end of July.

Just wanted to let your grandkids know where their money is going as we unleash more bailouts. The path to the jobless US economy is long and strong. (remember, American labor is just an unnecessary cost - the less of it, the better for the green shoot recovery and profits) Oh don't worry - the salaries still stay with the CEO, CFO and the top staff and a few white collar folk in the good ole USA, so your bailouts are helping out.

And you know how it works from there - your bailout supports these few at the top (because it makes sense for CEOs to make 300x on average the median wage - I mean how many people could run a company to the point it needs government bailouts? Only the most talented), and then they will spend that money in the US economy, and it will "trickle down" to the rest of the peasants soon enough. Yep. Same shenanigans, different industry (finance, auto, you name it). Delphi has been in bankruptcy for almost 4 years now yet paying retention bonuses to head honchos because "we can't lose the talent".... same argument as the banks. I just wish I had this sort of talent.

*including government bailouts

Enjoy

• U.S. auto-parts companies plan to ask the Obama administration for as much as $10 billion in new aid as General Motors Corp. and Chrysler LLC bankruptcies deepen the suppliers' troubles. The Treasury earlier this year put in place a $5 billion program to guarantee GM and Chrysler payments to suppliers, but supply groups said the program falls short of what they need.
• Trade groups will meet Wednesday with President Barack Obama's auto task force at the Treasury Department and warn that hundreds of parts companies could collapse without the aid.
• The parts companies account for more than three-quarters of auto-sector employment in the U.S., according to a Chicago Federal Reserve study, with employment of about 600,000 -- roughly five times as many workers as are expected to be employed by GM and Chrysler's domestic operations once their government-subsidized restructurings are done.
• A Treasury Department spokeswoman said administration officials "will continue to work with the companies and monitor the auto supply base going forward."
• The supplier groups also plan to meet with members of Congress on Thursday to press for alternatives, including legislation, if the administration declines to provide further aid

Just another day of free market capitalism.

Disclosure:No position

Comments

[andymajumder:]

How very true....I guess this is the only way you can make money in this market since rational an valuations don't work anymore.

Jun 10 09:21 PM

[All Thumbs ...:]

Just wrapping up the details on the Detroit bailouts and soon to be digging into bailouts for the spiderweb of suppliers. Green shoots will be a farcical term soon enough. The politics republicans and democrats play can't hide the fact that one in ten workers in this country doesn't have a job!

Jun 10 09:51 PM

[John Galt:]

Somebody should investigate all the shadyness that takes place with Goldman Sachs. Then again, with former Goldman guys running the gov, and former gov guys at Goldman, the odds are slim to none. I wonder how often non public information transfers from these " friends".

While everybody is tuned in to American idol, just keep funneling money from the tax payer to Government Sachs through AIG.

Jun 10 10:16 PM

[John Galt:]

TraderMark

Before you rant on about how people are too stupid to manage their own 401k's and that we should be forced into a managed pension fund, or that people on food stamps are unlucky, or that CEO's are overpaid....

CEO's do get paid many times median wages but are they overpaid? Sure the bad ones are overpaid, but isn't the average NBA Salary at 4.5 million bucks per year a bit excessive too? That isn't even a good basketball player, that's the average salary and they even have a salary cap!

Tom Cruise and Will Smith can make 20 million bucks per year for pretending to be other people in movies. Tiger Woods can make 75 million bucks per year playing golf and doing commercials. Musicians can make big money for rapping about violence. Mike Tyson had some years where he made 75 million bucks in a year for beating people up ( before Don King used to take his cut). Race car drivers, baseball players and other athletes can make big bucks and that doesn't even guarantee they will pan out. See Carl Pavano, Juwuan Howard, Kevin Brown or many other 100 million or so dollar contracts that weren't even close to working out.

A CEO of a major corporation could be in charge of a couple hundred thousand jobs. They shape industries and have a huge impact on their businesses. A good CEO like Steve Jobs can be worth so much to his company, while a bad CEO like the Andrew Liveris or Angelo Mozilla could do so much damage. I do tend to think that these guys should make more money than the average worker.

The CEO's of many of our financial companies have done bad jobs. There is no doubt about that. They made risky bets and they lost and they certainly don't deserve big salaries or compensation, in reality, they owe the employees that got laid off an APOLOGY and they should be returning money.

but I get tired of hearing the populist talk that CEO's make SOOOO much more money than the average worker. Yes CEO's get paid sooooo much more than the average worker, but so do Will Smith and Tom Cruise. Don't you think the guy in charge of 200,000 jobs and billions of dollars should make more money than the guy that pretends to be a bad a$$ navy fighter pilot or the guy that shoots space aliens in a movie?

Jun 10 10:34 PM

[Mark Bern:]

I enjoyed the article and share the author's concern about the government bailouts. One of the biggest problems with the bailouts is that the government, once they become a shareholder, takes over and starts to call the shots. Government is not good at running businesses. Think about Amtrack for a moment. It's been on the government lifeline for how long? Could it make money if it had to? We'll probably never know because it doesn't have to when it has a rich uncle.

My greatest concern is not simply that the government has bailed out companies and started dictating policies. No. My greatest concern is that the government has set a precedent and now it can justify entering into the private sector whenever and wherever it deems "necessary." I look for the newspapers to get bailed out, then other media companies. If the government gets its hooks directly into our sources of "news" we're likely to hear nothing but propoganda filtered and/or controled by those in power. There could be reality that we feel and see all around us and there will be the "official line" coming out of the media.

I know this all sounds like a big conspiracy theory. And I do hope it never happens. All I'm saying is that the precedent has been set. I don't like the doors that have been opened, even if seemingly only by a crack. The bankruptcy courts should be allowed to do what they are created to do. The strong, well-run companies should prosper and the losers should be allowed to die. The strong will hire employees from the weak and continue to grow and it will all balance out in the end. The economy becomes stronger through the process.

Jun 10 11:02 PM

[Asitoughtobe:]

The picking and choosing of supplies who will survive is likely happening based on manufacturing capacity, product quality, financial position, cost structure and other sound business judgments. If there were no government money involved the private firms would decide what manufacturing plants would remain open and decide what manufacturing plants would close. These types of decisions are not ever made by common shareholders and/or bondholders. So i leave it to those who run the businesses to make their decisions and I will wait to VOTE with my dollars.

I will choose to buy the product which provides me the best quality for the type of drive I desire with the lowest cost of ownership for me to operate throughout the auto's lifetime. American made and/or assembled will certainly be a part of that decision making mix.

The second matter which you developed in your piece is that of the GS connection to our government and rather than go off on a rant I will say this, "where there is smoke there is fire!

And the hypocrisy of the fact disturbs me!

Healthy Trading!

Jun 11 12:31 AM

[mouth:]

Better jobs moving to Mexico, than to China. Mexicois our neighbor and we trade trades workers all day long, with them. If your neighbor's house gets painted, it is good for your house.

Jun 14 01:54 PM

[ToddD:]

Good point

ToddDiroberto

Jul 23 04:26 PM