With every economist and pundit analyzing every statistic down to the 'N'th degree, could the solution to this nation’s recovery be as simple as the fact that you can sleep in your car but you can’t drive your house?
If James Dunn from West Columbia, S.C. is any indication, it just might be. James, you see, took the severance check from the job he just spent his last day at and plunked it down on a brand spanking new Dodge Caliber, trading in his 1989 pickup truck with over 300,000 miles on the odometer and reaping a whopping $4,500.00 rebate in the process. When asked why he did what he did he replied: “The economy is picking up, it seems like it is anyway.”
John Weiskirch, the proud owner of a paint peeling 1990 Jeep Cherokee was on slightly more stable economic ground when he went for his trade in:
“I’m feeling a little more optimistic that I can get a car and my job’s not going to disappear in six months or a year. I’m watching my 104(k) recover a bit. I’m feeling like the Dow’s going to go over 10,000 and the NASDAQ’s going to go over two [thousand]."
Congress did something completely out of character on Friday, moving with haste to inject an additional $2BN into the Car Allowance Rebate System (CARS) more affectionately known as “cash for clunkers”.
Throughout this crisis of confidence we have seen the politically motivated actions of our lawmakers generate little else but unintended consequences. The Department of Transportation, since we’re on the subject of cars, has been charged with disbursing $48BN of the $787BN in stimulus funds approved earlier this year. Of their allotment, $22BN has been approved but only $967MM has been spent. That’s just over 2% of their allotment and a mere 0.12% of the total.
In less than a week the CARS program ran out of $1BN and had to have more funds diverted to it from a program that backs loans to renewable energy companies. It’s nice to see an unintended consequence on the positive side.
Alan Mulally, Ford’s (F) CEO, was interviewed in Barron’s this weekend and in true car salesman fashion, was upbeat to the point of being ebullient. When asked if going into bankruptcy gave GM and Chrysler an advantage he replied:
“In fact, the GM and Chrysler bankruptcies may have helped our sales. There is a survey showing that 97% of all the people in the United States know that GM and Chrysler declared bankruptcy and are taking taxpayer money. And another study shows that new-car buyers are looking first at Ford because of that.”
Talk about turning adversity into opportunity!
To say Ford’s stock price has been turbo charged lately barely describes its movement. Closing at $1.58 on 2/20 and at $8.00 on Friday, it’s like the certificates are in the back of Steve McQueen’s car in Bullet. The CDS levels on F are sinking just about as fast as the stock is rising, with the high for the year seen on 3/3 at 14625bps but closing at 1027bps on Friday. Not that paying 10% of principal to protect your bonds is anything to sneeze at but it’s a lot better than having to pay 14 times that amount.
Now, we’re pretty far down on the page and it is Monday but before I start fielding emails, let me say that Bloomberg translates all CDS quotes into “running” format which means that the up-front payments that are the norm when bankruptcy seems imminent are quoted as if there were only quarterly payments being made. This can, as it has in this case, distort the CDS level as it would be rare for someone to pay 146% of anything's value to insure it. The point here is more that after almost driving off the cliff, it all didn’t end for Ford like it did for Thelma & Louise!
Enjoy the week.