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Michael Chandler
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I have been a registered investment advisor since 1989, Currently owner and founder of Dogwood Capital Management
  • The Administration's War On Corporate America 0 comments
    Nov 4, 2012 6:25 PM | about stocks: JPM, WMT

    A systematic war is being waged on Corporate America by the current "Chicago" administration and its allies in the Big Union industry (for that's exactly what it is).

    Before I take that point any further, however, let me state up front that Corporate America is not without blame. Recently there has been deplorable malfeasance in the banking arena, and in other corporate areas, too. An excessively ideological approach to deregulation was bound to create problems, and the investment world should never have been commingled with the banking world. And this needs to be said, too --- a criminal is a criminal and should be prosecuted to the max. Period.

    But we can recognize defects in the corporate environment, and still be completely appalled at the duplicity, arrogance, and naiveté of those whose dealings with Corporate America are characterized by unthinking, gut-level hatred.

    Consider the war being waged on two of the greatest companies of our time --- JP Morgan (NYSE:JPM) and Wal-Mart (NYSE:WMT). JP Morgan is the subject of a legal attack by the federal government. The campaign against Wal-Mart is an ideological and cultural assault by Big Unionists, often aided and abetted by gullible theorists in the PC Media.

    Let's start with JP Morgan. The 2008 financial crisis took the shine off some sparkling reputations in the financial world. One name, however, shone even brighter amid the rubble, that of Jamie Dimon of JP Morgan, one of the finest CEO's of our time. His company came out of the crisis pretty much unscathed, establishing a reputation as one of the best financial firms around. Morgan was forced to take "bailout" money --- they didn't ask for it, and they didn't need it, and they promptly and fully repaid it.

    Recall that, in the dark days after Lehman Brothers fell, it appeared Bear Sterns was heading down the same treacherous path as Lehman. The Federal Reserve and the Treasury Department went to Jamie Dimon and asked him to buy Bear Stearns, just to keep from having another meltdown by a major financial firm. Dimon could have walked away. But he didn't. He stepped up for the good of the nation and its financial stability --- and he bought a company that everyone knew was going to fail. In many ways the mortgage mess at Bear Stearns turned out to be even worse than the one at Lehman Brothers.

    But now, the Obama-Holder Justice Department is suing JP Morgan because of that very same mortgage mess at Bear Stearns --- the company JP Morgan absorbed at the request of the Administration, the very mess created in part by the government .

    The Administration's conduct in this matter is brazenly cynical, self-serving, duplicitous, and unethical . . . not to mention shortsighted. Even Congressman Barney Frank, one of the founders and creators of the whole nationwide mortgage mess, has stated that the Justice Department should not be suing JP Morgan over this issue. Shame on you Mr. President!

    If we turn to Wal-Mart, we see a similar war being waged against the company by labor union hacks and San Francisco ideologues.

    Wal-Mart has had a positive influence on this country from the very beginning. Back in August 2012, IBD reported that "Everyone knows Wal-Mart has been a positive influence on inflation. A few years back, the highly respected National Bureau of Economic Research even estimated that the government's consumer inflation data were overstated by about 15%, due largely to the unrecognized impact of Wal-Mart's everyday low prices on the economy."

    The implication seems to be that Wal-Mart's prices should not be included in the calculation of the consumer price index, apparently because Wal-Mart is so large it would skew the numbers.

    The same IBD article goes on to say that "a separate study by the investment advisory and forecasting firm Global Insight estimated in 2006, Wal-Mart's low prices saved consumers roughly $287 billion or about $2501 per household. The impact especially on low-income consumers has been enormous." John Tierney, a New York Times columnist, even suggested Wal-Mart receive a Nobel prize for helping pull so many people out of poverty according to IBD. Wal-Mart has 1.2 million employees here in the United States. It is by far this country's largest civilian employer, hiring 600,000 new employees per year.

    As a big box retailer with many part time and seasonal employees, Wal-Mart has an annual turnover rate of 44%, which is in line with the industry average. The company has been accused of reducing living standards, hurting retail trade, disrupting communities, and relying on government programs to provide healthcare for its employees --- not to mention paying lower wages.

    These accusations are simply naïve. Or is that putting it too bluntly? Perhaps I should say the accusers are . . . ah, uninformed.

    To begin with, the individual skill level is not very high in the retail sector. Pay is around $10-$11 per hour, as an industry average. Is Wal-Mart "disruptive"? Does it cause other retailers to close? Probably so, at least in some well-publicized cases. Yet, from a "net" perspective, Wal-Mart is still adding to the total number of regular paychecks in the local community. And remember, Wal-Mart saves the average family an estimated $2501 every year, because Wal-Mart competes primarily on price --- it is not in competition with specialty shops or other "niche" sellers.

    But what about the claim that Wal-Mart doesn't provide healthcare for its employees? Actually, statistics show that 40-50% of all Wal-Mart employees participate in the company- sponsored healthcare plan. It's been estimated that fewer than 10% of Wal-Mart employees have zero healthcare coverage. Some have alternative healthcare through a spouse's employment. Some are on Medicare and over 65.

    True, the plan at Wal-Mart is not 100% paid by the employer, and employees have to pay some of the premium. It is also true the plan is generally not a "Cadillac" plan, but at least it is paid for without government bailouts --- unlike the auto industry.

    Oh, those unions! They have lost their way, wandering far from their original purposes, which were generally laudable.

    And today, one of the major reasons America can no longer compete globally in the automotive industry is those very same unions . . . now led by white-collar, college-educated "militants" making good salaries. The incredible legacy commitments (Healthcare and Pensions) forced by the unions have crippled our auto industry and soon enough --- mark my words --- the automakers will need another bailout.

    By their very nature, unions have limited incentives to help a company live within its means --- they are parasites feeding on a host company. And that goes far to explain why, unlike Wal-Mart, the automakers cannot live within their means, and why they cannot compete globally with companies that can . . . and do.

    Do you remember the movie "Network"? There was an old guy who runs to the window and screams, "I'm mad as hell, and I'm not going to take it anymore." That would describe me to a T.

    A political, legal, ideological, and cultural war has been declared on the very companies that drive our economy. These companies are great companies with great leaders. We need to put aside the noise, drill down and support these companies and many more. I would be proud to own both of these companies in any portfolio and I suspect they will survive the current onslaught on their reputations.

    We cannot keep this up much longer.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: JPM, WMT
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