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The Playbook That Killed Automakers

|Includes:BREW, BUD, DRG, HOG, OSGB, Oshkosh Corporation (OSK), PCLN, TZOO
I guess that when the White House essentially gives you an auto company, it's easy to become emboldened and unrealistic. But, the UAW really seems to be making a giant mistake in Wisconsin. I'm sure many of you know the union turned down a contract extension at Oshkosh (NYSE:OSK), the super hot maker of military vehicles. The union was appalled at the offer it received from Oshkosh management.

  • 3.5% pay hike
  • $750.0 signing bonus
  • No healthcare premium increases
  • Incremental increases in pension and fringe benefits
The extension was offered for a year, and that angered union leaders looking for more long-term security. On a thread for the Journal Sentinel of Milwaukee, this is how one union worker replied to non-stop criticism of the decision.

"You idiots think it's all about the money. It has nothing to do with the money. It has to do with the company not honoring the laws of FMLA. A guy has to take care of his wife after a heart attack. He is walked out on and doesn't have a job. A woman with cancer needs time off for chemo, she is walked out on for attendance. A man's wife has a baby and he needs a week off. His FMLA is denied. Just a few examples.

These are the rights we are fighting for. The rights many other companies have in place already. This is why we rejected the contract.

Yeah, you all wanna work here. Better not get sick or need time off to help your family."

The answer to his last question would be yes from the 14.9 million not working in this country and the 8.9 million working part-time for economic reasons and the 2.4 million marginally attached to the workforce. Actually, there are many people with jobs that would have taken the offer in a heartbeat.

In fact, management at Harley Davidson (NYSE:HOG) knew there were people all over the country and all over the world eager to work for decent wages. Ironically, that same knowledge seeped into the consciousness of the folks that run the United Steelworkers of America union and International Association of Machinists and Aerospace Workers. Harley was ready to bolt Wisconsin, but decided to stay put this week after unions agreed to tough terms.

  • Wage Freeze
  • Laying off 325 workers
  • Union workers moved to same pension plan as salaried workers
Oshkosh won a string of big-time military truck contracts in 2009, and there is a ton of money sloshing around the company. But, those trucks are mostly for the Iraq and Afghanistan theaters. What happens when those wars are over? Take a look at the chart below, and it wasn't too long ago when the very existence of the company was questionable. The stock touched $4.74 on March 6, 2009, and has been under a fair amount of pressure more recently. For an organization whose rally cry is "fight greed", it's amazing the UAW is playing such a dangerous and irresponsible game ... unless. Maybe it has been inferred to OSK management that getting new U.S. government contracts could become more difficult if their demands aren't met.

The union should think it's a part of the country and want it to succeed in good times and bad times, and the only way a smart business does that is to be prepared for a rainy day.
For what it's worth, what happened in Wisconsin this summer is a microcosm of what's going on in this country. The same people pulling the strings and selling fear want lavish amounts of money showered on union workers and less on people without jobs. They aren't considering the future or how the nation could grow if we lighten the load on entitlements and political payoffs.

On that note, the government is really twisted and sick when it thinks allowing me to keep more of the money I earn is the same as giving me money. Say what!!! The White House is so wrong. It doesn't cost the government a dime to allow job creators to keep more of the money they earn. The nerve of the government to wedge itself into private transactions is an affront, but to actually attempt to divide the nation by pushing through policies that say people that didn't pay federal income tax deserved a rebate while those being crushed by Uncle Sam deserve only our scorn is wrong. I hope the GOP stands its ground and makes sure all Americans enjoy the Bush tax cuts in this critical time when we need to unlock spending and enthusiasm, and not continue browbeating successful people.

The President that was going to unite the nation continues to pit it against itself. It's not social justice, or smart, to punish success. Schools opened across the land recently and one would think lessons were learned over the summer. People are angry, and it's not only with Wall Street, and it has never been with the woman that owns the wig store on Main Street. Fanning the flames of that anger in hopes it will destroy your enemy is as dangerous as starting a wildfire in the hopes it only engulfs your neighbor's home.

"America will never be destroyed from the outside. If we falter and lose our freedoms, it will be because we destroyed ourselves."
Abraham Lincoln

Abe Lincoln lost eight election attempts, including Senate runs in 1854 and 1858, and yet won the presidency in 1860. People must do the right thing even if it means losing now. Sticking to principle is critical and all-important.


Getting high on anything but Cocaine

Not only have we lost the War on Poverty, but we are losing the War on Drugs. According to the Office of National Drug Control Policy, overall drug use increased 9% in 2009. 21.8 million people, or 8.7% of the population, took drugs last year, which was the highest reading since 2002. The report pointed to "eroding attitudes" about the perception of harm from illegal drugs.

  • Marijuana +8%
  • Ecstasy +37%
  • Methamphetamines +60%
  • Cocaine -32% from 2006
So much money has simply been thrown at the problem, but there has never been a real strategy. In September, another grant of $22.0 million was awarded to 169 communities' drug free centers to go along with $63.0 million already awarded to 549 such centers. There are so many cautionary tales here including the notion that throwing money at something without really addressing the mindset and other influences is a waste of time. So far, we have spent $36.0 billion on the War on Drugs.


Another dubious record was established as foreclosures climbed to 95,364 in August, the most ever in a single month, and up 3% month to month and 25% year over year. The good news is that initial default notices declined 1% m/m and 30% y/y but warning letters, which come before foreclosure proceedings are launched, may be leveling off at 338,836, +4% m/m but down 5% y/y.

Fed Axe

FedEx (NYSE:FDX) posted results that missed the Street by a penny on the bottom line, and announced it would lay off 1,700 employees as it consolidated its trucking divisions. Guidance for the current quarter was below the Street, although FY11 guidance was above consensus.
Democrats coming around on taxes

About a week ago, four Democrats on Congress began circulating a letter asking the Administration to extend the Bush tax cuts for everyone for one more year. James Matheson-Utah, Melissa Bean- Illinois, Glenn Nye -Virginia, and Gary Peters -Michigan have been joined by many others, and yesterday the letter signed by 31 House Democrats was sent to Nancy Pelosi and Steny Hoyer.

Market Trends

  • Travel is hot ... airline fees took the UK CPI above 3.0, while fees are climbing in the U.S., too. PCLN has been a monster, but others like TZOO are coming on strong as well.
  • Value investors are going to work....I think the action in drug stocks (check out DRG) supports the notion deep pocketed and smart investors are getting back into the mix.
  • Credit company stocks may have hit card debt is at an 8-year low, but savings dipped a little in July and people may begin to spend more. Although the use of debit has surged, credit is poised for a bounce.
  • Dry Bulk could begin to reflect longer term strength and confidence around the world. There have been some upgrades including one yesterday by Wells Fargo (NYSE:WFC) on OSG and others.
  • Consolidation in the beverage space is making the rumor mill, with much talk that BUD may take over HOOK (they were in talks last year that broke down).Market breadth isn't as bullish as I would like, although buying is widening.
I like the way the market closed (again) yesterday, it was impressive. Surely, bears have to be a little nervous right now. I would say it's beginning to feel like long-tailed cats in a room filled with rocking chairs, but a better analogy would be incumbent politicians up for reelection.