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Preventing the Depression of 2009

So essentially the government will create a risk free set of securities based upon risky assets?

This has got to be one of the WORST ideas I've ever heard. Wouldn't this guarantee a mis-allocation of capital?

Deepwater Drillers: Not in a Very Deep Hole

I'm not an expert in this market, but I'm hearing that the price of oil needs to generally average over $70 a barrel for deep water drilling to be profitable long term. That means the price of oil needs to nearly double for the business model to work.

I'm sure there will be value there someday, but there's nothing here that is convincing me to be a buyer at this point in time.

Why AIG Gets Billions While GM Gets Scorn

Just because AIG got money, doesn't mean it's a good idea to give it to GM. I haven't heard the "it isn't fair" argument this often since I was seven. Any money from the government needs to be premised on either the company being orderly wound down or turned into a feasible business. Neither of these two options is really on the table for the automakers. Congress will never have the political will to see through the job losses necessary for either option to work.

There is only one institution that is equipped to rationalize this type of restructuring, and that is a bankruptcy court. The government could easily step in to make bankruptcy an orderly process. They could guarantee a portion of the DIP financing, a portion of the suppliers receivables, and new warranties until the company is out of Chapter 11. We might even get a functioning auto industry out of the process.

With Congress calling the shots on a blank check bailout, all you'll get is an endless stream of money thrown at car makers so they can continue to produce cars no one wants to buy.

Gold - Not the Safe Haven People Think it Is

How is the value of gold more than purely psychological? The primary driver in the recent run up in gold is fear. In fact, I would say the value of gold is far more psychological than that of dollars.

Next time you're at the grocery store, try paying in gold and see what happens.

And if you want true protection against massive inflation and/or currency devaluation, buy a house. I'm sure you wouldn't mind the value of your mortgage "reverting to its intrinsic value" over time.


On Dec 10 01:55 PM E.D. Hart wrote:

> The US dollars value is purely psychological, and only accepted as
> valuable because it is backstopped by the "full faith and credit
> of the US Government." In short, the ability of our government to
> tax and borrow.
>
> Every paper currency ever created has reverted to its intrinsic value
> given enough time.
>
>
> Gold has had value in every society ever discovered, from tribes
> in the Amazon, the Egytians, the Macedonians, Greeks, Romans, and
> Byzantines. Gold has 10,000 years of history as a store of value.
>
>
> To say golds value is purely irrational and psychological begs the
> question: compared to what?

Emerging Markets: The New Spenders of the 21st Century

I seriously doubt these conclusions will come to pass in this economic cycle. The reason most people in BRIC countries now have some disposable income has to do with all of the low wage manufacturing jobs that moved there. As American and European consumers spend less, the impact on jobs will be much larger in these countries than the West.

Although each of these countries made some moves towards (and a few against) long term economic stability, they still stand to suffer many times worse than the American consumer.

Let GM Fail

Yep, they sold 9,369,524 vehicles, with a loss of $38,732,000 in 2007. That means they are losing $4,133 for every vehicle they sell. What a great company.

If they are really such a great company, why can't private investors foot the bill?

___
GM outsold Toyota by about 1.2 million vehicles in the United States last year and holds a U.S. lead over Toyota of about 560,000 so far this year. Globally, GM in 2007 remained the world's largest automaker, selling 9,369,524 vehicles worldwide -- about 3,000 more than Toyota.
___

The Autos and Mentality That Ruined Detroit

Problem #1: American made cars have bad quality, bad branding, and the companies have bad management. There is no reason why these companies should be kept afloat.

Problem #2: Letting one of the big three shut down would be an economic nightmare for this country and they can't be allowed to fail.

Problem #3: Both of the above are right.

So what do we do?
My proposal:
-Let GM declare chapter 11. It will be messy, but it has to be done. Private investors will have to put up the restructuring loan. If they can't do this, then part of the bailout can guarantee (but not act as) some of these loans. They can restructure their debt, pension obligations, and entire business model. If it works right, we might actually get an American car company that we can be proud of.

Do the Automakers Deserve a Bail Out?

List off all of the "American is better" reasons you want. At the end of the day, it doesn't translate into sales, so it's irrelevant. I'm still waiting for someone to name a single competitive advantage that any\ American car company has developed. I can't think of any. How can American made Toyota's and Honda's be profitable, but GM can't come close to breaking even?

GM's losses have been in the BILLIONS since 2005, and they've still been paying out $500m-$1.1B in dividends yearly. Sounds like brilliant management to me.

And as for your "patriotism" comment, I'm a two tour veteran of the Iraq war, and contempt for Detroit has nothing to do with loving you country.

China's Greatest Trade Ever

Trying to divine China's currency policy from a newspaper article is like trying to divine US tax policy from Joe the Plumber. It just doesn't work.

Countdown of Manipulated Gold Price Running Out

I can never tell if who the goldbugs are trying to convince that gold is worth millions per ounce.

They reason that futures traders can manipulate the price of oil both up and down, while somehow thinking gold is immune to this phenomenon. Guess what? Momentum traders will take the price to below ~50% of gold's high, just like they did to oil.

Cramer: Dow Could Drop Another 14%, Oil's Going to $50

Cramer does have some insightful things to say, but it's hard to take him too seriously. The man is completely bipolar. This week, stocks are down big, therefore the world will end. Stocks will be up at some point next month which will then be the time to invest everything. Has Cramer ever had a counter-trend opinion?

Questioning Obamanomics

I agree with your analysis 100%. Just remember, no politicians campaign on what they will actually do, but on what people want to hear. And you can't blame the politicians, because it's what people vote for.

Who would get elected by talking about little things like the pension crisis or cutting social benefits?

The Most Essential Secret to Successful Investing

So why was patience a virtue several months ago, yet selling your position such a good idea now? Has something changed in the fundamentals, or are you ignoring your own advice?

Solvency and Liquidity: Non-Identical Twins

Thanks for the good article David. I always find your posts insightful.

The Economic Cost of the Military Industrial Complex

Yes, defense is expensive. Have you tried considering the cost of NOT spending on defense?

As a platoon leader in Iraq (2003-2004) I had more than $2 million worth of equipment for my 32 soldiers. Yes, that was expensive. However, that expensive equipment is what let me bring all 32 soldiers home. In one specific instance, I can credit thermal optics ($.5 million each) with saving the lives of myself and ten others.

My question to you: If one of your sons were in the military, would your beliefs on defense spending change?