Alex_G

David Goldman at Asia Times looks at whether it's demographics that might doom the U.S. to repeat Japan's "lost decade(s)." America's aging population's appetite for savings and tolerance for deflation mirror Japan in 1990. (via)

Carlos,

Japan's sovereign debt is 100% of GDP, and will be more at the end of the year. Also, i believe that their entitlement programs are pay as you go.

Europe's numbers will look just as bad as ours, with worse demographics.

Unless the emerging markets develop internal demand for goods and services, there will be less pricing power for commodity producers.

The Consumer Recovery Will Take Time

The savings rate for the most prolific spenders (baby boomers) is going through the roof as they need to replace the savings they have lost in the asset meltdown. No home equity and lower credit card limits will also take it's toll. Anyone who thinks the consumer will take us out of this is just dreaming.

Look for the consumer to be 60-63% of a lower GDP going forward, which will also hurt emerging markets that make a living exporting to the US and EU.

Could protracted unrest in Iran lead to a 1979-like oil price spike? (Heard on the Street)

No, OPEC has cut more than Iran exports. Could they use a disruption in supply to hold prices steady? Absolutely.

How Will Ford Hold Up Against Government-Backed Competitors and China?

Mid term elections are coming up in 2010, and bailing out the UAW will help keep rust belt votes for the Dems. DC hasn't been about the people for many, many years, just about getting re-elected. Term limits and abolition of earmarks would go a long ways in solving this problem, but that won't happen. Get used to a high govt involvement in business and much higher taxes.


On Jun 09 02:06 PM mike defrancesco wrote:

> why does Obama need to be in the car bussiness? doesn`t he have a
> country to run, consentrating on getting the economy kick started
> would be nice! lets keep Goverment out of publicly held companys
> as much as possible, and get people who have some imaganation and
> guts in the "Big 3"

Inflation Concerns Are Premature

The global number is important to your thesis because the lower utilization worldwide, the lower value added margin they can charge, means lower cost, all things being equal.


On Jun 08 01:14 PM Value Interrogator wrote:

> In this article I was limiting the inflation discussion to the US.
> So I'm not sure of the exact global number. I know that Japan's
> utilization percentage is well below their normal levels. From
> the bits and pieces I've read over the last couple months, its probably
> safe to say that capacity utilization in most countries is well below
> normal levels.
>
> On Jun 08 12:18 PM Alex_G wrote:

Inflation Concerns Are Premature

To the author:

Any idea what the global capacity utilization number is at this point?

12 Indications That a New Bull Market Is Upon Us

So, is it a new bull market (one of the shortest bull markets in history) or huge bear market rally after an enormous panic sell-off? Either description is one and the same. I think only a meaningful economic recovery would give us sustained market gains, and the cards are stacked against it.

1) Consumer spending will be muted at best for the next 5 years or so,

2) higher taxes to pay for large increases in debt, which will also retard growth,

implying at best 1.5% average GDP growth from a reduced base.

There is tremendous overcapacity built into our economy right now, and that would also have to be filled to get real growth moving again.

GM Secured Lenders to Get Full Repayment: Why Not Chrysler?

Most likely because the foreign operations (LatAm and China) are worth more than the secured lenders are owed.

New Jersey's Pension Crisis: A Canary in the Coal Mine?

This is a problem all over the world, more so in Europe, less so in Japan (very high savings rate).

As the developed world ages and doesn't produce children even to the replacement rate, there will have to be a mass migration from LDC's, or a massive cut in retirement/healthcare benefits.

GMAC and the U.S. Government - Something Stinks

Tom,

I would also like to address what you call "shenanigans that went on at the time it gained BHC status".

When GMAC became a BHC, 2 things were very apparent:

1) Auto sales were falling off a cliff, partially do to lack of financing, and

2) Banks that had received over $100bln of TARP money were not making auto loans.

Upon receiving TARP money, GMAC immediately made money more accessable to buyers. They did what other banks would not. Period. As far as purpose goes, it was the most effective TARP investment to date.

When the Lehman catastrophy went down, credit and the economy went off a cliff, and the Fed did anything and everything to try to counteract that. Fudging some makeshift and dubious rules in that same vein does not a conspiracy make.

On a side note, your profile says you have a thick skin and welcome disagreement, so I would like to make an observation and ask a question.

Reading through a few of your other articles pertaining to the Fed's and both administrations loose purse strings to the financial industry (including municipalities), you seem to write from a position of (god I hate this term, but have no other to replace it!) outrage. That being said, how would you have dealt with the crisis:

1) Vastly diminished credit available to auto buyers, and no banks willing to fund flooring loans to dealers.

2) Muni bonds: Good quality issuers having to pay 6-6.5%, fully MOB spread 1.5-1.7, when the historical MOB has been .85.

Again, I'm not trying to be an ass here, just taking your invitation to disagreement and discourse in good faith.

I await your reply.

Alex


On May 12 04:16 PM Tom Lindmark wrote:

> Alex,
>
> I respect the fact that you have done your due dilligence and probably
> do have a better handle on the numbers than I do. Nevertheless, as
> I mentioned in this article and others I have written, the GMAC's
> recent history has been nothing short of bizarre. The shenanigans
> that went on at the time it gained BHC status deserve a lot more
> attention than they have received to date. Moreover, Sheila Bair's
> disinclination to guarantee any new debt for the company is to say
> the least odd given her proclivity for throwing around the taxpayers
> money.
>
> I assume from your comment that you own or perhaps manage GMAC senior
> debt. Did you own it at the time they were trying to do the swap?
> Is you did, can you tell me why you didn't participate in the swap?
>
>
> I do appreciate your comments. You're making me think more deeply
> about the issues.
>
> Tom

GMAC and the U.S. Government - Something Stinks

Stu,

Do you own them or thinking of buying?

alex


On May 12 05:45 PM User 412771 wrote:

> Alex,
>
> What is your assessment of GMAC Smartnotes as an investment at this
> juncture?
>
> Stu

GMAC and the U.S. Government - Something Stinks

Tom,

The reason that I have been posting in answer to these GMAC bashing articles is to try to provide some clarity to the misinformation. You must remember, this is a site dedicated to investment ideas. All you and Felix have done with your articles is get on a soap box. There is nothing wrong with that on other blogs and sites, but i don't believe it's appropriate here. You may even scare a Smartnote investor into selling, which i believe would be a mistake.


On May 12 04:16 PM Tom Lindmark wrote:

> Alex,
>
> I respect the fact that you have done your due dilligence and probably
> do have a better handle on the numbers than I do. Nevertheless, as
> I mentioned in this article and others I have written, the GMAC's
> recent history has been nothing short of bizarre. The shenanigans
> that went on at the time it gained BHC status deserve a lot more
> attention than they have received to date. Moreover, Sheila Bair's
> disinclination to guarantee any new debt for the company is to say
> the least odd given her proclivity for throwing around the taxpayers
> money.
>
> I assume from your comment that you own or perhaps manage GMAC senior
> debt. Did you own it at the time they were trying to do the swap?
> Is you did, can you tell me why you didn't participate in the swap?
>
>
> I do appreciate your comments. You're making me think more deeply
> about the issues.
>
> Tom

GMAC and the U.S. Government - Something Stinks

Tom,

I'm coming at this from the perspective of a debt investor, specifically GMAC LLC senior unsecured. We've gone through the public numbers very carefully (something i don't think you or others that have written about it have done). At no time did i say they have a good future.

The universal agreement you mention is premature at best. It is not a public company and any new equity investor would have to deal with Cerberus and the US Govt, neither of which I would want to do. Also, as a new equity investor, I would want to know that ResCap would be cut loose and make that a condition of investment. I don't think Gmac is ready to do that yet, but i believe they will if they have to.




On May 12 03:29 PM Tom Lindmark wrote:

> Alex,
>
> A question for you. If GMAC is not the disaster many make it out
> to be and is in fact, as you assert, an auto finance company with
> minimal leverage and good future prospects why does there appear
> to be universal agreement that they are the only one of the 19 banks
> that were stress tested that cannot raise new equity.
>
> I won't question your data but there is a massive disconnect between
> what you assert and the market's perception of the company.

GMAC and the U.S. Government - Something Stinks

Tom,

You are one of many writers/bloggers that seem to be incensed by the support GMAC has been/will be receiving from the Govt. I don’t know if it is because you feel it is unfair to other financials that have gone by the wayside or because you feel it will cost the taxpayers a tremendous amount of money. Yes, I believe that we will lose billions on the auto bailout, but the GMAC piece will most likely be neutral to positive and needed if we are to mitigate the losses of the auto bailout. Some salient points:

Currently, banks won’t fund dealer flooring loans, and GMAC has the expertise to do so. The Govt needs someone to do it, so it may as well be GMAC.

Car loans have actually been the best performing loan class in this crisis and most likely will continue to be. They also have the lowest average life.

The stress test numbers on GMAC are somewhat misleading. A large portion of the assets reside in bankruptcy remote SPEs, with the commiserate debt paired off. Also, $5bln of the worst case loss scenario resides in ResCap, which was walled off from GMAC in the 51% sale. Both GMAC and ResCap have repeatedly stated that ResCap is being voluntarily supported by GMAC and that could end at any time. If push comes to shove, ResCap will be cut loose.

Backing out all of the numbers, GMAC has a leverage ratio of approximately 2.6. That would entail a loss percentage of almost 40% on the auto loan business to get to negative equity. Considering the current run rate is less than 1/10th of that, I would imagine this to be highly unlikely.

Did GMAC make a colossal mistake in the mortgage business? Yes, but they are certainly not alone in that regard, and don’t deserve the vitriol hatred being spit at them. They do have an out, even if it hurts the ResCap bondholders.

Alex

GMAC: Biggest Stress Test Loser, But Leads a Charmed Life

Sweet, another article by someone who doesn't know or is ignoring the structure of GMAC.