warpony

GM Reverse Split Creates Problems for Dow Jones

DJI is irrelevant. Isn't it? Yet, we all stop for Morning Prayer, when the index is announced, don't we?

Pavlovian reflex? Hardly. We all need a touchstone, one we can reach out and touch when the market comes crashing down around our ears; one that reassures us that the world hasn't ended, that Wall Street is still, somehow, in charge, and that tomorrow will find our hoards of convertible debentures still worth what they were this morning, economic reality notwithstanding.

The Dow is not reality. The price of, say, GM, is reality. When a hundred shares of a soon-to-be-infamous blue-chip stock are worth, say, the cost of a trip through the McDonald's drive-thru, and deteriorating toward the cost of the squeeze packet of catsup for your supersized fries, you have about as much reality as you need in this lifetime.

Two things need to be considered. First, GM represents the cars your grandfather, and his father, drove. Good cars. They served their owners well, weren't demanding to work on, and with care, could be driven several hundred thousand miles. Like I said, good cars.

Second, the assemblers decided they were responsible for this reliability. "We build such good cars that nothing can compare, and so neither should our pay, benefits, working conditions, etc."

Duh. We could also, at this point, talk about the compensation of the bosses. It's in vogue, after all. And some of the parameters that determined his compensation are as relavent as the UAW's.

The worker is worthy of his wage. Unless he builds cars. With respect to the washer-putter, putting a washer on ten million shock absorbers, and then retiring, is not worth what the UAW thinks it should be.

GM will go the way of the Dodo-Bird because they couldn't internalize that reality. Damned shame, considering they build the most reliable car on the market, the Buick Lucerne, shock absorber washers and holes notwithstanding.

What does all this mean to those who desperately need to touch the stone of the DJI?

You need to find another touchstone. My daughter, a sales rep for a brokerage, found one. She picks up her double-foamed, double-shot latte every morning at the Market-Tip, a latte stand she's been stopping at for years, within five minutes of the time she did yesterday. And she always asks, "So what looks good today, and why?"

And the Barista, bless her pointed little head, has this uncanny feel for the market, which is how she earns her obscene tips. "JimmiJon Industriez is set to release a new widget that will wow the world!Test markets suggest the kids will line up in droves, and there are five upgrade cycles in the product!"

Or some such. And so the kid, having touched her stone, goes and buys seven round lots of JimmiJon. And maybe she makes a few sheckels, and maybe not; after all, it's the market, No? And, regardless of the outcome, she'll ask the same Barista the same question tomorrow.

Viva DJA. It's how we're wired, people!

Best,
Ed

Tough Times for Card Companies - Barron's

Credit card companies have largely brought the misery on themselves. The failure formula is: (1) Issue as many cards as possible, to as many people as possible; (2)Structure an elaborate system (FICO, FAIR) to make credit look bad for as many people as possible; (3) Use this system as an excuse to downgrade credit ratings for high ratio card users; (4) Jack interest rates as high as possible; (5) Whine when people fall behind.

Duh.

I have sterling credit. Yet no sooner did the government bail out Citi than I got a notice that my interest rate was doubling. I opted out, and Citi will no longer have my business.

Best,
Warpony