Wednesday, October 19, 2005

Where is Ross Perot Now that GM Needs Him?

A friend reminded me the other day of a time when GM might have avoided its now-imminent demise. In 1984, GM bought Ross Perot’s EDS, bringing Perot onto its board. Frequent quarreling with GM chairman Roger Smith over the company's leadership and culture led GM, at Smith's behest, to buy Perot’s stock for $700MM and force Perot to leave the board in 1986.

Perot was vocal about the poor quality of GM’s cars and its lack of decisiveness. How prophetic and right he was. I think it is fair to say that GM’s failure 20 years ago to heed his warnings marked possibly the last time it had a significant opportunity to avoid the fate that now awaits it - loss of independence and/or existence.

Lest you think that Lee Iacocca’s Chrysler experience demonstrates that a Big 3 automaker can save itself, let me remind you that it ultimately was acquired by Daimler-Benz. Iacocca didn’t save Chrysler, he merely delayed its day of reckoning by a decade or so. After his exit, the inertia of Chrysler’s Big 3 culture drove it once again to the brink of ruin, and forced it again to depend on the kindness of strangers.

I continue to believe that GM cannot save itself because its current leaders, beginning with Rick Waggoner, are products of the existing culture of 40+ years. It is not capable of creating lasting, profitable change for the long term, within two years, in how it designs, builds and markets vehicles. It may be acquired, or “merge,” to avoid an actual bankruptcy. But I still maintain that it will not be independent within two to three years from now.

Tuesday, October 18, 2005

Jim Cramer’s Definition of “Buy”

Did anyone else happen to see the bizarre segment of Jim Cramer’s “Mad Money” program last Thursday evening? Taking the theme of his show from the Jewish holiday of Yom Kippur on that day, he began to repent for quite a few of his recent “buy” recommendations.

But that wasn’t the bizarre part. He then went on to explain that when he screams “buy,” he does not, in fact, mean “buy.” He said that all he really means is that viewers must ‘do their homework,’ going on to detail just what that meant. Hours Googling company names, reading “every” article written about them, and buying transcripts of conference calls with analysts. He added that he was not any viewer’s ‘personal financial advisor.’

Wow! You could have fooled me! With that take no prisoners attitude toward buy and sell recommendations, Cramer sure seems to believe he is advising his viewing audience. Especially on those occasions when he promises to guide them in and out of specific stocks on a day-by-day basis, due to some unique market dynamics.

What I wonder now, though, is whether somebody has sued Cramer, and/or his producers, and the show, over some of his recommendations. Was this his attempt at some type of on-air disclaimer?

He makes a point of having run a hedge fund in prior years. How did that venture end up? Other "former" hedge fund managers who come to mind are Julian Robertson, Michael Steinhardt, and, more recently, Alberto Vilas. Unless I’m mistaken, none of them voluntarily retired until they had lost so much money for their customers that they had to close their funds. It doesn’t seem to be a business which many managers leave on account of too much success on their customers’ behalfs.
But, back to Mr. Cramer’s comments on Thursday evening. What came to mind upon hearing his sudden change in attitude was one of his programs a few months back. He was castigating some newspaper writers for criticizing his stock picks this summer. They alleged that his recommendations had performed poorly. Cramer, on the air, countered that the writers in question had missed the programs wherein he, Cramer, had recommended selling the positions.

And that is what piques my interest. If Mr. Cramer on one hand offered his program’s record of his buy and sell recommendation as a basis on which to judge his selections, how can he now allege that when he says “buy,” or, presumably, “sell,” on his program, he does not really mean that at all?

Not that I take him seriously. I am an equity portfolio manager with a completely different style than Cramer’s. When I tune in, it’s for entertainment. And perhaps to keep an ear open for the opinions of someone with whom I typically disagree, just to test my own reasoning.

His description of what he means by “buy,” the other night, however, reminded me that there is a big difference between making “lightning” fast recommendations on the air to viewers who call in, and actually managing a real portfolio with real positions. One seems to be for entertainment and ratings. The other is to make real money.

Watching Mr. Cramer last week brought back a memory from long ago. Does know what ever happened to a short-lived market guru from long ago- Joe Granville?

Speaking Truth to Power- the GM Situation

I’ve been following the GM/Delphi saga with much interest this past week. It’s not that I await their outcomes, expectantly on the edge of my seat. Rather, I marvel at the kid glove treatment both firms seem to be receiving in the press.

What has occurred to me regarding GM, though, is that this fallen automotive giant is still considered sufficiently potent, when it comes to spending money, that nobody will speak the truth to its power. Perhaps the best example of this was the reaction to today’s agreement between GM and the UAW which will lower benefit expenses for the latter.

Truly, as I have written in a prior post, this is simply not the company’s salient problem. GM cannot and does not design and produce vehicles which sufficient numbers of people will buy at prices which will sustain the company’s financial health. Period. It’s beyond me how lowering the cost structure of an inept designer and marketer of cars and trucks will suddenly create better designs.

You would not know any of this, to judge from the press’ reaction to the agreement. Or Wall Street’s reaction, for that matter.

I now wonder if GM, even in its last acts as a sustainably profitable enterprise, wields enough financial leverage to silence any significant, honest appraisal of its situation.

Do analysts worry that they will be shut out of conference calls if they point to GM’s revenue problems as insoluble? Do the bankers worry that they won’t get invited to participate in any subsequent last-ditch financings? Do the various media outlets worry that they will have seen the last GM ads in/on their medium, should they report candidly about the company’s prospects? Perhaps fund managers are concerned that candid remarks will lose them possible business with GM's pension funds or treasury functions.

It’s now beginning to seem to me that all these parties, “stakeholders,” if you will, literally have more to gain from a fatally bleeding GM than they do from a merged/acquired/failed GM.