Ken Lewis' Congressional testimony yesterday painted an interesting picture of a guy trying to have it both ways.
According to today's Wall Street Journal reporting on the event, Lewis both claimed he was strongarmed and coerced by Bernanke and Paulson to close the Merrill Lynch purchase, but then claimed it was a good deal, just the same.
How could both be true? If it was a good deal, why did Lewis need to be coerced?
Lewis also seems to be backtracking somewhat on the disclosure aspect of the deal. Prior to this, I am reasonably sure Lewis claimed that Bernanke told him not to disclose his concerns to shareholders prior to the vote to close the Merrill Lynch sale.
Now, Lewis is saying Bernanke didn't tell him to hide "something that should be disclosed."
One wonders whether Lewis is taking this line in order to protect himself from SEC charges.
Overall, reading the article, I'm struck with how Lewis is complicating the story as the consequences of his statements, as originally reported, have become clearer. Perhaps, too, having been relieved of his chairman role at BankAmerica, Lewis may realize that the company will not be going to bat for him if he comes clean about what really happened.
His own apparent hiding of his concerns from shareholders, and true feeling that the Merrill purchase should not have been closed, would, today, likely end in serious penalties for Lewis.
Now that this is clear, he seems a whole lot more tentative about speaking truth to power, doesn't he?
Once again, we see the results of government intervention and coercion on business and truth-telling, in general.
Friday, June 12, 2009
Thursday, June 11, 2009
Another Boneheaded Union Speeds Its Own Demise
According to Tuesday's Wall Street Journal, the Boston Globe's union employees rejected, by a 277-265 vote, management's package of wage cuts calculated to keep the paper operating.
I guess that means that just 7 employees will likely be responsible for delivering a death blow to the ailing, aged newspaper.
After years of being the subject of various celebrity investors in late 2006, the Boston Globe doesn't seem to be attracting any more white knights to peel it off of the New York Times Corporation.
What do you suppose those 7 union employees don't get about what is happening to daily newspapers in even large US cities, let alone smaller ones? They have been the victims of Schumpeterian dynamics for at least a decade.
Craigslist help give the sector a big, final push by thinning advertising revenue after basic economics and television news had gutted afternoon editions and newspapers several decades ago. Even if a few of the big dailies survive, you have to wonder how much they will still rely on printed editions, rather than online publication.
I laughed when I read this passage at the end of the Journal piece, quoting Guild (union) president Dan Totten,
"Globe workers and the New England community understand that the quality of The Boston Globe- an institution so vital to the life and culture of the region- depends on the fair treatment of the men and women who work so hard to produce it."
Talk about clueless! If the paper was so damned 'vital,' it wouldn't be having such profitability problems, or would have been sold or spun off by now.
I guess that means that just 7 employees will likely be responsible for delivering a death blow to the ailing, aged newspaper.
After years of being the subject of various celebrity investors in late 2006, the Boston Globe doesn't seem to be attracting any more white knights to peel it off of the New York Times Corporation.
What do you suppose those 7 union employees don't get about what is happening to daily newspapers in even large US cities, let alone smaller ones? They have been the victims of Schumpeterian dynamics for at least a decade.
Craigslist help give the sector a big, final push by thinning advertising revenue after basic economics and television news had gutted afternoon editions and newspapers several decades ago. Even if a few of the big dailies survive, you have to wonder how much they will still rely on printed editions, rather than online publication.
I laughed when I read this passage at the end of the Journal piece, quoting Guild (union) president Dan Totten,
"Globe workers and the New England community understand that the quality of The Boston Globe- an institution so vital to the life and culture of the region- depends on the fair treatment of the men and women who work so hard to produce it."
Talk about clueless! If the paper was so damned 'vital,' it wouldn't be having such profitability problems, or would have been sold or spun off by now.
Wednesday, June 10, 2009
Counting On A Consumer-Led Recovery?
Yesterday's Wall Street Journal presented a chilling chart pertaining to consumer debt.
Since 70% of US economic spending comes from the consumer, that segment's ability to finance further spending would seem to have a lot to do with any imminent, sustainable recovery, would it not?
According to the chart, sourced from the Fed, consumer household debt as a percentage of disposable income has remained above 120% since roughly 2005.Whatever increased savings have occurred in the past six months has had little impact on overall consumer indebtedness.
The visual in the chart makes clear how the rate of increase in this measure moved up from a clear inflection point in about 1999. Thus, we've had nearly a decade of pretty much monotonic growth in this debt/income measure.
That's not going to go away very quickly.
Since federal stimulus spending does not lead to the same quality of jobs as those in the private sector, recent jobless increases are only going to exacerbate this picture. Either spending will slow due to joblessness, or debt will be paid off, and savings will effectively rise. Both will hamstring consumer spending.
Don't expect a sudden lift to the US economy from domestic consumer spending anytime soon.
Tuesday, June 09, 2009
Indiana Fights For Business & The Rule of Law
Indiana treasurer Richard Mourdock, seen in this interview on Fox News, articulates the state's points vis a vis the Chrysler bankruptcy.
Supreme Court Justice Ruth Ginsberg has agreed to stay the sale of Chrysler assets to Fiat, pending consideration of Indiana's case.
Supreme Court Justice Ruth Ginsberg has agreed to stay the sale of Chrysler assets to Fiat, pending consideration of Indiana's case.
Perhaps the rule of law will be upheld yet in America!
Steinhardt's Economic Outlook
One of my readers sent me the URL of a website containing this clip. It's a recent interview with Michael Steinhardt, about whose opinions I have written in this prior post from March of this year.
I remain impressed by Steinhardt's careful, deliberate, logical explanation for his expectations on the near term US economic outlook.
And I want to thank my reader for the link. Very illuminating, if disconcerting. But Steinhardt echoes the opinions of others whom I respect, including Martin Feldstein.
I remain impressed by Steinhardt's careful, deliberate, logical explanation for his expectations on the near term US economic outlook.
And I want to thank my reader for the link. Very illuminating, if disconcerting. But Steinhardt echoes the opinions of others whom I respect, including Martin Feldstein.
Monday, June 08, 2009
Do Healthcare Costs Make US Business Uncompetitive?
What sort of analysis would make you conclude that a sector of the US economy accounting for 17% of GDP requires radical, forcible restructuring?
If someone told you that the sector's costs, as inputs to other parts of the US economy, were inhibiting US competitiveness on a global basis, what evidence would you require to believe that contention?
Friday's Wall Street Journal featured an article by Betsy McCaughey, the now-legendary figure who is credited with having derailed HillaryCare in the 1990s. She was a lieutenant governor of New York who switched parties, left the field of political offices and now runs a health-related concern to reduce deaths from infection.
Responding to the current administration's claim that US healthcare costs are an economic burden on American business which must be forcibly restructured, Ms. McCaughey offered rebuttals to five claims by the administration.
First, Ms. McCaughey correctly dissects the administration's claim that because Medicare is in financial trouble, all Americans must be put on a federally-mandated healthcare 'diet.' It's a non-sequitor.
If anything, Medicare's and Medicaid's problems suggest they should be fixed prior to giving the federal government any further role in healthcare.
Next, Ms. McCaughey notes that the rate of increase in healthcare spending has actually fallen in the past five years, to a 6-7% range, from 13% in 1980. She notes an apple-to-oranges comparison by the current administration alleging that premiums have risen, writing,
"The real cause is the declineing share of care paid for out of pocket (down to 15% today from 33% in 1975). Auto-insurance premiums would also skyrocket if coverage suddenly included oil changes and tune-ups."
Regarding the alleged added 'burden' of healthcare spending today by families, the author notes that, since 1960, four budget items have accounted for a little over half of American family spending- food, energy, housing and healthcare. These made up 53% of the 1960 average household budget, and 55% today. She goes on to contend that Americans spend more for healthcare in part because they can afford it, and they "get more for it" than do Europeans using state healthcare systems.
Ms. McCaughey revisits, again, the tired old argument that Euopean state-run healthcare is cheaper than that in America. She cites statistics on medical innovation in America, and the rising rates of surviving various health problems, such as breast cancer or heart disease. As she notes,
"If you had a heart attack in the 1980s and made it to the hospital you had only a 60% chance of living a year. Now your chance is over 90%. No one wants 1980s medicine at 1980s prices. And in 10 years, no one will want 2009 care."
Finally, she tackles the economic argument that we need to cut healthcare spending in order to save American jobs. She writes,
"At a time when the economy is ailing and the president is bailing out industries to protect jobs, his advisers recommend shrinking the health-care industry. It currently provides 1.4 million jobs- 10 times the U.S. work force of General Motors and Chrysler."
Ms. McCaughey provides some persuasive arguments not to attempt to pass an omnibus healthcare bill this summer, as the Democrats are so eager to do.
But, beyond her excellent refutations of the White House's report on the healthcare situation, there remains a fundamental lack of a convincing, compelling business case to sustain the contention that American medical costs currently cost American business growth, profits, or jobs.
We have no trend information demonstrating the contention. Nothing about comparative medical expense levels and corresponding health indicia across the globe. Nothing relating healthcare spending, health, and business growth, profitability or job growth.
Nothing has been presented which clearly demonstrates a significant decline in American economic performance traceable to, and only to, rising healthcare costs.
Without this type of evidence, who would be foolish enough to radically, but vaguely, restructure our healthcare sector?
Ironically, this drive by the Democrats to federalize healthcare may, and probably will, only succeed in putting larger costs and clumsier procedures into practice, while resulting in a less-healthy American population.
This is progress? Or change you would want?
If someone told you that the sector's costs, as inputs to other parts of the US economy, were inhibiting US competitiveness on a global basis, what evidence would you require to believe that contention?
Friday's Wall Street Journal featured an article by Betsy McCaughey, the now-legendary figure who is credited with having derailed HillaryCare in the 1990s. She was a lieutenant governor of New York who switched parties, left the field of political offices and now runs a health-related concern to reduce deaths from infection.
Responding to the current administration's claim that US healthcare costs are an economic burden on American business which must be forcibly restructured, Ms. McCaughey offered rebuttals to five claims by the administration.
First, Ms. McCaughey correctly dissects the administration's claim that because Medicare is in financial trouble, all Americans must be put on a federally-mandated healthcare 'diet.' It's a non-sequitor.
If anything, Medicare's and Medicaid's problems suggest they should be fixed prior to giving the federal government any further role in healthcare.
Next, Ms. McCaughey notes that the rate of increase in healthcare spending has actually fallen in the past five years, to a 6-7% range, from 13% in 1980. She notes an apple-to-oranges comparison by the current administration alleging that premiums have risen, writing,
"The real cause is the declineing share of care paid for out of pocket (down to 15% today from 33% in 1975). Auto-insurance premiums would also skyrocket if coverage suddenly included oil changes and tune-ups."
Regarding the alleged added 'burden' of healthcare spending today by families, the author notes that, since 1960, four budget items have accounted for a little over half of American family spending- food, energy, housing and healthcare. These made up 53% of the 1960 average household budget, and 55% today. She goes on to contend that Americans spend more for healthcare in part because they can afford it, and they "get more for it" than do Europeans using state healthcare systems.
Ms. McCaughey revisits, again, the tired old argument that Euopean state-run healthcare is cheaper than that in America. She cites statistics on medical innovation in America, and the rising rates of surviving various health problems, such as breast cancer or heart disease. As she notes,
"If you had a heart attack in the 1980s and made it to the hospital you had only a 60% chance of living a year. Now your chance is over 90%. No one wants 1980s medicine at 1980s prices. And in 10 years, no one will want 2009 care."
Finally, she tackles the economic argument that we need to cut healthcare spending in order to save American jobs. She writes,
"At a time when the economy is ailing and the president is bailing out industries to protect jobs, his advisers recommend shrinking the health-care industry. It currently provides 1.4 million jobs- 10 times the U.S. work force of General Motors and Chrysler."
Ms. McCaughey provides some persuasive arguments not to attempt to pass an omnibus healthcare bill this summer, as the Democrats are so eager to do.
But, beyond her excellent refutations of the White House's report on the healthcare situation, there remains a fundamental lack of a convincing, compelling business case to sustain the contention that American medical costs currently cost American business growth, profits, or jobs.
We have no trend information demonstrating the contention. Nothing about comparative medical expense levels and corresponding health indicia across the globe. Nothing relating healthcare spending, health, and business growth, profitability or job growth.
Nothing has been presented which clearly demonstrates a significant decline in American economic performance traceable to, and only to, rising healthcare costs.
Without this type of evidence, who would be foolish enough to radically, but vaguely, restructure our healthcare sector?
Ironically, this drive by the Democrats to federalize healthcare may, and probably will, only succeed in putting larger costs and clumsier procedures into practice, while resulting in a less-healthy American population.
This is progress? Or change you would want?
Saturday, June 06, 2009
No Political Interference At The "New" GM, eh?
We have been told that the president administration doesn't want to 'run a car company.' That GM's new CEO and management team are in charge.
How, then, to explain this piece from a recent Wall Street Journal edition?
"President Obama may have "no interest" in running General Motors, as he averred Monday. But even if that's true, we are already discovering that he shares Washington with 535 Members of Congress, many of whom have other ideas.
The latest self-appointed car czar is Massachusetts's own Barney Frank, who intervened this week to save a GM distribution center in Norton, Mass. The warehouse, which employs some 90 people, was slated for closure by the end of the year under GM's restructuring plan. But Mr. Frank put in a call to GM CEO Fritz Henderson and secured a new lease on life for the facility.
Mr. Frank's spokesman, Harry Gural, says the Congressman discussed, among other things, "the facility's value to GM." We'd have thought that would be something that GM might have considered when it decided to close the Norton center, but then a call from one of the most powerful Members of Congress can certainly cause a ward of the state to reconsider what qualifies as "value." A CEO who refuses the offer can soon find himself testifying under oath before Congress, or answering questions from the Government Accountability Office about his expense account. To that point, Mr. Henderson spent Wednesday with Chrysler President Jim Press being castigated by the Senate Commerce Committee for their plans to close 3,400 car dealerships. Every Senator wants dealerships closed in someone else's state.
As Mr. Gural put it, Mr. Frank was "just doing what any other Congressman would do" in looking out for the interests of his constituents. And that's the problem with industrial policy and government control of American business. In Washington, every Member of Congress now thinks he's a czar who can call ol' Fritz and tell him how to make cars."
The ink isn't even dry on GM's bankruptcy filing yet, and already Congress is putting its greedy mitts all over the company. Here, we have a Representative dictating to GM's management what is the real 'value' of something as seemingly manageable as a warehouse.
Government coercion is written all over Barney Frank's move. As is the evolving public appearance that the administration's agreement to "help" GM is simply a ruse by which to provide continuing jobs for its UAW supporters.
I think it's safe to say that, with government intervention like this continuing into the foreseeable future, you can forget the new GM ever meriting investment by the ordinary public. This one's only fit for uneconomic, politically-motivated funding.
How, then, to explain this piece from a recent Wall Street Journal edition?
"President Obama may have "no interest" in running General Motors, as he averred Monday. But even if that's true, we are already discovering that he shares Washington with 535 Members of Congress, many of whom have other ideas.
The latest self-appointed car czar is Massachusetts's own Barney Frank, who intervened this week to save a GM distribution center in Norton, Mass. The warehouse, which employs some 90 people, was slated for closure by the end of the year under GM's restructuring plan. But Mr. Frank put in a call to GM CEO Fritz Henderson and secured a new lease on life for the facility.
Mr. Frank's spokesman, Harry Gural, says the Congressman discussed, among other things, "the facility's value to GM." We'd have thought that would be something that GM might have considered when it decided to close the Norton center, but then a call from one of the most powerful Members of Congress can certainly cause a ward of the state to reconsider what qualifies as "value." A CEO who refuses the offer can soon find himself testifying under oath before Congress, or answering questions from the Government Accountability Office about his expense account. To that point, Mr. Henderson spent Wednesday with Chrysler President Jim Press being castigated by the Senate Commerce Committee for their plans to close 3,400 car dealerships. Every Senator wants dealerships closed in someone else's state.
As Mr. Gural put it, Mr. Frank was "just doing what any other Congressman would do" in looking out for the interests of his constituents. And that's the problem with industrial policy and government control of American business. In Washington, every Member of Congress now thinks he's a czar who can call ol' Fritz and tell him how to make cars."
The ink isn't even dry on GM's bankruptcy filing yet, and already Congress is putting its greedy mitts all over the company. Here, we have a Representative dictating to GM's management what is the real 'value' of something as seemingly manageable as a warehouse.
Government coercion is written all over Barney Frank's move. As is the evolving public appearance that the administration's agreement to "help" GM is simply a ruse by which to provide continuing jobs for its UAW supporters.
I think it's safe to say that, with government intervention like this continuing into the foreseeable future, you can forget the new GM ever meriting investment by the ordinary public. This one's only fit for uneconomic, politically-motivated funding.
Friday, June 05, 2009
Carol Bartz Interviewed in The Wall Street Journal
The Wall Street Journal's special section from its 'All Things Digital' conference earlier this week, which I read yesterday, contained a great interview with Carol Bartz.
It's tough to overstate Bartz's confidence in herself and her management skills, aptly proven by over a decade leading Autodesk. Her description of how she actually became interested in Yahoo's CEO job is priceless,
"MS. SWISHER:What did you think of Yahoo before you came, and how did you get there?
MS. BARTZ:It was in November, and Jerry said, Gee, Carol, gosh, would you be interested? And I said, Go away. No way; I’m not the right person. I’m not even remotely the right person. So thank you very much, but no.
MS. SWISHER:You had been running a computer-aided software company for many years, [a] much more traditional kind of—
MS. BARTZ:What does that have to do with anything? That’s not the point. Are we leading up to: I’m both too old and too stupid to know what the Internet is?
MS. SWISHER:I’m not going to say that.
MS. BARTZ:Finally, Jerry said, Will you just please come to my house and talk to me? And I said, Jerry, OK, fine. Out of sheer respect to you I’ll come and talk to you. But I’m not taking a job. So I hope you have good wine. We get there and of course we’re all very nice, and I thought, Well, I guess I’m going to have to take control of this interview.
So I said, Well, Jerry, why don’t you draw me an org chart, because I really hadn’t paid any attention to anything. He pulls a flip chart out of the closet. You all have a flip chart at home, right? He starts drawing the org. I’m looking at this thing and I go, That’s really the org?
I said, Why don’t you show me who on this org would make the big decision—the big search decision. So he started drawing arrows. And it was like a Dilbert cartoon. It was very odd. I said, you need management here. I couldn’t figure out who was in charge of anything, and he didn’t explain that part very well. So I got kind of hooked. I walked out and said, Uh, maybe I’m a little bit, 10% interested. Then they put the full-court press on with the board, and then I thought, this is going to be a blast, because Yahoo’s such an important property and such a great name, and it needed some structure. And I’m actually quite good at that, so there I was."
I've written many posts about the clueless CEOs Yahoo has had- Terry Semel and Jerry Yang. To hear Bartz articulate the strengths and weaknesses of Yahoo is truly refreshing,
"MS. SWISHER:Which structure do you think it needs? You’re talking about a management issue versus an innovation issue, which is a separate thing.
MS. BARTZ:No, organizations can get in the way of innovation, because if people are all bound up, and if they don’t know if they get to make the decision or somebody else, and if they do, what happens to them, and so on and so forth. There’s a freeing when you organize around the idea that you’re clearly in charge and go for it. It’s really a fantastic group of people, and just cleaner lines and cleaner responsibility, and freedom to make mistakes, and have some fun. This whole business that there’s no innovation side of Yahoo is just the craziest thing I’ve ever heard.
MS. SWISHER:What does Yahoo have to do going forward? Do you need to shed products; do you need to become more lean?
MS. BARTZ:No, no. We have 76% reach in the U.S. We have to keep those people engaged and happy and coming. We have to give them wow experiences. We have to give them video snacks for their news and entertainment. We have to make our sites more personal and social. Yahoo Finance chat room is sort of the first social site out there, right?
It really is about just driving great integrated experiences for people. What does that mean? You look at every one of your properties and say, how can we make this better? How can we personalize it? How can we make it more social? How can we make it more of a place to launch off? Yahoo drives more traffic to most sites on the Internet than anyone else.
MS. SWISHER:Let’s talk just about the image of Yahoo, what’s happened to it. You said before you got there you had the same idea of Yahoo, as it being broken. How do you change that perception?
MS. BARTZ:The best way to change the perception is to do a good job and then talk about it. For instance, I know everybody out there says Yahoo has lost the youth; only old people use Yahoo. Do you know in the 18 to 24 demographic we have 76% reach? Everybody doesn’t just go to Facebook. We just have to get our story out there; we have to continue to appeal to the people that come to us, and frankly, at some point people get sick of having us as the underdog and say, Thank God, Yahoo’s back. And we are back. We’re going to go step by step.
MS. SWISHER:Do you feel you need a strong No. 2 that’s more Internet-y? You have a computer-science degree. You’ve been in technology forever. I’m not saying you don’t know about the Internet at all. You’re clearly a charismatic leader, but do you need that Internet visionary kind of thing at Yahoo to re-establish it or not?
MS. BARTZ:I don’t need a No. 2 because I don’t want to be removed from the business. That’s what happens a little bit. You get confused about who’s in charge.
We have very, very smart people. And frankly—and all of you guys out there that have a little age on you will appreciate this—all you have to do is ask questions. You just have to keep asking questions. You ask questions and guess what, they go, Oh, I never thought of that. Because it unleashes so much power in people by just asking. Why do I have to be the know-it-all? My God, I’m not that smart. But I’m smart enough to just keep asking questions and say, Is that the best you can do? Does that excite you? Will that excite the customer? Does this really have to work this way?"
I've been a big fan of Carol Bartz for a long time, as demonstrated by my several posts about her on this blog. My first one was here, in October of 2006, in which I wrote,
"In my opinion, however, Carol Bartz is the class of the class. She has created value consistently at Autodesk for 14 years, with the exception of some rough years in the late '90s. Even then, however, the company tended to tread water, and not lose substantial value for long time periods.
I think it does seem unfair that Bartz is not accorded the type of press that GE's Jack Welch received for his long-term performance. Blogger is not cooperating with the uploading of a price chart comparing GE and Autodesk over many years, but suffice to say, Bartz looks as good as Welch, when the two companies' performances are compared for the years in which they both were CEOs of their respective companies.
If Bartz is being ignored because of her gender, then that's even more bad news to add to Alan Murray's contentions. Not only do poorly performing female CEOs, like Jill Barad, get spotlighted, but the rare excellent performers, like Bartz, are conveniently forgotten.
Personally, I believe that good leaders of either gender are more like each other, than they are like non-leaders of their own gender. Bartz is a great CEO who happens to be a woman, not vice versa. In this case, I'd like to learn more about how Bartz ran Autodesk so well in a tough, single market business. Welch had the luxury of multiple businesses driving GE. I think we all lose a lot when successful CEOs like Carol Bartz go unstudied and unrecognized."
With Bartz at the helm, I believe Yahoo actually has a rare chance, for a technology-oriented company, at a comeback, in terms of consistently superior total returns. Since, as Bartz so convincingly states, it's really more of a content and networking site, in one, it probably can overcome the odds which have seen basically no leading tech company fall from, then return later to a path of consistently superior total return performance.
Unlike Michael Dell's return to his company, or a propped-up, but still inept GM, I think Yahoo may actually prosper and become an attractive investment again under Carol Bartz.
It's tough to overstate Bartz's confidence in herself and her management skills, aptly proven by over a decade leading Autodesk. Her description of how she actually became interested in Yahoo's CEO job is priceless,
"MS. SWISHER:What did you think of Yahoo before you came, and how did you get there?
MS. BARTZ:It was in November, and Jerry said, Gee, Carol, gosh, would you be interested? And I said, Go away. No way; I’m not the right person. I’m not even remotely the right person. So thank you very much, but no.
MS. SWISHER:You had been running a computer-aided software company for many years, [a] much more traditional kind of—
MS. BARTZ:What does that have to do with anything? That’s not the point. Are we leading up to: I’m both too old and too stupid to know what the Internet is?
MS. SWISHER:I’m not going to say that.
MS. BARTZ:Finally, Jerry said, Will you just please come to my house and talk to me? And I said, Jerry, OK, fine. Out of sheer respect to you I’ll come and talk to you. But I’m not taking a job. So I hope you have good wine. We get there and of course we’re all very nice, and I thought, Well, I guess I’m going to have to take control of this interview.
So I said, Well, Jerry, why don’t you draw me an org chart, because I really hadn’t paid any attention to anything. He pulls a flip chart out of the closet. You all have a flip chart at home, right? He starts drawing the org. I’m looking at this thing and I go, That’s really the org?
I said, Why don’t you show me who on this org would make the big decision—the big search decision. So he started drawing arrows. And it was like a Dilbert cartoon. It was very odd. I said, you need management here. I couldn’t figure out who was in charge of anything, and he didn’t explain that part very well. So I got kind of hooked. I walked out and said, Uh, maybe I’m a little bit, 10% interested. Then they put the full-court press on with the board, and then I thought, this is going to be a blast, because Yahoo’s such an important property and such a great name, and it needed some structure. And I’m actually quite good at that, so there I was."
I've written many posts about the clueless CEOs Yahoo has had- Terry Semel and Jerry Yang. To hear Bartz articulate the strengths and weaknesses of Yahoo is truly refreshing,
"MS. SWISHER:Which structure do you think it needs? You’re talking about a management issue versus an innovation issue, which is a separate thing.
MS. BARTZ:No, organizations can get in the way of innovation, because if people are all bound up, and if they don’t know if they get to make the decision or somebody else, and if they do, what happens to them, and so on and so forth. There’s a freeing when you organize around the idea that you’re clearly in charge and go for it. It’s really a fantastic group of people, and just cleaner lines and cleaner responsibility, and freedom to make mistakes, and have some fun. This whole business that there’s no innovation side of Yahoo is just the craziest thing I’ve ever heard.
MS. SWISHER:What does Yahoo have to do going forward? Do you need to shed products; do you need to become more lean?
MS. BARTZ:No, no. We have 76% reach in the U.S. We have to keep those people engaged and happy and coming. We have to give them wow experiences. We have to give them video snacks for their news and entertainment. We have to make our sites more personal and social. Yahoo Finance chat room is sort of the first social site out there, right?
It really is about just driving great integrated experiences for people. What does that mean? You look at every one of your properties and say, how can we make this better? How can we personalize it? How can we make it more social? How can we make it more of a place to launch off? Yahoo drives more traffic to most sites on the Internet than anyone else.
MS. SWISHER:Let’s talk just about the image of Yahoo, what’s happened to it. You said before you got there you had the same idea of Yahoo, as it being broken. How do you change that perception?
MS. BARTZ:The best way to change the perception is to do a good job and then talk about it. For instance, I know everybody out there says Yahoo has lost the youth; only old people use Yahoo. Do you know in the 18 to 24 demographic we have 76% reach? Everybody doesn’t just go to Facebook. We just have to get our story out there; we have to continue to appeal to the people that come to us, and frankly, at some point people get sick of having us as the underdog and say, Thank God, Yahoo’s back. And we are back. We’re going to go step by step.
MS. SWISHER:Do you feel you need a strong No. 2 that’s more Internet-y? You have a computer-science degree. You’ve been in technology forever. I’m not saying you don’t know about the Internet at all. You’re clearly a charismatic leader, but do you need that Internet visionary kind of thing at Yahoo to re-establish it or not?
MS. BARTZ:I don’t need a No. 2 because I don’t want to be removed from the business. That’s what happens a little bit. You get confused about who’s in charge.
We have very, very smart people. And frankly—and all of you guys out there that have a little age on you will appreciate this—all you have to do is ask questions. You just have to keep asking questions. You ask questions and guess what, they go, Oh, I never thought of that. Because it unleashes so much power in people by just asking. Why do I have to be the know-it-all? My God, I’m not that smart. But I’m smart enough to just keep asking questions and say, Is that the best you can do? Does that excite you? Will that excite the customer? Does this really have to work this way?"
I've been a big fan of Carol Bartz for a long time, as demonstrated by my several posts about her on this blog. My first one was here, in October of 2006, in which I wrote,
"In my opinion, however, Carol Bartz is the class of the class. She has created value consistently at Autodesk for 14 years, with the exception of some rough years in the late '90s. Even then, however, the company tended to tread water, and not lose substantial value for long time periods.
I think it does seem unfair that Bartz is not accorded the type of press that GE's Jack Welch received for his long-term performance. Blogger is not cooperating with the uploading of a price chart comparing GE and Autodesk over many years, but suffice to say, Bartz looks as good as Welch, when the two companies' performances are compared for the years in which they both were CEOs of their respective companies.
If Bartz is being ignored because of her gender, then that's even more bad news to add to Alan Murray's contentions. Not only do poorly performing female CEOs, like Jill Barad, get spotlighted, but the rare excellent performers, like Bartz, are conveniently forgotten.
Personally, I believe that good leaders of either gender are more like each other, than they are like non-leaders of their own gender. Bartz is a great CEO who happens to be a woman, not vice versa. In this case, I'd like to learn more about how Bartz ran Autodesk so well in a tough, single market business. Welch had the luxury of multiple businesses driving GE. I think we all lose a lot when successful CEOs like Carol Bartz go unstudied and unrecognized."
With Bartz at the helm, I believe Yahoo actually has a rare chance, for a technology-oriented company, at a comeback, in terms of consistently superior total returns. Since, as Bartz so convincingly states, it's really more of a content and networking site, in one, it probably can overcome the odds which have seen basically no leading tech company fall from, then return later to a path of consistently superior total return performance.
Unlike Michael Dell's return to his company, or a propped-up, but still inept GM, I think Yahoo may actually prosper and become an attractive investment again under Carol Bartz.
GM Odds & Ends
According to a friend who watches MSNBC and listens to Joe Scarborough's radio program, Jim Cramer weighed in on the GM bankruptcy this week to the effect that it is merely a jobs program, paid for by the government, for UAW members. Here's the video:
Andrew Ross Sorkin, from the New York Times, cast doubt on any of the profitability projections for the "new" GM.
Visit msnbc.com for Breaking News, World News, and News about the Economy
Andrew Ross Sorkin, from the New York Times, cast doubt on any of the profitability projections for the "new" GM.
Thursday, June 04, 2009
The WSJ's James Stewart's Wrong-Headed View of GM & The Automotive Sector
I've written prior posts about the Wall Street Journal's gullible personal finance columnist, James Stewart's dubious advice and opinions, such as this one. Ordinarily, Stewart confines his lunacy to investment topics.
Earlier this week, however, Mr. Stewart treated Journal readers to his lack of understanding of industry structure and business strategy, as well.
To wit, he wrote a column about why GM will rise again to be a premier auto producer. He began by writing,
"The myriad causes of its demise have been thoroughly chronicled, but to my mind one stands out: The custodians of GM simply gave up trying to build the best cars in the world. To accommodate a host of competing interests, from shareholders and bondholders to labor, they repeatedly compromised on excellence. Once sacrificed, that reputation has proved impossible to recapture.
GM has made strides in quality after decades of churning out troubled cars. Cadillac, in particular, has regained a little of its lost luster. But can anyone say GM builds the best cars in any category? Can it rival a Toyota Prius or Honda Insight for fuel efficiency and reliability? A Lexus, BMW or Infiniti for luxury and performance?
In other words, the new, government-controlled GM likely to emerge from bankruptcy faces an uphill battle in a highly competitive global market. That doesn't mean the effort is doomed. Indeed, it seems to me that the sharper the break with the past, the better.
I've been encouraged by President Obama's remarks that even though the government will own a majority stake, the new GM will be run by auto makers, and the government won't interfere to pursue policy goals that may be inconsistent with shareholder interests."
Let's stop here briefly to parse Stewart's confused logic. After admitting that GM's management failed in many areas, including product design, he then expresses a belief that the 'new' GM, staffed by the same losers, will miraculously "break with the past."
Yeah, right!
Then he compounds his confused reasoning by ignoring the evidence of the past few months and declaring that the government will, of course, keep its hands off the operation of GM. Even yesterday's Congressional grilling of auto execs about dealership closures demonstrates this is a preposterous assumption.
So you have two giant institutions, GM and the federal government, neither with a history of successfully operating profitably by serving consumers, entangled in the management of the failed car company.
Stewart continues by contending,
"I've argued before that government should act as private-equity investors in distressed assets, with the exclusive goal of turning the company around and exiting with a big profit to taxpayers in a finite period of roughly seven to 10 years. To my mind, this is the only way to approach government ownership in any industry that is consistent, fair, and recognizes a fiduciary duty to the owners, who happen to be the taxpayers. This won't be easy, but I think President Obama and his Treasury-led auto task force may be tough enough to pull it off."
Conrail was created with the expectation of becoming independent in three years. That turned out to be hopelessly optimistic. The so-called privatization of the Post Office didn't go so well, either. Add to this the contrasting public statements by the administration and GM's CEO as to how long the government will have to wait for its investments/loans to be repaid, with interest, and you have total confusion and no credibility that GM will ever be weaned from public funding.
On the basis of these suspect premises, Stewart concludes,
"Can the U.S. field a world-class auto industry? I don' t see why not. Cars aren't a commodity like steel, an industry largely lost to foreign competitors. They are complex, highly sophisticated, individualized machines that despite over a century of progress still have room for improvements in fuel efficiency, performance and safety. What U.S. companies need to recapture is an unrelenting commitment to quality. I hope the GM bankruptcy accelerates the day when a father can again hand the keys to a Cadillac to his 16-year-old with the same pride my father felt when he gave them to me."
Actually, he's completely wrong in his understanding of auto sector structure. To state that "cars aren't a commodity like steel," is technically correct in the comparison, but incorrect that they are not, still, a commodity. Cars are may be "complex, highly sophisticated" machines, but they aren't "individualized" in the manner Stewart believes. Much, if not nearly all of the sophistication now comes from suppliers like Bosch (anti-lock brakes). Research and development into proprietary power systems is so expensive that it has driven the sector toward a classic 'Big 3' structure, in which only the largest few global producers will likely achieve necessary economies of scale to profitably innovate in the years to come.
Thus, the barriers to entry, a key aspect of industry structure, have become so low that China has had over 50 new entrants, including municipalities! Kia, from Korea, has been around for nearly a decade already. Anyone with a large bankroll could, in theory, and has, simply shopped for components from vendors, outsourced engines, if necessary, and assembled the guts beneath a unique metal skin.
Fact is, auto 'manufacture' is, and has been, for decades, more 'assembly' than manufacture. Thus, fairly low-skilled workers in other countries can capably bolt together a modern car more productively than over-priced US union workers. That's a big reason why GM failed. And will remain failed.
Stewart's piece merely showcases his lack of understanding of even a basic large industry sector such as auto production. In fact, his contentions and conclusions are almost diametrically opposed to those of another Journal writer, Holman Jenkins, Jr.
One wonders, if he's this clueless about GM, how he can be trusted to advise anyone about any investment that requires understanding a business sector. And, by the way, why the Journal still wastes ink on his column.
Earlier this week, however, Mr. Stewart treated Journal readers to his lack of understanding of industry structure and business strategy, as well.
To wit, he wrote a column about why GM will rise again to be a premier auto producer. He began by writing,
"The myriad causes of its demise have been thoroughly chronicled, but to my mind one stands out: The custodians of GM simply gave up trying to build the best cars in the world. To accommodate a host of competing interests, from shareholders and bondholders to labor, they repeatedly compromised on excellence. Once sacrificed, that reputation has proved impossible to recapture.
GM has made strides in quality after decades of churning out troubled cars. Cadillac, in particular, has regained a little of its lost luster. But can anyone say GM builds the best cars in any category? Can it rival a Toyota Prius or Honda Insight for fuel efficiency and reliability? A Lexus, BMW or Infiniti for luxury and performance?
In other words, the new, government-controlled GM likely to emerge from bankruptcy faces an uphill battle in a highly competitive global market. That doesn't mean the effort is doomed. Indeed, it seems to me that the sharper the break with the past, the better.
I've been encouraged by President Obama's remarks that even though the government will own a majority stake, the new GM will be run by auto makers, and the government won't interfere to pursue policy goals that may be inconsistent with shareholder interests."
Let's stop here briefly to parse Stewart's confused logic. After admitting that GM's management failed in many areas, including product design, he then expresses a belief that the 'new' GM, staffed by the same losers, will miraculously "break with the past."
Yeah, right!
Then he compounds his confused reasoning by ignoring the evidence of the past few months and declaring that the government will, of course, keep its hands off the operation of GM. Even yesterday's Congressional grilling of auto execs about dealership closures demonstrates this is a preposterous assumption.
So you have two giant institutions, GM and the federal government, neither with a history of successfully operating profitably by serving consumers, entangled in the management of the failed car company.
Stewart continues by contending,
"I've argued before that government should act as private-equity investors in distressed assets, with the exclusive goal of turning the company around and exiting with a big profit to taxpayers in a finite period of roughly seven to 10 years. To my mind, this is the only way to approach government ownership in any industry that is consistent, fair, and recognizes a fiduciary duty to the owners, who happen to be the taxpayers. This won't be easy, but I think President Obama and his Treasury-led auto task force may be tough enough to pull it off."
Conrail was created with the expectation of becoming independent in three years. That turned out to be hopelessly optimistic. The so-called privatization of the Post Office didn't go so well, either. Add to this the contrasting public statements by the administration and GM's CEO as to how long the government will have to wait for its investments/loans to be repaid, with interest, and you have total confusion and no credibility that GM will ever be weaned from public funding.
On the basis of these suspect premises, Stewart concludes,
"Can the U.S. field a world-class auto industry? I don' t see why not. Cars aren't a commodity like steel, an industry largely lost to foreign competitors. They are complex, highly sophisticated, individualized machines that despite over a century of progress still have room for improvements in fuel efficiency, performance and safety. What U.S. companies need to recapture is an unrelenting commitment to quality. I hope the GM bankruptcy accelerates the day when a father can again hand the keys to a Cadillac to his 16-year-old with the same pride my father felt when he gave them to me."
Actually, he's completely wrong in his understanding of auto sector structure. To state that "cars aren't a commodity like steel," is technically correct in the comparison, but incorrect that they are not, still, a commodity.
Thus, the barriers to entry, a key aspect of industry structure, have become so low that China has had over 50 new entrants, including municipalities! Kia, from Korea, has been around for nearly a decade already. Anyone with a large bankroll could, in theory, and has, simply shopped for components from vendors, outsourced engines, if necessary, and assembled the guts beneath a unique metal skin.
Fact is, auto 'manufacture' is, and has been, for decades, more 'assembly' than manufacture. Thus, fairly low-skilled workers in other countries can capably bolt together a modern car more productively than over-priced US union workers. That's a big reason why GM failed. And will remain failed.
Stewart's piece merely showcases his lack of understanding of even a basic large industry sector such as auto production. In fact, his contentions and conclusions are almost diametrically opposed to those of another Journal writer, Holman Jenkins, Jr.
One wonders, if he's this clueless about GM, how he can be trusted to advise anyone about any investment that requires understanding a business sector. And, by the way, why the Journal still wastes ink on his column.
Wednesday, June 03, 2009
The Price of US Domestic Economic Folly
While reading Mary Anastasia O'Grady's excellent editorial in a recent Wall Street Journal concerning Venezuelan dictator Hugo Chavez' dependence upon a weakening US dollar to maintain power and stave off economic collapse, I was reminded of how foolish the recent and current administration's exclusive focus on domestic economics has been. How much it has damaged, and will continue to damage US economic and, eventually, military power throughout the world.
O'Grady's piece concentrated on the effects on Venezuela, a major oil exporter, as the US dollar had strengthened prior to our recent financial/economic debacle. This rise in the dollar's value put extreme pressure on Venezuela's economy, because oil is priced in US dollars. Thus, the stronger dollar resulted in fewer dollars flowing into the country, which heavily imports food, equipment, and, according to O'Grady, so much as to make it essentially totally dependent upon dollars for currency with which to purchase imports.
Now that the dollar is weakening, in light of a US political system gone insane, rescuing GM, AIG, Fannie Mae, Freddie Mac, and Chrysler, plus spending literally trillions of dollars on 'stimulus' plans, the price of various commodities, including oil, is rising. This is relieving economic pressure on oil producing countries with hostile intentions toward the US.
As I reflected on O'Grady's column, I realized how very little is written or discussed on this topic in the business media. Or in the political realm, either, for that matter.
In my youth, I was acutely aware of LBJ's folly in debauching the dollar to pay for the Vietnam war and the many misguided programs of his "Great Society" initiative. Inflation rose, and shortly thereafter, so did taxes. LBJ's lack of comprehension of basic domestic and international economics, both fiscal and monetary, resulted in a 'lost decade' in America, although I don't think I've really seen it referred to quite that way.
From the late 1960s until Reagan's election in 1980, the US economy's growth slowed under more regulation, higher taxes, inflation, and a weaker dollar. Trade was not as large a component of GDP 30-40 years ago, so the weaker dollar's impact on exports, especially with a large Soviet bloc, was much less pronounced than it is today.
What the world saw back in LBJ's day was a US that wanted to borrow from the world, or print, money to spend on non-investment items- war material and social programs. Investors fled the dollar and its inflation, realizing the folly of America's spending binge at the expense of the rest of the world's capital needs.
It's much the same now. Only we have the 1960s-1970s as a guide to what will happen again. Probably faster and more harshly, since there are some important changes since LBJ's day:
-a more balanced, less US-dominated global economic product
-more industrialized countries which don't require US goods
-better communications and information dispersion, allowing global realization of US economic policies and their implications
-larger, deeper, freer and faster-moving international capital markets
-major foreign governments with interest in seeing a weaker US in a position to exploit our economic mistakes, and an ability to do so by being part of the global economic system
The best way I can express what I see is to summarize what the current administration is, in effect, saying to the rest of the world, in an economic sense,
'We in America want to reduce our standard of living and productivity levels by imposing on ourselves massive penalties in the form of pollution and energy-usage regulations.
Meanwhile, we are also choosing to abandon our prior policy of letting private sector companies fail. Thus, we've borrowed and printed money to 'save' several failed financial institutions, two car producers, and, in directly, an entire union, the UAW.
At the same time, to stave off the real and healthy consequences of such failure, which would be Schumpeterian recycling of resources from failed to new enterprises, especially amidst a naturally-occurring recession phase of our economic cycles, we have committed to borrowing or printing in excess of one trillion dollars for 'stimulus' spending.
Not to be satisfied with imperfection, and lacking any sort of patience to save our own profits to fund the foregoing spending, we are also planning to embark on a wholesale federalization of our healthcare sector.
All of this takes money. A lot of money. Several trillion dollars which, frankly, we don't have, and won't generate for decades, at the rate at which we are dampening economic growth, private investment and entrepreneurship.
We'd rather not wait for our own capital generation for any of these spending programs. Instead, we'd like you, the rest of the world, to lend us your capital by buying our Treasury securities.
In return, we'll probably print more dollars, too, and debase the value of the very Treasuries we want you to buy. We hope we can inflate our way out of this mess by simply devaluing our liabilities, while you don't notice.
Won't you please help our country indulge ourselves in immediate gratification on a level nobody else on the planet can afford? Even as we dismantle the confidence in, and workings of, a predominantly free-market economy which used to deliver growth and profits which could help fund a modest portion of these wants?'
Never mind our petty domestic 'needs' and wants- healthcare, union jobs, a never-receding economy, pollution-free energy at no added cost. The international consequences of our current economic madness may, for the first time in a century, cause the US to lose its economic and, as a result, military power and influence just as two centers of power not aligned with American interests- China and the Arab world- stand ready to take advantage of our mistakes.
In my lifetime, I don't think I've seen quite so dangerous a confluence of American economic stupidity, preoccupation with domestic affairs, deliberate ignorance of the international consequences of that economic stupidity, and the existence of other powers able to capitalize on our folly.
O'Grady's piece concentrated on the effects on Venezuela, a major oil exporter, as the US dollar had strengthened prior to our recent financial/economic debacle. This rise in the dollar's value put extreme pressure on Venezuela's economy, because oil is priced in US dollars. Thus, the stronger dollar resulted in fewer dollars flowing into the country, which heavily imports food, equipment, and, according to O'Grady, so much as to make it essentially totally dependent upon dollars for currency with which to purchase imports.
Now that the dollar is weakening, in light of a US political system gone insane, rescuing GM, AIG, Fannie Mae, Freddie Mac, and Chrysler, plus spending literally trillions of dollars on 'stimulus' plans, the price of various commodities, including oil, is rising. This is relieving economic pressure on oil producing countries with hostile intentions toward the US.
As I reflected on O'Grady's column, I realized how very little is written or discussed on this topic in the business media. Or in the political realm, either, for that matter.
In my youth, I was acutely aware of LBJ's folly in debauching the dollar to pay for the Vietnam war and the many misguided programs of his "Great Society" initiative. Inflation rose, and shortly thereafter, so did taxes. LBJ's lack of comprehension of basic domestic and international economics, both fiscal and monetary, resulted in a 'lost decade' in America, although I don't think I've really seen it referred to quite that way.
From the late 1960s until Reagan's election in 1980, the US economy's growth slowed under more regulation, higher taxes, inflation, and a weaker dollar. Trade was not as large a component of GDP 30-40 years ago, so the weaker dollar's impact on exports, especially with a large Soviet bloc, was much less pronounced than it is today.
What the world saw back in LBJ's day was a US that wanted to borrow from the world, or print, money to spend on non-investment items- war material and social programs. Investors fled the dollar and its inflation, realizing the folly of America's spending binge at the expense of the rest of the world's capital needs.
It's much the same now. Only we have the 1960s-1970s as a guide to what will happen again. Probably faster and more harshly, since there are some important changes since LBJ's day:
-a more balanced, less US-dominated global economic product
-more industrialized countries which don't require US goods
-better communications and information dispersion, allowing global realization of US economic policies and their implications
-larger, deeper, freer and faster-moving international capital markets
-major foreign governments with interest in seeing a weaker US in a position to exploit our economic mistakes, and an ability to do so by being part of the global economic system
The best way I can express what I see is to summarize what the current administration is, in effect, saying to the rest of the world, in an economic sense,
'We in America want to reduce our standard of living and productivity levels by imposing on ourselves massive penalties in the form of pollution and energy-usage regulations.
Meanwhile, we are also choosing to abandon our prior policy of letting private sector companies fail. Thus, we've borrowed and printed money to 'save' several failed financial institutions, two car producers, and, in directly, an entire union, the UAW.
At the same time, to stave off the real and healthy consequences of such failure, which would be Schumpeterian recycling of resources from failed to new enterprises, especially amidst a naturally-occurring recession phase of our economic cycles, we have committed to borrowing or printing in excess of one trillion dollars for 'stimulus' spending.
Not to be satisfied with imperfection, and lacking any sort of patience to save our own profits to fund the foregoing spending, we are also planning to embark on a wholesale federalization of our healthcare sector.
All of this takes money. A lot of money. Several trillion dollars which, frankly, we don't have, and won't generate for decades, at the rate at which we are dampening economic growth, private investment and entrepreneurship.
We'd rather not wait for our own capital generation for any of these spending programs. Instead, we'd like you, the rest of the world, to lend us your capital by buying our Treasury securities.
In return, we'll probably print more dollars, too, and debase the value of the very Treasuries we want you to buy. We hope we can inflate our way out of this mess by simply devaluing our liabilities, while you don't notice.
Won't you please help our country indulge ourselves in immediate gratification on a level nobody else on the planet can afford? Even as we dismantle the confidence in, and workings of, a predominantly free-market economy which used to deliver growth and profits which could help fund a modest portion of these wants?'
Never mind our petty domestic 'needs' and wants- healthcare, union jobs, a never-receding economy, pollution-free energy at no added cost. The international consequences of our current economic madness may, for the first time in a century, cause the US to lose its economic and, as a result, military power and influence just as two centers of power not aligned with American interests- China and the Arab world- stand ready to take advantage of our mistakes.
In my lifetime, I don't think I've seen quite so dangerous a confluence of American economic stupidity, preoccupation with domestic affairs, deliberate ignorance of the international consequences of that economic stupidity, and the existence of other powers able to capitalize on our folly.
Tuesday, June 02, 2009
About The GM Punditry
Having read my GM-related posts of yesterday, here and here, a friend emailed me the following message late last night,
"Morning Joe on MSNBC this morning, Donny Deutsch was one of the pundits ... and when talk of GM came up, he was obliged to disclose that his firm has taken a contract to "rebrand" GM ... Joe dragged out of him that the contract is funded with government bail out money."
In answer to my question about Deutsch's comments about the 'new' GM, he replied,
"Yes, Donny was very bullish ... the new GM is agile, nimble, responsive (???) .... being small is an inherent advantage."
I guess my friend was thinking of this passage in the second linked post, with Deutsch behaving as a federal government-sponsored shill,
"Do you honestly think any of the representatives from these three groups will admit to anything but the rosiest of futures for GM today?"
After all, Donny's comment about being small as an inherent advantage is precisely wrong in the auto sector. In fact, executives of the leading firms have been worrying, publicly, for years about how to remain one of the largest two or three producers, so important are economies of scale.
This means one of two things. Either Deutsch is so clueless about the product he's pitching that he has zero credibility. Or, he knows about the industry structure implications, but is ignoring the obvious and doing what everyone believes ad men do anyway- lie to consumers to induce them to buy whatever it is the ad man is pitching.
See what I mean about pundits in the case of GM?
Later yesterday, and again this morning, I heard more pointless blathering from GM's CEO, Fritz Henderson.
Now, he's going on about how they are 'open for business,' and have signed all the papers and been given all the go-aheads to 'start from scratch.'
Yeah. Right. Are you going to trust a failed auto maker with $30,000 for 'another chance?'
Do you believe that 95% of GM's workers are showing up today feeling any different about their job than they did last week?
Not on your life!
It's the same failed team of managers and workers producing the same crappy cars that few people will freely buy with their own money.
Note my qualifiers- 'freely' and 'with their own money.'
Nobody says that Americans who are lent or given government cash and ordered to buy, say, electric cars, won't buy a Volt. But that's hardly an example of a private company receiving market acceptance and share in a competitive manner.
Every time I see Henderson now, I see an incredible pitchman desperately hoping to put his company's sordid and failed past behind him. His denial of reality is simply stunning!
For example, he sidestepped questions regarding the president's statement that the federal government wants to be 'out' of GM ASAP, while everyone with a brain knows that GM can't earn it's way off the federal dole for over half a decade.
Henderson also ducked questions regarding Congress' role in overseeing and politically skewing his mismanagement team's decisions regarding plant closings, negotiations with the UAW, our government's new favorite charity, and outsourcing jobs or parts overseas.
With so much deceit and dishonesty already evident in Henderson's, and the government's remarks about the 'new' GM, how can anyone seriously desire to buy a GM car?
Or believe anything that any of the self-interested parties to this travesty express about GM?
"Morning Joe on MSNBC this morning, Donny Deutsch was one of the pundits ... and when talk of GM came up, he was obliged to disclose that his firm has taken a contract to "rebrand" GM ... Joe dragged out of him that the contract is funded with government bail out money."
In answer to my question about Deutsch's comments about the 'new' GM, he replied,
"Yes, Donny was very bullish ... the new GM is agile, nimble, responsive (???) .... being small is an inherent advantage."
I guess my friend was thinking of this passage in the second linked post, with Deutsch behaving as a federal government-sponsored shill,
"Do you honestly think any of the representatives from these three groups will admit to anything but the rosiest of futures for GM today?"
After all, Donny's comment about being small as an inherent advantage is precisely wrong in the auto sector. In fact, executives of the leading firms have been worrying, publicly, for years about how to remain one of the largest two or three producers, so important are economies of scale.
This means one of two things. Either Deutsch is so clueless about the product he's pitching that he has zero credibility. Or, he knows about the industry structure implications, but is ignoring the obvious and doing what everyone believes ad men do anyway- lie to consumers to induce them to buy whatever it is the ad man is pitching.
See what I mean about pundits in the case of GM?
Later yesterday, and again this morning, I heard more pointless blathering from GM's CEO, Fritz Henderson.
Now, he's going on about how they are 'open for business,' and have signed all the papers and been given all the go-aheads to 'start from scratch.'
Yeah. Right. Are you going to trust a failed auto maker with $30,000 for 'another chance?'
Do you believe that 95% of GM's workers are showing up today feeling any different about their job than they did last week?
Not on your life!
It's the same failed team of managers and workers producing the same crappy cars that few people will freely buy with their own money.
Note my qualifiers- 'freely' and 'with their own money.'
Nobody says that Americans who are lent or given government cash and ordered to buy, say, electric cars, won't buy a Volt. But that's hardly an example of a private company receiving market acceptance and share in a competitive manner.
Every time I see Henderson now, I see an incredible pitchman desperately hoping to put his company's sordid and failed past behind him. His denial of reality is simply stunning!
For example, he sidestepped questions regarding the president's statement that the federal government wants to be 'out' of GM ASAP, while everyone with a brain knows that GM can't earn it's way off the federal dole for over half a decade.
Henderson also ducked questions regarding Congress' role in overseeing and politically skewing his mismanagement team's decisions regarding plant closings, negotiations with the UAW, our government's new favorite charity, and outsourcing jobs or parts overseas.
With so much deceit and dishonesty already evident in Henderson's, and the government's remarks about the 'new' GM, how can anyone seriously desire to buy a GM car?
Or believe anything that any of the self-interested parties to this travesty express about GM?
Monday, June 01, 2009
An Addendum Re: Today's GM Bankruptcy
Another word regarding today's gab-fest concerning the GM bankruptcy filing.
Don't listen to speakers from GM, the UAW or the federal government. They all obviously have a vested interest in promoting "happy talk."
Among the three groups, they have either brought this failure about (GM, UAW), influenced its unworkable structure (UAW, federal government), or took control so as to be responsible for the result (federal government).
Do you honestly think any of the representatives from these three groups will admit to anything but the rosiest of futures for GM today?
I just caught some of GM CEO Fritz Henderson's nauseating remarks. Talk about being on another planet!
This guy talks as if the company just stubbed its toe a little, and now everything will be alright.
But this is my point. He, like the US president and the UAW's Gettelfinger, and other involved officials, will have nothing but upbeat, positive, cheery comments about what a fine result they have all wrought.
Don't you believe it. Just tune them out and concentrate on the facts.
Don't listen to speakers from GM, the UAW or the federal government. They all obviously have a vested interest in promoting "happy talk."
Among the three groups, they have either brought this failure about (GM, UAW), influenced its unworkable structure (UAW, federal government), or took control so as to be responsible for the result (federal government).
Do you honestly think any of the representatives from these three groups will admit to anything but the rosiest of futures for GM today?
I just caught some of GM CEO Fritz Henderson's nauseating remarks. Talk about being on another planet!
This guy talks as if the company just stubbed its toe a little, and now everything will be alright.
But this is my point. He, like the US president and the UAW's Gettelfinger, and other involved officials, will have nothing but upbeat, positive, cheery comments about what a fine result they have all wrought.
Don't you believe it. Just tune them out and concentrate on the facts.
The GM Bankruptcy- What You Don't Hear From Pundits
Much is being made of today's formal filing for bankruptcy by General Motors. The Wall Street Journal ran it as its lead first-page article. CNBC covered it as the lead story all morning, with AutoNation's CEO, Mike Jackson and former WSJ executive and auto sector expert, Paul Ingrassia, as guests.
Everyone is so tentative about the event. Even my one-time friend, Paul Ingrassia, seemed to soft-pedal his opinion about the eventual outcome of the government takeover of GM. The most he would say was, in reply to a direct question, that he would not now buy the firm's equity.
I guess you just have to read between the lines. Paul did clearly state that there are still too many work rules in place to suggest a changed managerial environment. He further opined that, without a genuine change in managerial climate and culture, GM won't get any better.
Despite Paul's semi-candor, the overall tone was one of suspension of common sense, with repeated, genuine-sounding questions regarding GM's future viability, profitability, etc.
Mike Jackson then weighed in, imploring all viewers to buy GM! Trucks! Cars! Whatever!
You think Mike has skin in the game? You bet. For him, the more suppliers, the better. Not to mention his inventory.
Honestly, these people have lost their minds!
GM should have done this, on its own, at least a year ago. As the Wall Street Journal noted in today's lead editorial, Wagoner originally threatened a bankruptcy that would require $100B of government aid. We're already up to $36B, including GMAC, with more to come from debtor-in-possession financing, raising the ante to about $66B.
And this is before the 'new' GM operates with a newly-empowered UAW and a government owner.
Why gloss over the obvious, and ask pointless questions? Here are the facts:
GM mismanaged itself into failure. Between bad political moves, inept handling of its main union, the UAW, and poor product development and pricing, it mishandled every major "stakeholder." As Ingrassia noted, GM essentially managed itself for the UAW's benefit ever since an historic strike at two Flint factories some years ago.
The management team that led GM into this mess is largely intact and in place. According to the UAW's chief, Ron Gettelfinger, his active union members have lost nothing in this bankruptcy. Thus, GM's wage costs continue to be, although lower than before, probably too high to be competitive with other, US-based auto makers in the southern US.
The US government now owns the bulk of the company, but claims to not want to actively manage the firm. This is the worst of both worlds- government control, with a stated intent to engage in 'benign neglect.'
As I am writing this, the president of the US is opining about saving "two storied names in the US auto industry."
And that is the problem. The companies ended up in bankruptcy, but only after lavish federal aid and bailouts. Meaning the money was wasted, because the firms went into Chapter 11 anyway.
Nobody ever said that an earlier Chapter 11 for GM or, for that matter, Chrysler, required liquidation. This was a misleading claim foisted on the American public and Congress by GM, Chrysler and the UAW, all of whom required panic among lawmakers at the prospect of more unemployed blue-collar workers.
The future? You don't need pundits to figure that out. In fact, best you don't listen to them at all, so you can see more clearly.
Chrysler is being dismembered, much in the way that a conventional Chapter 11 filing would have resulted. The viable parts will endure, the rest will not.
For GM, however, as an identifiable company, I believe further misery, losses and ineptitude are in the cards.
The combination of federal oversight and current management pretty much guarantees similar lackluster operating results going forward. Sure, labor costs will be a bit lower. But the root causes of GM's failure- bad management, stodgy union rules, inhospitable emissions and related regulations and, now, a new mandate to build a small, unprofitable, unwanted-by-consumers car in the US, with UAW labor- virtually guarantee the same outcome which GM has delivered in the past.
It is noteworthy that Chrysler, as I observed in this prior post, was not truly 'saved' back in the 1970s. It was merely granted an expensive stay of execution. And with much more detail and Congressional involvement, I might add.
So, forget all the hoopla today over the GM filing. It should have happened at least 12 months ago, and resulted in the dismemberment of the company into pieces to be sold, closed, or relaunched as a shrunken auto maker. But the way it's been handled now, nothing but failure will come of this event.
I was correct in my early blog post about at least one of Detroit's auto makers losing a CEO, and the company. Unfortunately, I'm probably correct about forecasting the outcome of GM's peculiar brand of bankruptcy 'rescue,' as well.
Everyone is so tentative about the event. Even my one-time friend, Paul Ingrassia, seemed to soft-pedal his opinion about the eventual outcome of the government takeover of GM. The most he would say was, in reply to a direct question, that he would not now buy the firm's equity.
I guess you just have to read between the lines. Paul did clearly state that there are still too many work rules in place to suggest a changed managerial environment. He further opined that, without a genuine change in managerial climate and culture, GM won't get any better.
Despite Paul's semi-candor, the overall tone was one of suspension of common sense, with repeated, genuine-sounding questions regarding GM's future viability, profitability, etc.
Mike Jackson then weighed in, imploring all viewers to buy GM! Trucks! Cars! Whatever!
You think Mike has skin in the game? You bet. For him, the more suppliers, the better. Not to mention his inventory.
Honestly, these people have lost their minds!
GM should have done this, on its own, at least a year ago. As the Wall Street Journal noted in today's lead editorial, Wagoner originally threatened a bankruptcy that would require $100B of government aid. We're already up to $36B, including GMAC, with more to come from debtor-in-possession financing, raising the ante to about $66B.
And this is before the 'new' GM operates with a newly-empowered UAW and a government owner.
Why gloss over the obvious, and ask pointless questions? Here are the facts:
GM mismanaged itself into failure. Between bad political moves, inept handling of its main union, the UAW, and poor product development and pricing, it mishandled every major "stakeholder." As Ingrassia noted, GM essentially managed itself for the UAW's benefit ever since an historic strike at two Flint factories some years ago.
The management team that led GM into this mess is largely intact and in place. According to the UAW's chief, Ron Gettelfinger, his active union members have lost nothing in this bankruptcy. Thus, GM's wage costs continue to be, although lower than before, probably too high to be competitive with other, US-based auto makers in the southern US.
The US government now owns the bulk of the company, but claims to not want to actively manage the firm. This is the worst of both worlds- government control, with a stated intent to engage in 'benign neglect.'
As I am writing this, the president of the US is opining about saving "two storied names in the US auto industry."
And that is the problem. The companies ended up in bankruptcy, but only after lavish federal aid and bailouts. Meaning the money was wasted, because the firms went into Chapter 11 anyway.
Nobody ever said that an earlier Chapter 11 for GM or, for that matter, Chrysler, required liquidation. This was a misleading claim foisted on the American public and Congress by GM, Chrysler and the UAW, all of whom required panic among lawmakers at the prospect of more unemployed blue-collar workers.
The future? You don't need pundits to figure that out. In fact, best you don't listen to them at all, so you can see more clearly.
Chrysler is being dismembered, much in the way that a conventional Chapter 11 filing would have resulted. The viable parts will endure, the rest will not.
For GM, however, as an identifiable company, I believe further misery, losses and ineptitude are in the cards.
The combination of federal oversight and current management pretty much guarantees similar lackluster operating results going forward. Sure, labor costs will be a bit lower. But the root causes of GM's failure- bad management, stodgy union rules, inhospitable emissions and related regulations and, now, a new mandate to build a small, unprofitable, unwanted-by-consumers car in the US, with UAW labor- virtually guarantee the same outcome which GM has delivered in the past.
It is noteworthy that Chrysler, as I observed in this prior post, was not truly 'saved' back in the 1970s. It was merely granted an expensive stay of execution. And with much more detail and Congressional involvement, I might add.
So, forget all the hoopla today over the GM filing. It should have happened at least 12 months ago, and resulted in the dismemberment of the company into pieces to be sold, closed, or relaunched as a shrunken auto maker. But the way it's been handled now, nothing but failure will come of this event.
I was correct in my early blog post about at least one of Detroit's auto makers losing a CEO, and the company. Unfortunately, I'm probably correct about forecasting the outcome of GM's peculiar brand of bankruptcy 'rescue,' as well.
Saturday, May 30, 2009
Carol Bartz Pushes Back!
"As I discussed this with my business partner, it became clear what Yahoo's continuing vulnerability is. He described what he thinks Semel's vision of Yahoo is as 'a place to form groups,' or 'a place users go to find groups and information.' The trouble with this is that it is, for the most part, free. I have never paid a dime for any Yahoo service, although I use their portfolio tracking Finance page for my daily portfolio performance monitoring.
What I think Yahoo should have done, back in 2001, is to have immediately retained a few senior consulting partners from McKinsey and Bain to provide the Yahoo senior managers with anecdotal evidence of how other companies survived and prospered in highly-competitive, technologically-oriented business situations, when they had no clear, salient competitive advantage.
My own opinion is that Yahoo should have begun to take the things it is good at, such as information redistribution, presentation, and online groups management, and offered to private-label them to various companies which need these services, but can't get adequate results from their internal IT departments. Online brokerage services came to mind, as my partner and I discussed this. He and I both deplore Schwab's useless online portfolio performance reporting and "analysis," if you can call it that. Why didn't Yahoo provide them with a portal directly taking the Schwab customer to a Yahoo-provided, but Schwab-labeled customizable portfolio performance site/page? Or provide online retail companies with customer group-management facilities cloned from the very large, successful, but free Yahoo Groups offerings?
Such a strategy would cement Yahoo into corporate marketing and customer service functions, while, for once, actually getting paid by someone for what they do. I maintain that, with its largely free services for consumers, Yahoo continues to be the "used car" of internet information providers. It's got no software, hardware, superior search engine, or actual proprietary information for which to charge fees. Thus, I believe its hold on consumer loyalty is tenuous, at best."
In an interview on CNBC Thursday morning, Carol Bartz repeated, almost verbatim, my partner's description of Yahoo as a place users go to find groups and/or information. Only, as Bartz said it, it sounded a lot more promising.
Her attitude during the interview was both combative of some rather condescending questions from the interviewer, Jim Goldman, and dismissive of Google as an online giant with different strengths- search- in a different sphere.
Bartz didn't explain how she's going to get Yahoo to finally monetize its core strengths, but at least she can articulate some focus, and you know she understands the financial necessities facing Yahoo.Just viewing the nearby price chart of Yahoo and the S&P500 Index shows that, shortly after Bartz' arrival at the company, investors have begun to return, too. The company's equity price has outpaced the index's since early January, rising some 20%, while the index has remained flat.
It's very refreshing to see her speak positively about Yahoo's capabilities and potential in a more informed way than I ever heard Jerry Yang or Terry Semel express themselves.
Friday, May 29, 2009
The Credit Card Business' New Inefficiencies
With the recent, hurriedly-passed legislation involving credit cards now law, it's reasonable to expect some major changes in the way that the providers of revolving, installment credit will do business.
Of course, the biggest change is going to be the rationing of credit at the high-risk end of the spectrum. Since the legislation limits the degree to which installment credit providers can recoup losses and offset risk with fees and interest rate changes, many lower-income or poor credit-risk consumers will simply be denied this source of credit at any price.
To those who would argue that this 'protects' such low-end consumers, let me remind them that nobody put a gun to anyone's head and forced them to accept and use installment credit. Charge-offs by banks of balances on excessively-risky accounts were the banks fault. But the incurring of the debt, and related fees for delinquency, etc., were the responsibility of adult consumers.
As an aside, this would seem to be an odd governmental policy in the midst of a recession, since consumer spending will, as usual, be a major engine of growth at some point. With less credit, there'll be less spending sooner.
At the other end of the spectrum, lower-risk credit customers now may see the return of annual fees on bank cards, as well as the disappearance of the 'grace' period. In return for harsher regulation of riskier credit consumers, the issuers were given leeway to eliminate that free 30 days in which a card user may carry a balance that is paid off in full by the required statement date.
I discussed this with a colleague recently, comparing thoughts about how this will cause unintended, currently-unforeseen consequences, as legislation like this typically does.
For example, in the last few years, probably like many of my readers, I've agreed to let some vendors apply a monthly charge to my credit card. Services such as a fitness club, TiVo, an online service provider, and Netflix, to name a few, use this business model.
Consequently, I would have an average monthly balance of over $200, which is currently paid in full, since I'd just as gladly write checks for these recurring expenses. In a world with no grace period, and a 20% annual interest rate, these charges will result in roughly $40 of additional financial fees. Add a $50+ annual fee, times two cards, and I might be looking at an additional $150/year of installment credit-related fees, with no change in my own financial behavior.
Multiply my experience by a few million consumers, and there'll be impetus for change.
My colleague thinks that several of these monthly services will quickly move to an annual, check-paid discounted fee option. The larger vendors, such as the fitness club, will probably offer a private-label credit card on which to charge their own service, at no annual fee.
Either way, though, there will be inefficiencies. In the case of the discounted annual fee, the funding is simply being moved back to me, with a small interest rate paid, via discount, for me funding the vendor for an extra eleven months.
In the case of the fitness club and any other vendor large enough to offer a private credit card, there's the added time and expense of writing another monthly check, plus stamps, which are no longer trivial.
Having worked at Chase Manhattan Bank for many years, I've always been leery of allowing direct access to my DDA account by vendors. If there is any problem whatsoever, the bank employees have zero motivation to make sure it is resolved. Any resulting damage to my credit rating will be borne by me, not the bank, nor its employees, and I'll have to spend my time to clear that up.
Thus, the net effect of this new installment credit legislation is likely to be substantially less credit extended, at any price, and a much more inefficient use of, and payment for credit by those still possessing revolving charge cards.
Hardly economic progress, is it?
Of course, the biggest change is going to be the rationing of credit at the high-risk end of the spectrum. Since the legislation limits the degree to which installment credit providers can recoup losses and offset risk with fees and interest rate changes, many lower-income or poor credit-risk consumers will simply be denied this source of credit at any price.
To those who would argue that this 'protects' such low-end consumers, let me remind them that nobody put a gun to anyone's head and forced them to accept and use installment credit. Charge-offs by banks of balances on excessively-risky accounts were the banks fault. But the incurring of the debt, and related fees for delinquency, etc., were the responsibility of adult consumers.
As an aside, this would seem to be an odd governmental policy in the midst of a recession, since consumer spending will, as usual, be a major engine of growth at some point. With less credit, there'll be less spending sooner.
At the other end of the spectrum, lower-risk credit customers now may see the return of annual fees on bank cards, as well as the disappearance of the 'grace' period. In return for harsher regulation of riskier credit consumers, the issuers were given leeway to eliminate that free 30 days in which a card user may carry a balance that is paid off in full by the required statement date.
I discussed this with a colleague recently, comparing thoughts about how this will cause unintended, currently-unforeseen consequences, as legislation like this typically does.
For example, in the last few years, probably like many of my readers, I've agreed to let some vendors apply a monthly charge to my credit card. Services such as a fitness club, TiVo, an online service provider, and Netflix, to name a few, use this business model.
Consequently, I would have an average monthly balance of over $200, which is currently paid in full, since I'd just as gladly write checks for these recurring expenses. In a world with no grace period, and a 20% annual interest rate, these charges will result in roughly $40 of additional financial fees. Add a $50+ annual fee, times two cards, and I might be looking at an additional $150/year of installment credit-related fees, with no change in my own financial behavior.
Multiply my experience by a few million consumers, and there'll be impetus for change.
My colleague thinks that several of these monthly services will quickly move to an annual, check-paid discounted fee option. The larger vendors, such as the fitness club, will probably offer a private-label credit card on which to charge their own service, at no annual fee.
Either way, though, there will be inefficiencies. In the case of the discounted annual fee, the funding is simply being moved back to me, with a small interest rate paid, via discount, for me funding the vendor for an extra eleven months.
In the case of the fitness club and any other vendor large enough to offer a private credit card, there's the added time and expense of writing another monthly check, plus stamps, which are no longer trivial.
Having worked at Chase Manhattan Bank for many years, I've always been leery of allowing direct access to my DDA account by vendors. If there is any problem whatsoever, the bank employees have zero motivation to make sure it is resolved. Any resulting damage to my credit rating will be borne by me, not the bank, nor its employees, and I'll have to spend my time to clear that up.
Thus, the net effect of this new installment credit legislation is likely to be substantially less credit extended, at any price, and a much more inefficient use of, and payment for credit by those still possessing revolving charge cards.
Hardly economic progress, is it?
Thursday, May 28, 2009
Treasury's Direction of the GM Bond Offer
Today's Wall Street Journal reported on the failure of GM bondholders to accept the proposed exchange rate leaving them with just 10% of the equity of the resulting firm, in sufficient numbers to constitute acceptance.
According to the article,
"the company was prohibited by the Treasury from offering these investors a larger GM stake."
Curiously, the Treasury must have then mandated the UAW's 17.5% share, and the government's retention of the remainder, in conjunction with various Canadian government and union interests.
Once again, we see the heavy hand of federal coercion, once it gets its hands on private property. Treasury quite obviously played favorites, by giving the UAW, a key political ally of the president's party, a larger share of the resulting GM than that allotted to bondholders.
More to the point, the bondholders' failure to accept the proposal sends GM into bankruptcy court, which is where it could have been way back in the fall of 2008, or sooner, had obstinate, now-departed CEO Rick Wagoner faced up to reality a year or so ago.
In the meantime, GM has consumed north of $15B of taxpayer funding, all while careening toward Chapter 11.
In decision theory terms, this makes both Wagoner's reluctance to file Chapter 11 in 2007 or 2008, and the Bush administration's decision to provide a bridge loan in late 2008, mistakes.
Since GM will ultimately land in bankruptcy court, all of that time and money was, in effect, wasted. Other people's, i.e., taxpayers, money was used to propagate a dead, value-destroying enterprise.
This was never a wise idea. Surely checks could have been written to individual hourly workers for less than the total current outlay of money to GM, since the stated concern by then-President Bush was Depression-scale unemployment, should GM have gone bankrupt.
Instead, we have government coercion in and mismanagement of a private sector firm, using taxpayer money. It's the complete opposite of Schumpeterian dynamics, which is pretty much a requirement for releasing and recycling economic resources from failing businesses to new opportunities.
By continuing to prop up dead, poorly-managed firms like Chrysler and GM, our government is impeding the efficient workings of the capitalist, free market economy which has been the hallmark of US economic success for generations.
According to the article,
"the company was prohibited by the Treasury from offering these investors a larger GM stake."
Curiously, the Treasury must have then mandated the UAW's 17.5% share, and the government's retention of the remainder, in conjunction with various Canadian government and union interests.
Once again, we see the heavy hand of federal coercion, once it gets its hands on private property. Treasury quite obviously played favorites, by giving the UAW, a key political ally of the president's party, a larger share of the resulting GM than that allotted to bondholders.
More to the point, the bondholders' failure to accept the proposal sends GM into bankruptcy court, which is where it could have been way back in the fall of 2008, or sooner, had obstinate, now-departed CEO Rick Wagoner faced up to reality a year or so ago.
In the meantime, GM has consumed north of $15B of taxpayer funding, all while careening toward Chapter 11.
In decision theory terms, this makes both Wagoner's reluctance to file Chapter 11 in 2007 or 2008, and the Bush administration's decision to provide a bridge loan in late 2008, mistakes.
Since GM will ultimately land in bankruptcy court, all of that time and money was, in effect, wasted. Other people's, i.e., taxpayers, money was used to propagate a dead, value-destroying enterprise.
This was never a wise idea. Surely checks could have been written to individual hourly workers for less than the total current outlay of money to GM, since the stated concern by then-President Bush was Depression-scale unemployment, should GM have gone bankrupt.
Instead, we have government coercion in and mismanagement of a private sector firm, using taxpayer money. It's the complete opposite of Schumpeterian dynamics, which is pretty much a requirement for releasing and recycling economic resources from failing businesses to new opportunities.
By continuing to prop up dead, poorly-managed firms like Chrysler and GM, our government is impeding the efficient workings of the capitalist, free market economy which has been the hallmark of US economic success for generations.
Wednesday, May 27, 2009
The Supreme Court's Effect on Business
Home Depot's co-founder, Bernie Marcus, wrote an insightful piece in yesterday's Wall Street Journal concerning coming rulings from the Supreme Court with the replacement of retiring Justice David Souter.
Marcus goes beyond the mainstream media focus on cases of social policy and focuses on potential changes due to Souter's tendencies to vote on the side of free enterprise. Marcus directly identifies this as an anti-labor stance, thus begging the obvious question.
Will the nominee to replace Souter respect the Constitution and our laws, or will s/he rule based on "empathy" and one's own personal life experiences?
To do the latter, Marcus argues, will be to damage our economic system severely. Especially the ability of small- and medium-sized companies to raise capital. If our courts, particularly the Supreme Court, are seen as anti-business, then investors will correctly revisit and revise their sense of risks associated with business investment.
Moving from a clear-cut tendency to apply the rule of law on the Supreme Court, to a preference to apply each and every Justice's personal life experiences as lenses through which to view the merits of plaintiffs and defendants, is to invite a completely capricious and inconsistent approach to the country's legal system.
Surely, this will be bad for everyone's economic health, as such an injection of uncertainty regarding the interpretation of our laws will inevitably lead to less investment due to the resulting implied risks. That will eventually lead to less employment and economic activity all around.
Hardly what most of our society would seem to want, nor attributes for which our country's economic system is known.
Marcus goes beyond the mainstream media focus on cases of social policy and focuses on potential changes due to Souter's tendencies to vote on the side of free enterprise. Marcus directly identifies this as an anti-labor stance, thus begging the obvious question.
Will the nominee to replace Souter respect the Constitution and our laws, or will s/he rule based on "empathy" and one's own personal life experiences?
To do the latter, Marcus argues, will be to damage our economic system severely. Especially the ability of small- and medium-sized companies to raise capital. If our courts, particularly the Supreme Court, are seen as anti-business, then investors will correctly revisit and revise their sense of risks associated with business investment.
Moving from a clear-cut tendency to apply the rule of law on the Supreme Court, to a preference to apply each and every Justice's personal life experiences as lenses through which to view the merits of plaintiffs and defendants, is to invite a completely capricious and inconsistent approach to the country's legal system.
Surely, this will be bad for everyone's economic health, as such an injection of uncertainty regarding the interpretation of our laws will inevitably lead to less investment due to the resulting implied risks. That will eventually lead to less employment and economic activity all around.
Hardly what most of our society would seem to want, nor attributes for which our country's economic system is known.
Tuesday, May 26, 2009
Changing of the Guard at Xerox: Who Cares?
Ann Mulcahy, CEO of Xerox, is retiring. Replacing her will be Ursula Burns.
Who cares?
As the nearby price chart of Xerox and the S&P500 Index displays, and a Wall Street Journal article on the subject noted, Mulcahy's tenure has been undistinguished.Yes, I'm sure there will be those who assert that Mulcahy fended off bankruptcy and a difficult situation she inherited from her predecessor.
But that's not the measure of a successful CEO. Consistent outperformance of the always-and inexpensively available S&P500 is.
If an investor had bought Xerox stock upon Mulcahy's appointment as CEO in 2001, s/he would have been rewarded with a stagnant equity price, a performance only marginally better than the index, and not in a consistent manner.
Despite accolades for righting Xerox's financial condition and fostering printer technologies, her management of the company didn't really deliver any form of outsized returns to shareholders. It's not clear that Xerox shouldn't have died in 2001, its better-performing units sold to better-managed competitors or private equity shops.
Mulcahy's replacement, Ursula Burns has received publicity because of her gender and race. Again, so what? Noting those only propagates gender and racial bias. If she's qualified to be CEO of Xerox, why trumpet them? If not, do those attributes serve as special qualifiers?
It doesn't take a genius to see that a company that mainly focuses on print technology in an increasingly virtual, online technology world is probably not going to become a consistently superior performer again. If it did, it would be a true exception.
As the price chart shows, Xerox hasn't had a sustained period of market outperformance in the period from 1978 to the present. This is a company whose 'go-go' years were the 1960s. That's 40 years ago.
When I think of Xerox, I think of the company that punted away truly promising technologies in its once-famed Palo Alto Research Center. You know, those ideas which Apple's Steve Jobs incorporated into his firm's breakthrough personal computers.
Why anyone would pay special attention to a changing of stewards of a once-dynamic, now merely-average, backwater technology firm, is unclear to me.
Friday, May 22, 2009
The Early Fruits of Government Coercion in Chrysler's Bankruptcy Negotiations
Early consequences of the administration's use of coercion to stiff secured creditors in the Chrysler bankruptcy are already upon us.
You will recall that Team Obama muscled Chrysler bondholders to step behind the UAW, an unsecured, junior creditor, and accept 29 cents on the dollar, so that the union could receive 55 percent of the smoldering ruin that will be the 'new' Chrysler.
Never mind that being a secured creditor legally confers certain privileges in bankruptcy, all of which have been voided at whim by the administration.
Some investors are already announcing their changed behavior.
The Wall Street Journal reported yesterday,
"Indiana Treasurer Richard Mourdock revealed this week that his state's police and teacher pension funds have lost millions of dollars in the Chrysler "restructuring." Indiana's State Police Fund and Major Moves Construction Fund, which finances roads and bridges, together lost more than $1 million. And the Teacher's Retirement Fund "suffered, at a minimum, a loss of $4.6 million due to the action of the Federal government," reports Mr. Mourdock.
And, sure enough, Mr. Mourdock says that from now on no funds under his control will invest in the secured debt of "General Motors, other manufacturing companies, or those insurance companies who have or will be receiving bailout funds." Given the recent actions by the feds, he adds, "the risk is too great for any prudent investor to accept."
This isn't political grandstanding. Public investment officials like Mr. Mourdock have a fiduciary duty to seek maximum returns for retirees. The question for all public officials responsible for investing pension money is whether they too should conclude that investing in U.S.-aided companies now carries so much political risk that it violates their legal obligations. Such are the wages of White House disdain for legal contracts."
So, there you have it. And who'd have guessed that a state-level investment official would be the first to publicly declare any investment 'opportunity' that is remotely near any federally-assisted company to be 'off limits.'
The consequences of the administration's deliberate violation of bankruptcy laws are just beginning to be felt. But investors have taken note and are behaving accordingly.
You will recall that Team Obama muscled Chrysler bondholders to step behind the UAW, an unsecured, junior creditor, and accept 29 cents on the dollar, so that the union could receive 55 percent of the smoldering ruin that will be the 'new' Chrysler.
Never mind that being a secured creditor legally confers certain privileges in bankruptcy, all of which have been voided at whim by the administration.
Some investors are already announcing their changed behavior.
The Wall Street Journal reported yesterday,
"Indiana Treasurer Richard Mourdock revealed this week that his state's police and teacher pension funds have lost millions of dollars in the Chrysler "restructuring." Indiana's State Police Fund and Major Moves Construction Fund, which finances roads and bridges, together lost more than $1 million. And the Teacher's Retirement Fund "suffered, at a minimum, a loss of $4.6 million due to the action of the Federal government," reports Mr. Mourdock.
And, sure enough, Mr. Mourdock says that from now on no funds under his control will invest in the secured debt of "General Motors, other manufacturing companies, or those insurance companies who have or will be receiving bailout funds." Given the recent actions by the feds, he adds, "the risk is too great for any prudent investor to accept."
This isn't political grandstanding. Public investment officials like Mr. Mourdock have a fiduciary duty to seek maximum returns for retirees. The question for all public officials responsible for investing pension money is whether they too should conclude that investing in U.S.-aided companies now carries so much political risk that it violates their legal obligations. Such are the wages of White House disdain for legal contracts."
So, there you have it. And who'd have guessed that a state-level investment official would be the first to publicly declare any investment 'opportunity' that is remotely near any federally-assisted company to be 'off limits.'
The consequences of the administration's deliberate violation of bankruptcy laws are just beginning to be felt. But investors have taken note and are behaving accordingly.
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