Monday Thoughts – Your Gov’t as an Auto Exec

3.30.09

Even though I expected this market rally over the past couple of weeks, and that there were many good explanations and reasons this would happen, I am still shocked that people are behaving as if there is no economic collapse! Some people really think there will be a recovery soon. But there are frequent reminders for those who forget.

Big reminder of the week: this morning’s headline that Obama asked GM’s CEO to resign was laughable, and expected. After throwing away money and telling the auto companies to come up with a workable “plan,” the government is now replacing GM’s CEO. Some of you may think this is a good thing but it’s just a mask covering up the pimples of our current economic policy. Besides, we are in a deep recession – this economy will NOT revive soon enough to save a company with NO semblance of inefficiency!

Think about it – the government sent them some money just so they wouldn’t look like they didn’t try (they knew this ship was going down no matter what). Now that they showed the “effort,” they feel it’s politically OK to let them go bankrupt – yes Obama was just on TV mentioning that word (remember when they said we could not use bankruptcy, because who would buy a car from a bankrupt company? I guess it’s OK now…). They pissed away billions of your money a couple of months ago for nothing – they should have gone bankrupt then. This should keep the market down for a while as the economic neophytes realize that if the government is letting GM go under bankruptcy reorganization, they can do that to other companies. And what does that usually mean? It usually means the stock goes to ZERO and the bondholders may not get their investment back. Be prepared, as the government runs out of the will AND they money to bail everyone out, to see more companies with bad balance sheets, high expenses, and poor cash flow fail.

Enough of my economic ranting – what must be taken from this is that with government influence, anything can happen. In other thoughts, if people realize that there is no economic turnaround coming, they may sell the market off and give us the drop and retesting of the lows predicted by Marc Faber and others. If that happens, it may be the buying opportunity that some have been expecting and wanting to get into positions of solid companies.

I’m curious to see what the Asian countries have in store. They have cash to spend  to try to spur their economies and it would be interesting to see where they spend it most. Jim Rogers is on record saying he purchased Chinese-related water treatment companies which sounds intriguing.

What has been a positive fundamental for gold is the fact that more and more “stable’ currency countries are lowering rates and trying to use money printing as an economic stimulus – namely, Switzerland and Japan. The Swiss franc and the Japanese Yen have been used as safe-haven currencies but with their reported use of monetary stimulus, and the potential cheapening of the currency that money printing can cause, it leaves fewer alternatives to gold as a stable currency. Another positive has been the calls from China over the last 2 weeks (and echoed support from Thailand and other smaller Asian countries) for a reserve currency replacement for the dollar (if this happened right now, you could kiss our entire budget goodbye).

As usual, there are many factors swirling in my thoughts this week. I will do my best to examine and interpret these factors to help you understand what’s happening and help the people I serve succeed.

Chris Grande