Balance? Nah . . . Screw Balance

The cost of living "probably" dropped the most in 60 years last month. I say "probably," as Bloomberg says "probably" and likes to listen to economists' predictions, which are never right, and report them as if they are self-fulfilling. They are undoubtedly right on the direction of thngs. It is a demand/supply thingy. Demand craters and prices drop. Not all that difficult to appreciate. So low prices are a good thing, right? If you are buying and can afford to buy, certainly. Yesterday I saw gas under $2.00 a gallon. To me, that is a great thing, and it is just what the consumer needs.

But low prices are not particularly good for the seller. Take Russia, for example. The low oil prices are causing a good deal of economic turmoil. They saved some money when prices were high, but an extended downturn in oil prices, say below $70 a barrel, can have rather severe repercussions on the Russian economy - as in beyond the already dire economy they already have right now. I for one don't want to see a country with nuclear weapons and long range missiles become desperate. As it seems, we need a bit of balance. Severe swings in either direction have consequences, both good and bad.

Nonetheless, as a consumer with nothing to sell, screw Russia, I am liking my cheap gas!!

http://www.bloomberg.com/apps/news?pid=20601087&sid=aTxtStJrKGr0&refer=home

Need an Auto Loan? GM, Ford and Chrysler Do.

There seems to be a little discontent in Congress over loaning the auto companies $25 billion. Not everyone thinks it is a good idea. Senator Shelby for one thinks bankruptcy is a better option. As he says, "companies fail every day and others take their place." His sentiment is not irrelevant as he is the senior Republican on the Banking Committee. While I do not totally disagree, I have different reasons behind my thinking.

The auto industry has way too much luggage to survive. Pension issues and heavy wage issues are dragging them down. I have heard - though cannot substantiate - that $1500 of every car they sell goes to pension funding. But they provide too many jobs to simply let them fail. Mind you Senator Shelby, a new auto company providing tens of thousands of U.S. jobs is not going to happen over night. These jobs will be gone for a long time and the entity filling the void might be less American than we desire.
Yet we have airlines doing the Chapter 11 debt car wash seemingly daily. They emerge, get back into trouble, perhaps merge with another ailing airline and then back to Chapter 11. So why not let the car companies wash away some debt?

One problem is that debtor in possession financing, i.e. loans needed to fund the bankruptcy process and come out the other end, are hard to come by right now and the auto industry will undobtedly need a lot of them to get through. Perhaps the Fed should loan them the money to fund a bankruptcy. Let them go through the process and reduce or eliminate some of their burdens. I realize that this will be difficult for their employees, as they may get the short end of the stick, but better a short stick than no stick at all.

Why not just loan them $25 billion and be done with it? Win/win, right? If you think $25 billion will be enough, then you think AIG is doing just fine. It seems to be a common practice these days to get the government on the hook and then continue to reel them in for more and more money. We taxpayers do have a big "sucker" sign on our foreheads at the moment.

Toast Anyone?

The U.S. consumer is toast. Consumers in other countries are not much better off, but they are probably more like croissants or tacos or dumplings. To each their own carbohydrate.

I know you do not want to hear me go on about this at length, so I will revert to letting my old pal (not really) Noriel Roubini do it for me. He is a professor of economics at NYU and has been one of the persistent doom and gloom guys. To his credit, he did see this coming. Unfortunately, his predictions have proven true too often. And he says we (consumers) are all toast. He also has over 20 reasons why. Not pretty, but these days not much is pretty.

http://www.nakedcapitalism.com/2008/11/roubinis-latest-why-things-are-hopeless.html

Hope to post more later but time to play with my daughter.

Baltic Dry Goods Index is Toast

I have mentioned here before - I think just yesterday - that international shipping is a wreck. No letters of credit available or at least none that financial institutions will honor. The cost of shipping has fallen so far that a lot of shippers are simply letting their ship sit idle. You lose money much slower that way. Yet, as I said before, global shipping coming to a sudden halt is not a good thing. People will start starving if food cannot be shipped. We need balance here and the balance is all out of whack at the moment.

http://www.nakedcapitalism.com/2008/11/yet-more-trade-finance-worries-not-for.html

Join the Club

The EU is in a recession. Gee, what a surprise. Two successive quarters of GDP contraction. First time ever for the EU. Perhaps we should have a coming of age party. The drum beat continues . . .

http://www.independent.co.uk/news/business/news/its-official-eurozone-collapses-into-its-first-recession-1019870.html

Misery loves company

Not to be out done by the EU, Japan is also now officially in recession. Wow, I never thought they ever got out of recession. If you look at the Nikkei for the past 15 years, you will know what I mean. Still a few major world economies, if not all the major world economies, in recession at the same time is truly amazing.

http://www.bloomberg.com/apps/news?pid=20601087&sid=ae8VSIqazc.Y

Let me say it now. This is not investment advice, because things could get worse and individual companies could easily tank in the next few years, but overall there are a lot of great deals out there. I have my toe back in the water and am looking for good bargains, which are not that hard to find. Decide for yourself. To go in now you need a long horizon as we have a lot of ups and downs ahead (more the latter than the former). I have faith we will emerge the other side, but it will take time, probably lots of time. The question is, when do your get in? I don't know the answer. You have to decide for yourself but some stocks are stupid inexpensive right now, so if you are 30 something and planning on retirement, you have to have a smile on your face. Okay, you may have just lost a lot of money but you are cost averaging down so get over it and enjoy the (perhaps slow) ride back up. If you are twenty something, now is a time to do two or three jobs at a time and put as much as you can spare in the market. Seriously, market lows like we have now are a once in 20-50 year encounter. Take advantage. I am. If you are 20 something you will thank me some day.