Here's another fine mess we've gotten ourselves into

Nice economy, huh?  What a mess.  If 3 months ago you told me that airlines would be the strongest sector heading into the end of the year, I’d had to commit you to rehab.  Everything, literally everything, is crumbling at this stage.  Not only are investments getting wiped out, but industries are starting to dry up.  Retailers are going to have the worst holiday season in over 50 years.  You might have to bury your valuable in a coffee can out in the yard, that’s the only safe place these days.  It’s crazy.  The urge is so strong to ‘invest at these levels’, but then they drop to lower levels.  One almost feels like it’s throwing good money after bad.  It’s gotta bounce back, but the timing is all over the map, anywhere from ‘Q3 – 2009 to somewhere in 2011’.  That’s like the cable guy telling you he’s going to be by sometime between 8 and 5, you have to take the whole day off to accommodate, meanwhile, other stuff is put on hold.

Now that the big ‘CHANGE’ is coming, does this also mean that the automakers are looking for a little ‘spare change’ from the $700BB TARP to come their way?  Or do lawmakers simply let the market dictate and push them toward Chapter 11 (re-org)., Chapter 7 (liquidation) or into the arms of a stronger, better capitalized foreign buyer?  Arguments FOR and AGAINST are compelling.  One that stands out is the comparison to other industries, specifically steel and airlines.  While they were going through their bankruptcy periods, they had an opportunity to shed the uber-expensive pension programs and restructure their collective bargaining agreements.  This allowed companies to cut costs, resize their businesses to reflect the new demand, and implement improved technologies to supply it.  Weaker companies were either merged with stronger ones or allowed to cease. 

In the global auto market, competition creates opportunities for companies that are low-cost manufacturers.  Unfortunately for US auto makers, part of their costs are bumped up by antiquated laws that prevent them from importing fuel efficient models made overseas (where these same US automakers foreign divisions are to their markets what Toyota and Honda are here).  Figure that one out.  US auto makers are dying in their own domestic markets.  By relaxing some of the import laws, they could literally save themselves.  Too bad for the unions, who are going to get hit either way.  They can allow greater imports (made by lower paid workers overseas) or face a Chapter 11 reorganization where their contracts are re-written and thousands more are laid off.  Is this the fault of labor unions?  Not really, management carries equal blame for not implementing some of the same fuel efficiency used in their foreign subsidiaries here in America. 

And so, as a result of hundreds of bad decisions, big and small, we arrive, after a mind-boggling series of ‘left turns’ and ‘failed shortcuts’, at the point in our macro-economy where a full-scale crisis is closer to reality.  With millions of people preparing for retirement, and millions more waiting to move through the labor markets, it’s a veritable log-jam, and nothing moves (or barely budges).

Seizure, and the near complete absence of market velocity, is the true economy killer…good luck, Mr. Obama, you’re going to need it.

HACK

Looking ahead...

Of course this is an historic time.  No question all the statements about a change in direction for America, a new 'face', and all those other ghosts have been vanquished (?), but now after the soaring rhetoric (which all the same was very good, some of the best speech-making in decades), we're going to have to deal with the daunting task of leading a stumbling country out of expensive wars and a crippled economy.  Careful is the watchword going forward.

It would be delicious for the conquering Democrats to jam through their agendas, but it would serve them about as well as it served the Republicans.  Too much power to one party ultimately has a negative consequence for that party.  The best the Democrats can do is look at the collossal expenditure of political capital and goodwill by the Republicans over the past 3 years (and incredibly over just the past 45 days) to see a blue print for losing.  Bush & Cheney have done a stunning job of leading a nation and their party to a dead end. 

Is the war overseas on a path to victory?  It's arguable either way.  That uncertainty is a huge problem.  Comments by McCain about taking more time (decades) to 'finish' the job were too unclear for a populace that needs to have clarity. 

Will the economy recover?  Well, for some who are less than 3 years from retirement, it's not clear either.  Meanwhile, the current administration has essentially nationalized large portions of the financial services business.  Those who are close to retirement now have to rely more on bigger government to cover their retirement accounts and finances tied to companies that have received TARP dollars.  Scary.

And the Republican party is in shambles.  Nobody wanted anything to do with Bush or anyone in his administration, most of whom will limp back into the private sector with a big scarlet letter on them.  Good like finding the kind of lucrative post-government gigs to which your Clinton administration predecessors transitioned.  And so one question one has to ask is whether the 2nd term was actually 'worth it' for Bush & especially Cheney.  This is really it for them.  There is really no other function they'll serve that will have much impact on America, and yet the incredible mess that was Bush Jr.'s second term is nothing less than a complete collapse of leadership.

And now the person elected to be the change agent, who is very eloquent but short on experience, will be pressed to clean up the mess.  No wonder he said it will take maybe a term or more.  Here's hoping that he selects a strong and capable team of experienced and talented Cabinet members and department heads who are able to plan and mobilise the correction America needs, and then has the guts to let them do their jobs. 

---Hack