August 5, 2008
Elaine Meinel Supkis
After many labors, I was out of debt. But since the break down of US lending, the liquidity crisis hits home and I had to take measures to protect the family. Back in to debt for us! For 5 more years. This is all about buying cars. GMAC no longer can lend and it means harsher, harder banking requirements that only people who are very solvent can meet. Also, my dentist complains about the same thing. There is liquidity for the Big Guys but it isn't leaking downwards, not at all.
As punctuated by General Motors’ second quarter (6/30/08) loss of $15.5 billion, General Motors is a company in financial distress. In its attempt to survive the current economic milieu, management has been looking to throw excess weight overboard to keep the company afloat. GM is trying to ditch its declining Hummer brand, and it has been rumored that Pontiac and Buick may be fire-sale material. 1 The company has been offering massive rebates on its trucks, along with 72-month, 0% financing in an attempt to unload its weighty inventory. In spite of this, along with sagging car sales, 2 a tightening credit market, junk-rated bonds, a doomed balance sheet, massive production cuts, 3 substantial layoffs, zooming gas prices, and eroding cash flow, Merrill Lynch analyst John Murphy had maintained a “buy” on GM with a target of $28 per share.Let’s step backwards a bit. On June 25, 2007, Wall Street powerhouse Morgan Stanley put out a “buy” recommendation with respect to General Motors’ common stock. Robert Barry, Morgan Stanley’s star analyst, proclaimed a 52-week target price of $42 per share. Less than five months later, on November 7, 2007, Wall Street analysts were stunned by General Motors’ staggering third-quarter (9/30/07) loss of $39 billion - one of the largest bookkeeping losses in history, which was mostly related to the writedown of deferred tax assets.
Fifty-three weeks after Morgan Stanley’s buy recommendation, GM’s stock hit a 54-year low of $9.98 per share—on July 2, 2008, after Merrill Lynch’s recommendation had gone from a “buy” to “underperform” (i.e., sell) on that day. In one sweeping move overnight, Merrill Lynch analyst John Murphy cut his target price on GM by a whopping 75%, reducing the target price from $28 to $7. So how is it that GM suddenly went from respectability to mediocrity - in one analyst’s mind - overnight? In fact, why did it take until July 2008 to concede that GM was on life support? Wall Street, belatedly, is willing to acknowledge the fact that General Motors is teetering on the verge of bankruptcy.
Serafina plays Dvorak's American Quartet:
After many dangerous breakdowns in heavy traffic this year, the kid's car finally bit the dust. The latest series of repairs were ruinous. So I said, 'Buy a newer used car.' The latest break down was on a major highway next to a row of car dealerships and this was where the car was towed. But after filling out all the paperwork and expecting the usual lending for a new car, despite being adults, etc, this yielded nothing. So I said, 'I'll co-sign.' Everyone including the sales staff thought this would be more than generous.
But GM this month has lost the ability to lend to car buyers. GMAC is DEAD. Gone. The showroom we were in was deserted. Each time, over the next several days we visited, there was virtually no one there. The entire sales staff was idle. The calls started coming to my home. 'He doesn't qualify,' I was told.
'What?' I responded. 'Rats. I wrote about GMAC going under last week. Now, it is too late.' Well, to make this long story short, we did get the loan but I had to outright buy the car in my own name! This is typical of what is going on. The people who are out of debt have to help the younger people who want to do what used to be 'normal'. This is the 'liquidity crisis' up close. Luckily, half of the family has zero or extremely minimal debts so we could help the younger members along. But it is harsh. Very harsh. Unlike hedge funds or speculators seeking 'leverage' this is young people needing transportation for school and work. Being able to both work and go to school means hard travel requirements. Since public transportation is spotty to nonexistent, this requires a car.
We used to have a bus that went to Berlin, NY, for example. I rode it to RPI, the institute I used to teach at. Now, it has been terminated! As fuel prices rise, bus lines declined. Especially since they use diesel. Because there are so very few buyers and virtually no lending, we got a good price on a car. The sales staff wanted to know if we wanted to look at trucks and SUVs. We laughed. No way! So they showed us the exactly 4 cars out of literally a hundred, that had decent mileage. This is the other tragedy.
The cheap oil era was very bad for the US. We got very reckless. We ran up huge trade deficits, importing energy products. We guzzled imports like there was no tomorrow. Now, we have to bite the bullet. Today, the stock market shot upwards like a rocket. Not because our industry is well but because oil will be cheap and we hope we can have the cheap oil/cheap lending era that led to vast trade deficits and people overspending on things we should not be using.
This is all so difficult: balancing the need for transportation and good engineering with lending to young people so they can get started in life requires sober adults at the other extreme paying off debts and having the means to feed the lending half of the equation. We can't do this alone. If only one in ten adults over the age of 50 are solvent, this is bad for the young who are, by definition, not solvent yet.
Serphina playse Serenata by McLean:
My dentist complained today as he filed away on one of my fillings that had a slight fitting problem, he couldn't consolidate his own debts. This was a problem because he had three children in college and this stretched him badly on top of this year, his customers cutting back drastically on dental work. I noticed the last few times I visited him, the office, which usually bustled, was virtually empty. The car business made us late to our appointment but we were the only ones there when we arrived. This amazed us because even last month, there was at least ONE other patient! This is being played out across the entire nation. The liquidity crisis is embedded in the medical care crisis and the transportation crisis. Oh, how I wish we had good train service out here! I lived without a car for many years...in New York City!
McDonald's 'Dollar Menu' may be headed for extinction
The US burger chain, which has 14,000 restaurants across the US, is testing changes to its $1 double cheeseburger, seen as the key component in the eight-item menu.Diners at some branches of the "Golden Arches" are being sold double cheeseburgers with one slice of cheese instead of two - being told they are buying a "double hamburger with cheese."
The poor go to McDonald's for sustenance. Now, they are going to be priced out of that bottom-tier market. I remember when McDonald's came with lettuce and tomato slices. No more.
NO FUN(D) FOR HEDGES: NY TRADERS TAKE HUGE HITS IN DOWN MARKET
New York's Top 100 hedge-fund titans are getting flattened in the credit crunch.
The high-flying traders - who were touted around the globe for their killer 2007 returns and $100 million paychecks - can't get out of the red in the first half of 2008, according to hedge-fund performance records obtained by The Post.And unless they pull a dramatic turnaround in the second half, the traders can kiss good-by to those massive paydays of 2007 because hedge funds rake in their income from taking 20 percent of the profits.
*snip*
Feinberg is basically flat this year on his $5 billion Cerberus International fund. Bond-insurer antagonist Bill Ackman has not even cleared 2 percent on his $6 billion bucket of cash.
Back last Xmas, they could see the writing on the wall. I keep posting stories from last year as each anniversary day passes. It was very obvious in August, nothing was working. Despite the 300+ point jump of joy today, the basics of the market system was collapsing, not getting better. Everyone hopes that the US consumer, crushed by high oil prices, will spring back once the price of oil drops. But we went through this in the seventies. Yes, things will improve but embedded within this is raging inflation since interest rates for banks are set too low. The Fed left rates at 2% and everyone thinks this will restart the free funny money business. But this merely means the spread between the Fed and what was offered to me to buy an adult child a badly needed car is more than 500 pts! The spread is how the bankers hope to have big profits. The low rates are absolutely no help to me. I am not getting a car loan at 4%, for example.
One in Five German Firms Leaving China
Four years ago, Steiff, a world-famous German company that makes high-quality teddy bears, moved part of its production to China. In early July, though, the company announced it would return all manufacturing to Germany."For premium products, China is just incalculable," Steiff CEO Martin Frenchen told the Stuttgarter Nachrichten newspaper in July. He said it took six months to train workers to produce the teddy bears' complicated stitching and to meet the company's standards for quality. "By then you might have already lost them to an automobile factory next door that pays more," he added. Despite the company's arduous efforts to produce high quality products in China, Steiff executives weren't satisfied with the end result, Frechen said.
China didn't want to be the knick-knack producer for the planet. They want to make and sell automobiles and other high-end value-added trade goods. They will supplant General Motors especially if they can, like Toyota, offer 1% loans to the export manufacturers.
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Posted by: Van Sales | July 04, 2009 at 02:37 AM