Put the Backseat Driver Behind the Wheel - A modest proposal (with apologies to Jonathan Swift)

• Government and Organizations

Much has been made of the concerted actions of the Administration and Congress to “save” the domestic auto manufacturers.

Current plans indicate the UAW (BTW, where are electricians, plumbers and other unions?) and Congress will have controlling interest in both Chrysler and General Motors. The UAW and the government (which legislates safety, economy and taxation) controlling the means of production.

Why use halfway measures? Since they want control, give it to them.

· Let the government and the UAW buy 100% of the companies.

· Let the government buy out the white collar employees with severance packages equal to the pensions that the unions are getting.

· Then the management and private capital can form new companies, pay competitive wages, build world-class autos in right-to work states, free of the of the legacy costs and restrictive work rules.

The government will have to be diligently monitored to make sure a level playing field for all car manufacturers is maintained, and favoritism is not used to “protect” one group at the expense of another. Also, no more injections of capital from the government. Make the “new” Chrysler and GM deal with the cost of capital AND the cost of labor. Make them pay the government money back and raise capital just like everyone else has to, that is, based on performance and profits.

• Markets – Vanna, can I have a letter please?

Economists of all stripes are trying to elbow their way to the front of the prognostication line by identifying the kind of recovery our economy will have with a letter: L’s and W’s and V’s oh my!

What’s a letter among investors? Perhaps if we consider the circumstances of the times and the contestants our vision will become somewhat sharpened.

The general market picture is one of relief: we’ve stopped going straight down. Volatility is reduced, and investors no longer feel like the animals in a whack-a mole arcade game.

Keep in mind the A.D.D. nature of the Baby Boomers and their propensity to magnify economic pressures. As they come out of shell shock and get past Memorial Day look for investors of all sizes trying to get “position” for the recovery. Prices may well move up during the summer as they all try to get in to make up what they have lost.

They may well succeed in pushing indexes past their fair value during the summer. When reality arrives in the fall (along with inflation, high unemployment, impending tax increases in 2010, and declining discretionary income) equity prices may well race the geese to the south. Remember there are an increasing number of Boomer’s trying to retire and downsize. Caution may well be the virtue of choice for the fall and winter of 2009.

Till next time