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Government and Organizations - “Doesn’t Pontiac make the Phoenix?”
Hope and car manufacturers spring eternal. After many months of ‘bankruptcy is not an option’ General Motors filed for Chapter 11 in Bankruptcy Court today. The federal government is becoming the majority shareholder and primary creditor for two of the three major North American auto manufacturers. It says it doesn’t want to be in the auto business.
Recent comments and events remind me of the 1973 book by Robert Ringer, “Winning Through Intimidation”. In the book he states there are essentially three types of people to deal with:
Type Number One – the person who wants all your chips, tells you they want your chips and their actions are aimed at taking your chips.
Type Number Two – says they don’t want your chips, but they really DO want your chips. They do everything in their power to take your chips while trying to make you believe they would never take your chips.
Type Number Three – says they don’t want your chips, and they are sincere about not wanting your chips, but do to “circumstances beyond their control” they do what they have to grab your chips.
Ringer said that as long as you keep these identifiers in mind you could deal with almost any situation concerning your chips.
We’ve been told the government’s going to spend a lot of money on healthcare, education, job creation (and retention) and alternative energy. To finance those goals it is going to raise taxes – a lot. The direct consequences of these actions will affect the financial market to an order of magnitude commensurate with the size of the debt and its financing cost. The absorption of the financing will decrease the amount of private equity available for investment, and the interest expense will retard profits and reinvestment.
The US economy is 70% consumer – based. Business expansion depends on the bottoming and recovery of personal income (both essential and discretionary). With employment and credit availability still contracting the economy’s resurgence it will take longer and cost a lot more than what most analysts are forecasting.
3 months and 40% later, major markets are up without a hiccup. Late believing money managers are scratching their heads and frantically filling out buy tickets, not wanting to be caught with an empty long position summary for the second quarter which ends June 30th.
Good old Jesse Livermore observed that professionals had the greatest success in raising capital and distributing stocks by first marking them up on light volume, then selling the bulk of their holdings when the prices went down. Their reasoning was straight-forward: the public (that is, those unaware) were eager to get into stocks going up, and looked at the dip or pullback as an opportunity, not realizing they were giving the pros the window they needed to get out of their positions.
There are many companies that have been issuing huge amounts of stock recently – I wonder what the buyers of that stock have been doing?
Remember that Jesse gave back the great fortune he made in the ’29 Crash when he got back in the market too early and too often. He should have listened to his own advice.
Till next time
