Thursday, November 6, 2008

Take Our Pensions, PLEASE!

How was that two day skid? The biggest percentage wise since 1987, which was not such a good time I hear. Wild stuff and things keep getting more unhinged!

COMEX Market Delivery Date November 28th
I have written a bit about the big chasm between spot price gold on the COMEX (around $700 and ounce) and the real physical gold price (around $1000 an ounce) for some time. This disconnect would invite aggressive types to try and buy at spot, take delivery, then sell the hard metal for a 30% profit. So just what is going on?

At this point things are taking shape and an answer should come sooner than later. The December delivery contracts (the first of which cover a big spread in price) start settlement on November 28th, the Friday after Thanksgiving. So it may pay to check this out if you can come out of your Turkey coma for a bit that Friday.

What do I think? I have said before that I feel the dollar will resume it's slide very soon and Gold will rally hard. This spot vs. real thing is a special interest of mine. Either this gets resolved soon to either side (up or down) or there will be two gold markets at once: One large COMEX big player market and one small physical metal market. If that happens the price difference could persist for a while, but what fun would that be? Minyanville has a good post on this very topic today, so check it out:
http://www.minyanville.com/articles/gold-libor-3M-comex/index/a/19867

In related other blog notes, Both Market ticker and Jesse's Cafe have great material today if you want some reading material.

Take Our Pensions, PLEASE!
It was widely reported today that a confidential meeting was held by some members of Congress with the big US auto maker leaders. Another "secret" meeting that everyone knows about of course. What was said will surely come out in time, but I would like to offer some conjecture on what might have been asked of the Congress at this meeting.

The US car guys are hurting. After years of making inferior products, they now have a hard time competing even though many of the new Ford and GM (lower end)models are about on par with the Japanese cars. Both Ford and GM have also become more so money lending institutions than just car makers. How did that happen? One word: Pensions. In order to meet the crushing cost of employee pensions, the car makers expanded into the finance world to try and goose profits to fund them. This worked pretty well for a bit, but now obviously there is a problem. (In all fairness, the pension funding issue has never adequately been allotted for) The US makers simply cannot go on much longer saddled with this kind of debt obligation.

Recently a bill was passed to loan the car makers around 25 Billion dollars on face to "Retool and meet new efficiency standards" but that was just another name for a handout. Another 25 Billion is on deck. 50 Billion does not even begin to get the job done, and that is what was discussed today.

The US firms will ask the Congress to use taxpayer funds and a government guarantee to take the pension funding obligation off their books so that by accounting magic they can remain competitive in the bond markets. The taxpayer will be on the hook yet again for even more money giveaways. As a threat, the car makers can hold the spectre of anywhere from 500k to 1.5 million job losses as a bargaining chip. Imagine that unemployment number getting printed! Hikes!

And so, just like with the good old "if homes gets foreclosed on you will suffer" mantra the play will be to sell this pension bailout as a "if unemployment goes higher you will suffer" kind of deal. At the heart of all arm twisting is the idea that even more pain can be forthcoming.

I do not want to debate about how GM, Ford, and Chrysler got to this point. There are many reasons. The debate right now is whether as a people we are going to take any suffering up front, or just tack in on the back end of a unending debt obligation for all time. Can the US take on the pensions? Sure, why not. We seem able to issue any amount of debt we want, so why stop?

The deeper question lies in simple right and wrong. Should I have to pay for a neighbors mortgage? No, that is WRONG. Should I have to pay for a GM employee's pension because the company is going belly up? No, that too is WRONG. Should the guy at GM be looking at no retirement income because the company was poorly managed? No, that is WRONG.

That is a bunch of WRONGS without any RIGHT. What should we do?

The government cannot make anything right without doing something wrong. There is no free lunch, no easy fix. The banks, the auto makers have to fail. Mortgage holders in over their head have to give up. That is the start.

The follow up is to not allow such sick management to happen again. Never allow bank access to so much cheap capital with no oversight that they go nuts like they did. Demand more as employees and shareholders in regards to transparent accounting and solid fundamental management.

All this can only happen after what exists is gone. Sometimes you have to destroy something to make it stronger. Is there really any other way to do this? Comments section is waiting.

For nostalgia, when GM was king of the hill they made perhaps the sickest machine ever to roll off an assembly line in the USA: The 1969 all Aluminum ZL-1 Corvette!
Take a look at a magazine article about the car:
http://www.digitalcorvettes.com/forums/showthread.php?t=67956

One pic of the engine components:


Have a good night.

1 comment:

watchtower said...

I was hoping that the new Camaro would give GM a much needed shot in the arm but with the economy nosediving I kind of doubt it.

I think the new Challenger looks awesome but our hometown Chrysler dealer still has his on the lot.
I've seen plenty of people looking at it (myself included) but no one seems willing to part with the cash right now (or go into debt) for it.