Deadbeat Disabler Devices
I came across an interesting article that highlighted a growing trend in the car sales world. It seems that bad credit car borrowers can be submitted to a computer device that can disable the automobile they have should they get behind on payments:
Payment Late? lenders Can Remotely Disable Your Car
Repossessing cars is so old-fashioned. All that driving, locating people's houses, towing the cars away... with the mess credit markets are currently in, who has time for that? Car lenders don't.
That's why engine shut-off devices, or car disablers, are a hot new trend in car accessories. Less useful than a GPS and way less fun than a DVD player, the devices allow lenders to disable a car's engine remotely when payments are overdue. Yes, it's legal.
According to an article about the devices in the Kansas City Star, drivers have a few days' warning before the ignition is disabled:
"With brand names On Time, PassTime and PayTeck, car disablers are wired to the ignition and typically provide motorists three or four days' warning, with flashing lights (green to amber to red) and quickening chirps as drop-dead payment dates near.
They will not shut down a moving car, manufacturers note, but will render starters silent the morning after the warning light turns red."
Economic Disconnect advises researching these type of device makers as I am sure it will be a growing market!
I could never understand the huge difference in the way that loan defaulters get described and treated depending on what they are defaulting on. Auto defaults and credit card quitters are basically spit on while home mortgage droppers are treated with kid gloves and a multitude of excuses. Perhaps someone can design a doorlock that will lock out deadbeat mortgage holders from the house!
Economics is Not a Real Science
As a molecular biologist I was schooled in scientific theory. I use the experimental method and collate data to solve problems with what I am working on. Biology, Physics, and Chemistry are real sciences. Economics is not.
Mish has a brutal takedown of a high end economist, Greg Makiw a professor of economics at Harvard University. Full piece can be found here. While I have little to add to the Mish article, I did want to point out a couple of telling quotes from Mr. Mankiw that show what passes for mainstream economic theory.
From point number 5 of Mr. Mankiw's blog "Observations on Negative Interest Rates":
5. If we want to prop up aggregate demand to promote full employment, what is the alternative to monetary policy aimed at producing negative real interest rates? Fiscal policy. Essentially, the private sector is saying it wants to save. Fiscal policy can say, "No you don't. If you try to save, we will dissave on your behalf via budget deficits." That fiscal dissaving would push equilibrium interest rates upward. But is that policy really welfare-improving compared to allowing interest rates to fall into the negative region? If people are feeling poorer and want to save for the future, why should we stop them? Unless we think their additional saving is irrational, it seems best to try to funnel that saving into investment with the appropriate interest rate. And given the available investment opportunities, that interest rate might well be negative.
The line "we will dissave on your behalf via budget deficits" implies some economist has any idea whether the public should save or not. Surely it is clear to all that the best minds in economics know no such thing.
Add to this the line "it seems best to try to funnel that saving into investment with the appropriate interest rate" which states that not only would an economist know if saving was good or bad, but they would also know the perfect interest rate to set regardless.
From experience we know that no such knowledge exists. It is silly for anyone to pretend they "know" the answers to any of this.
Surgical Bankruptcy Costs Keep Mounting
Lost among the general market mania today was this little automaker related news item:
GM, Chrysler to get $5.5B more in government loans
Government to loan GM up to $5B more, Chrysler to get $500M as automakers race to restructure
DETROIT (AP) -- General Motors Corp. could get as much as $5 billion more in federal loans, while Chrysler LLC could get $500 million as they race against government-imposed deadlines to restructure, according to a government report filed Tuesday.
The quarterly report by a special inspector general on the auto industry and bank bailout programs says the money will be made available for working capital. GM has until June 1 to complete restructuring plans that satisfy the government's auto task force, while Chrysler has until April 30.
A person briefed on the plans said Tuesday that the exact amount of the loans have not been finalized and will be worked out with the companies. The person asked not to be identified because the negotiations are confidential.
GM already has received $13.4 billion in government loans, while Chrysler has received $4 billion.
Another wad of money goes out the door to the automakers without debate or a vote. Why bother trying to "restructure" or attempt a "surgical bankruptcy" when you can just get handed all your operating expenses on a monthly basis by the government? Why indeed.
Roller Coaster Ride of Perception
The big news of today was two fold. First up was Treasury Secretary Tim Geithner remarks that almost every bank is "well capitalized" even if we are going into the second Great Depression. While this may or may not be true, the markets ate it up and banks rallied hard to the upside.
The second item was an AP exclusive that detailed how the "stress tests" were crafted to favor huge Wall Street banks and their holdings. Please note that just yesterday the Treasury made a formal statement which downplayed a supposed "leak" of test results by making the assertion that no results were in their possession to leak. Today we get something totally contradictory. While Wall Street does not seem to care that we live in a Banana Republic, it should make everyday people nervous.
Instead of rehashing what the "stress test" slant means, I wanted to instead take a look at what the power of perception means in real time. A few kind words by Geithner, without any facts to back them up, can cause wild swings in the markets.
The example tonight is Huntington Bancshares Inc (HBAN). Full disclosure: I do not have any position in HBAN or any other bank stock.
HBAN closed Monday trading at $3.11. First thing in the morning the stock gapped lower to $2.30 (down 26%) on the back of a terrible earnings report. If you were of the sort that thought the green shoots would help the banks, the report was proof positive the banking sector still has a long ways to go.
But what about Geithner's statement that the banks are good as gold? Well, just as his prepared remarks were hitting the tape, the roller coaster of perception went on a ride! With the new (less than an hour old) view that the banks are in relative good shape, again without facts or data, HBAN went moonshot. Here is the one day chart:
The stock closed at $3.45 for a move up of 11% from the previous close, but an amazing 50% move up from the intraday low!
This kind of market mania cannot be explained and I am not attempting to do that. I am presenting HBAN activity as evidence that perception and headline reaction is the ONLY catalyst for the market right now. Technicals are useless. Fundamentals are useless.
Bears are wrong that all bank stocks are going to zero. Bulls are wrong that all bank stocks are going to $1000. Beyond that, the only thing that is known is that nobody knows what is going on.
Have a good night.