I didn’t know former General Motors CEO Rick Wagoner was so popular. The morning headlines in the financial press make it sound as though stocks are selling off because Wagoner and other auto industry executives failed to put forth strong enough turnaround plans to guarantee more government loans.
Never mind that the S&P 500 rallied 167 points, or 25%, over the last two weeks. Ignore the possibility that one of the sharpest rallies in stock market history might have some investors taking profits.
Now, that’s not to say that the hard line taken by the Obama administration toward the automakers isn’t affecting the stock market. It is. But just as the market rallied on news starting March 9, the bad news from the automakers is a catalyst for selling. News tends to catalyze investors’ predispositions.
*****The suggestion by the Obama administration that Wagoner step aside if GM is to get any more government money is certainly interesting. I’m sure that there will be many pundits criticizing the President for this move. After all, do we believe that President Obama knows more about making cars than a Detroit CEO?
Even though Wagoner pinned his company’s future on the Hummer and other SUVs, it may seem presumptuous to blame it all on the CEO. The Unions and the credit markets should get their fair share of blame for GM’s fall from grace.
Plus, the President’s demands on the auto industry can be construed as overstepping his authority and undermining the very foundation of capitalism itself.
I see it differently. The auto industry came to the government and requested loans. I don’t believe loans should be made with no strings attached, especially when there are questions as to whether the borrower will be able to pay the loan back.
But there’s an even bigger issue here. The money that the government is lending is technically tax payer money. And it seems to me that Obama is well aware that Americans deserve a voice in how that money is lent and under what circumstances.
In other words: yes, the President is holding a financial stick over the automakers heads and using it to implement policy, like higher fuel efficiency for cars. Does anyone really have a problem with that? If so, do you favor increased fuel efficiency? And do you trust Congress to put your wishes into law?
Just as we saw with the financial sector and AIG, big corporations often put their own interests ahead of their investors and customers.
*****Oil is trading below $50 a barrel. Analysts say they saw no fundamental reason for the recent rally in crude. Supplies are building despite OPEC production cuts and demand is still weak.
However at the same time, each of these items is a temporary condition. We know that oil demand will increase when the global economy recovers. There may be differing opinions on the timing of recovery, but it will happen. And oil prices will rise.
I see no problem with investors assuming that modest improvements in the housing sector and a rally in the stock market are foreshadowing economic recovery. Of course it’s not going to be a straight line. Plus, there are more fundamental catalysts for oil than current demand rates. I’ll explore some of these in tomorrow’s Daily Profit.
That’s it for today. I’ll talk to you tomorrow.