Friday, June 19, 2009
I furthermore disagree with the term Nationalized healthcare. For one, it sounds like something from France. Two, when a total system is "nationalized," goverment has a history of screwing things up. Its a fact. I feel strongly that a public option health insurance be available with limited benefits and small premiums that relatively anybody could afford. Similar to Medicaid/Medicare, just opened up completely to the public. However, do not make this plan competitive to the better insurance plans out there. This would continue to drive the healthcare industry engine by making people want to trade up to better plans with companies like Aetna or BlueCross/BlueShield. On top of this, the authority for this should be turned over to the states with financial backing from the federal level. This would let each individual state better tailor benefits to the needs of the citizens.
I also feel that the states, as set forth by the federal government, should require people to buy health insurance, much like we are required to buy car insurance. This now gives people a more affordable option, for those who could not afford it before or did not want it, the opportunity to obtain a minimum amount of health insurance. I have to agree with the comments that President Obama has made that healthcare is costing the nation too much when it comes to the uninsured. I still feel, however, the governement should not be in the healthcare business like it has said, and private insurance is still the best bet for Americans.
I would also like to add that the proposal to tax insurance benefits of corporations is a huge mistake, however it is a catch-22. The governement knows that if it were to make it less desirable for companies to offer benefits, they will stop offering them, thus the companies dropping their programs and then leaving the employee's only option for healthcare with the government. For the companies who decide to continue the benefits, the taxes will help pay for the huge government spending that is now occuring. All I'm asking is for a little sanity. This all goes back to this terrible stimulus package (read "spending bill") and lack of funds to finance it. The government needs all the money it can get.
Back to my original point, I feel that there does need to be a public option for health insurance. Not everyone can afford a PPO, but for those who do not make enough to even afford an HMO, and for the small business who cannot afford to provide benefits, there do need to be options.
Monday, June 15, 2009
I think that finally, by putting GM into bankruptcy, the situation is going to get worked out. I however do not support 100% of the decisions. Taxpayer money has now been thrown down the toilet by GM declaring bankruptcy. That's why many supported bankruptcy in December before the government gave the struggling automaker any money, however it is what it is.
What I truly disagree with is the situation with the dealers. It seems that like always, it's who you know. Dealers all across the country who are making money and hitting their sales targets are getting shut down, while some who can call in favors are staying open for business. My thought is that dealers should not be shut down. Instead, when GM exits bankruptcy, let the dealers fight it out to see who can stay open with less supply from GM and a declining car market in the United States. But of course in this new command, pseudo-fascist economy, that won't happen.
Moreover, what makes me even more sick is the ownership percentage of the proposed new Government Motors. Unions getting 44% of the new company, while secured debt holders get only 17% is abominable. These investors (read individual investors, mutual funds, hedge funds, pension funds, retirement funds, etc.) are getting less that what they were promised not only by GM, but by contract law in bankruptcy courts. Bondholders are entitled to largest share of capital from and bankrupt company. That's how it works. However, it seems that contract law now means what is in the best interest of the controlling party in Washington law (Republicans and Dems alike). I am sure GW and TJ are rolling over in their graves.
The funniest part is that you hear President Obama speaking about these people who are unwilling to settle for the best interest of the country. However, he does not mention that these investors represent clients as referenced in the previous paragraph: retirees, pension funds, everyday Americans. These people have put their money in the hands of experienced brokers to invest for retirement, and for a long time, GM secured debt has been some of the safest bonds next to Treasuries. So, by these brokers accepting less that what they are entitled to, they are actually not helping America when a Vermont schoolteacher's retirement account loses value because President Obama commanded the investors take less. Plain rediculous.
Wednesday, May 6, 2009
Lets talk about the good first. Some shell corporations and individuals hide money overseas (Cayman, Bahamas, Switzerland, etc.) and get away with paying little or no taxes. This is bad and in the words of Joe Biden, "unpatriotic." It is an American's duty to pay taxes, however it is not patriotic by any means to pay more than you should. But, the simple fact remains that some get away with it and it is wrong.
Now the bad. This has a myriad of unintended consequences. Of the CEO's and investors I've talked with over the past few days, this new regulations will weaken the American economy. Here's why.
Corporations pay corporate income taxes in countries in which they do business. For instance, ABC Corp, who is a US registered corporation, will pay income taxes to Mexico if they sell their product or generate any type of revenue based on their activity in Mexico. Then, because of laws that are currently in effect, ABC Corp could leave this money in Mexico and not pay taxes to repatriate the money back to the United States. New legislation would require the companies now to pay income tax not only to the foreign country, but to the US as well, essentially double taxation.
Lets theorize that ABC is making 20% profit after taxes in the foreign country. Now with an additional tax due to the U.S., ABC Corp decides that the profit is now not enough to operate in in Mexico, and even all foreign countries. Plants shut down that export goods, offices abroad close down (that means less travel!) and the U.S. economy becomes smaller because not only are companies choosing not to pay extra to Uncle Sam, the companies are now uncompetitive in the market.
This legislation, smartly designed to take effect in the next congress, is just more government noses getting where they shouldn't be. Its the unintended consequences, President Obama, that we have to worry about. Just because communism looks great on paper, we know what the reality is. I am saying now that these higher taxes specifically, because they effect so many corporations in this globalized marketplace, will severely hurt the chauffeured car industry. Less travel, less employees and smaller economy would wreck havoc on our industry.
Saturday, May 2, 2009
I believe that we are getting close to the bottom and this is great news. We have seen some great economic numbers that are showing signs of life. While I am optimistic, by no means are we in a recovery period yet. My feeling is that we are going to go staganant for a while, simply because of the hesitation right now in the market. Many investors are still very worried about the possiblity of the United States owning so many companies (Citi, BofA, Fannie, Freddie, Chrysler, GM, did I miss any of them?). Now with Chrysler going into bankruptcy, the taxpayers have just lost the loan we made the company.
This week the "stress tests" are going to come public and I see this as a disaster. The tests are going to tell us that more banks will fail without more capital injections. Just between Citi and BofA, we are at $95 Billion of injection. Now, this past week, Treasury has stated that any of the largest 100 banks in the U.S. will not be allowed to fail. So much for capitalism.
Lets get back to the good news. Consumer spending was up 2.2% for the quarter. This was an excellent number. Interestingly, gross domestic product (GDP) shrunk for the quarter at a 6.1% annualized rate. This is interesting because increased consumer spending normally means a boost in GDP. The good news about this is that inventories are shrinking. Output has now declined for three straight quarters. We also have to remember that because of the job cuts, output will shrink as well as manufacturers are slashing capacity.
Talking about jobs, we have to remember that jobs are a reactive number for corporations. Many companies cut jobs after bad news, not before. Jobs will continue to be lost for several more quarters until there are real signs of recovery. Also, do not forget that 8.5% unemployment figures are not the worst we have seen, compared to the 10.8% in 1982 and the extended period in 1975 where the unemployment figures stayed above 8% for the entire year.
While the situation is still bad, there is light at the end of the tunnel. President Obama and his administrations must realize that raising taxes next year and instituting a cap and trade (tax) program will setback our economy even more from the recovery we may start to see probably in the fourth quarter of this year. Operators, stay lean and do not try to create supply for the smaller demand that is out there.
Friday, April 24, 2009
As an initial post, I want you to know how I feel about the situation we are in and my view so far. I know this is a little long, but give it a read.
If you listen to one political side long enough, you start to believe that the other side created the mess we are in today. Democrats blame President Bush for too large of deficits and not enough regulation of the financial industry. Republicans blame the Democrats for easing lending standards, especially with Fannie and Freddie. Or how the Democrats blocked significant legislation during the 2006-08 congressional session. I think
The real people who did this were everybody, me included. While I do not have a subprime mortgage, maybe I didn't do enough as my responsibilty as a citizen to elect those who I see fit to serve. But let's take another layer off.
In President Bush's first term, he pushed for more Americans to live the ultimate American dream: home ownership. An honorable thing and an innocent comment from the President. However, the banking system saw an opportunity, as any profit taking organization would, which was to make serious money.
After the 2001-02 recession, money was cheap because of the monetary policy laid out by Alan Greenspan. All large corporations were well capitalized (that's why GE got into the lending business). But the result was that sub-standard loans were made. Using the "How Much House Can I Afford?" model, traditionally people were able to qualify 28% of their monthly disposable income as to how much of a payment was affordable. But banks decided this was too strict, and loosened the standards to 35% and 38%, being able to qualify people who originally could afford a house that was $200,000 now qualify for a $350,000 with no money down. On top of it, some banks started "No Doc Loans" in which borrowers didn't even have to prove their income. This just looks like a disaster waiting to happen, doesn't it?
Than of course the banks would then sell off these loans, pool them together with others, and sell them off in pieces as Asset Backed Securities (ABS) or Collateralized Mortgage Obligations (CMOs). The thought was that when the interest rate would go up (because some people could not qualify at market rates) the house could be refinanced until, whoops, the bottom fell out of the housing market because of too much supply, then people are foreclosed upon, and then the bonds in which people had bought go bad and on and on. Just like dominoes. The Credit Default Swaps (CDS), or an insurance policy that an infinite number of people can buy that insures a security, that AIG held with little cash reserves then bankrupted the company when all of the purchasers tired to collect. Or all the MBSs that Lehman Brothers held sunk the company because the expected cash flows did not come. They still had payroll! And Lehman was not the only company that this happened to, but it’s the one that really hurt the market when the Fed decided to let it go.
This just didn't apply to homeowners, but corporations too. And the rich. The rich had to have a bigger yacht (which now are being repossessed like crazy), a bigger jet, or maybe that second or third house in
Now with the TARP out of control and President Obama's spending bills, the math does not add up. The government cannot continue to spend $10 for every $1 that they take in. Raising taxes will not solve the issue or instituting a Cap and Trade (read Tax) program to solve our deficit. Unfortunately, government (both sides) will continue running our economy worse than an eight year old running a lemonade stand.
What must happen is a real freeze in government spending. Tax increases will create havoc on our economy. Consumption will plummet in our industry. All extra disposable income would now be paid to our government who feels that studying the migration patterns of birds is more important than saving real jobs.
Wednesday, April 15, 2009
I feel that the industry is lacking an analyst who can look in the newspaper, internet, or CNBC, can analyze the news that affects our industry and interpret some of the ramifications. Of course, we have a few known speakers on the topic, but not somebody who does daily and posts these opinions for everyone to see. I feel I can fill this void. Let me be clear on one point: I am not using this blog as an advertisement for Nikko's. I am posting my opinions on the economy, politics and financial news that affects our industry.
Also, this is a blog and what I post are my opinions. In no way should you hold me liable for decisions you make about your business. Might I influence them? I hope so, however, use your own business judgement coupled with mine. This is especially true since we are a country that is so diverse in economic opportunity. My legal disclaimer is over now.
Some things you need to know about me:
- I am 22 years old and am a graduate of the University of Houston-Downtown. I have a mojor in Finance and minor in Economics. When I attended Texas A&M, I was an economics major. I am hoping to start my masters in Economics very soon back at TAMU.
- I am a believer of Supply Side Economics. For those of you who may not fully understand what that means, I feel that putting money in the power of the people is the way to go. Lower Taxes and less government spending. Opposite of this is Keynesian Economics, which believes that money is best spent by the government in directed fashions.
- I believe that capitalism and free markets are a foundation of wealth.