America has four car companies again! GM has sold the Saturn franchise to Roger Penske. I never believed it would happen. I’m glad to have the choice in the marketplace.

Technically though this is probably a temporary situation. Once Fiat buys Chrysler, will Chrysler still count as an American car company anymore? The business will take its orders from Turin even if Fiat doesn’t own a controlling percentage of Chrysler shares. Well, maybe it will still be American. Mazda is still Japanese right, even though Ford tells it what to do.

Even though Penske won’t be building cars it does leave some exciting possibilities for the future. GM will provide Saturn vehicles for the first few years, but eventually Penske will contract with other automakers and rebadge their vehicles. What could we have in store? From what I read online, most people expect rebadged Renaults. That idea surprises me because Renault and Nissan are allied, so why would Nissan allow itself to compete against its ally’s cars in the US? I expect Nissan would veto any move by Renault to sell cars to Penske. I hope so anyway. I don’t care for Renault’s lineup (based on UK models). The Laguna coupe is the only exception and I’m still not that excited about it.

I sure as hell don’t want Penske to import the New Kangoo.

I would think Citroen or Peugeot might be a possibility. They’re a large company without any ties to the US. Neither of their lineups interest me either though. Here you can see Citroen and Peugeot in the UK. My heart still skips a beat for the Citroen C5 however. If the C5 Airscape is ever made and sold as a Saturn I’ll sell my ass on the street to get one.

Certainly Fiat is out of the running since they’re taking on Chrysler. That also rules out Alfa Romeo since it’s a part of the Fiat Group. I can’t really think of any other European manufacturers that could possibly supply a US car company. No American is going to buy an AvtoVAZ.

Representing Asia… I think Proton is a strong possibility. They sell in the UK and Australia so they’re familiar with first world safety standards, and they’re a bargain leader. I could see them supplying Penske with one or two compact, fuel-efficient cars; perhaps a small SUV as well. Nothing they make excites me though.

Other than Proton, Asia doesn’t have much to offer Penske. South Korea’s two biggest native manufacturers, Hyundai and Kia, already sell in the US. That leaves SsangYong which is in bankruptcy. I doubt Penske wants to rescue a second failed automaker. Even if he did I don’t recommend he save SsangYong. They manufacture some awkward looking vehicles. Japan doesn’t have any companies that aren’t involved in the US so no sense looking there. That leaves China.

A Chinese manufacturer presents political problems in the US. Penske will have a lot of baggage to deal with in terms of quality questions, safety concerns and a freakout over the loss of US manufacturing to China. The benefit is that Penske has plenty of choice in China – Geely, Great Wall, BYD, Brilliance, Chery, and probably others I can’t think of. I’m sure they would all bend over backwards to crack into the US market. Penske would also provide them with a lot of manufacturing know-how to bring their cars up to US standards. That’s a lot of work for Penske.

Don’t think Penske is going to import cars from several different sources. That would be a collosal headache for maintainance. Dealerships would have to stock parts from so many different companies and train their mechanics on completely different systems. I actually expect Proton to win out. They’re third world cheap but already know how to operate in the first world.

Now we have unemployment the likes of which my generation has never seen. Well we could have seen it but I doubt anyone in my age group was paying attention to unemployment statistics in 1983. Unemployment hit 9.4% today; the worst it has been since August 1983. Most of the media seems to be taking the ‘What, me worry?‘ approach to reporting this fact. Just about every article starts off mentioning the unemployment rate, but then soothes your nerves by talking up the better than expected decline in job losses.

• Job losses slow dramatically says CNN
• US loses just 345,000 jobs in May, raising hopes proclaims Yahoo!
• Jobs Report Is an Upside Surprise declares BusinessWeek

Actually those headlines are pretty damn cheerful, but reality may not turn out to be so. A Barron’s columnist has taken note of some rumors surrounding these unemployment figures. The reduced job loss figure of 345,000 may be an error at the Bureau of Labor Statistics. C’est la vie! We can’t be sure of this trend until we see data for this month, which of course won’t happen until next month.

By the way, with the way a lot of news outlets are discussing that 345,000 drop in jobs you would think they’re discussing a long term, established trend. Remember though, this is actually a one data point trend, and a single data point is pretty meaningless. Repeat that to yourself the next time you see or hear a report about this fantastic new employment trend we’re in.

Aside from this irrational exuberance, I’ve noticed one question not asked; one key statistic not given today. What’s the funemployment number? I’m positive we can’t have 9.4% sad sacks moping through their days looking for work. The LA Times found some people living it up without a pesky job. Ex-Yahoo Michael Van Gorkom is hanging out at the beach with his new best friend, the margarita. Aubrey Howell’s busiest task has been visiting family since she’s joined the ranks of the funemployed.

I was (f)unemployed once. I graduated college into the Internet recession in 2001, and then moved to Silicon Valley. For seven months I puttered around the apartment I couldn’t afford to live in. In that summer I watched every single episode of the original Battlestar Galactica, and learned Galactica 1980 is unwatchable. I’d spend afternoons driving aimlessly trying to learn the roads of my new home. I look back on that with misery. I ran through my savings and ran up credit card debt trying to feed myself, pay my car loan and pay my rent. How any of these people can feel relaxed and happy when they don’t have an income is beyond my understanding.

So what’s the point of my rambling? The media is carrying water for the White House. We have a job market that is only getting worse, but who in the fourth estate is actually calling out our esteemed leader over it? These mainstream news outlets are sugarcoating today’s bad news with soft headlines. The LA Times is inventing a new term – funemployment – to persuade the millions of newly unemployed people that it’s not so bad. So what if you don’t have penny left to your name. Go hit those batting cages!

The media is a disgrace and the country is going to hell in a handbasket. Same old, same old.

UPDATE: Wow, I thought I was pushing it by saying the news media were protecting Obama from criticism by shielding negative news about unemployment. Then Newsweek’s editor, Evan Thomas, one ups everyone by going on MSNBC to say Obama is “sort of God.” It’s unbelieveable how nakedly pro-Obama these guys are.

I don’t often look to Europe for advice on liberty or economics. They rely on their governments too much for my taste. So it was my own prejudice that was knocked off my feet today when I read an eloquent and impassioned defense of the free market system from Great Britain.

(Sorry to you British who don’t consider yourselves European. The rest of the world doesn’t see it that way.)

Janet Daley, whoever she is, wrote an essay that’s just damn inspiring. Instead of parroting the false choice of capitalism versus socialism as an economic system, Daley draws out the implications of those systems for our politics. Without capitalism can we have a free society?

When we make the case for capitalism, we are defending the political principle of freedom, not arguing for one kind of rigid economic organisation over another.

Oh Janet, you had me at ‘defending the political principle of freedom’.

I don’t even want to add more. Janet Daley has it so right I just want to stand up and salute. Her essay is why I trust the free market. Sure some people will disagree but I think those people are too trusting. You can have a government that preaches it’s for “the people” but it never lives up to it. The more control government is given, the better the chance it will betray you. Government should be kept out of as much as possible. Just say no to socialism kids!

Saving is getting its reputation dragged through the mud. To my astonishment, economists and politicians want to keep stimulus money out of peoples’ hands for fear that they would save it. The money would just be “wasted” that way. No instead we should throw cash at the construction industry. Somehow that’s productive.

Now I’m not going to say no infrastructure project is worthwhile. However I do not believe any bill that comes from Congress will be efficient. The wasteful programs will absolutely outnumber the worthwhile ones. Plus, infrastructure recoups its investment over many years. It will not provide the jumpstart that politicians are claiming. Please also consider that new road building has given diminishing returns since the 1950s and transit repairs do not recoup their expense in increased economic activity. Also, one thing that no one has considered is the expense we’re adding to future generations from this construction program. Everything we build to stimulate today’s economy will cost money to maintain in the future. This stimulus bill will become a permanent expansion of the government budget.

But that’s not my focus here. I don’t want the concept of saving to be besmirched without a defense. Getting money directly to people and business is not wasted money. Imagine that we all get government checks again, and everyone decides to put that money in their savings account. This can be a good thing. When all that extra money is deposited we’re a step closer to restoring confidence. People feel more secure because they padded their savings. Maybe it’s only worth a month of groceries, but that’s one more month where people won’t worry about eating. It’s one more month of peace of mind. Generating that peace of mind is what will create consumer demand and pull the country out of this slump.

There is a benefit on the bank side of this transaction too. Banks are just as scared about the economy as regular people are. The reason they have cut back on lending is fear they won’t have enough cash on hand to meet their bad loans. If people save more money, it increases the amount in bank deposits. This is money banks can use to improve their balance sheets. More cash on hand will bring down the level of panic in the financial sector and get us closer to resuming a more normal level on lending.

We’re too obsessed with finding a whiz-bang moment where the economy is magically restored. It’s as if economists believe there is this one economic input that must be tweaked to solve all our problems. Gee, maybe if the Fed Funds Rate was just another 25 bps lower, or unemployment payments were extended another 8 weeks the economy would just turn around. Recoveries do not happen like that. Emerging from a recession is a gradual process.

By the way I’m not in favor of a one time payment like we had back in Q2 of 2008. I just took offense at the idea that saving money is a bad thing. As a stimulus measure handing out cash to people has a very limited psychological benefit. I would like to see the sustained effort that would come from suspending payroll taxes take effect. Let’s stop collecting income, Social Security and Medicare taxes for two years. The government can borrow to make up the shortfall, as it has shown no fear of doing. It would be wonderful if cuts in those programs also occurred, but if I suggested that I would be entering the realm of fantasy.

And while I’m on my soapbox, I still think exempting profits on bank loans from taxes would provide a good incentive to banks to loosen their credit requirements.

Yesterday was the first day of the Spring semester for my MBA program. Just like last Fall I left work early so I could get to class very early and enjoy some quiet time reading. I sat in the lounge and the Financial Times gave me a treat.

I’m one of the very few Americans who ever think of Europe. When I do my mind conjures up a very familiar stereotype. I see a gaunt man with frazzled hair and a stubbly beard. Everything he says, he screams. Everything is a moral imperative. Any disagreement is an outrage. That is Europe: shrill, obnoxous, and absolutely certain of their moral superiority.

So when I happened upon the editoral page of the Financial Times I was pleased to see an essay from Vaclav Klaus, President of the Czech Republic. The content itself was refreshing, and astonishing to see come from one of Europe’s leaders. Everyone in the world, including America, seems to think the answer to our recession is more regulation. The conventional wisdom now says writing more rules and employing more bureaucrats will revive the world’s economies. Klaus is having none of this. He sees more economic freedom as the answer to our economic quagmire. We should drop, or at least suspend, a host of labor, environmental, and health standards. This red tape hurts economic progress. They “block rational human activity”.

Read his essay. It was heartening to me to see there are some people who haven’t lost faith in individualism: the ability for individuals to make smart decisions for themselves. Too many people look to strengthen the nanny-state as the answer to everything. The economy is faltering? Let the government manage it. Can’t afford health care? The government will give it to you. Can’t afford your rent anymore? The government will force your landlord to leave your rent unchanged. This just creates dependency and a population that can’t cope with any challenges. But I suppose this may be the goal for some. It sure makes me depressed, but I guess the government can give me a psychologist for an hour.

Everyone should read this editorial from Polish economists Leszek Balcerowicz and Andrzej Rzonca about the dangers of these fiscal stimulus plans. All these MBAs and PhDs around the world seem to assume throwing money into the economy will automatically get consumers to spend it. If you want to dress it up in fancy-talk: A strong Keynesian stimulus would revive the economy by providing money for production. The business owners receiving these government orders and employees receiving wages would naturally go out and spend that new money, providing further stimulus to the economy.

The problem is that isn’t reality. As Balcerowicz and Rzonca say, and I totally agree with them, consumers haven’t stopped spending because they lack money. They lack confidence and won’t part with their money unless they’re sure their income is secure. This is so obvious, I’ve been annoying everyone who makes the mistake of talking to me about the economy with this since October. Yet those MBAs and PhDs who populate the world’s central banks and treasuries are blind to it. They assume pushing money out into the economy will always translate into spending. I guess they assume we’re all zombie shoppers who lack the brainpower to hold on to a dollar.

Balcerowicz and Rzonca warn of some bad economic consequences of this Keynesian binge. I’ve been worrying about that through all of November. The US economy has weathered recessions before, but when has the government conjured up this quantity of debt in an effort to spend us out of a recession? I can’t imagine that the consequences won’t include massive inflation. Hedge funds have been dumping their investments, which has depressed commodity prices; that includes gold and silver. I suspect Q1 of 2009 will see strong price rises in precious metals as hedge funds finish dumping their assets. I may just turn into a gold bug.

The election is today. I voted weeks ago but I didn’t want to let the day go by without saying something. If you’ve read my past posts you can put 2 and 2 together and figure out who I voted for president.

To mark the day I wanted to discuss the one piece of news that actually made me feel a physical twinge of pain when I read it. I was so shocked by this proposal, I couldn’t think for a good ten seconds. Congressional Democrats are discussing an end to the preferential tax breaks that make 401(k) plans worth having. But to put that in more alarmist tones – Democrats are plotting to steal your 401(k)!!!

401(k) plans exist because Congress decided the money saved in there would not be taxed until you withdrew it. It encourages people to save for retirement because they can invest the money that would have gone to taxes for several decades. By removing this favorable tax treatment, there’s no reason to contribute to a 401(k). It becomes like any other investment account. You’ll have to pay taxes on your gains each year.

This isn’t even the end. Besides killing 401(k) plans, Congress will require you to contribute to a new “Guaranteed Retirement Account” run by the government. Each worker will have 5% automatically deducted from their paycheck and deposited in the GRA. Our generous and benevolent government would provide matching funds of up to $600 a year. But you don’t even get to decide how your GRA money is invested. Every penny of your GRA will be used to buy government bonds that return 3%; three fucking percent, when holding the S&P 500 index would get you 7.6% during the 1950 to 2007 period. So the best you can look forward to each year is less than half of what you would get if you just bought a simple index fund. Thanks to compound interest if you closed your eyes for the next couple of decades you will have lost more than ten times your retirement money by using a GRA. Don’t worry though. You don’t have a choice.

The Democrats will trot out this plan as protecting workers and saving the middle class, but that’s not the real reason. What this plan does is confiscate 5% of wages for Congress to use to finance debt. That’s what government bonds are! I guess I can’t say exactly what this spending will be for, but I am willing to bet my GRA it will be a massive expansion of social welfare.

This is the sort of news that makes me pound my desk and rage at my LCD. Reading this is when I went from guarded about an Obama presidency to absolute fear. You know if Obama does get elected, this plan is a lock. There will be nothing to stop Democrats from radically altering the economy, and this idea will be a huge step in financing Obama’s spending plans. That national health insurance plan won’t pay for itself.

How much debt can the government finance? I’m glad you asked. I’m getting these figures from 2007 data from the Bureau of Labor Statistics: $695 in median weekly earnings, multiplied by 52 weeks a year, multiplied by 107,339,000 workers multiplied by the 5% deduction.

$695 x 52 x 107,339,000 x 0.05 = $193,961,573,000

That’s a cool $194 billion in captive finance each year. Don’t think of it as some abstract, meaningless concept. Remember that’s your money. If Obama and Pelosi and Frank were traveling around the country campaigning on a “I’ll take 5% of your money” platform, what would you tell them? That’s exactly what this plan will do. Five percent will be taken away and spent however they like.

I wish this news came out a month ago because then I really would have been screaming from the hilltops. I definitely would have been phonebanking for McCain had I known about this plan. It should have been in commercials on TV freaking out the rest of the country just like it freaked me out.

I’ll be watching the election coverage like everyone else. I’ll just be hoping McCain wins so my retirement savings doesn’t get blown away by the winds of change.

If you haven’t noticed, the stock market has taken a bit of a nosedive in the past month. With the presidential campaign in full swing, Barack Obama took a moment to scare old people with a swipe at any ideas towards Social Security privatization. I wish I could find the exact quote, but since I can’t I’ll have to paraphrase. Basically, he asked people to imagine the horror if they had their social security funds invested in stocks right now. The implication is that they would be penniless as a result.

I can’t really fault Obama too harshly for the statement. The conventional wisdom is that the stock market is so risky, it would wreck everyone’s Social Security payments if any money were allowed to be invested. He was just parroting that point. But is the conventional wisdom true? Thankfully, someone who is a lot better at math than I checked into this.

Andrew Biggs works for the American Enterprise Institute, a conservative think-tank. Biggs setup a scenario where 4% of the 12.4% payroll tax is invested in stocks. When retirement comes that 4% is converted into an annuity which pays out to you each year. A person retiring in September 2008 would receive 15% more money under this system than under the current system, even with the disastrous collapse in stock prices. Biggs went on to simulate retirees from 1915 to 2008 under this investment system and the benefits increase ranged from a low of 6% to a high of 23%. Let me underline the point that every group received more Social Security money in a system with investment accounts, and this even includes the Great Depression.

I encourage you to read Biggs’s article. It’s brief and will explain his work better than I can.

So when will we be allowed to invest our Social Security money? I’m sure Congress will come around the day after I retire.

This is the best representation of historical housing prices, ever.

With alarming swiftness Washington Mutual passed into history. The FDIC seized the thrift and sold off its branch network and deposits to JP Morgan Chase for a cool $1.9 billion. All this was done in a single day. I think it was all done in the afternoon because I don’t recall seeing any news about this when I looked online in the morning.

The remarkable speed is just one component that alarms me. Who negotiates a bank purchase in a few hours? Granted, JP Morgan Chase should have already done their due diligence before because they, along with several other banks, were looking at making a merger offer to WaMu. Even with that financial information I don’t feel comfortable accepting that a deal could be reached so quickly with such a large, complex financial institution.

The other thing that bothers me is the reason the Office of Thrift Supervision pushed the FDIC into seizing WaMu. At first there didn’t seem to be a reason. I searched several news sources and no one was reporting the cause of the seizure; only that WaMu was seized and it was the largest bank failure in US history. I finally found a Bloomberg article that explained it.

Customers withdrew $16.7 billion from WaMu accounts since Sept. 16, leaving the Seattle-based bank “unsound,” the Office of Thrift Supervision said today.

Well sure $16.7 billion sounds like a lot of money, but it had $307 billion in assets. $188 billion of that was in deposits. So WaMu lost 5.4% in assets. Is that really cause to seize a bank? I thought a bank had to actually default, as in not have enough money to pay its obligations, for the FDIC to act. It sounds like this was a preemptive seizure by the FDIC. I did not realize that was legal.

The icing on the cake is that WaMu’s management knew nothing about what was happening. The Salt Lake Tribune, reprinting a NY Times piece, said:

The seizure and the deal with J.P. Morgan came as a shock to Washington Mutual’s board, which was kept in the dark: the company’s newly-minted chief executive, Alan C. Fishman, was in flying from New York to Seattle at the time the deal was finally brokered, according to these people.

Let’s recap. The FDIC planned to preemptively takeover WaMu and negotiated its asset sales to JP Morgan Chase all in secret in a single afternoon. This doesn’t seem shady to anyone? Did the FDIC actually negotiate with any other banks during those few hours, or does Jamie Dimon have a buddy there who “streamlined” the process? Call me paranoid if you like, but this transaction was way too convenient for reality.