Et Tu Brute

I reluctantly concede that the other shoe may have dropped on GSE equity and preferred holders. Moody's downgraded the GSE preferreds five notches to Baa3. This could be the final knife to plunge into the GSE heart in what has been a Roman Senate style attack by the media and political pundits. One can only hope that Treasury Secretary Paulson can act like Marc Anthony and avenge the downgrade and the media / pundit attacks. Of course, in the Julius Caesar story, Anthony's vengeance came post-mortem. Let's hope that Mr. Paulson will say something before the dog's of war have their way. Thus far, the Mr. Paulson's silence is deafening.



What should investors do? Mismanagement at the GSEs, miscalculation and relentless attacks by the media and pundits have made GSE equities and preferreds risky (aggressive) investments. This is a sad development. We would be very cautious when owning the regional banks. They are loaded to the gills in GSE preferreds. Bloomberg News reports that Sovereign Bank and M&T bank are among the largest holders of GSE preferreds.





Last year' energy bill allotted up to $25 billion in low-cast government loans for the troubled domestic automakers. Now the Detroit Three are telling the government that $25 billion may not be sufficient. Now, I am a big fan of domestic automobiles. I own a small fleet of vehicles which range from modern daily drivers to race cars to a collector vehicle. All of my vehicles are domestic (I cannot say the same for my children). However, I must join the ranks of critical pundits on the subject of the Detroit Three.



Never mind the GSEs, the Detroit three have been examples of poor management for 35 years. One only needs to look back at product and cost decisions as evidence. When they do take meaningful steps in the right direction, they revert to their old ways of inefficiency as soon as the coffers begin to fill. If the GSEs will be required to blow up their non- implied government-backed investors, To be fair, Alan Mulally has not been at Ford long and is not responsible for the once great marque's decline, but many board members have been there for quite a long time. Cerberus is new to the auto game, but it had better get help quickly.

This leaves the intrepid Rick Wagoner at GM. Rick as been at GM since 1977, rising to CFO in 1992, then to the head of North American Operations in 1994. He became COO in 1998, President and CEO in 2000 and Chairman in 2003. During Rick's time at the top GM became the market leader in trucks and SUVs (essentially 1965 Impala wagons with computers and fuel injection) and, until 2007, agreed to ever-costlier labor agreements. Meanwhile, his foreign competitors thrived (strangely enough without many large trucks and SUVs, built higher quality cars which were more efficient and were less costly to produce IN THE U.S.!

Here are my conditions for more low-cost government loans to the Detroit Three:

1) Wagoner and the GM Board is history.

2) Ford's board is history.

3) Chrysler brings back Bob Lutz and / or Jerry York.

4) Labor costs fall in line with the Detroit Three's foreign competitor's U.S. facilities.

5) As with Chrysler in the 80s, the Detroit Three must make a paradigm shift to new more efficient and high-quality vehicles. Performance and style need not suffer.

6) Stop legislating the automakers out of business with ridiculous emissions, safety and mileage standards. Some semblance of reality has to be exercised by Congress. I am all for safe, clean and efficient cars, but pulling numbers out of a hat and telling the automakers to meet them or else is ridiculous.

Speaking of Congress, before blowing up GSE investors, how about Congress acknowledging their role (lack of oversight) in the GSE situation?


In case you missed it. Th oil bubble has burst and the dollar has strengthened. So much for those who said that oil prices were solely due to demand. Bubbles can and do occur in every market. Caveat Emptor.