So many issues — so little time. Let us try a few quick takes on some current issues.
Selling the GE News. We watched with some wonder as selling ensued on the basis of a the announcement by S&P of a negative outlook for GE's triple A bond rating, perhaps in two years. Surely the issue was widely known, as is Jeff Immelt's determination to avoid this outcome. If investors doubt his plan, why wait until the S&P announcement?
Additionally, when did everyone suddenly decide that the ratings agencies "got game." At one moment they are the villains of the CDO fiasco, but now they know better. Were we alone in this reaction? No, we see that the astute team at Bespoke Investment Group is on the story.
Bush Delay on Auto Companies. When the Senate failed to pass legislation to help the auto companies last week, there was some interesting bargaining and speculation. The measure had majority support, but a procedural vote brought to the floor by Majority Leader Reid showed that the votes were not there to block a filibuster. In the aftermath, there was widespread speculation that conservative Republicans held firm because they "knew" that President Bush would come to the rescue. Others speculated that the UAW held the line because they had the same tip.
In short, the parties did not want to negotiate a solution in haste, preferring to sit around a table with a few months to reach a solution. Now that everyone sees the effect on car sales (see Calculated Risk on Chrysler) and the Bush delay, we wonder if there are any second thoughts. We still expect action, but it not have the form expected by the parties last week.
Gaius Marius is on this case, discussing the problems with the bankruptcy alternative.
Our take. The government role should be to create the right incentives for the needed bargaining and let the parties work it out. This means a firm deadline and some guidelines, but not a dictated solution. Sen. Corker seemed to be making some headway on this. The goal should be to achieve the restructuring without the stigma.
Warren Buffett. In our introduction of the concept of Wall Street Truthiness we noted recent criticism of The Oracle of Omaha, including suggestions that he has "lost it." Regular readers know our preference for the long term and real data versus an incident or two. Mebane Faber has a great analysis of the Buffett record, including data and simulation tools. The results had some surprises, even for those of us who are Buffett fans.
Fed Policy Moves. It took less than twenty-four hours before the punditry decided that the Fed moves were going to be inflationary — or ineffective — or both. This pattern of market reaction has been typical for months. Policies that take many months to implement and get traction are declared worthless in the absence of instant results. Many of those leading the critics, including the CNBC "devil's advocates" do not have much background or expertise on the subject.
Why not look to someone who has both the knowledge and experience? Readers should consider Bob McTeer's viewpoint. He has been a practical voice of reason for many months. Since he is a courteous man, and not a loud and fast talker, he seems to get shouted down on these programs where they put up six or eight talking heads at a time.
Our Take. There will be time to move from fighting deflation to fighting inflation. Readers who are not familiar with the importance of the velocity of money should bone up. You are going to be hearing a lot about the concept.