Here is a link to some wonderful charts of the Dow Jones Industrial Average since 1895, on which you can find all the major events that shook the world. 1895-1909http://www.djindexes.com/mdsidx/index.cfm?event=showavgDecades&decade=18951910-1919http://www.djindexes.com/mdsidx/index.cfm?event=showavgDecades&decade=19101920-1929http://www.djindexes.com/mdsidx/index.cfm?event=showavgDecades&decade=19201930-1939http://www.djindexes.com/mdsidx/index.cfm?event=showavgDecades&decade=19301940-1949http://www.djindexes.com/mdsidx/index.cfm?event=showavgDecades&decade=19401950-1959http://www.djindexes.com/mdsidx/index.cfm?event=showavgDecades&decade=19501960-1969http://www.djindexes.com/mdsidx/index.cfm?event=showavgDecades&decade=19601970-1979http://www.djindexes.com/mdsidx/index.cfm?event=showavgDecades&decade=19701980-1989http://www.djindexes.com/mdsidx/index.cfm?event=showavgDecades&decade=19801990-1999http://www.djindexes.com/mdsidx/index.cfm?event=showavgDecades&decade=19902000-2009http://www.djindexes.com/mdsidx/index.cfm?event=showavgDecades&decade=2000 

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I’ve heard that some financial stocks are up and that the price of gold is showing the begging of a stability trend. In addition Sunpower, a leading solar technology maker, posted record breaking earnings, today.

That’s interesting. And I wish I could bet real money on that. I certainly am investing some hope into these observations.

There are signs that the government is moving towards relieving banks of their bad debts which may be having an effect on gold… I’m guessing. Well, let’s see where this goes over the next few weeks, maybe couple of months. If this faint sparkle of light can shine onto the lending industry, then homeowners and entrepreneurs alike may be able to breathe a little easier.

But the overall economic environment is so delicate, at this point, that even the slightest negativity can undo this fledgling hope for recovery.

Over the next week or so, this blog will begin to focus on some fundamental and technical analysis of a few financial industry corporations to determine if a macro trading trend is showing anything different than the last year.

The thing with downward slopes on price charts is that they eventually flatten out. And I’m not sure what happens first, the mathematical trend shows up and tips off the public or public sentiment pushes the charting? We’ll look at some finance industry players to see if we can spot a trend and compare it to public sentiment.

Gee, this can be our very own socio-economic study! If anyone would like to help with this, please post a comment or otherwise send me a note. The greater the team, the broader and deeper the study can be. On my own, I may be able to track 4 stocks and a couple of ETFs but think of what we could do as a team? Can we, together, predict the Turnaround based on macro-economic trends and probabilities, corporate financial statements, and market timing?

Please join me in pulling up some information on financial industry companies that matter - fundamental analysis (ROI, key ratios, notes to financial statements, corporate news, etc), technical analysis (chart interpretation), and economic analysis as it pertains to fixing what ails corporate balance sheets on Wall Street. Every little bit helps and I will compile this information into regular updates on this blog. Please check out the Marketspeak Blog at: www.accrongroup.com/wordpress1

Yesterday, President Obama announced that the US’s top problem is energy independence and has started the process of improving the country’s commitment to reducing pollution and to start developing alternative energy sources in tandem with building automobiles that are more energy efficient. And, all this would culminate in developing a new energy landcape in the USA and launching more appropriate vehicles by 2011. This plan will create hundreds of thousands of new jobs in growth areas and thereby tied this in to our growing unemployment concerns.

OK, so we now have focus and commitment in Washington, D.C.

Today, Wall Street is digesting yet another indication that consumer confidence is very low at this time.

We have been analyzing the situation from high up. But if we brought our perspective lower down, to the level of the average consumer, what would we see? What would it take for an average consumer to feel confident in the economy, again? Aside from the obvious job security issue, what, specifically, would be required?

I will hazard a guess. First, American consumers have typically been the most in-debt consumers in the world. We learned that we can take money we don’t actually have and spend it on whatever we want. Somehow, interest payments become a distraction and as long as the credit company does not close our accounts, we continue to spend. And we spend like this because we are encouraged to do so by A LOT of unrealistic and some times misleading advertising (think of many fincancing and credit advertisements). As an example of extravagances, even as recently as the past Christmas season, one of the worse in retail history, Lexus was churning out ads on TV that showed how wonderful it would be to receive a shiny new car for Christmas, rekindling feelings from childhood when one’s parents found them the absolute perfect toy. These are cars that sell for no less than $35,000 and mostly sell in the $45,000+ range. So, debt management is likely a heavy issue on the minds of the average consumer, these days.

As a second data point, a spike in the cost of crude oil, over the past couple of years, eventually led to the destabilization of prices on most goods and services and prices for everything rose at a worrisome rate. Now, with economic uncertainty and the fact that the price of oil dropped, there seems to be an earnestness on the part of merchants to lower prices, at least temporarily. And, actually, many merchants are now going out of business due to a sudden and sharp drop in demand. So, consumers have the power to “right-price” the market and Big Oil has the power to destabilize economies.

Thirdly, the State of California, which is experiencing some of the highest unemployment in the nation, at this time, is also running out of money very quickly. The State Legislature has been deadlocked in budget discussions for months and will soon need to issue IOUs to taxpayers expecting a refund for overpayment. Yes, it’s that bad. So, consumers, at least in California, will be focused on managing cash flow, pinching pennies, so to speak, wherever possible. As a point in fact, one of my last postings highlighted an article which showed that 90% of women surveyed were planning no new clothing purchases, at all, in 2009.

So, to summarize the consumer profile, as we all probably expect, we are looking at a very conservative buyer experiencing job uncertainty, delays in payments which are due to them, and still carrying debt beyond mortgages.

To add more context to the very real challenges that consumers, former workers and potential entrepreneurs are facing, SBA loans are still ridiculous. Interest rates vary between 4% and 6% nationwide. In California, at least with the lenders that I spoke with over the past few days, small business owners can expect a 6% variable rate and need to secure the loan with real assets. Yes, that means one’s home, in most cases. Frankly, this is appalling, considering the extreme efforts of both the federal government (in the for of TARP) and the Fed (in the form of decreasing interest rates to 0.5%)!

I was told by one lending institution that the reason they are lending at 6% is because the money they are lending is coming from deposits, on which they need to pay interest, instead of from money that has trickled down from TARP.

OK, so where is the TARP money? And I’m not asking nicely. Small businesses need this money, very, very badly… and NOW! It’s time to stop playing shell games. Many people are sufficiently educated and experienced to fend for themselves by launching a business in service of their communities and the banking system is playing games with our own money - yes, taxpayers money - the same taxpayers that need this money to provide needed products and services which, in turn, help them feed their families. And the situation is getting worse.

So, here’s a suggestion. I would ask the federal government and the Fed to ignore all those financial institutions that received money on the first TARP injection and go straight to the community banks and other legitimate lending institutions that have been doing the right thing for their communities and the entrepreneurs they serve and provide them with TARP. This way, those who really need the money on Main Street in Anytown, USA, can get down to business and start hiring as many of the unemployed as possible. In this way, the average consumer can look forward to a stabilization of the job situation in their community, in a short term way, while waiting for President Obama’s Big Bets in Alternative Energy to pay off (and I, for one, am confident that they will), over the next few years.

Now, back to those financial institutions that received a first round of TARP money. It’s time to call them to Washington, D.C., again. It’s time for a progress report. It’s time to fine, confine, and/or remove irresponsible managers, unceremoniously. And, it’s also time for the public to get a clear understanding of how Wall Street is fixing itself. This is not beyond the understanding of many well-educated and concerned taxpayers. If we are to have any faith in the reconstructed financial system and those who are executing on this request, we need to know what’s going on. More transparency, please. (And, the only reason this request is being made is that expected results have not touched Main Street and this has happened without explanation.) So, consumers, those that are also entrepreneurs, are not feeling the support they were promised. In a time when entrepreneurship can be the saving grace of many families, this certainly does not foster a sense of hope in a community.

Therefore, for a Positive Consumer Profile to exist, I believe that each consumer would need to feel that they are in control of their debt, that there is a sense of stability in their capability to provide for their families on an on-going basis and that the worse of times is behind them. But we are some way from that.

For this to come into existence, I believe that a resetting of economic standards will be necessary. For now, since there are more employees than jobs, salaries and wages are vulnerable to decreases. In turn, this puts downward pressure on prices for goods and services and ultimately resets purchasing priorities. However, until consumers feel that it is safe to spend again, a stabilization trend cannot be established. There has been discussion about continuing former President Bush’s tax rebate incentive plan for consumers in order to provide consumers with spending money. Notwithstanding that almost every taxpayer that I know would not dispute such an offer, the more interesting question is how much would each family really need?

In reality, families have been saving rebate money or paying down debt before spending any of it. This is actually a great idea however it doesn’t help the economy in the very short term, which was the intent of the incentive. This is when the government should say: “Oh, Dear! It’s worse than we thought!” And I’m sure that this is exactly what happened. So, if we were to continue the incentive, what should be done in order to make it truly effective?

If the government wants to quickly build a positive consumer profile, it will need to address consumer debt and living wages through employment uncertainty, underemployment, and unemployment until businesses can re-configure themselves to new market realities and start hiring again.

And this brings us, full-circle, back to our dependence on employers. Businesses cannot do their part if financial institutions play cash flow games. If government truly wants to help, it should swiftly intervene at this level.

Yet, financial institutions point to decrease in demand and could protest that there are too many suppliers of goods and services and the market needs to rebalance itself before any bank can get a clear picture of the demand side. It’s a sad reality.

So, from the entrepreneur’s perspective, we need to better understand the New Reality of Demand. Instead of desperately trying to preserve the past, because it is so familiar, we need to embrace the future. Consumers have short-term needs, right now, based on low price and basic value. And, this will not last forever. We need to have the vision of serving our customers today with an eye to building towards tomorrow. But, we need to get through today, first.

And, for the consumer, today is about simultaneously reigning-in debt, securing employment, and stabilizing prices. For this, it would be wise for consumers to take a hard look at their current lifestyle and quickly reduce costs (if not already done) then determine what they want and can afford for the next week to 3 years.

Entrepreneurs need to get this information as quickly as possible and recast their demand reports, if not already done. This can be done through close relationships with individual customers, for sure, but think about all the social networks and blogs that exist across the internet. Find a collaboration and social networking expert. Have them team up with your marketing and merchandising experts.

Up until recently, marketing analysts, myself included to some extent, only saw (and froze on) the trend of decreasing demand. It’s time to go beyond that, now, and look for new areas of demand. The market has hit a giant Reset button and the faster we can acknowledge this, the faster we can act appropriately to re-align consumers and businesses.

I found the following Forbes.com article on Yahoo Finance: Where You Won’t Shop in 2009.

It’s a pretty scary statement on the future of retailing. Anyone considering a job or investment in retail to ride out the recession, please take notice. It will take a keen student of human behavior, sociology, and anthropology to imagine consumer-facing business models for the next few years.

I have been saying for some time that the way entrepreneurs will sell to customers will be very different from the recent past and that spending preferences will change. Unfortunately the reasons for this are slightly different than what I anticipated. Nonetheless, the most basic of expenditures will continue to be necessary and value buying will be pre-eminent in the habits of consumers. So, lower-end brands, I anticipate, will fare better than higher end brands.

And, neighborhoods with stable relatively more stable employment will tend to support local shops in a more stable fashion. And this leads me to conclude that what entrepreneurs need to seek right now is stability and predictability rather than growth.

And this re-focusing, in turn, means that promoting products and services and building/maintaining loyalty programs are most important. Along with this, however, comes a real commitment to customer service and providing an appealing environment. This personal level of interaction with customers, as some of us may remember from past recessions, decades ago, makes a big difference and smaller operations tend to slip in this area of management. Main reasons cited to me in the past by (former) employees, peers, and friends has been that such a level of customer service doesn’t really provide added benefit, that it’s uncomfortable to be so attentive for so long, especially when the store is mostly empty, and we are annoying the customer.

This is why proper employee training is so important in these changing times. The team needs to be on the same page and be realistic about service delivery. Scripts, mechanical processes, and a “just-shut-up-and-do-it” mentality doesn’t work. What does work is knowledge and a true desire to serve. Customer relevance and the reward of customer loyalty are precious in such times.

This posting is about the US government’s role in economic recovery and the promise of R&D in alternative energy. Combined, these two thoughts point to urgent short-term need for action to protect families, support business, re-build confidence in the market and think beyond the next 5 years.
There are two articles posted on the BBC web site, today, that demonstrate clear desire and capability to effect very large and positive changes in the world economic situation… and make some money. The collapse of Wall Street and the oil crisis have combined into a veritable economic perfect storm, as we all know. Yet, opportunities and solutions abound and it is reassuring to read that some people in influential positions understand this and can make a difference. Let’s hope that they can act quickly enough, however.

In the first posting, Obama Urges Action on Economy, we read (and I liberally interpret) that the US has done everything possible under a predominantly hands-off approach to economic management, favored by the outgoing team, to create an economic environment favoring growth. But it has not been enough. The situation continues to worsen. The President-elect is urging Congress to act without haste to approve his plan for massive government infrastructure spending, creating millions of jobs over the next few years and is urging us to revise the regulation of Wall Street.

With regards to regulating the financial markets, despite the recent debacle, it has been proven that free markets (read: not limited by regulations affecting counter-balancing trades) are more efficient and beneficial than government controlled markets, in the long-run. Investors shun regulation because they fear that it will limit their capability to act in the free market to grow or preserve capital commensurate with the risks they take. Yet, drastic imbalances came to bear on individuals not participating in these risks. So, unregulated markets are not safe for everyone and investors need to acknowledge the social impact of financial markets. However, if we let social issues ‘taint’ the functioning of free-flowing markets, we also limit their capability to maximize positive effects when they are working properly in economic up-cycles.

This is the kind of issue that needs to be openly debated. Americans, when unemployed are unsure of how to process this kind of puzzle. In a free market liberal democracy such as the US, there has been a very strong tendency to let the market do whatever it needs to do to manage supply and demand in accordance with the desire of customers and the capability of producers. In such a market, dollars = votes.

Notwithstanding all this, markets act within a social context to presumably better our lot in life. It has been said to me by a veteran Wall Street leader, whom I respect very much, that speculative markets are key to mitigating risk and thereby reducing average prices of goods sold to consumers in the open market. For example, were it not for the commodities exchange, many farmers would have lost their homes and their means of generating income. By creating a futures market, farmers could be assured of an optimum and secure market to sell their crop yield. And, likewise, product makers could more effectively manage costs of primary components by securing purchase prices in advance. So, by buying and selling futures, a cereal manufacturer can optimize their cost of grains and normalize (or even decrease) their cost of goods sold which, in turn, can lead to a lower price for the box of cereals sitting on your grocer’s shelf, by maintain profit margins at a lower retail price point.
“That this market attracts speculators that have no interest in growing grains, making cereal, or selling food in a grocery store is actually advantageous to the farmer, the food manufacturer, and the grocer,” explains the Wall Street leader. By adding liquidity to the commodity market, speculators help fuel the market and create volume which helps to sustain this market in slower times. However, what happens when speculators by far outnumber those who need to benefit from the futures market? This is the dynamic that led to oil prices going into the stratosphere last year.

And, now, the government is thinking of somehow regulating such a market. The only way I can see that this would work is to limit the creativity of the financial engineers who create new markets and new financial instruments to manage risk and encourage investment. For example, maybe mortgage-based swaps were not such a great idea, after all. However, I can’t stop thinking that Wall Street was only partially to blame for this. Wall Street fed a market for home loans that it did not necessarily control. The irresponsibility that created the financial meltdown extends far beyond Wall Street. It partially rests on Main Street, with the companies that created the exotic loans in times when the prices of homes should be decreasing instead of making homeowner debt increase. And, it also rests with those who took those loans. But, most of all, it rests with any company, institution, individual or group that pretended to offer ignorant people any advise whatsoever on home ownership finance.

As an individual who purchased a home, for the first time, 10 years ago, university educated and of average capability in math, I had no idea why my lender was charging me the interest and fees I was required to pay in order to become a homeowner. And the explanation that I was provided made it even more confusing. The more a loan officer tried to accommodate my insistence on not paying fees for every little back-end process or every hand that my application touched as it made its way through the system, the more esoteric their explanations became. It became virtually impossible for me to understand how the various loan packages affected my payment, what, exactly I was paying for, and how long I would be paying for it. So, I decided to do what my parents did - negotiate the best rate possible for a 30-year fixed rate mortgage that would require no renegotiation until I’m old, grey, and financially stable. Then, I was aked if I would be including various costs in my mortgage like taxes, additional equity, or paying off other debts. It would make things a lot more simple to manage and provide for an easier liquidity situation. Sounded good, and very caring of them. “Poppycock!” I protested. Why would I add taxes, closing fees, and old debt into my mortgage? I’ll be paying interest on all that for 30 years! Well, they then suggested that I could take a shorter term loan which would reduce my payments. But, they did not bother to explain that, when I would need to renew my loan, the proportion of interest to principal that I would be paying off would get reset as well. In the long run, renegotiating loans and consolidating debt are to the advantage of lenders not borrowers. Although that is not always the case, the borrower needs to understand such intricacies of borrowing and go into financing discussions with eyes wide open. Unfortunately, really good education for the average American does not exist. Nobody gains from imparting this knowledge so it doesn’t happen… at least not to the extent that it should. And, for this reason I implore law makers to be really precise about identifying the problem areas in finance before burning Wall Street witches at the stake and conducting inquisitions that could lead us to legislate into oblivion the fastest road to recovery after the temporary fix that a massive public works project will provide. Free flowing financial markets are the quickest way out of our mess. Ironic but true.

So, if government is thinking that regulation will help avert the next financial market meltdown, I would urge its representatives to carefully evaluate what, exactly, failed and where, exactly, these failures occurred in the money flow cycle.

And, when considering massive government expenditure to create jobs, we need to also understand how this will affect taxation and long-term stability. Relatively speaking, such a plan is a short-term solution that is intended to spur the rest of the economy. Although this may work for 5 to 10 years, what happens after that?
The second BBC article, First Flight of Algae-Fuelled Jet, announced that fuel experiments for commercial airplanes continue to be successful and are demonstrating that technologically feasible alternatives to petroleum do exist. And, as with all new technologies, the challenge is to commercialize production.

It’s encouraging to read that possibilities do exist and that, with proper support and funding, there is light at the end of the tunnel. It is such results that show that we can build new, better, more sustainble products and continue to live a high-quality lifestyle. And, that we do not have to be held hostage by resource monopolies.

From these two BBC postings, I continue to offer that a clean, new world awaits us if we are brave enough to take fast action to avert a worsening of this worldwide economic crisis and to build intelligently towards a free market recovery, towards building a clean technology industry and towards fostering sustainable lifestyles. This is truly an entrepreneur’s paradise of opportunity.

Well, 2008 is behind us… and good riddance. And, we start 2009 with a lot of expectation. President Obama has a lot to live up to, the British government has been taking steps to improve employment through a commitment to invest in the country’s infrastructure, governments around the world are working together to foster economic stabilization, soft landings and pave the way for a new wave entrepreneurial initiative. ‘Sounds good but when will the average person see and feel the difference?

The EU may face more gas supply challenges in the short and perhaps medium term. And, if the past is any indication of the future, it’s hard to read stock, mutual fund and ETF performance reports, these days.

So, if we are filled with hope in starting this new year and wish to make some, select moves, what can one do?

Maybe Transportation offers promise. If governments move to create jobs in national infrastructure development, if governments provide tax breaks to consumers and home owners, and if the price of oil stabilizes to an acceptable level, maybe those companies that haul retail inventory, road building materials, etc. will see a needed boost in demand. If any of this bears to materialize, I would expect to see the DJ ETF, IYT, affirm its current attempt at a turnaround. Looking at its price chart, we could interpret that it has been trying to form a bottom for the past few months. Lately, we have seen more volatility, as seen by its wider price range. And, we are now seeing higher lows and an attempt to record higher highs.

As for today, IYT is showing weak technicals which lead me to conclude that IYT should be watched in tandem with maco-economic events in oil, government infrastructure development commitments and general consumer demand but not purchased at its current price. Specifically, RSI is high (nearing the 80th percentile), Stochastics are near 90, ADX/DMI is showing a trend towards DMI- dominating over previous bullish trending. Volume, although positive, is low and pricing is above the high ranges of both Bollinger Bands and Keltner Channel. However, the Keltner Channel range has narrowed which, in my opinion, tends to indicate a change is coming. I believe that if RSI, Stochastic and ADX/DMI indicators can return to lower, more positive levels during this week and pricing adjusts to the 59.50 to 60.50 range, and oil keeps its current trend, we can see an interesting opportunity in Transportation.

In terms of defensive plays, the sweetest part of my portfolio, for the past 5 months, has been FGOVX, the Fidelity Government Income mutual fund. It’s been +11% for the year which is unusually high as evidenced by its 3-year performance at +7.44% and its 5-year performance at +5.64%.

Two other sectors that I will be tracking are consumer staples, particularly meats, and low-end retail. I can’t help but notice that low and medium end retail stores and restaurants seem to be doing better than many other sectors and I surmise that it’s due to consumers seeking lower prices for basic items and, despite all other budgetary cutbacks and sacrifices, still needing to eat. In addition, I would expect low-end retail to lose steam as the economy picks up and consumers begin to seek higher end products as their sense of financial security increases. Other things equal, I don’t see why such a positive indicator would manifest itself in the short run… although I continue to hope that it does. Therefore, low and mid-level retail and consumer staples can offer some opportunity, these days, if properly timed and tended to.

In one of my last postings, I advised that fundamental analysis should be favored over technical analysis in these weird times in which un-predictable macro-economic events occur quite frequently and have worldwide impact. As these events start to show trending and as governments make their plans clearer, tracking value will have been important, to be sure, but timing a re-entry into the market, and tactical exits, will become increasingly important. And, this is the domain of technical analysis. However, as long as macro-economic occurrences continue to dominate and affect the market, this blog will continue to highlight these events with less emphasis on technical analysis, which will be less helpful in such times.

For now, and the next while, however, cash and vigilance are surely the order of the day.

On CNBC, today, there was a discussion about financial support for the auto industry and that Michigan is now pointing to other countries that support their car makers, including Canada that has supported the US car industry with $3 billion.

And this got me thinking, again. What happens if all car making countries that are, not competitive in the marketplace, start subsidizing their auto makers?

So, far, I believe the following:

1. Consumers are buying less cars
2. Every auto maker, American or otherwise, has experienced a sharp decrease in sales
3. Auto makers and their entire supply chains cannot leverage debt as in the past
4. All this is creating a liquidity problem that makes it ever more difficult for the auto industry to maintain employment, let alone collective bargaining agreements with the unions
5. No country wants to see a spike in unemployment
6. Consumers cannot be forced to buy products they don’t need or want
7. There is A LOT of inventory surplus sitting on shipping docks around the world
8. Alternatives to gasoline, for powering automobiles, are abundant and have yet to be exploited to their full potential. Many of these alternatives are more environmentally friendly but are yet to be vetted in terms of sustainability and true scale

Before getting to international auto industry bailouts, let’s first understand things from the consumer’s perspective. On the one hand, consumers are rightfully afraid of losing their jobs and are trying to stretch their hard-earned money, preparing for lean times, worldwide. On the other, they will lose their jobs if their employers do not continue to sell products and services.

Where does this leave us? If we focus on the core issue, maybe we can get creative with a solution. The main concern, all around (consumers, manufacturers, and government) is cash flow. As long as everyone has cash to spend do we really care how it all happens? More specifically, do we really care if we are making cars, or bicycles, or shoe laces? At its essence, when simply considering cash flow, I think we don’t care. What concerns us is that we are secure in what we know and what has worked in the past. But sometimes, things need to change. And, we’ve known about this for a very long time. High Tech was the Great Savior, last time.

Maybe it’s time to start thinking about a more long-term way of ensuring liberty, life, and the pursuit of happiness. An economist can look at the failure of a financial system and say: “OK, that’s all in the past, now. Let’s rebuild the system by removing those who broke it and creating more cash. Since all parts of the money-flow cycle are empty, we need to put cash everywhere - into government, into businesses, to consumers, and into the financial markets, to create liquidity. There. Problem solved. OTHER THINGS EQUAL…

Well, other things are not equal anymore. Maybe auto makers made too many cars… they pushed the Big Red Start button on the factory wall, 100 years ago, and just continued cranking cars off the production line. Did anyone forecast demand? What happened to the concept of just-in-time-inventory? D-oh! That was in High Tech… not car manufacturing! My bad…

Maybe a bailout is good. Maybe not. One thing seems clear: when it comes to making cars that people want and need, the past is not an indication of the future and until a real resetting of automobile design, manufacturing, and distribution occurs, at least in America, money sent to car manufacturing will not yield any real, lasting social benefit.

But what do employees do in the meantime to feed their families? What do the unemployed in Silicon Valley, in government, etc. do to make ends meet?

As un-free-market as this may seem, since the real problem is ensuring cash flow, in the short and medium term, would it not be more beneficial to throw billions of dollars to families instead of, or as well as, to industry? Given that cars are piling up everyone because nobody is buying them, clearly we do not have a production problem. And this is why some shift in focus is important. This is why I want to consider the consumer perspective before thinking about governments around the world providing bailouts to their respective car manufacturers.

Until families can pay their debts and meet their financial obligations, they will not have the propensity to leverage more debt to create the disposable income they require to spend on anything other than basic necessities. In short, we do not have a supply side problem.

Given this fact, that the problem is on the demand side, how can we claim that if we help employers, we also help employees and families and believe that this thinking alone will address an unemployment problem? I can’t help think that it’s a backwards way of solving the key problem.

Because manufacturers could not solve the production problem, if ever there was one, we now need to give them more money so they don’t fire anybody.

Huh?

Would it not be more direct, theoretically speaking, to bailout families while companies figure out what to do next instead of having families dangling on the sidelines without income while companies seek to perpetuate the same old business models that failed?

If consumers need a car, they will buy one off the dock for as little as possible because of the surplus… and this works out well, economically, because unemployed families have little money to spare. Gee, until supplies last, we may have finally reached Nirvana! The free market system says that the market clearing price is set by the independent workings of supply and demand. So, what happens when supply far outpaces demand? Price drops. So, let it drop.

Scrapping old family clunkers for a new car, manufactured to last for the next 5-10 years should take us past any cyclical downturn and save a lot of money for families - money that will be used to feed themselves and pay their debts, for once. On the supply side, it will quickly deplete over-stock.

Everyone benefits.

Car manufacturers get rid of their overstock and get some additional time to realistically re-plan demand and production moving forward, keep the factories working, albeit at a reduced rate, perhaps after a temporary shutdown during overstock liquidation, and get all this accomplished much sooner than waiting for some miracle to save the status quo - which could probably take many years. How is this possible? First, we acknowledge that the old business model failed. Bankruptcies are looming. Overstock is a sunk cost. Auto makers are asking for money and government is asking for realistic business plans - in other words, we’re looking to hit a reset button, organizationally. If indeed Big Auto gets bailed out, why to consider the output of the failed business model as a sunk cost?

Consumers get new cars and can use their money for more essential expenditures, thus reducing the burden on government, corporations, and other consumers, and cut the financial institutions out of the equation, all together. All they really did was artificially raise prices, anyways.

Besides, financial institutions are afraid of lending, in these times. Fine, let them ignore the consumer. Consumers are better off that way, anyways, except for mortgages. And, by doing so, financial institutions have more liquidity to lend to companies, like auto makers. And, with less consumer risk on the books, financial institutions could provide longer debt re-payment terms to businesses, like auto manufacturers, who claim that, with time, they will overcome this slow sales period. If it’s good enough for a congressional hearing…

With such a bailout burden off of government’s hands, on a day-to-day basis, it gets a little breathing room, financially, and it can focus on families, services, protecting the nation, and maintaining infrastructure instead of running businesses on a daily basis. (Of course, eagle-eyed oversight and guidance must remain and the threat of a government takeover of an operation should be omnipresent and very real.)

By focusing on families, at least in part, government can contribute to maintaining consumer demand instead of letting it slide. This could, in the end, cost less than putting good money after bad into the supply side.

Thirdly, such a saving could provide additional financial leeway to spend on infrastructure maintenance and build-out, which creates jobs, alleviating the growing unemployment problem.

In all, by empowering financial institutions to focus on partnering with business, through close government oversight and perhaps guidance, government best leverages all the nation’s resources and gives itself time and resources to take care of the people, in these special and difficult times. And, this re-alignment of government and business leverages natural talents and organizational structures to their true purposes since the real problem is on the demand side of micro-economic landscape. And, this micro-economic problem is due to a higher macro-economic problem the fear and growing fact of unemployment.

So, if we are to consider why the American government has not yet acted in the auto industry as have other governments around the world, by this time, I’d like to believe that it’s because this government is carefully and strategically considering how best to deploy the natural talents and infrastructure of an economy that bears worldwide influence.

In a somewhat surprising turn, consensus of the US government fell to the side of not bailing out the Big 3 auto makers in Detroit. And stock markets took a pounding. Based on positive signs in said markets, through last week and early this week, there was a clear sense that the multi-billion dollar bailout would occur.

Now, concerns over unemployment are arising. Some news reports indicated that 1.5 million jobs were lost in the past couple of months and over 4 million people are out of work nationwide, not counting any layoffs in the auto industry which may be brought about by the decision to not provide the funds.

A few days ago, President-elect Obama did, however, announce that the government would initiate a public works project that he estimates could require 2 million workers.