Brian's Eye On ...

Today, November 11, 2008, is Veterans Day. We, as Americans and any citizens of the free world, should be especially grateful to our military veterans. Whether they saw combat, served as medics, in the PX or the mess hall, or in other less-heralded functions, they deserve our utmost appreciation and a loud public THANK YOU!

Think about this for a moment: How vastly different would our lives be today if not for the service and sacrifice of our veterans and their families? One could easily argue, as I do, that citizens of democracies have the most to lose and, therefore, should be the most appreciative of our veterans. Period.

The great thing about a democracy is that we can loudly criticize our leaders for the choices they have made, past and present, in deploying our military (consider Lincoln or Teddy Roosevelt). Yet, we must never cross the line and let our feelings about deploying spill over to a disrespect of our veterans.

Let’s hope we have less of a need for deploying our strong military in the upcoming years. By the same token, let us recognize there is much good that flows from our military strength.

Most important, I challenge each of you to find a veteran, today or this week, and personally thank him or her for their service to you and our country and the freed world.

Thank you,

Brian

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Brian: Eye on the U.S. Auto Companies

Okay, this will be more opinion/somewhat rant, so only read on knowing so.

First, since when does a non-publically held company–Chrysler (Owned by Cerberus Capital) deserve even the opportunity to beg/ask for our tax money?  A few years back, Chrysler was bought by Daimler-Benz (Mercedes people). They paid some outrageous amount (I think about $30 billion dollars!). Remember–corp. CEO’s are not always the brightest bulbs in the lighting aisle of Home Depot … (Wait a minute–Home Depot–isn’t that where Nardelli came from? Where the stock dropped during his tenure and he walked away with a huge parting “gift?” And now, Nardelli is testifying before Congress as the CEO of Chrysler).

Okay–take a breath–it gets better. Daimler realized its mistake in buying Chrysler and it “sells” it to Cerberus. "Sells" because Daimler had to finance the deal and –in effect–pay Cerberus to take Chrysler off of its hands. Okay, so Chrysler is a private company, like Wal-Mart or IBM, and the U.S. taxpayers are NOT stock or bond holders. In other words, we do not have the opportunity to invest in Chrysler. Way back, last century, when Chrysler was in front of Congress asking/begging for a loan, it was a publicly held company and investors were able to stay the course–at obvious risk–and participate in what proved to be a pretty good upside. (I know–my mind goes back again to Fannie Mae and Freddie Mac and the zeroing out of shareholders. It’s the consistent inconsistency that is very frustrating!) With Chrysler back at the public trough, maybe this is all just a bad rerun.

So, from my view, Chrysler gets sent away from the table empty handed. Let the private equity owners figure their way out of this one and not tap our pockets yet again.

Ford– this company brought in an outsider from Boeing last year to try and run it like a real business. He has made progress and appears to be on the right path. Maybe Ford gets a lifeline due to the frozen credit markets that have made it downright difficult to get a car financed unless you have an Olympic credit score.

GM– oh boy– where do I begin? GM– the car maker has not made a profit in years. When they showed a profit recently, it was from GMAC– their financing arm. (Are you sitting down? In 2007, GM sold about 50% of GMAC to … the envelope please ... Cerberus Capital – see first paragraph.) GMAC is in not-so-good shape and applying to become a bank. They issued many of those “toxic” mortgages. Okay– let me get this straight– the same company that issued $400,000 mortgages to people who earned $40,000; without documentation of their income, and with zero money down are 50% owned by GM. Maybe the management drinks from the same punchbowl? How about a smidgen of fiscal responsibility? So, GM is pleading poverty. They now tell us they need money TODAY (are they going Christmas shopping?). Yet, last week, they said they were fine until at least the spring. How about an honest and accurate answer? Kind of sounds like when my kids will ask me for $20 for a school trip next week and then, twenty minutes later, ask me for more money for a movie that night. Not so clear that GM will change its ways– just may not have the managerial mindset to do so.

Let me be clear that I am not unsympathetic to the car dealers parts makers, and even the employees (although the UAW is a 100% willing partner in this fiasco!). It’s that I simply do not believe that all of these jobs will instantly disappear. There will be companies willing to repair and maintain theses cars, quality salespeople can sell other products, and parts makers produce parts for all three of these companies, so if only one or two survive, there will still be a need for parts, albeit less of them. Other car companies have gone the way of the Edsel, Studebaker, Rambler and American Motors Corporation.

The ONLY reason to even consider a loan– with a ball of strings attached– to Ford and GM is consumer and American confidence. Times are tough for most all of us. Even with Black Friday being a strong day, most retailers did less business in November 2008 vs. November 2007. We have yet to deal with slowing down the speeding foreclosure train, and unemployment is at a five-year high and still rising. So, the confidence thing. If we see Chrysler and GM go Chapter 11– a bankruptcy with a reorganization plan to rise out of bankruptcy– it may scare us badly. This will greatly slow down spending and our economy- in an official recession for 12 months- may come to grinding halt.

Okay– the conclusion– two choices. Offer a loan to GM and Ford with clear objectives they must achieve (clean up your room before you go outside to play) or set up a pre-packaged Chapter 11 (definitely doable) and let them operate as smaller competitive businesses. I guess you could create a hybrid Chapter 11 with a government loan as part of their reorganization.

Let’s see what our elected folks in D.C. come up with, and as always, I welcome your thoughts.

*The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Any opinions are those of Brian Orol and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Past performance may not be indicative of future results.

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