Hunker and Bunker Economy

Everyone seems to be so concerned with inflation right now, because of the government's monetary policy. There is no need to worry about inflation right now. There is not going to be any inflation when people are losing their jobs. As we approach the 10% job loss figure, keep in mind that we are still climbing the mountain of job losses. Inflation usually rears its ugly head when we have a strong job market. Today, we obviously are not looking at anything near a strong job market. As a result, do not short Treasuries just yet.

As a mentioned in my book, Keep Your Assets Take My Advice, there is a business cycle and there always has been a business cycle. There are periods of time when people forget about the business cycle. Major corporations have begun the process of reducing inventory, downsizing their operations and laying people off. They will continue to do so until they reach a point where they have no inventory, they cannot close any more operations and they have no further need to lay people off from their jobs. We are in the middle of this process right now. We still have farther to go.

I heard that GM had more than 365 days of Pontiac G6's in inventory. All you have to do is to think about how many Pontiac G6's are driving around in your neighborhood, then you will realize that GM is probably going to have to give those cars away to get rid of them. The problem is exasperated by the fact that the Pontiac brand is being sold or discontinued. My guess is that this will make it even harder to sell those G6's.

Guess what? GM is getting yet more money from the government as announced in today's news.

My son, Marshall is headed off to Florida State University to major in mechanical engineering. His goal is to help turnaround GM. You ought to hear the confidence in him when he says that goal. He is one example of the many great young Americans rising up to save our future. They do not think they can make a difference. They know they can make a difference. The size of the problem is not a concern. I do not know about you, but I am glad we have young people with confidence like my son's.

This is an economy where businesses are hunkering down and consumers are building a bunker of cash right now. Businesses that are savvy enough to survive will emerge stronger than ever, because several of their competitors will be gone. A case in point. Whenever I needed some new technology, I would go to Best Buy, Circuit City and CompUSA to see who had the best offering. Today, there is no Circuit City. CompUSA was purchased by Tiger Direct. They have changed their offering of computers to older technology. As a result, they have carved out a market for themselves selling slightly older technology.

Best Buy remains in the latest and greatest technology category. They have the latest gadgets, gizmos and TV's. This is the change that has come to my market. I suspect that Best Buy will come out as an extremely strong brand when consumers begin to spend again. Consumers will start spending again when they feel that their savings level is replenished, their debt is reduced significantly and they can feel secure about their jobs again. Are we there yet? I do not think so.

Keep the faith. We will get there. The business cycle is a cycle with both recessions and expansions. The changes going on today will set the stage for a stronger economy later. You will be out of your bunker before you know it.

Bankruptcy Predicted in KYATMA

My book, Keep Your Assets Take My Advice (KYATMA) predicted the bankruptcy filings for General Motors and Chrysler. I follow publications from the U.S. Treasury and the Chicago Federal Reserve. One of the email pdf files that I receive shows the auto sales for the nation. The automakers were selling about 17 million units per year, then the bottom hit. It is down to around 9 million units a year now. You cannot have a business built on the top of the scale. You have to have a business built where you can still profit on weak sales. Rosy scenarios do not work in business. You have to face the cold hard facts. I would not be surprised to see auto sales dip further from here. Consumers will not buy cars they do not want to own.

I lived in Detroit in the early 1980's for a short while. I was only 24 years old at the time. My job was General Manager of a large nightclub called Nitro. Back in the early 1980's, there were a lot of layoffs in the auto industry. However, when auto workers were laid off back then, they only had to go out and apply for a job every week and they would continue to receive most of their pay. Every week, while I was the General Manager, I would have about 30 to 40 auto workers come apply for a job. Of course, they were dressed in army fatigues, t-shirts, raggedy blue jeans and other well worn clothes. They had no intention of really getting a job. They were only complying with the requirements of their union agreement. You cannot hardly blame them for acting this way. After all, they still needed to feed their families and pay their bills.

It makes you wonder though, what kind of management would agree to such a fiasco? It boggles my mind how auto management could ever agree to such a labor agreement. I hope that when they crunch the numbers they base their profitability on 7 million cars sold instead of 17 million. If they cannot be profitable at 7 million cars sold annually, then why are they in business?

It seems like they still have this same agreement in place. All an auto worker who has been laid off has to do is go apply for a job and still get paid the bulk of their pay. Hopefully, they will change this in the new Government Motors.