William Patalon III
Money Morning/The Money Map Report
U.S. President Barack Obama has decided against naming a "car czar," and is instead asking U.S. Treasury Secretary Timothy F. Geithner and White House economic adviser Lawrence H. "Larry" Summers to head a task force on revamping the U.S. auto industry, Bloomberg News reported yesterday (Monday).
The president was under pressure to say who would handle the issue before tomorrow, when General Motors Corp. (GM) and Chrysler LLC must give progress reports on plans to restructure as a condition of $17.4 billion in U.S. Treasury loans. The so-called car czar – an approach that had some support in the American auto industry – was viewed as a key move in the federal government's push to revamp the U.S. auto industry. The task force puts an end to reports Obama would recruit a well-known figure from outside to serve in that role, an approach that had some support in the industry itself.
Ron Bloom, a United Steelworkers union adviser and former Lazard Ltd. (LAZ) vice president, will join the Obama administration team, Bloomberg said of the alleged appointment, which has yet to be made publicly.
"There needs to be a trail boss here," said Andrew Gross, chairman and chief executive officer of Automotive Consulting Services LLC in Clackamas, Oregon, told Bloomberg in a telephone interview yesterday. "Typically when you have a committee set up it provides cover. Everyone's responsible, but no one's accountable."
Geithner has "got his hands full" trying to rescue the banking industry, Gross said.
After Congress failed to approve a bailout for the automakers, former President George W. Bush on Dec. 19 authorized the loans, a move that effectively made the Treasury secretary the car czar, imbued with the responsibility for making sure the companies meet deadlines and authority to revoke the loans.
Under the new plan, Geithner will remain Obama's official "designee" to oversee the restructuring, meaning he'll have the authority to pull back the aid if the automakers fail to submit a return-to-profitability plan by the established March 31 deadline.
"It's going to be something that's going to require sacrifice not just from the auto workers, but also from creditors, from shareholders and the executives who run the company," senior White House adviser David Axelrod told NBC TV's "Meet the Press" on Sunday.
Representatives from Cabinet departments and White House offices will serve on the task force, too.
So what will $790 billion buy these days? Hopefully, a few roads and bridges, about 3.5 million new jobs – and perhaps an economic recovery for the country, too. President Obama is expected to sign the legislation today (Tuesday), The Washington Post reported.
But as the stimulus package moves closer to Obama's signature, the jury is still out on its future success. Perhaps the sign of a successful compromise exists when neither party is completely satisfied (or not at all satisfied) and points out flaws in the final package.
In this case, budget hawks and other conservatives claim that the bill is a giant spending package that will do little to revive the economy, or create any real jobs. Many bleeding hearts and other liberals were counting on a larger stimulus and believe the tax cuts and rebates will not help and, if anything, similar actions over the past few years have contributed to the current mess.
President Obama seemed pleased with the progress and praised the plan as an "endeavor of enormous scope and scale." Then again, his views on effective stimulus may have cost him another cabinet nominee as his willingness to cross partisan lines to find a Commerce Secretary failed over insurmountable economic and ideological differences with Sen. Judd Gregg.
News from the bailout front grew more pessimistic during the week as Treasury Secretary Geithner's initial attempt to win over Congress, investors, economists, and the media proved no more successful than Hank Paulson's before him. The stock market had run up significantly in the days leading to his speech, as folks hoped to hear some specifics about how the next round of the Troubled Assets Relief Program (TARP) (and other initialed programs like TALF) would work far better than the initial plan. Instead, disappointed investors ran for cover when his remarks left many questions about the valuations of toxic assets and private/public partnerships unanswered.
As plenty of finger-pointing continued over the failed bailout initiative and its lack of direction, some signs of success from the U.S. Federal Reserve and Treasury Department's moves have slowly emerged. The once-frozen credit markets have started to thaw as corporations have borrowed almost $80 billion so far in 2009, issuing high quality bonds to take advantage of low interest rates: Cisco Systems Inc. (CSCO) alone sold $4 billion in debt securities to raise cash for potential merger-and-acquisition activities.
In other (optimistic) news, Intel Corp. (INTC) will be investing $7 billion in technology enhancements at its factories during these dire times. McDonalds Corp. (MCD) showed that Big Macs are near necessities as same-store sales jumped by more than 7% last month. Still, earnings season wound down with profits at Standard & Poor's 500 Index companies projected to plunge over 30% in the fourth quarter, the worst showing in about two decades. In fact, it was the first-ever quarter of negative earnings, MarketWatch.com reported.
Oil plummeted below the $34-a-barrel level (at one point) as inventories climbed to an 82-week high amid lower demand for energy during the downturn. Investors unloaded stocks following the Geithner remarks (remember the old market adage: "Buy on the rumor, sell on the News"), despite some better-than-expected economic releases.
Bonds experienced a "flight to quality," and also rose on news that a comprehensive foreclosure-assistance plan is in the works.
Dow Jones Industrial
10 yr Treasury (Yield)
First the bad news. In the latest Wall Street Journal poll of top economists, the vast majority revised (downward) their outlooks for the second half of 2009, and said that the prospects for a full-fledged recovery seem much less promising.
While most predict that we'll see some economic growth during the last six months, the rate of such expansion is lower than earlier projections. In fact, several economists expect that economic contraction will continue to be a reality through the end of the year.
But that brings us to the good news: These economic surveys are rarely on target.
Federal Reserve Chairman Ben Bernanke did his best Tony Robbins impersonation (the power of positive thinking), and highlighted the recent successes of certain policies. Bernanke suggested that the commercial paper markets have benefited from the central bank's decision to buy these short-term securities and more companies are meeting their liquidity needs. He promoted the newfound stability among money-market funds as investors ceased the mass withdrawals that were occurring last year. Finally, he expressed relief that mortgage rates have declined dramatically and that borrowers have taken advantage of purchase and refinance opportunities (at least those borrowers with high-paying jobs and stellar credit).
While the trade deficit declined to its lowest level in almost six years, the pessimists claim that the improvement is more reflective of the recessionary times which have restricted domestic demand for the imports of oil and other foreign-made products and services.
Meanwhile, the imbalance with China climbed to an all-time high. In retail news, sales in January surprisingly jumped by 1%, the first increase in seven months and the best showing in more than a year. While Wal-Mart Stores Inc. (WMT) took advantage of the consumers' hearty appetites for groceries and other (discounted) necessities of life, buyers also hit the auto lots again to check out the "too-good-to-be-true" deals. While the initial jobless claims actually fell slightly in the most recent week, the number of unemployed continuing to search for a job moved higher, an indication that the labor markets remain tight.
The foreclosure initiative will be of particular interest to many who believe the housing sector remains the key to any recovery. Investors also get the latest look at the inflation picture as both the producer price index (PPI) and consumer price index (CPI) for January will be released. While oil has continued to plunge, gas prices seemed to have stabilized as of late (unfortunately for consumers) and talks of deflation may have been put on the backburner, at least for now
Weekly Economic Calendar
Balance of Trade (12/08)
Lowest deficit in almost 6 years
Initial Jobless Claims (02/07/09)
Still near quarter century high in claims
Retail Sales (01/09)
Surprising increase in post-holiday sales
The Week Ahead
Housing Starts (01/09)
Industrial Production (01/09)
Initial Jobless Claims (02/14/09)
Leading Indicators (01/09)
News and Related Story Links:
- Bloomberg News:
Obama Rejects 'Car Czar'; Geithner, Summers Head Team.
- Money Morning News:
Auto Bailout Could Have Strings Attached: Ousting CEOs, Appointing Car Czar.
- The Washington Post:
Politically, stimulus battle has just begun.
- Money Morning Banking Bailout Investigative Report:
Obama Administration Must Revive "Shadow Financial System" to Revive U.S. Banks.
- Money Morning News Analysis:
Geithner Unveils TARP Overhaul.
- Money Morning News Analysis:
The New Banking Bailout Plan Reconstitutes Some of the Same Ingredients That Touched Off the Financial Crisis.
- Money Morning Hot Stocks Feature:
Intel Defies Layoff Trend – Spends $7 Billion Protecting 7,000 Jobs.
S&P 500 firms have first-ever negative quarter earnings.
- Money Morning News Analysis:
Recession Shrinks U.S. Trade Deficit for Fifth Straight Month.
- Money Morning Market Commentary:
Despite its Decline, Oil Remains a "Must-Have" Profit Play.
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.