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General Motors After Wagoner, Day Two

As I'm posting this Tuesday night, Bloomberg reports that President Obama has concluded that a prepackaged bankruptcy is the best option for General Motors and Chrysler. This item will likely remain very fluid overnight, so let's keep an eye on that.

Meanwhile, today was day two of GM's post-Rick Wagoner era.

Let's see what we come up with when sifting through all the stories and reports.

Jerry Flint of Forbes writes why Wagoner had to go. Primarily due to GM management's performance during this latest crisis. Flint used to think a GM bankruptcy would never happen, same as yours truly. He's been covering the auto industry since 1959, and has gotten lots more right than wrong over that time. I was obviously wrong, but haven't got nearly the credits on the good side of the ledger as Mr. Flint.

Paul Ingrassia pens an op-ed in The Wall Street Journal, in which he agrees that Wagoner had to go. He used to be Dow Jones' Detroit bureau chief and has written thoughtful columns in the Journal over the past several years on GM and the Detroit Big Three. He credits President Obama with showing more leadership on GM in one day than Mr. Wagoner and management had in years.

Breakingviews.com agrees Wagoner needed to go, but thinks GM needs much more radical surgery than simply changing chief executives. Apparently the editors won't be disappointed.

The Lex Column in the Financial Times credits the pro-union White House showing backbone.

In closing, I'll point out that many of my conservative friends are alarmed at the White House getting rid of a CEO. I'm no expert on this, and as I said yesterday, I've been swamped with non-blogging stuff and haven't spent time on this subject.

But if you're a company and you're relying on the government for your survival, then the government gets to pull some strings. This most likely is another reason why the whole bailout mania is harmful -- for auto companies, banks, brokerages and all other entities.

General Motors

It's Monday night here on the east coast of the US. By now you've certainly heard the news of Rick Wagoner being shown the door at General Motors. The news broke Sunday afternoon.

Unfortunately, I've been swamped with non-blogging duties most of the weekend and right through today. Things promise to say hectic this week.

Bottom line? I've only heard the headlines of this story on the radio. No time for any reading on this -- here's the latest report from The Wall Street Journal. If you subscribe to WSJ.com you'll want to read this, as they've done the best reporting on GM over the years.

I'll be sure to see what Jerry Flint of Forbes has to say when time permits.

I heard a report that Bob Lutz is leaving at the end of the year. But I don't know the context. Is he leaving of his own choice? Or because he's within shouting distance of 80? I'll guess I learn when I can come up for air.

What's Fairfax Financial Up To Now?

That question is answered, at least in large part, by James Daw in the Toronto Star. Shareholders in Fairfax Financial (FFH/NYSE) received the latest annual report in the mail over the past week.

I posted sometime back and linked to Prem Watsa's shareholder letter. But I'm old-fashioned in many ways, and reading an annual report -- in hard copy -- is more enjoyable for me than reading it online. Or printing out loads of pages.

Enough of that. Daw asks what Watsa and Fairfax have been up to lately:

Dumped contracts that insured their stock holdings from losses, partly in October and entirely by mid-November.

Jumped back in to buy $2.3 billion (U.S.) in stocks late in 2008.

Sold almost all their U.S. federal government bonds, and switched to state and municipal bonds, most of them insured by billionaire Warren Buffett's company Berkshire Hathaway.

Watsa tells shareholders he still expects a long, deep recession, with a contraction in debt comparable only to the 1930s in the U.S. and in Japan from 1989 to the present. He expects this will be offset only partly by multi-trillion-dollar government bailouts and spending plans.

A bit further down:

The only stocks he discusses buying are Johnson & Johnson, Kraft Foods (maker of the dinners we once ate with pork butt in our first apartment) and Wells Fargo Bank for a total of $822.8 million.

The stocks were up in price at the year end, but down about $121 million from his purchase prices as of yesterday afternoon – leaving Watsa fans time to load up at cheaper prices than Fairfax paid.

I'll remind readers that Fairfax is a long-time holding of mine. It was bought several years before launching Controlled Greed in 2005. I'll especially remind that I've sold enough of the shares over time to get my original capital back -- so the company is a free ride for me.

Yet due to price appreciation -- and price declines for most other holdings -- Fairfax remains a large position and I expect that to continue. As always, you'll see any changes to this and other holdings posted here.

Five for the Weekend #34

Here we go -- five items you might wish to review between now and Monday.

• The Financial Times has a column by famed UK fund manager Anthony Bolton. It's an excerpt of his new book, Investing Against the Tide: Lessons from a Life Running Money. A bit: "At the heart of my approach, particularly in the Fidelity Special Situations fund, has been buying recovery or turnaround stocks on attractive valuations. These are normally businesses that have been doing poorly, perhaps for some time. Many investors, in my experience, don’t like to be associated with businesses that are not doing well and can miss when a change for the better occurs. This often involves changes in the management team, a restructuring or even a refinancing (or a combination of these)."

• Sticking with the FT, this time its venerable Lex Column, we turn to portfolio holding 3i Group (III/LN), which expects to make further writedowns: "Its move to mark to market the quarter of its portfolio held at cost on its books is forecast to take its net asset value per share down to about 527p from 709p, a fall of about 50 per cent in six months. The shares still trade at half even this since implied leverage will jump to close to 100 per cent of NAV. At this level, Mr Queen will have to cut the dividend or consider a rights issue, possibly both."

• Bloomberg ran a report earlier this week, in which Templeton's Mark Mobius says a bull rally has begun in emerging markets. Read the linked article and you'll see Mobius naming names of "cash rich" companies in Hong Kong, Taiwan, India, Thailand and Singpore.

• I posted about Dambisa Moyo and her book on African aid yesterday. A reader since brought my attention to a feature she wrote for The Wall Street Journal recently. Print it out and read it in its entirety if you're a WSJ.com subscriber.

• For those of us "of a certain age" in America, probably the very first business news person we saw  on TV was either Louis Rukeyser or Irving R. Levine. Rukeyser passed away a couple of years ago, and now so has Levine. He was known for his dry delivery and trademark bowties when filing reports  for NBC News. Irving R. Levine was 86. Rest In Peace.

Have a great weekend, everyone. See you Monday if not sooner.

Ambrose Evans-Pritchard Cheers ECB "Monetary Helicopters"

I don't know how I feel about central bankers just cranking up the printing presses. But Ambrose Evans-Pritchard certainly applauds the European Central Bank doing so:

Two key governors tipped us off today that the bank is ready to buy assets outright on the open market, including mortgage debt. This is a huge development, exactly what is required to help restore the animal spirits of global investors.

Until now the ECB has offered unlimited liquidity in exchange for collateral from banks. That is not the same thing at all. It is sterilized stimulus. The bank has adamantly refused to cross the Rubicon by scattering money through the economy in real blast of QE. (quantitative easing)

ECB is clearly alarmed by the outright contraction of credit. Loans to non-financial corporations fell in February (minus €4bn).

Yet further down his enthusiasm tempers:

Sadly I have little confidence that the ECB will undertake QE with adequate dispatch, but at least they seem willing to swallow their pride and start to do their part to mitigate the global depression that we are already in.

If they move fast enough they may even prevent the eurozone breaking. Big if.

Dambisa Moyo Talks African Aid with Charlie Rose

Charlie Rose had a must-see interview on his PBS show Wednesday night. Dambisa Moyo, a Zambian woman with a background in global finance, has written a book on the sorry state -- and history -- of aid western governments have given Africa.

You can watch her interview with Charlie Rose here.

And you can buy her book, Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa.

I only just heard of Ms. Moyo's book last night, so I haven't read it. But it is certainly on my list of books to look at next time I'm in a bookstore. If I read the book, I might find an item or two to disagree on. But she seems a breath of fresh air and, I must say the next two guests Charlie Rose had on -- who I am not familiar with -- praised her a bit before giving conventional statements on African aid.

Ms. Moyo is among the precious few willing to confront the basic truth about African aid -- that more than $1 trillion has been "invested" in African aid over the past 50 years. And that, not only are the people not better off -- they are in many ways worse off.

Anyone reading Jim Rogers' globe-trekking books is not surprised by this. Dambisa Moyo's book is getting some important buzz -- a quick Google search reveals reviews in publications such as The Economist -- and let's hope it makes a lasting impact.

Cheers for the Rt. Hon. Gentleman

MEP Daniel Hannan's remarks to UK Prime Minister Gordon Brown got -- and more than deserved -- wide play worldwide over the last day or so. If by chance you didn't hear him, you can visit his blog and watch the YouTube.

In fairness, it must be noted that Mr. Hannan is not in the same political party as Mr. Brown.

Yet most, in fact all to my ears, rings true and could apply to many governments around the globe. They certainly apply to the big government types here in America.

I especially cringed when Hannon mentioned the UK losing 100,000 private sector jobs while at the very same time the UK added 30,000 public sector jobs. I have a sinking feeling much of any job creation we see in America might look that way (adjusted for population size, of course).

It's not just a UK thing, and I do understand.

Holman Jenkins on AIG

Well, my attempt to not post anything on AIG certainly hasn't held up. Keep in mind, most coverage on TV and elsewhere has been awful. And the two congressmen (one in each major party) representing various parts of my hometown have performed idiotically.

But thankfully there's the Internet. I posted over the past few days the thoughts of Michael Lewis (Bloomberg) and Tom Donlan (Barron's).

Here's a stellar column by Holman Jenkins in The Wall Street Journal:

Barney Frank, who doesn't have the excuse of being stupid, was last seen bullying Mr. Liddy to do what on any other day Mr. Frank would flay Mr. Liddy for doing -- violating the privacy rights of his employees. Charles Grassley? His early bloviating about the duty of AIG executives to kill themselves almost begins to look like a grace note, since it alerted the public to the hyperbolic playacting about to come.

Paul Kanjorski, before running off to host a hearing, proclaimed on CNBC that AIG's Mr. Liddy would be responsible if Congress now failed to summon the political courage to take necessary steps to address the financial crisis.

Pause to let it sink in. Mr. Liddy, who is doing his job with grit and personal sacrifice, is blamed in advance if Congress proves too cowardly to do its own job.

Read those last two paragraphs again.

And more:

But the biggest lesson here is the old one that the price of freedom is eternal vigilance -- beginning with insistence on the rule of law. Americans clearly cannot trust their elected officials to defend their rights and interests, or care whether justice is served, when the slightest political risk might attach to doing so.

Which brings us back to Mr. Cuomo, whose office has been implicitly threatening to publish names of AIG employees who don't relinquish pay they were contractually entitled to.

Mr. Cuomo is a thug, but at least he reminds us: It CAN happen here.

The political class is not your friend.

Tom Stevenson: If This Rally Is Real, Most Will Miss Out

This reminds me that long-term money (which I define as 10 years or more) should be left in stocks if that's where you have it to begin with. Of course, that is a very broad statement and each of us has their own personal circumstances to contend with.

But I'm no fan of jumping in and out of markets over the short or intermediate term.

In his Daily Telegraph column, Tom Stevenson gives his reasons why this latest rally might be the real thing:

The first reason is that, with every downward lurch, the valuation argument becomes ever more compelling. Yes, shares have been cheaper but on increasingly few occasions. Buying shares when they have been available at the current multiple of earnings has in the past given investors a better than evens chance of achieving a 10pc a year return for a decade or more.

So even if this doesn't turn out to be the actual bottom of the market, on any sensible timescale for buying shares any further short-term losses are likely to be quickly clawed back. The more people who realise that this is the case, the more likely it is that this will indeed be the bottom.

The second reason to think the low point is near is the sheer length and depth of the bear market. The dot.com crash was longer but we've already matched the scale of drop. Only the 1970s and 1930s come close in size and duration.

Third, the market is holding up in the face of bad news, the best sign of all that the gloom and doom is already in the price. It is hard to imagine the market shrugging off Mervyn King's comments about the dire state of the public finances six months ago.

Finally, there are some tentative signs that the economy, if not exactly improving, is deteriorating less quickly than it was. Bear markets do not end when things get better but when they stop getting worse.

Among the things he says to watch are the price of copper and the Baltic Dry Freight index. Interesting piece, as he always offers up.

The Privateer on Printing Press Follies

I've subscribed to The Privateer -- a market letter written by Bill Buckler in Queensland, Australia -- off and on over the years. He's a believer in gold bullion (I believe I'm correct in saying that he thinks a gold bull market started earlier this decade) and (I'm pretty sure) the Austrian school of economics.

He's alway struck me as an interesting guy. And I love the name of his letter.

A new issue of The Privateer came out this weekend, and Buckler makes a quote available for non-subscribers. It deals with a speech Ben Bernanke delivered in 2002.