I just listened to President Obama address the U.S. and the world a few minutes ago from the White House. His topic – the background to, and how the American people should view, the impending Chapter 11 bankruptcy filing of Chrysler which will take place (almost certainly) later this afternoon. My comments, based on what I heard the President say, are as follows:

• this is a water-shed event for the U.S. auto industry, the current U.S. economy, and U.S. economic recovery. Consistent with my previously expressed views, the U.S. Administration is not going to stand by and allow the Chrysler and related U.S. support jobs to be lost – at least not without a hard fight even if the result is ‘postponement of job losses’ but job losses in the end;

• all interested parties (Chrysler management, suppliers, the UAW, the Canadian Auto Workers, etc.) and all but a few lenders agreed to sacrifice part of their capital or incomes to assist in the restructuring process. Those few lenders who did not agree (and, as interpreted from the remarks of CNN commentators, who may have had insurance on their loans that they could realize on only if Chrysler filed for bankruptcy) refused to do that to the displeasure of the President. As a result, as President Obama painted the picture it was this small group of ‘speculators’ whose recalcitrance resulted in the need for bankruptcy;

• as I expected, the U.S. Administration will financially support Chrysler until and when it ‘comes out of bankruptcy’. All funds committed to Chrysler’s business viability up to date and subsequently will be repaid before, as President Obama put it, Fiat takes over control of Chrysler. The underlying negotiations leading up to today between Chrysler, Fiat and (I presume) the U.S. Administration obviously ceded control of Chrysler to Fiat – a point not picked up on by commentators by the time I stopped watching the coverage. This is a further example of control of major U.S. assets leaving the U.S.; and,

• the U.S. Administration will do everything it can to expedite the Chrysler bankruptcy proceeding in order to protect the Chrysler labor force, the Chrysler dealers and their employees, and Chrysler’s suppliers and their employees. That said, no matter how powerful the Office of the U.S. President, that Office is not above the law. Accordingly, it will be interesting to see how quickly the Bankruptcy Court will act (I presume extremely quickly), but more to the point what steps will the ‘recalcitrant creditors’ take to delay the process and get want they (or their insurers) want – and what will that activity mean to the viability of Chrysler. It is hard to imagine that Fiat has committed to do a deal with Chrysler ‘no matter what the outcome to the bankruptcy proceeding’. It is also hard to believe the Bankruptcy Court will knowingly take shortcuts to circumvent ‘due process’ as I presume such activity would be appealed, resulting in time delays. At some point commercial reality may dictate to Fiat that the deal is too complicated for them.

I see this ‘play’ as being far from over with much at stake. I still believe the U.S. Administration will do everything in its power to avoid the loss of jobs an ultimate Chrysler failure would mean the to the U.S. economy. I believe the actions of the U.S. Administration are directionally correct. I also believe the road to Chrysler coming out of bankruptcy protection may not be as smooth as President Obama seems to believe it will be. I see there being unforeseen twists and turns in it. To me what is going on here is ‘reverse chicken soup’ – that is, ‘it can’t help and it might hurt’.

Click here for Economic Research.

See Blog Legal Disclaimer

Possibly Related Posts:

• More On Greece!
• Christine Lagarde – Listen Between the Lines!
• World Leaders – Greek Emotion?
• Roubini at Davos!
• The Baltic Dry Index!

An article this morning titled ‘Consumer spending, new jobless claims dip’ reports U.S. consumer spending dropped by 0.2% in March, worse than the 0.1% decline economists expected, and that incomes dropped 0.3%, also worse than expected. At the same time the U.S. personal savings rate rose to 4.2% from 4.0% in February while new applications for unemployment aid fell to a seasonally adjusted 631,000 last week, down from 645,000 the prior week. The number of people continuing to draw unemployment benefits jumped to almost 6.3 million, the highest on record dating back to 1967, and higher than economists had expected. The article goes on to list further U.S. job losses announced this week (Textron – 8,300, being 20% of its workforce; GM – 21,000 factory jobs by 2010; Timken – 4,000 by 2010), yet reports that “many analysts predict the recession is easing in the current quarter”. I am not certain how any economist or analyst is of the view that the end is in sight for the U.S. recession any time soon. I have just finished watching President Obama (12:10 EST) present his views on the impending Chrysler bankruptcy. Given what I see as the importance of this, I am going to immediately summarize my thoughts on it in a separate post which will be posted within the next 30 minutes.

See Blog Legal Disclaimer

Possibly Related Posts:

• More On Greece!
• Christine Lagarde – Listen Between the Lines!
• World Leaders – Greek Emotion?
• Roubini at Davos!
• The Baltic Dry Index!

There are multiple articles this morning reporting on Chrysler – more seem to be published ‘by the minute’. A London Times article titled ‘Chrysler set for bankruptcy as talks stall’ reports (as do most others) that Chrysler appears to be headed for Chapter 11 protection from creditors today after talks with lenders broke down last night. The article reports the US Treasury is now believed to be preparing for a brief “surgical” bankruptcy that would avoid liquidation and would pave the way for a deal with Fiat as early as next week. The article further reports President Obama is likely to make an announcement on Chrysler today.

Other articles note that GM has until June 1 to finalize an acceptable (to the U.S. Administration) restructuring plan and, I think importantly, that GM’s restructuring plans include canceling up to 40% of its U.S. dealerships within the next two years. I continue to believe (see earlier posts on this blog) that the U.S. Administration will not allow either Chrysler or GM ultimately to fail. The two companies employ too many people in the U.S., and their respective operations indirectly employ even more U.S. residents in the auto parts supply, component, and ancillary (advertising agencies, printing companies, etc., etc.) businesses for the U.S. Administration to walk away from all those jobs. That said, assuming I am right whatever restructuring occurs will result in more U.S. job losses. if I am wrong, look out ‘a long way below’.

Click here for Economic and Mining and Oil & Gas Company Research.

See Blog Legal Disclaimer

Possibly Related Posts:

• More On Greece!
• Christine Lagarde – Listen Between the Lines!
• World Leaders – Greek Emotion?
• Roubini at Davos!
• The Baltic Dry Index!

A Wall Street Journal article today titled ‘China’s Stimulus Spurs U.S. Business’ reports that “China’s efforts to quickly pump up its economy are providing a much-needed boost for U.S. businesses as well”, and that “A growing number of companies, from tire and excavator makers to fast-food chains, are benefiting from China’s $585 billion stimulus program, which has quickly funneled money into everything from bridges to consumers’ pockets”. The article reports:

• Caterpillar Inc.’s Chief Executive James W. Owens as saying the company’s excavator sales in China have returned to record levels in recent months, bouncing back from plummeting sales over the winter;

• Lakshmi Mittal, CEO of Arcelor Mittal, the world’s largest steelmaker, saying China’s stimulus package is finally starting to increase demand for steel;

• a U.S. based economist as saying “The hope is that China would become an engine of growth to drive the global economy out of this severe recession – much as the U.S. was the engine of growth that drove the global economy after the dot-com collapse; and,

• a recent World Bank forecast says stimulus spending in China will represent three-quarters of the 6.5% GDP growth it sees for China this year.

The article also reports the World Bank as saying that much of the Chinese stimulus money is for “projects that were already envisaged in the government’s longer-term plans”. This is important, because the article more than once refers to the speed at which China has been able to mobilize its stimulus spending on projects that have long been in the planning stages – in contrast to the U.S. where many of the ‘stimulus spending projects’ are in early planning stages or have to be ‘invented’ (my word). In any event, that China’s stimulus spending activity is already proving positive for heavy equipment and steel manufacturers is very constructive (no pun intended). That China is leading the world in economic recovery is no surprise to me. China has an extraordinarily large U.S.$ holding and a low cost work force. But think hard about what you would have said only 10 years ago if someone had told you the U.S. economy was going to be in ruins in 2009 and China would be looked to as a very important part of its salvation. Unless you are different than most, I suspect you would have laughed and ordered another drink. I further suspect few Americans are laughing now, are likely to laugh again for some long time, and many are ordering two drinks instead of one.

Click here for Economic Research.

See Blog Legal Disclaimer

Possibly Related Posts:

• More On Greece!
• Christine Lagarde – Listen Between the Lines!
• World Leaders – Greek Emotion?
• Roubini at Davos!
• The Baltic Dry Index!