One Gimmick After Another
July 5, 2005
Wonderful. GM is going to extend its latest gimmick to pull in future sales of cars. GM had so much success offering employee discounts to everyone, boosting market share to its highest level in almost 19 years, that the company has decided to continue to devalue employee benefits one more month. Apparently, Ford and Chrysler now feel compelled to follow suit although GM claims that the overall cost of their employee discount program is little different than the cocktail of discounts they typically offer. And so it goes in a low-margin, highly competitive business - competitive advantage lasts as long as a dream and pricing power spirals ever lower. I often wonder what these incentives look like on the income report or the balance sheet. When do these companies ever make up the difference? How do consumers ever get convinced to pay for the value (if any?!) that they receive?
The magic of a high-debt society is that the answers to these questions can be delayed for quite some time. As we saw exactly two years ago, GM is highly dependent on big-debt financing to in turn finance the consumption of their product. It is a self-reinforcing process that works like some kind of perpetual motion machine! The market at that time was so starved for yield, GM borrowed even more millions and billions than they had originally intended. I will not even pretend to understand it all, but the process never ceases to amaze me.
gimmicks, I finally got around to reading Bush's
latest pep talk on our invasion of Iraq.
Preceding what was supposed to be a major policy speech, Press Secretary
Scott McClellan assured an anxious nation (or at least an anxious press corps!)
Bush "…will talk in a very specific way about the way forward. There is a
clear path to victory. It is a two-track strategy: there is the military and
political track." In fact, Mr.
McClellan assured us four times that Bush would finally deliver specifics. I know I am pre-disposed to bias on this
issue, but I sure found few specifics on this path to victory, and I certainly
noted nothing new in the speech. President
Bush's speech was rich with the standard, idealistic concepts of freedom and
democracy. It contained the old gimmick
Back to the "pure" financial news, I am once again seeing all sorts of beautiful set-ups in individual stocks. The morning star set-up on the NASDAQ remains intact by a hair, and all is starting to look rosy again. We have of course seen this gimmick before. The market has quickly vacillated from bearish undertones to rosy overtones making for one nauseating ride for those trying to follow every twist and turn. I will remind the audience to keep its eye on the few trends that have been chugging right along: oil, housing, short-term interest rates, and even the dollar. Truth can be stranger than fiction, but it at least gives people like me plenty to write about.
Be careful out there!