One Gimmick After Another

By Duru

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.

Speaking of 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!) that President 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 of linking Iraq to the terrorist attacks of 9/11/01 without directly accusing the old Iraqi dictatorship of specific involvement.  As the speech reminded us of the barbarism of our relentless enemy, it suggested that these terrorists have always used Iraq as a breeding and training ground without directly accusing the Iraqis of having always sheltered our enemies.  The speech was another grandiloquent demonstration of how to dress up gimmickry in respectable clothes and sell it at a premium to the masses.  We have certainly succeeded in distracting the enemy by encouraging them to encircle Iraq with their mayhem.  As long as we maintain a military presence in Iraq, the terrorists will keep trying to hit targets more accessible to them there than those here in America.  As a strategy for offense, we should give the Bushies credit for "smoking out" the enemy in this way.  Sadly, many hundreds and thousands of innocent Iraqi citizens are also dying for this strategy.  If we are successful in "standing up" Iraqi security forces so that we may "stand down," we may be surprised at how quickly Iraq cools down and other spots around the world heat back up.  In my humble opinion, we over-estimate the enemy's fear of a democratic and free Iraq.  In fact, such a newly free society is likely to provide better grounds for operation than the tightly-controlled dictatorship we saw under Saddam.  Regardless, if the enemy's ultimate interest is in America's destruction, Iraq will eventually become a poor substitute for the lunacy.  To think that forging a new Iraq will help us solve this particular war is to buy into one expensive gimmick - an expense for which we are already beginning to pay dearly as social programs suffer deep cuts and our federal deficits expand further.  Whew - it has been a long time since I have shouted into the wind on this one.  Thank you once again for indulging me!

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!


© DrDuru, 2005