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
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!