By on May 28, 2014

balancing act

Capitalism has no loyalties.

Everybody is replaceable.

Products. Employees. Employers. Services. Alliances. Joint Ventures. Financiers. Even the executives of multinational firms along with their board of directors are only as good as whatever quarterly numbers can be cooked up by their ‘independent’ auditing firm.

Capitalism is the ultimate “Let’s go!”, “Do it!” and “Screw you!” of economic systems. You name the angle or need in capitalism, and chances are that there is a market substitute that can immediately fill the gap. Even government regulations can be routinely challenged by trade organizations, international courts, and the all too common political handshake.

All this reality happens… on paper.

The truth is that capitalism is tempered by the culture where it’s practiced.

In the world we live in today, corporations and industry interests always pursue laws and relationships to protect their gotten gains. The ultimate goal of some companies isn’t progress. But to keep certain competitors and market substitutes far away from the hands of the free market.

Consumer first? Hell no! Earnings first? Hell yes! This brutal reality of corporate self-interest brings on a few tough questions when it comes to the American auto industry in particular.

Everyone has their own hierarchy of worthiness when it comes to an automaker’s success. Bonuses, dividends, stock options and pensions are all realigned to account for the rewards of good work.  So with that in mind, let me have you think about a question that has bugged me now for several years.

Are individual shareholders worth it?

As I look through the recent history of our industry, I am having trouble figuring out a single scenario where individual public shareholders made the difference. Ross Perot couldn’t kick Roger Smith’a ass into gear. Lee Iacocca and Kirk Kerkorian were the crown jesters of a pointless takeover exercise. As for Ford, wasn’t the fact that the Ford family held sway the major reason why an industry outsider like Alan Mulally was successful at restructuring the company? He didn’t need to worry about holding off on a strategy, or hiring some lackey to his management team,  just because some schmuck with a big block of stock thought he knew more.

Smaller shareholders are nothing more than gamblers. If something bad happens, they are the last to know and for good reason. They don’t know anything. Even if they did, their shares don’t enable them to help create that change. I can’t think of one solitary situation in the last 50 years where a small shareholder has been able to make a difference in any automobile company.

Who has offered the greatest stability and success in the long run? In our industry it may very well solely rest in the wiser and more patient hands of the family controlled business.

The most successful Japanese auto company is owned by the Toyoda family. The most successful European company, Volkswagen, is ruled by Porsche Automobil Holding. A German holding company owned by the Porsche families.

As for American manufacturers, only Ford, a company controlled by the Ford family for well over a century, was able to survive the 2008 meltdown without a direct bailout. The shareholders did nothing but lose all their money and offer many of us a golden opportunity to short their stocks. John Q Public and Cerberus were inevitably replaced by the unions, Fiat, and Uncle Sam.

Could individuals shareholders ever make a difference in this business? If not, do they simply make it easier for the family with limited resources to control the business?

Instead of offering a reflexive yes/no based on ideological allegiance, I want you to also think about the financial issues. We are in a heavily cyclical industry. White knights, along with new leaders, have helped save nearly every automaker from bankruptcy or a hostile takeover at one time or another.

But can this defense be better executed with a family that has their own name and reputation to defend? Instead of a bunch of shareholders who are in it simply for the stock price?

My answer is yes. I think small shareholders serve as nothing more than a money pool for those who are doing the real work. In a well-run organization they offer liquidity. In good times, they get dividends and stock appreciation. In bad times, they usually don’t have any means to change the running of a car business for the better.  This business has far too many influencers on too many levels for public shareholders to effect change.

Am I wrong?

Author’s Note: Even when Steve is wrong you can reach him at Steve.lang@thetruthaboutcars.com

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65 Comments on “Hammer Time: Are Shareholders Worth It?...”


  • avatar

    Of Course.

    • 0 avatar

      “Consumer first? Hell no! Earnings first? Hell yes! This brutal reality of corporate self-interest brings on a few tough questions when it comes to the American auto industry in particular.”

      The problem with the auto industry is that they are an example of CRONY CAPITALISM. That is: the government and unions on the government till have directed them, their profits and their expenditures. When you have the government to give you bailouts or pay healthcare or other entitlements, it tilts the market unfairly from “private” business because the government has the power to tax and is completely oblivious to “profit & loss statements”.

      Private companies will always be smaller and have to come up with a product ten times better to even hope to compete with government-backed business.

      Does the individual shareholder matter? Not very much – when you’re up against massive share purchases by Billionaires, banks, other companies, THE GOVERNMENT, etc…but they still do matter, because they are part of investment on “main street” and some people actually do need the capital gains.

      Perfect example:

      I bought into Tesla at $28 back in the 4th quarter of 2012.
      I’m just a little guy. There are millionaires and billionaires with WAY more shares than me…

      …but I bought in at $28 and if I sell now, I reap a huge profit.

      …profit that I can use in other parts of the market…

      • 0 avatar
        CapVandal

        Big Truck ….

        Now is a good time to sell Tesla. You heard it here first. It is an amazing company that is competing in an industry that hasn’t had a successful new entrant in decades.

        The consumer — they vote with their $$’s. Any company that doesn’t make attractive products that are the excellent value propositions for consumers is going to fail.

    • 0 avatar

      How about instead of posting essentially “First Post” you type up your comment and let the chips fall where they may? I understand you have a business to promote with your video series on youtube (assuming you get paid for it), but you must be sitting there refreshing the page all morning just to get your comments in FIRST! on many of the posts on TTAC.

      I posted my reply, and then thought of more I wished to add to it, and I pointed out the additions with “Edit: ” Where you post “Of course.” and then reply to yourself to make sure your comments are the first ones read. Very disingenuous.

      • 0 avatar

        SexC

        It’s a slow weekend for me in the office. All my deals are done and I’m just waiting on payments, so you’ve got my FULL ATTENTION.

        Instead of studying my posting behavior, what you should do is recognize that to me EVERYTHING IS COMPETITION. EVERYTHING IS “SURVIVAL OF THE FITTEST” and to live in a world with me is to be competing for your own right to survive.

        You are essentially up against the most technologically advanced Social Darwinist on the World Wide Web.

        I’m sitting here with THREE 19″ monitors plugged to an HP Envy Core i7 with 32GB of RAM and a GTX 770 4GB video card.

        These TTAC, Yahoo, Scottrade, C&D and Youtube updates just aren’t coming fast enough.

        The comment editor locked me out prematurely by the way.

        (FYI – I don’t really like your avatar).

  • avatar

    The ONLY reason Ford survived without a major bailout was DUMB LUCK. They took out a loan just before the collapse, mortgaged the entire company DOWN TO THE LOGO. The logo and Ford name are/were in hock. This gave them space and breathing room to adjust to the new market reality and emerge a leaner company. I’m sure Ford reduced their number of employees, they have two-tier wages as well, if I’m not mistaken. Don’t chalk it up to prescience, it was dumb luck. If they were prescient, Ford could have taken that money and did what Soros did and make untold billions more off the financial collapse than they ever did by bringing new leadership in and refocusing the company (no pun intended).

    Edit: That’s not to mention the Billions upon Billions of government “Retooling Loans” Ford oinked on up to the trough to take advantage of (and why wouldn’t they?). Cars shrank, interior volumes and legroom got better, fuel economy fleet-wide increased, but cars with subframes are completely unrepairable if they’re in any kind of accident that results in damage to the subframe. Body-on-frame you could hang parts on it, straighten/repair/etc frames, now we have nothing but throwaway cars and expensive trucks to choose from. Yay.

    If individual shareholders had made any difference at Ford, the Ford family would no longer have their “Special Controlling Shares” of stock. I remember reading that the most recent vote fell well short of taking away the Ford family’s special stock and controlling votes. But it was the closest vote to date.

    • 0 avatar
      Maymar

      This – the same people responsible for hiring Mulally are also at fault for hiring Nasser, right?

    • 0 avatar
      Pch101

      That wasn’t dumb luck, that was smart management.

      Ford went into hock with the expectation that it could eventually earn its way out of it and use its future profitability to reduce yesterday’s debt. That was exactly the right thing to do.

      Crisis management is difficult. Not everyone is cut out for it. Rick Wagoner certainly wasn’t. Daimler dealt with it by punting Chrysler to Cerberus, which was probably Daimler’s best option.

    • 0 avatar

      #1 it wasn’t a “bailout” it was a “bridge loan”.

      #2 The only reason the BIG3 needed that money was because creditors/discount windows were closed and no one could easily get loans for cars or homes during that time.

      Germany and Japan quietly made concessions to their auto companies while the Republicans were willing to let them burn.

      The BIG LIE: They don’t make cars people want to buy – which was ABSOLUTE BUSHILLT.

      • 0 avatar
        LALoser

        I agree with Big Trucks.

      • 0 avatar
        Landcrusher

        I have to argue with number 2. Excusing them for lacking creditors goes too far. There was a day when throwing out that excuse got you only lack of respect from people who actually knew how to run a business. This is a moral failing of our present system based on the ability of large banks and corporate players to virtually extort credit and even gifts from government.

        Perhaps the biggest players do need to be bailed out, but shouldn’t the folks at the helm take more of a penalty? Certainly you can use credit to vastly multiply the growth of a company and it’s ability to profit, but too much of a good thing can be bad and the financiers and their agents in every corporation are getting, IMO, a free net for their tight walking act. And, that net has costs that nobody even can fully account for.

        Alternatively, perhaps if we reexamine the rules of the game a bit, we could come up with mechanisms to prevent to big to fail by reducing the advantages or forcing some insurance against failure.

      • 0 avatar
        CapVandal

        BT … Agree.

    • 0 avatar
      87 Morgan

      I would think you need to include the fact they sold JLR Volvo about ten minutes before the ‘crash’ to Tata. I firmly believe if Ford had retained these large turds there fate would have been identical to GM. Dumb luck or clairvoyant of what was to come, who knows. But as they say, tis better to be lucky than good.

      • 0 avatar

        87Morgan, I had forgotten they just unloaded JLR right before the crash, talk about fortuitous. Just for sh*ts and giggles, I’d like to see the personal portfolios (fat chance) of the guys like Mulally who turned the company around, this would show you how clairvoyant they are or are not in regards to the stock market. Did they just weather the storm/take a beating like everybody else, or did they see it coming and capitalize on everyone else’s misfortune?

        PCH101, you just described all loans to businesses or people, betting on future profitibility. Ford got 7? 8 Billion? Enough to develop new platforms and such for future vehicles and plenty of retooling, buyouts, and bonuses. Or they refinanced their past debts, I don’t know how the moneys were disbursed. The fact that Ford mortgaged the Logo and name just goes to show you how bad a financial position the company was at in the first place. You can call them ‘Smart’ if knowing their financial situation was so precarious that one downturn would sink the company forever and drastic steps needed to be taken. Unlike some companies who were like “WOOOOOoooooOOOOO! THE GOOD TIMES ARE GONNA ROLL FOREVER!”

  • avatar
    cartunez

    The lead statement is not true “Capitalism has no loyalties.” True Capitalism can not survive unless its based on the win-win concept. What you are seeing today is crony capitalism and the unnatural expectations of Wall Street under the guise of getting the investor the best deal. The truth of the matter is the vast majority of Americans are so obsessed with having enough money for so called retirement that they have taken massive amounts of money out of society in put it in the hands of banksters who then turn around and make un realistic demands on public companies either as shareholders and or bondholders. It is simply impossible for a large company or hell even a smaller one to post gains of 10%+ every year. This is a much deeper conversation and I am glad to see the spark of this conversation on this web site.

    • 0 avatar
      raph

      >> The truth of the matter is the vast majority of Americans are so obsessed with having enough money for so called retirement <<

      I wouldn't call wanting to live with some dignity after a lifetime of work an obsession ( or consumer fetishism or whatever).

      To many times you see people that haven't saved enough to beat inflation and end up having to go back to work at some subsistence job when entitlements aren't enough to take up the slack.

      On the other hand most people are all but forced to deal with Wall Street as the majority of retirement programs have been shifted to the various self funded plans that place the onus for a comfortable retirement on the individual in effect forcing them to deal with the devil that writes the rules and owns the game.

      To date with the exception of a few jobs, most defined pension plans are the province of the government in its various forms as they have the muscle to take the money they need to make them work.

      • 0 avatar
        highdesertcat

        Many people who put their faith in the government social security program and Medicare have found that neither even came close to giving them a life of dignity after a lifetime of work.

        But those who looked out for themselves first, are the ones living the good life in retirement. And we know who they are. We see them every day enjoying a lifestyle better than most.

        • 0 avatar
          Erikstrawn

          I think that raph’s point is that there is no other option than Wall Street. If you have a retirement, it’s heavily invested in Wall Street, which doesn’t care about your retirement, but only their profit. Don’t ever think your money is safe there.

          • 0 avatar
            highdesertcat

            Erikstrawn, “I think that raph’s point is that there is no other option than Wall Street”

            Yeah, that’s the way I read it as well.

            But what I wanted to convey was that people who look out for themselves first, even by investing with Wall Street, tend to be much better off in retirement than those who rely on social security and medicare alone.

            There are few options other than Wall Street for those who want to foster their own wealth. Real Estate is one of those few and my wife’s family chose to pursue that angle decades ago.

            In order for my wife’s parents to retire at age 87 without having to worry about money for the rest of their lives, the push is on to sell as many properties as we can between now and the end of 2014.

            Cashing out so to speak; similar to what I did when I got out of the Stock market in 2007/2008. GM did very well for me.

            So, IMO, shareholders ARE worth it, and being a shareholder IS worth it, because I’ve been there and done that.

            Well…., unless you invest badly and come up with a big goose egg at the end of it all.

            But then there is always welfare, foodstamps, free phones and Medicaid, even for the elderly…..

            Sounds like a win, even if you lose.

    • 0 avatar
      wsn

      @cartunez “It is simply impossible for a large company or hell even a smaller one to post gains of 10%+ every year.”

      It is possible.

      1) The Feds prints new money at a certain percentage. Your are half way there, if you can keep up with the devaluation.

      2) There are a lot of industries that grow at a fast pace. Take note of your smart phone or computer in general. Of course, some other industries will die, which is not a loss for most people.

  • avatar
    FractureCritical

    We could get into pages of debate on the role of capitalism, whicih I won’t do. We could also talk about how VAG is partially owned by the government of Germany, or for that matter, how pretty much every single automaker out there is partially owned, fully owned, or strongly subsidized and protectively legislated by a host country. That’s just life.

    that being said, I’ve always felt that modern shareholders care about the quarterly report and the stock price. that’s it. That’s not a worthwhile metric for ANY COMPANY IN ANY MARKET SEGMENT. For automakers that have to plan out and invest years or decades in advance, it’s tantamount to suicide. But it’s how they do buisness; short term, wuick profit, high stock price, and then pull the ripcord on the golden parachute before the fallout.

    Blame whomever you want, but at the end of the day, the company that DOESN’T answer to a room full of stock holders has more freedom to be dynamic than one that does.

  • avatar
    Toad

    Clickbait. The righties will rant about the benefits of capitalism, the lefties will moan about the horrors of unfettered capitalism, and the usual suspects will argue back and forth with multiple postings.

    A few shares among tens of millions will not make a big impression at the annual shareholders meeting; this is not a revelation. You will have the same effect at Buickman has had with his plan to rebuild General Motors.

    • 0 avatar
      Truckducken

      +1

      God help us once Big Al wakes up.

    • 0 avatar
      mikey

      “Clickbait”…is that a bad thing? Does more clicks mean that TTAC makes more money?

      In my way of thinking if more clicks mean that TTAC stays alive, and well, and can deliver us the quality, and quantity of articles, that we read everyday, “clickbait” is a good thing.

    • 0 avatar
      highdesertcat

      “The righties will rant about the benefits of capitalism” Not necessarily true since my wife’s dad is a life-long Democrat capitalist, as are many of his fellow colleagues and business owners.

      No one has honed the fine art of tax avoidance better than a Democrat business owner.

      Tax avoidance is perfectly legal. Tax evasion is not! I have learned more from my Democrat father-in-law about how to keep the IRS’ nose out of your business than from my entire MBA and CPA curriculum decades ago.

      • 0 avatar
        Big Al from Oz

        @highdesertcat
        How true.

        Many people try to align capitalism with politics. Capitalism is a part of politics and always has been.

        A capitalist will bed with anyone, so long as they profit.

        • 0 avatar
          highdesertcat

          BAFO, “Those who CAN….., DO!

          I’ve always looked at Capitalism as a means for those who CAN fend for themselves to improve their lot by doing something about it; rather than wait for the gubment to do something for them, like so many people of this day and age do.

          It is true, that sometimes things don’t always work out as planned, as in the case of my 22-yo grand daughter, to where she needed a little help, through no fault of her own.

      • 0 avatar
        Brad2971

        Yes, and the most unionized airline is continually profitable, pride-of-Texas Southwest Airlines. Not to mention, Koch Industries (run by the dastardly evil Charles and David Koch) has heavy union representation throughout most business segments, including and especially its oil transport business.

        Your point?

    • 0 avatar
      cartunez

      Capitalism is a neutral party system which is what makes it great. Only when you involve government and or force to it does it cause problems. This is not to say that it is a perfect system but its the best system for moving people out of poverty currently known.

      • 0 avatar
        Big Al from Oz

        @cartunez
        Capitalism is never neutral. It is always aligned to whom ever provides advantage to them.

        A capitalist will use unions, government, foreigners, spies, banks anything and everything is an instrument for a capitalist to reduce risk and increase profit.

        • 0 avatar
          cartunez

          @Oz..sorry my friend but true capitalism is not about using force and or government. You are thinking of the Warren Buffett style of capitalism which is corporate welfare and cronyism. No such thing as to big to fail in a true capitalist system.

      • 0 avatar
        skor

        Capitalism has always relied on government “force” in order to function. Who do you think “enforces” contracts? Some guy named Tony from New Jersey?

  • avatar
    OneAlpha

    Karl Marx was wrong. The true evil of capitalism isn’t exploitation of the working classes, it’s advertising.

    Speaking as someone who spent a decade and a half working retail on and off, I will tell you with absolute conviction that customers are a pain-in-the-ass necessary evil.

    • 0 avatar
      raph

      Advertising / exploitation – where is the difference these days?

      • 0 avatar
        highdesertcat

        Marketing! It’s both an art and a science because marketing tricks people into believing that they need something they never needed before. A new car. A new smart phone. A new Tablet. Their own Wi-Fi hot spot. New clothes, new appliances. A new house.

        It may be called Capitalism but it really is all about parting people from their money. Without buyers, Capitalism is kaput.

  • avatar
    TW5

    While consumers and shareholder are adversaries during the price-bargaining process, they are working towards a common goal. Customers want to trade their money for goods and services, otherwise, money would be worthless paper. Shareholders are hoping to earn return on investment. They work toward the mutual benefit of one another.

    If shareholders are expected to accommodate value-seeking behavior of customers, customers have to accommodate the risk-averse behavior of shareholders and investors. Perhaps the industry is unfairly skewed to accommodate shareholders and producers, but the automobile industry is an oligopoly because that’s what customers demand. They rarely trust unknown brands, and they don’t buy bottom level trim in appreciable quantities. Customers generally want superfluous features, performance and convenience.

    Insiders scoff, but it is what it is. This outcome is not being foisted on consumers by powerful corporate robber-barons. The average American household wants to spend 17% of income on transportation, the only real problem is imported oil, and that’s what the government has sought to address since 2007.

  • avatar
    Scott_314

    The stock market is fair even to small shareholders. Sorry haters but it’s true. Regular people should learn to invest, not to play the day-trades but to manage a balanced portfolio. Over time we’ll do better than savings accounts and probably real estate.

    Capitalism, like democracy, is the worst system aside from all the rest. It is bad for the environment (the more rare whale-penis becomes, the more it’s worth), and also for the lowest income people and disabled, but those can be helped to some extent by government policies and programs.

    • 0 avatar
      highdesertcat

      It worked for me.

    • 0 avatar
      Roader

      Capitalism’s main rival in the 20th Century, socialism, was by far worse for the environment. Poor people/poor countries can’t afford a clean environment. Neither can poor socialist countries feed their citizens. The 67% reduction in the global poverty rate since 1980 is directly correlated to Deng freeing China’s market from socialism to capitalism.

      Capitalism is better for people, and better for the environment, than any economic system ever tried.

      • 0 avatar
        FormerFF

        I think you’re confusing capitalism with a market economy. China is generally considered to be a socialist market economy. The definition of capitalism is an economy free of government influence. China’s government is involved in almost every facet of the Chinese economy. There are indeed private firms operating in China, along with plenty that are heavily influenced by parts of the government, including the Army.

        China’s living standards advanced when they abandoned their command economy and allowed a limited amount of private ownership of business enterprises. You can also find examples of economies that are much closer to pure capitalism than is China that are all but failing. Left to its own devices, capitalism tends to concentrate income and wealth into the hands of a very small percentage of households, unless something is done (gov’t action, labor unions) to prevent this. Most of the countries you or I would care to live in are mixed economies.

        • 0 avatar
          87 Morgan

          @Former…
          By your definition, I would ask how you consider our system capitalism? Which industry do we have that is free of government influence?

          Energy? Nope. auto? Nope I could go on.

          Somehow we left capitalism here in the US some time ago. We privatize corporate profits and socialize the loss.

          • 0 avatar
            FormerFF

            Ours is a market based mixed economy. Pure capitalism is pretty much extinct in the developed world.

            It seems to me that the only people who have their hands out asking for welfare these days are big companies. I know there are lots of people accepting assistance but from what I can tell the overwhelming majority of them would much prefer a job that pays well enough to not need assistance.

        • 0 avatar
          Roader

          The term “capitalism”, in the context of the article, is synonymous with the term “free markets.” Private ownership of the means of production, with that production and income distribution guided by markets.

          “Left to its own devices, capitalism tends to concentrate income and wealth into the hands of a very small percentage of households…”

          This this thinking, seemingly relegated to the trash bin of history after the fall of the socialist USSR and Warsaw Pact, is making a comeback with the neo-Marxist Piketty. It’s just a rehash of Marx’s Das Kapital written in 1867. Every generation seems to have a Marxist tome published, celebrated, and soon forgotten. I think Piketty is getting such a big reception exactly because Marxism collapsed in ~1990. The prior popular Marxist tome was Herbert Marcuse’s One Dimensional Man in 1964; it’s been 50 years – two generations – since fellow travelers have had a new book to get fired up about.

          • 0 avatar
            highdesertcat

            “Left to its own devices, capitalism tends to concentrate income and wealth into the hands of a very small percentage of households…”

            There’s nothing wrong with that! People who work for it should reap the benefits. I worked for mine and I don’t want to share with anyone outside of my family and blood relatives.

            Of course, then a modern day Robin Hood like O* comes along to take from those who worked for it, to spread it around among those chronically on the welfare rolls, regardless of skin color — (for those aimed at invoking the race card each and every time on each and every topic).

            And while they’re at it, they’ll advocate raising the minimum wage so society’s drop-outs and other people lacking the will to improve or better themselves, can work in dead-end, no-skill jobs for the rest of their lives.

            Yeah, rrrrrrrrrrrrrrrrrright!

  • avatar
    dash riprock

    Steve….I suggest that you add a caveat to your family owned preference. Be very careful of family owned corporations who have seperate classes of stock, or other governance tools that places their rights far above the common shareholder.

  • avatar
    fincar1

    You start right out by saying “Capitalism has no loyalties.” Actually it is economics that has no loyalties. An economic system is run by and for people. People may have loyalties.

    • 0 avatar
      highdesertcat

      If you believe that our current economic system in America is run by and for people, I must be missing something since all economic policy is set by the academicians in the White House.

      If you also believe that our current economic system is somehow good for America and its people, in view of all the people on long term welfare, food stamps, WIC, with more than 25 million unemployed, underemployed, or dropped out of the workforce, and a labor participation rate of only 53%, surely you jest!

      Then again, if this system is working for YOU, then I take my hat off to you in admiration because you qualify. I don’t.

      • 0 avatar
        Brad2971

        I would submit for your consideration that, based on Law of Diminishing Returns grounds vis-a-vis previous attempts at increasing the labor force, that this nation could probably withstand the current drop in labor force participation without any real harm done to the overall economy.

        Think back on all the actions taken by all levels of government to both boost labor force participation AND lowering of TANF/food stamp participation. We had to hit the diminishing returns wall at some time.

      • 0 avatar
        TW5

        None of those problems have anything to do with capitalism. Capitalism is notorious for creating full employment at poverty wage. The enormous, productive underclass supports a small, skilled, unstable middle class, and a wealthy plutocracy. The arrangement was an improvement over feudal Europe, the society Enlightened democrats were interested in reforming.

        The first stable middle class of the post-Enlightenment era was created by government intervention, specifically US military spending from WWII until the mid-60s. Military spending has been cut in half since then, and we’ve used the savings to fund the most unjust, primitive, utterly-pointless entitlement state in the developed world. Institutionalizing poverty and redistributing money from young to old holds no promise for a better future, yet that was considered to be the golden ticket by politicians, starting with Johnson and ending with Ford. After Carter waffled for 1 term, Reagan started deficit spending, and that’s how we’ve overcome the effects of the entitlement state for the last 3 decades.

        Since the general public has no idea what’s going on, no one wants to fix anything. Congress is populated by idealistic numb-skulls who either want to privatize government on behalf of lobbyists and take their chances with free-market volatility or who want to expand social liberalism and the 1960s entitlement state, as if it has something to offer. The president is a disinterested bystander, holding the office so Americans can feel good about race-relations until someone competent relieves him of duty.

        The government is like a 10mpg truck from the 1960s. It’s nostalgic and familiar, but no one in their right mind would use a fleet of refurbished 1960s pickup trucks for commercial construction or industry. The US government still operates a fleet of archaic 1960s pickup trucks because the people who designed them don’t want to admit they aren’t progressive anymore. Every election cycle we choose between “the government shouldn’t own any vehicles” and “the government needs to increase the fleet of 1960s pickup trucks”. Pick your poison, and then pray that neither party is actually that dumb.

        • 0 avatar
          highdesertcat

          TW5, poverty wages are a result of the stratification of wealth in any society.

          Some have it, many don’t, with the glut being somewhere in the middle, like a Bell Curve.

      • 0 avatar
        CapVandal

        From Wikipedia:

        “The economy of the United States is the world’s largest single national economy. The United States’ nominal GDP was estimated to be $16.8 trillion as of 2013,[1] approximately a quarter of nominal global GDP.[2] Its GDP at purchasing power parity is also the largest of any single country in the world, approximately a fifth of the global total.[2] The United States has a mixed economy[22][23] and has maintained a stable overall GDP growth rate, a moderate unemployment rate, and high levels of research and capital investment. Its five largest trading partners are Canada, China, Mexico, Japan, and Germany.

        The US has abundant natural resources, a well-developed infrastructure, and high productivity.[24] It has the world’s seventh-highest per capita GDP (PPP).[2] {note that all of the nations with higher GDP’s are smaller than many US states and include petri-states] The U.S. is the world’s third-largest producer of oil and largest producer of natural gas. It is the second-largest trading nation in the world behind China.[25] It has been the world’s largest national economy (not including colonial empires) since at least the 1890s.[26] As of 2010, the country remains the world’s largest manufacturer, representing a fifth of the global manufacturing output.[27] “[Surpassed by China but not by much]

        I would like to know what country is stronger, safer, economically superior, and in any. The US spends 10 times as much on defense as any other country. And on top of the ability of our military to project power, we have the Atlantic and Pacific oceans as a further defensive barrier. The US spends roughly 4% of GDP compared to 1% of GDP in Europe and Japan. And I am glad Germany and Japan aren’t spending a dime more on defense.

        If I had to pick another country to both earn a living and retire, the only candidates are Switzerland and Norway. Both have a smaller population than one of our top metro areas. And no one can get into Switzerland.

        People have been saying that the US is going to hell since 1776. US citizens are the best in the world. Hard working, smart, creative, well educated, and honest. As far as corruption — anyone want to objectively with Russia, China, India & most of the smaller countries of the world.

        As far as our youth going to hell …. Plato had a lot to say about it, and it has been a frequent source of annoyance and angst for a couple thousand years. It that were a continuing trend, all teenagers would need to be in solitary for a decade or two.

        This is my view — and it is an attempt to bring a sense of realism to those that sincerely believe that the US is a basket case. People who travel outside the US — it is easy to see.

        • 0 avatar
          TW5

          @CapVandal

          GDP contracted in Q1. GDP growth is than our deficit. Our trade deficit is still about 4% GDP (BoP basis).

          You’re engaging in the worst kind of willful ignorance. We have great potential, but we squander most of it, and then borrow money to live the American dream.

          • 0 avatar
            CapVandal

            1. One quarter does not make a trend. “In a note on the release PNC Chief Economist Stuart Hoffman wrote, “I believe this real GDP decline, mostly due to the polar vortex, coiled the ‘economic spring’ even tighter for a sharp snap- back (boing!) this quarter where I have an above-consensus forecast for a 4.0% annualized rise in real GDP. I expect real GDP growth to settle back down to near a 2.8 percent annual rate in the second half of this year.”

            Not great, but it has been around 2%+ for the last couple of years. http://research.stlouisfed.org/fred2/series/GDPC1

            2. “GDP growth is [less] than our deficit.”

            “http://www.calculatedriskblog.com/2013/02/cbo-deficit-to-decline-to-24-of-gdp-in.html

            “From the WSJ: CBO Sees Rising U.S. Debt, Economic Rebound in 2014
            Economic growth and recent legislation have cut the federal budget deficit in half in the past four years … the Congressional Budget Office said Tuesday in the annual update of its budget and economic forecast.

            The CBO said it expected economic growth to be sluggish in 2013, in part because of a sharp drop in government spending, but it sees a better economy in 2014 as the recovery takes hold.”

            “CBO: Deficit to decline to 2.4% of GDP in Fiscal 2015″ Which means with a little better growth, we will start reducing our debt to GDP ratio.

            And, we have the advantage of borrowing in our own currency.

            3. “Our trade deficit is still about 4% GDP (BoP basis).”

            http://www.calculatedriskblog.com/2013/08/trade-deficit-decreased-in-june-to-342.html

            It is trending down and is now closer to 2.5% than 4%. That is, $35 billion / month vs GDP of $1.5 trillion.

            The GDP trends are favorable, since about 1/2 the balance of trade deficit is due to petroleum imports. That is expected to disappear in the next few years.

            In 2006, the trade deficit had been growing for 8 straight years at an alarming rate and seemed intractable. For the next 8, it has been improving.

            So, as far as the overall economy, growth has been too low, but is still over 2%/year. The deficit is shrinking. And the balance of payments deficit has been shrinking.

            _________________________________

            “We have great potential, but we squander most of it”

            The USA has hardly been an underachiever. But, yes ..we could do better. We don’t have the political will to make a number of hard choices. But when we have to, we will.

            You seem to have a good basic grasp of the US economy. As far as trends — I see a lot of favorable trends, and interpretation of trends has a subjective element. Where to start and how far to extrapolate into the future.

            But the notion that the US is on the road to becoming a third world country?

  • avatar
    Landcrusher

    The small shareholders vote with their feet more effectively than with their votes. I think they do have value beyond throwing in cash. Any company that has a lot of small shareholders has to consider that in their policies or risk their wrath. The more their are, the more likely one will be paying attention that can catch bad managers.

    There is presently something presently wrong with the disclosure rules, IMO, but I couldn’t tell you how to fix it. I know a lot of smart people are working on it all the time, and I think it needs to be more of a priority and likely it needs a change of philosophy.

  • avatar
    jlyon

    If I had a small business and saw an opportunity to expand into greatness where would I get the capital to do so?

    So small investors are really voting for the management and the opportunity to grow.

    I remember hearing that companies with conservative management and long term outlooks have a far better return than those companies we hear the most about because of their flashy leaders or hot products on the market currently.

  • avatar
    Big Al from Oz

    It’s great reading what some view capitalism as.

    Capitalism is all about risk taking and how much risk you are prepared to take on before you opt out.

    Just look at the so called little guy as everyone states and some think are disadvantaged in a capitalistic society. Are they? Look at how they work at a job.

    Here’s an example; use Occupational Health and Safety, say on a building site and look at the risks some take to make a buck compared to others. Sort of a small version of Wall St a building site is.

    You have big contractors and small contractors and sub-contractors, look at how risk is taken. The larger contractors employees generally take on less less risk, whilst at the other end of the spectrum the small sub-contractors use some amazingly creative and courageous risks.

  • avatar
    wmba

    You all realize that the next step is to outsource executive management, don’t you? First components, then a foreign factory to cut out your own workers, then source IT and engineering from India. So the next step is the VPs and President. Could probably hire some management consultants from the high plateaus of Peru for a mere pittance, leaving only the brass ring network to pull the strings back home.

    Shareholders? “What are shareholders?, asked Inkerstein H Penwell, Chairman of the Board, Global Motors. “Never heard of ‘em.”

  • avatar
    CapVandal

    Perhaps you forget that the shareholders OWN the company. And over 50% of the shareholders of GM are institutions.

    US auto manufacturing has been a money loser for decades, which is one of the reasons that management seems so awful. Everyone more or less knows the reasons. A couple — cars are now commodity like. Wheat is a commodity, but as an amateur pizza maker, I look for Caputo’s double zero (although Gold Medal is perfectly fine). But unless a person is an enthusiast, every manufacturer has a quality mid size sedan. There is a glut of global auto capacity.

    And cars are no longer high tech. Textiles used to be high tech. Bicycles used to be high tech (which is one reason the Wright Brothers were able to build an airplane. I suppose it is possible to argue this point, since the electronics are complex — but assembly? Not so much.

    It takes brilliance to manage a company is an unprofitable industry. It can be done, but is difficult enough that I wouldn’t bet on ANY management.

    Since it is a lousy business — I don’t really care who owns the common stock. If I had a controlling interest in a car manufacturer, I would redeploy the capital to an industry with more promise.

    Any one that wants the US big two to be privately owned — the only likely owner is a hedge fund.

    The major competing countries have industrial policies and the firms aren’t run strictly a for profit businesses.

    If and when American unemployment gets to manageable levels — I don’t really care what happens to them. Until then, I support them as “industrial policy lite.”

    • 0 avatar
      CapVandal

      As far as customers …. they vote with their dollars. There is no shortage of good cars.

      They pick the winners and losers.

      Americans have the cheapest automotive system in the world. Gas prices are very low on a global basis. We have the biggest and fastest cars. The biggest engines. The lowest import costs — most places in the world foreign vehicles are absurdly priced after explicit and implicit tariffs and duties. And the product is getting better. This may not be uniform or obvious, but is striking after 10-15 years.

      Go down the list of stakeholders.

      1. Customers
      2. Businesses that benefit from auto manufacturing spending (companies and workers)
      3. Employees.
      4. Distributors.
      5. Employees of suppliers.
      6. Owners/Shareholders of both Auto Manufacturers and suppliers.

      Whatever someone thinks the proper order of this list — The customers are on top and the owners/shareholders are on the bottom.

      And, to a large extent, the outcome for owners/shareholders has no direct impact on the business. It is critical when they want to raise capital. Which is the real justification for capital markets.

      Although the outcome for shareholders is very likely to benefit greatly based on customer satisfaction translated into profitable sales

  • avatar
    imag

    I will avoid all the pro/anti capitalism arguments and note that Google is the best demonstration of this principal.

    The Google founders realized that shareholders, with their short-term thinking, wouldn’t improve the company over the long term. Their solution: simply prevent shareholders from gaining control of the company.

    Wall Street complained and threatened that the arrangement would bring down the share price. Last I checked, Google (and its stock) were doing pretty darned well.

    • 0 avatar
      highdesertcat

      Google is a bad example because of its lack of employee and shareholder diversity. Google has acknowledged that.

      Google and its stock are doing pretty darned well, but Google also knows that Asian and White employees comprise the majority of its employees and stockholders.

      I do not have a problem with that because those are the demographic groups with the smarts and the money to make Google the success that it is.

      But that doesn’t make Google the best demonstration of anything other than that they have the smarts and the money provided by their employees in the majority.

      Are those employees and shareholders worth it? You bet!

      What will happen when Google pursues a more-balanced approach to diversity among its employees?

      The past is prologue, as demonstrated by other businesses. I will let you draw your own conclusions.

  • avatar
    jimbob457

    I completely agree with your observations. Companies like Ford with even a residual family tie clearly have much more survival instinct than the others. Many scholars refer to this as “the agency problem”. The interests of management and ownership get crosswise. Nobody really seems to know how to fix it. It has been a problem for centuries if not longer. Think the absentee lord of the manor and his overseer.

  • avatar
    CoreyDL

    Ronnie, is that you?

    LOL. At least if you buy preferred stock, you get your money before the regular stockholders. But you’re probably better to pool your money with a bunch of other people, and experience the economies of scale within a mutual fund.


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