My take on this discussion is that the world economy is built on consumption.  Without it there is no growth, without constant growth you cannot justify the multiple. 
The American consumer has fueled that constant growth (largely through credit).  Both that consumption and access to credit has dried up.  This will cause hurt the global economy.
Throwing a couple million leveraged auto assembly workers and their ancillary downstream brothers into unemployment will only make matters worse.  Unfortunately as much as I’d love to see it happen, letting the auto businesses fail could bring a lot of pain to every corner of the globe.
Dirty Harry has the gun cocked, “Do you feel Lucky?”  We’ll see how the game of chicken between the Big 3, UAW, and Washington ends up, but I don’t believe outright immediate failure is in the cards.

superbaka - 05 December 2008 02:35 PM

My one friend from michigan said that even if foreign car companies assimilate workers (like toyota or honda), losing the big three is somehow “bad” for america’s future because we lose “our heart”. This backwards, non-globalized thinking is why they ended up in this problem in the first place.

Hey, I thought the “heart” of America was the farming industry? Agree with SuperB that we have very romantic ideas about both industries. Unfortunately, most of the denizens of the rust belt don’t have the background/training to easily transition to new industries without some serious hand holding unlike the folks in the Valley.

Thank you for the sharinG~

jimlongo - 05 December 2008 07:07 PM

My take on this discussion is that the world economy is built on consumption.  Without it there is no growth, without constant growth you cannot justify the multiple. 
The American consumer has fueled that constant growth (largely through credit).  Both that consumption and access to credit has dried up.  This will cause hurt the global economy.
Throwing a couple million leveraged auto assembly workers and their ancillary downstream brothers into unemployment will only make matters worse.  Unfortunately as much as I’d love to see it happen, letting the auto businesses fail could bring a lot of pain to every corner of the globe.
Dirty Harry has the gun cocked, “Do you feel Lucky?”  We’ll see how the game of chicken between the Big 3, UAW, and Washington ends up, but I don’t believe outright immediate failure is in the cards.

Its true that the U.S. economy is built on consumer spending, its true that without constant growth, one cannot justify the multiple companies get in bull markets and its true that the American consumer, has to some degree, fueled that constant growth through credit.  Yet, the stress on consumer spending and consumer credit is FAR overstated.  Its so overstated, that they need to redefine the term overstated.  I’m really getting sick of people saying things like the consumer isn’t spending this or nobody is buying that.  Nobody is making money this and everyone is broke that.  Let the data speak for itself.  The data says the consumer, despite what EVERYONE + ESPECIALLY THE MEDIA BELIEVES, the consumer has barely contracted.  Barely.  Here’s the data:

Personal Income and Outlays
Pay close attention to DPI and PCE:

Disposable Personal Income (DPI)
Personal Consumption Expenditures (PCE) - Consumer Spending

http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm

The numbers themselves don’t lie. 

Notice this statement closer to the bottom of the article:

“Purchases of motor vehicles and parts accounted for most of the decreases in durable goods in October and September.”  Notice the term “MOST.”  Not a large part, but “MOST.”  This “recession” has largely been an auto-lead recession.  Auto’s are making up most of the contraction in durable goods and likely makes up a massive part of the contraction in consumer spending and GDP.” 

—————————————

On a separate note, it doesn’t surprise me that the market has rallied to 9,000.  I wouldn’t be shocked to see this rally continue.  One of these rallies is going to be for real and the market’s will take everyone by surprise.

My thinking is that 8000 represented a bottom for the market (at least for now) and that we’d have the Dow trading in a 8000-9000 band all things “being equal” as far as bad news and economic trends go.  Time will tell if this was the true bottom, but without some really unexpected news, my WAG is that we have hit the bottom.