Green Shoots and The Great American Collective

There has been a lot of talk about green shoots lately. It seems we have to talk in metaphors as “financial-speak” is politically incorrect. In fact it is becoming downright treason to use words like profit, financially responsible, bankruptcy, bonuses etc..

It was Mr Bernanke who coined the term “green shoots” on the CBS “60 Minutes” program and it caught on.

“The “green shoots” of economic revival are already evident, Bernanke told CBS program “60 Minutes” in the interview broadcast late Sunday, which the network said was the first by any sitting Fed chairman in 20 years.”

But those green shoots have been grown from government seed money, printed and dropped from Mr Bernanke’s helicopter over vast areas of the US financial and auto businesses that are now part of the new great American Collective.

Just read the history of Russia and their experiment with the Collective to see where this is likely to be heading. In the US it’s more likely to be no investment returns for some years rather than starvation. But that’s no help to Baby Boomers.

The Collective is managed by unelected Czar’s appointed by the Executive and their primary job is to achieve the political aims of the Executive. Politics before Profits sold to the people as spreading the wealth and making for a fairer society.

Just as the banks are finding more and more hurdles to jump over before they can give the TARP money back, so to it will be with the Auto industry.

Already the Collective has decided thousands of auto dealerships are not viable even though they actually pay the auto companies money to be dealers and have to compete to sell the cars. Oops I may have committed treason – “Compete” is on the don’t use list.

Governments of every shade have real problems giving up power once they have it. So this is not Obama bashing. If the other side got in power tomorrow do you really think they would reverse the Collectivisation of America?

So Obama policies may well make the Collective the norm in the US for at least the next four years. If it doesn’t work out for Obama we will see if the other guys will get rid of the Collective.

This does not bode well for Capitalism and thus investment returns in the long term.

If the White House can ignore the laws of Bankruptcy and hand over much of Chrysler to the Union at the expense of the Bond Holders then the smart money will decide to go elsewhere or sit on their cash until the new rules are made plain for all to see.

If you see your government failing to honour bond holder claims before others in a bankruptcy, why would you ever invest long term in any publicly listed company again?

The Collective has decided to stand with the workers against the providers of capital to the enterprise as Obama himself said. Referring to PIMCO’s Bill Gross May 2009 Investment Outlook he quotes Obama as saying,

“I stand with Chrysler’s employees and their families and communities. I stand with millions of Americans who want to buy Chrysler cars (sic). I do not stand…with a group of investment firms and hedge funds who decided to hold out for the prospect of an unjustified taxpayer-funded bailout.”

It is conveniently forgotten that some of these investment firms and hedge funds invested pension fund money into Chrysler. What are the pensioners to do now? Why did Obama not stand with them too?

As I said earlier why would anyone invest in secured debt if the rules can be changed at will?

“Indiana’s treasurer Mourdock said it doesn’t make sense for the state to invest in secured debt of companies receiving federal funds if previous rules no longer apply.

“Given the recent actions of the federal government, the risk is too great for any prudent investor to accept.”

My money is on the Smart Money standing aside for a while. It will be interesting to see if this market rally keeps going. If it does for all the reasons above you might want to consider selling your equities into the up trend while you can.

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