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Six Things Not to Like about Obama Motors

June 4th, 2009 |

Author: admin

President Obama didn’t ask my opinion about the government takeover of General Motors. Neither did you. Not to worry. I’ve decided to share my views anyway.

I’m going to start by now referring to General Motors as “Obama Motors.” I have a good reason. Whatever your thoughts on the deal or on politics, the outcome of the GM takeover is going to play a prominent role in defining Obama’s political legacy. The event is so unprecedented in U.S. history, the textbooks and biographies cannot ignore what has happened and how it will turn out. I predict it will not turn out well.

In no particular order, this is what I dislike about the federal control of General Obama Motors.

1. Fundamental decisions that should be based on business will now be based on politics. It started with the firing of Rick Wagoner. Wagoner was considered unfriendly to Obama’s vision of what the car industry should look like. I’m not defending Wagoner but it’s a sign of what is to come. Egged on by the UAW, members of Congress are already expressing opinions about which GM plants should be closed and whether dealers should be shed. These opinions are based on what is best for their own constituents, not on what is best for GM. Industry executives have been summoned to hearings beginning tomorrow to “explain” these decisions. This will become a non-stop pattern. Even if he wanted to, Obama is powerless to stop the Congressional meddling.

2. GM will be forced to make cars and trucks that Obama wants, not what consumers want. Obama has positioned the takeover of GM to become an instrument of his new energy policies. Eventually, GM will be told what cars to make. You can be sure they will be smaller, slower, lighter, and more expensive. (The planned Chevy Volt is expected to cost $40,000.) It won’t matter that we don’t want to buy those cars. Obama will make us buy them by taking steps to increase the retail price of gasoline. The upward creep in gas prices has returned. There’s no stopping it now. It’s all part of the grand plan. Look for the FrankMobile, Doddger, and PeloSUV as future GM models.

3. Federal control of GM creates unfair competition. Ford elected not to accept bailout money. It will be punished for this. The government can and will maneuver GM’s finances and federal law to favor sales of GM products. Tax credits, more federal money injected into GM, “cash for clunkers”, CAFE standards, you name it. All will be manipulated in a futile attempt to have GM “succeed” even at the expense of Ford, which will try to do what is best for its shareholders. It’s not just Ford that will be treated unfairly by Obama Motors. The government cut a deal with the UAW to restrict the import of fuel efficient cars from overseas.

4. There is no realistic plan for a profitable GM. Some people seem to forget that GM hasn’t made a profit since 2004. It has been on a death spiral. The demand for new cars has fallen dramatically even since then. Many economists think the drop in demand is permanent. As baby boomers retire, they will purchase fewer cars. Younger generations hopefully have learned that having a car payment is not a sign of financial maturity. It could take many years for GM to find a place in our economy where it can successfully confront competition from Nissan, Toyota, Honda, and Hyundai. Do you think these companies will ease off while GM struggles to recover? Not a chance. They will be going for the kill and I don’t blame them.

5. The government is incapable of effectively running businesses. If the government had any skills in operating a successful business enterprise, it would be making its own tanks, warships, and fighter planes. Instead, it contracts those out and generally does a lousy job at that. What should make us believe that it will do a better job with GM? As you ponder this question, use this mantra: “Amtrak.”

6. There is no exit strategy for the taxpayers. The billions in taxpayer dollars dumped into GM will be converted to stock. This essentially was a new government welfare plan designed specifically for the UAW. We own stock in a dead company that the government “hopes” will return to profitability. When will that happen exactly? What is the time deadline? When will we “get out”, using a phrase applied to failed plans of prior administrations? Meanwhile, our own money will be used to churn out cars that we don’t want to buy. This could turn out to be like agricultural subsidies that never seem to go away. Maybe the government will use our stimulus tax dollars to build enormous storage areas to keep the unsold GM vehicles, right next to the government butter stocks. (Say, can you make an engine that runs on butter?)

What are your thoughts about the future of Obama Motors?

This is an article from Tough Money Love
Copyright 2009 Tough Money Love. All Rights Reserved

You Can Benefit from Impending Inflation

June 4th, 2009 |

Author: admin

I have a suggestion for how you can benefit in residential real estate from the approaching inflation.

When writing about inflation, most personal finance writers (including Mr. ToughMoneyLove) spend most of their energy on damage control. We talk about investing in gold, commodities in general, or inflation protected securities such as I-Bonds and TIPS. There is a lot more of that going on now because of current government fiscal and monetary policies. Most experts just can’t see a way for our economy to avoid the ravages of escalating inflation in the very near future.

The news this week suggests that experts in the real estate financing business are already seeing signs of inflationary pressure. More specifically, long term interest rates took a big upward jump. This includes mortgage interest rates. Lenders are not going to lock themselves into a low interest rate for 15 or 30 years while rates at which they borrow are skyrocketing around them. They are now anticipating exactly that and are adjusting rates accordingly.

You can take advantage of what’s about to happen. But it may not be easy.

You need to prepare to exploit a further drop in residential home prices.

Yes I know that home values have plummeted in the past two years. But they are likely to fall even more if, as expected, mortgage interest rates start climbing.

Historically, home prices generally have had an inverse relationship to mortgage interest rates. As rates rise, prices fall. This is only logical. A buyer looking to borrow money to buy a house is constrained by the size of the monthly payment as it relates to their income. At least, that is the way the financially responsible people approached things. Higher interest rates increase the size of the monthly mortgage payment, thereby decreasing the size of the mortgage – and value of the house – that a buyer can afford. High interest rates can price some buyers out of the market entirely. Other buyers may choose to wait things out, hoping for a decline in rates.

The result? Falling demand and therefore a decline in prices for both new and resale homes.

This was precisely the theory that the Treasury was counting on when it began spending a lot of our money to force mortgage interest rates down. Its goal was to boost home values to help owners recover from being underwater on their mortgage balances. The rates went down for sure. Lots of new buyers are getting some financing bargains.

But time may have run out on artificially low mortgage interest rates.

So how do you prepare to exploit what is going to happen?

Many of you won’t like this idea but here it is: Pay cash for your next home.

If I am right about home prices falling even more when interest rates go up, there will be untold home bargains to be found, even better than today. Naturally, you don’t want to pay for that bargain with a high mortgage interest rate. Paying with cash is the best way to capture the benefit from inflation.

Where do you get the cash? The best way is to save it. With enormous government deficits built into the budget for the next ten years, inflation will be with us for a while. This gives you several years at least to stash money so that you can snatch a real estate bargain when the time is right.

What if you already own a home? Think about selling it now, before prices drop again. Rent, invest your equity, and get ready for your next move into the housing market. This may not make sense for a young family planning to stay put. But if you are a baby boomer thinking about downsizing, this plan can make sense. Even if you are younger and you know you will be moving in a few years anyway, why not implement a plan now to benefit?

I didn’t say it would be easy. But sometimes you need to work hard to take advantage of a golden opportunity. An inflationary economy may present you with just such an opportunity, for your next home.

So readers, what do you think of my suggestion?

This is an article from Tough Money Love
Copyright 2009 Tough Money Love. All Rights Reserved

Another Weapon in the Battle Against Media Fees

June 4th, 2009 |

Author: admin

If you are a regular reader, you know that lately Mrs. ToughMoneyLove and I have been working on cutting the monthly fees that we pay for electronic media and communication services.

Yesterday our oldest son tipped me off to a new online TV offering from Hulu.

It seems that Hulu is moving along a path similar to Google by creating Hulu Labs. This site introduces new technology related to Hulu’s core services. Early adopters get to try out cool new stuff and provide feedback.

The new Hulu technology is Hulu Desktop, characterized as “Lean-back viewing for your PC” with this overview statement:

Hulu Desktop is a lean-back viewing experience for your personal computer. It features a sleek new look that’s optimized for use with standard Windows Media Center remote controls or Apple remote controls, allowing you to navigate Hulu’s entire library with just six buttons. For users without remotes, the application is keyboard and mouse-enabled. Hulu Desktop is a downloadable application and will work on PCs and Macs.

Rather than try to explain how Hulu Desktop works myself, I embedded this video (RSS and email readers will probably have to click through to my site):

I’m not a paid Hulu hustler but I like where it and other like services are headed.

With more broadcast TV, movie, and other video content going online – including freshly produced content – consumers need user friendly ways to access it. They need to have a viewing experience that reminds them of the more conventional and familiar cable box and remote environment. Hulu Desktop is yet another step in that direction. Having this easier to use PC or Mac interface to control video content searching and selection is great.

Of course, a related issue is being able to view the streamed content on the big screen. Hulu can’t help with that, but there are ways to accomplish that using a computer with a video output that provides an optimal connection to a corresponding video input on your flat screen.

If consumers can be persuaded to disconnect or downgrade their cable/satellite TV services in favor of streaming content from the web, they will save money. In our case it will be substantial money.

The related benefit is that services like Hulu – which are free – provide an increasing level of competition for the Comcasts and DirectTV’s of the world. That should help control or even lower costs for those who continue to use those services.

You might want to bookmark the Hulu Labs site so that you can follow along and exploit new technology that might save you money.

Now I need to speak to Mrs. ToughMoneyLove about a plan to better incorporate this technology into our TV viewing lifestyle. Do you have any suggestions for me?