Just this week it was reported in the Wall Street Journal that the U.S. Treasury Department is preparing a Chapter 11 bankruptcy filing for Chrysler. Along these lines, General Motors noted that it won’t be able to make a debt payment of $1 billion that is due June 1st. Also, in an attempt to save itself, GM is shutting down 13 assembly plants for up to 11 weeks this summer. The Treasury Department would not say what role, if any, the administration played in GM’s decision to shutter the plants. On a more positive note, Ford Motor Co. reported a loss for the past quarter, but it was better than expected and the company also reported that it is burning
through far less cash than in did in the fourth quarter of last year.
In December of last year, Bank of America realized that Merrill Lynch was incurring much greater losses or as BOA’s CEO described as “staggering amounts of deterioration” than it had anticipated. Upon learning this, Bank of America attempted to exit the merger. However, the government threatened to oust Bank of America’s Chief Executive Ken Lewis and other executive managers if the bank didn’t go through with its acquisition of struggling brokerage firm Merrill Lynch, according to the results of an investigation by New York Attorney GeneralAndrew Cuomo released Thursday.
Hank Paulson, Treasury secretary at the time, told Lewis in December that the management and
board of directors of Bank of America would be removed if the deal wasn’t closed, Cuomo said
in a letter summarizing his findings to regulators and legislators. Paulson told Cuomo’s office
that he made the threat at the request of Federal Reserve Chairman Ben Bernanke, according to
Cuomo’s letter.
On the one hand, the U.S. Government is telling Chrysler and GM, to get their acts together or we will let you be reorganized via bankruptcy. However, at the same time, the government turns around and forces one of the nation’s largest banks to purchase a struggling, if not failing, brokerage firm to the detriment of all Bank of America investors. If you would like to read more about this, please click on the attached link http://www.marketwatch.com/News/Story/text-cuomo-letter-merrilllynch/story.aspx?guid=%7BB8E72006%2D7E48%2D402A%2DBC65%2D589141E2E520%7D.
The bottom-line is that it appears that the executives at Bank of America were told to be quiet about what they knew. Also, it looks as if some investors, especially Bank of America shareholders, have been asked to sacrifice for the sake of overall health of the U.S. financial system. The ole’ saying – “taking one for the team” seems to apply to what is occurring currently as companies, employees and their shareholders are asked to make sacrifices for the good of all. I’m not endorsing this, but just keeping you informed.
Some clarification
Last week I noted that “I am planning to begin sticking my investment toe back into the market.” I just want to clarify that I was referring to bond, income-oriented and balanced types of investments currently. I believe there will be plenty of opportunities to purchase stock-oriented investments before the year is out.
The recession has been felt locally and internationally
Locally, it was reported in the KC star recently that a local parochial high school saw its endowment fund drop 28% since last December. The principal was quoted as saying, “I’ve been in private education for 26 years, through the dot-com bubble bust and the recession after 9/11, and this is the worst it has ever been.”
Internationally, the world’s largest software-maker Microsoft reported this week that its quarterly revenue fell from the previous year for the first time in its 23-year history as a public company.
When it is all said and done, this current “great recession” will become a major case study for economic and history books in the years to come, and hopefully we will have learned some valuable lessons from it.
Which will win out? – The good or the bad news
- In the past week I have spoken to a regional account manager for a national lending firm that makes loans to small and medium-sized businesses and to a successful realtor. Both professionals stated that they have seen a dramatic increase in their businesses in the last month. It is very reassuring to hear such news, and hopefully this is the beginning of long-term trend and not just a short-term spike.
- Britain’s largest retailer, Tesco, noted this week in the Wall Street Journal that it believes the worst of the recession is over, but it is too early to call a recovery. Tesco operates in Europe, Asia and the U.S., and noted that it sees economic stirrings in each of these regions.
- The KC Star reported this week that Kelly Edmiston, senior economist for the Federal Reserve Bank of Kansas City, noted that home foreclosures may get worse. This is due to loans originated in 2005 and 2006, which required relatively small monthly payments for the first five years, will be resetting in 2010 and 2011. In addition, rising unemployment is taking a toll. First time home buyers are swooping in and trying to find bargains in the foreclosure market and take advantage of tax credit currently available. However, there may not be enough demand to sop up all the new supply that may be coming to the market.
- The International Monetary Fund (IMF) noted this week that global recession is the deepest since the “Great Depression,” and additional government steps may need to be taken before a turnaround will take place.
The global and economic stories continue to play out, and hopefully we will start to see signs of a happier ending in the months to come. Remember, this current economic story is much closer to a novel than a short-story, and the ending won’t be written anytime soon.
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“Is your life the way you want it?”
Strategic Life Planning Workshop, A Journey of Discovery
May 12 and June 17, 2009
Visit www.iia-kc.com/life-and-business for details and other events.
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“Government can’t do anything for you except in proportion as it can do something to you.” –William F Buckley, Jr., American author, journal and commentator
“A government that robs Peter to pay Paul can always depend on the support of Paul.” –George Bernard Shaw, Irish playwright, critic and political activist
“Long after all of us are gone, after fortunes are lost and won, after nations rise and fall, history will write the verdict of our work here based not on what we have done for ourselves, but on what we have done for children yet unborn.” –Thomas Kean, politician
Tony Moeller, President
Integrity Investment Advisors, LLC
12721 Metcalf Ave., #202
Overland Park, KS 66213
tmoeller@iia-kc.com
913-897-2074
The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only. It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.
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