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The Best of What They Said and I Read Week Ending 12/9/18

Short excerpts from articles I found interesting

I may not agree with the author and the following material is not intended as investment advice

Barron’s – December 7, 2018 – Dow Drops 4.5% as the Market Panics Over Everything by Ben Levison

  • “…the market stumbled to its worst start to December since 2008. It was a week that began with a nearly 300-point rally after the conclusion of the G20 meeting, but ended with a big splat as falling bond yields and the arrest of Huawei Technologies Chief Financial Officer Meng Wanzhou—for allegedly violating sanctions against Iran—weighed on sentiment. The Dow Jones Industrial Average dropped 1149.51 points, or 4.5%, to 24,388.95 last week, while the S&P 500 slumped 4.6% to 2633.08 and the Nasdaq Composite tumbled 4.9% to 6969.25.”

Bob Carlson’s Retirement Watch – December, 2018 – 3 Possible Scenarios as the Fed Tightens Monetary Policy

  • “…There are three likely scenarios for Fed policy, the markets and the economy in the next year or two.  Since 2009, whenever the economy and markets faded, the Fed stepped in to reverse the declines.  That’s less likely this time.  Fed officials made clear they believe the economy is self-sustaining and they aren’t concerned about stock prices.  It would take a sustained downturn for the Fed to reverse policy.  Another possibility is the Fed realizes tighter policy is already affecting the economy and markets.  Then, it would stand pat for a while to see how much of recent growth is sustainable at the higher interest rates.  If the Fed stands pat, the likely result would be a sustained period of slower, but solid growth.” 
  • “The third possibility is the biggest risk.The Fed might continue to raise interest rates as long as the labor market is strong.  That could lead to a recession that the Fed would have difficulty reversing.  Like the growth stage and bull market, this late stage of the cycle could last a long time if the Fed doesn’t tighten too much.  While most investors worry about the next crash, investors also should be prepared for a long period when both economic growth and stock price increases are flat or sluggish.”

Barron’s – December 7, 2018 – Washington Politicians Should Let GM CEO Mary Barra Do Her Job by Jack Hough

  • “…In a remarkable display of bipartisanship, lawmakers set aside differences on Wednesday and Thursday to mourn a former president and scold a car executive. George Bush the elder, a war hero…got the recognition he deserved. General Motors CEO Mary Barra, who in five years at the wheel has gotten the 110-year-old manufacturer to race like a start-up toward the autonomous, electric future, while expanding its profit margins and U.S. employment, did not.”
  • “On Nov. 26, the No. 1 U.S. auto maker (ticker: GM) announced that it will stop production at seven plants by the end of next year, including four in the U.S., and that it will slash jobs worldwide. GM benefited from a costly government bailout during the financial crisis a decade ago, and still receives subsidies for its electric cars…On Wednesday, Barra was taken to task on Capitol Hill by congressional delegations from Ohio and Maryland, and on Thursday by legislators from Michigan, all states facing plant shutdowns…Start with the obvious. GM long ago paid back the bailout loans, and it will probably turn a profit of more than $8 billion this year. The federal government, on the other hand, is approaching trillion-dollar deficits. Talk about cash for clunkers. Perhaps Congress should ask Barra for tips on capital allocation, rather than offer them.”
  • “GM’s trim-down could yield $6 billion in yearly cost savings by 2020, much of which will be spent on Auto 2.0 efforts—electric cars; its Cruise Automation platform for self-driving cars, which recently attracted a big investment from Honda; and its Maven service for ride-sharing. These are three legs of the same stool. Ride-sharing, minus the costly drivers, using electric cars running around the clock, could one day become cheaper for most consumers than car ownership.”
  • General Motors is conducting a “master class” in managing obsolete businesses, according to Morgan Stanley analyst Adam Jonas. “We see these steps as necessary to ensuring the long-term sustainability and independence of GM as a leader in Auto 2.0 and a significant employer of U.S. labor,” he wrote in a recent note to investors. In Jonas’ view, if GM doesn’t address excess capacity this year, it will have to do so during the next recession, and “we believe the affected workers would likely get a better deal from a stronger GM than from a weaker GM.”

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