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Wednesday, November 28, 2018

Does GM's Restructuring Equal Economic Panic?


Poor Man Survival

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GM announced it would kill several passenger cars that weren't performing well. Included: the Chevrolet Volt and Cruze – Americans  like oversized SUVs & big trucks - despite many being upside down in 72 month loans…

America’s twin economic “generals” are both in very deep trouble.  General Electric was founded in 1892, and it was once one of the most powerful corporations on the entire planet.  But now it is drowning in so much debt that it may be forced into bankruptcy.  General Motors was founded in 1908, and at one time it was the largest automaker that the world had ever seen.  But now it is closing a bunch of factories and laying off approximately 14,000 workers as it anticipates disappointing sales and a slowing economy.

Our local news in MI interviewed a few of GMs factory workers after this announcement and of course the reaction was predictable.  Despite receiving the biggest bonus payout in history this year [some as high as $10,000] many of these union workers had already blown through their bonus cash and expressed huge dismay and concern over their coming job loss as few had socked away any money.

GM workers say they had 'no warning' of closure


Despite being given ample opportunity for early buy-out or retirements!

I grew up across the state line in Ohio but most of my relatives lived in MI and worked for the Big Three and experience the boom and bust times of working on assembly lines.  It was common to see such workers going into deep debt buying all sorts of toys including boats, snow mobiles, jetskiis, cabins and the like.  In the early years layoffs were almost welcome as workers not only received unemployment compensation but sub-pay through the union so in many cases they “earned’ almost the same wage for doing nothing…like a paid vacation and many were happy with that arrangement.
Union wages at the Big Three were the envy of working world, especially the health care and retirement packages which often exceeded even government workers!
Many said GM has been mismanaged for decades and the Obama should never have bailed it out using taxpayer funds [he forgave GM its last billion or so]…

GM’s “restructuring” is actually going to cost the firm 3.8 billion dollars

General Motors said Monday it plans to effectively halt production at a number of plants in the U.S. and Canada next year and cut more than 14,000 jobs in a massive restructuring that will cost up to $3.8 billion…management had been asking for voluntary layoffs for months to the rank and file but few took them up on the generous offers GM made choosing instead to wait and get the axe.

Of course GM doesn’t have 3.8 billion dollars just lying around, and so they are actually going to have to borrow money in order to close these plants and lay off these workers.

Needless to say, President Trump is not very happy with General Motors right now…

Trump said he spoke Monday with GM’s CEO, Mary Barra, and ‘I told them, “you’re playing around with the wrong person”.’

He told reporters as he left the White House for a pair of political rallies in Mississippi that the United States ‘has done a lot for General Motors. They better get back to Ohio, and soon.’

There is no way that Mary Barra should have ever been made CEO of General Motors, and now the entire world is getting to see why.

In addition to the elimination of about 6,000 factory jobs, GM will also be cutting about 8,000 “white collar jobs”

Did General Motors really have to announce job cuts just before the holidays?  According to the Daily Mail, some workers were seen wiping away tears when the layoffs were announced…

Heart-wrenching photos show General Motors workers wiping tears away after the company laid more than 14,000 people off without warning and just before the holidays…workers were given the option to take early retirement with six months of benefits and pay if they had 12 years of employment as far back as January of this year after being given record high bonus checks [which most promptly spent].

In a massive restructuring, the auto giant announced Monday that it will cut 15 percent of its workforce to save $6 billion and adapt to ‘changing market conditions’.

‘You’re going right into Christmas. You’re looking for celebration and that’s not there now,’ one GM worker told Today.

 
In addition to the production cuts, GM said it will reduce its North American white-collar workforce by about 8,000. The deadline passed last week on a voluntary buyout for those workers, and GM spokesman Pat Morrissey told the Free Press that only 2,250 employees have asked to take the offer, meaning as many as 5,750 workers could be cut if the company keeps to its announced total. Analysts told the Free Press to expect involuntary cuts in January.

So why is General Motors doing this?

After all, if the U.S. economy really is “booming” that should mean increased sales for all of the major automakers in the coming years, right?

Unfortunately, the truth is that hard times are already here for automakers.  In fact, Bob Lutz told CNBC that “we’ve got a demand problem on cars”…

Former GM Vice Chairman Bob Lutz said the automaker historically would have raised sales incentives to try to sell more cars before resorting to plant closures.

“Nowadays GM looks at the hard reality, says we’ve got a demand problem on cars, what are we going to do about it. We have to shut some facilities and move production to truck plants,” Lutz said on CNBC’s “Halftime Report. ” “So I think what we are seeing is a fast-acting and reality-oriented GM management.”

Over the past four years, General Motors spent a staggering 13.9 billion dollars on stock buybacks.

GM executives were able to prop up the stock price for a while, but at this point the stock is down about 10 percent from where it was four years ago.  The following comes from Wolf Richter

During this four-year period in which GM blew, wasted, and annihilated nearly $14 billion on share buybacks, the price of its shares, including today’s 5.5% surge – getting rid of workers is always good news for shares – fell 10%.

These stock buybacks are a massive Ponzi scheme, and everyone that was involved in blowing such a giant mountain of cash at GM should be fired.

And now thousands of hard working Americans are going to lose their jobs, but it didn’t have to happen.

General Electric has also been victimized by the exact same Ponzi scheme, and at this point they are in a struggle for survival which they are probably going to lose.

On Monday the stock slid another couple of percent, and so far this year it is down a total of 58 percent

Not a day passes lately without GE stock getting hit by some unexpected development, and today was no exception.

GE shares, which are down 58% YTD, dropped over 2% on Monday, after sliding as much as 4.1% earlier in the session and approaching its financial crisis low of $6.66, following a research report by Gordon Haskett analyst John Inch which prompted fresh questions about the treatment of goodwill at GE Capital.

In the end, GE is probably heading for total collapse. GE is a horrible firm that began the massive offshoring of US jobs back in the mid-1980s [I wrote about the folly of this action in my business journals back then and some scoffed saying it was only temporary…]
 
 

But if GE had not blown 40 billion dollars on stock buybacks in recent years, they would be in far, far better shape.  The following comes from the Marketwatch article …

GE was one of Wall Street’s major share buyback operators between 2015 and 2017; it repurchased $40 billion of shares at prices between $20 and $32. The share price is now $8.60, so the company has liquidated between $23 billion and $29 billion of its shareholders’ money on this utterly futile activity alone. Since the highest net income recorded by the company during those years was $8.8 billion in 2016, with 2015 and 2017 recording a loss, it has managed to lose more on its share repurchases during those three years than it made in operations, by a substantial margin.

Even more important, GE has now left itself with minus $48 billion in tangible net worth at Sept. 30, with actual genuine tangible debt of close to $100 billion. As the new CEO Larry Culp told CNBC last Monday: “We have no higher priority right now than bringing those leverage levels down.”

Combined, General Electric and General Motors have blown more than 53 billion dollars on stock buybacks, and now both companies are in huge trouble.

The executives that gutted the finances of both firms by engaging in these sorts of Ponzi tactics should all be fired and should never be hired by anyone else in the corporate world.

For years, big corporations have been borrowing massive amounts of money to fund reckless stock buybacks, and that has helped to fuel an amazing bull market run.

But now the game is imploding, and the unraveling of this massive Ponzi scheme is not going to be pretty.
 
 

AND TAKE NOTE ABOUT WHAT THIS MEANS FOR THE ECONOMY:

Economic panic is a very useful tool in the hands of the banking elites for molding social conditions in a way that gives them greater psychological power over the public. In every instance of financial catastrophe, it is the banking cabal that is asked to step in and save the day. In 2008 it was the Federal Reserve that was tapped to act as a hero to the mainstream, and only through the tireless efforts of alternative economists and liberty activists has this fallacy been exposed to some in the population.

In the next crisis, it will be the IMF that is used as the front organization for the next rescue as market collapse leads into a crisis in confidence in the U.S. dollar. I outlined the plan for this in my recent article 'IMF Reveals That Cryptocurrency Is The New World Order End Game.'

The average person is completely unaware of the Hegelian con-game being played here. And, when banking institutions step in as the designated "caregivers" to the ailing economy, what we sometimes see is a kind of reverse Florence Nightingale effect, in which the patients fall in love with the nurse merely because they have associated the extension of economic function to an extension of their lives (or at least, an extension of comfort in their lives).

The next engineered crash is shaping up to become the most epic in history, and make no mistake, it has already started. Even now mindless optimism and blind faith in the markets continues, and the assumption on the part of the investment world is that the banks will eventually be forced to admit their "policy error" on tightening and that they will revert back to lower rates or even more QE. This is not going to happen.

Hopium sellers have been peddling several scenarios lately in which the current downtrend in markets will stop and the bull rally party rekindled. The three most pervasive are...

Scenario #1: The Fed suddenly skips rate hikes in the near term under pressure from markets and the White House.

Scenario #2: The Fed fully admits to policy error in light of stock market declines and re-launches QE.

Scenario #3: Trump announces successful trade war negotiations, primarily with China, and ends tariff measures.

Today, Jerome Powell is taking the exact actions in policy that he originally stated would cause a crash. Powell is not tightening out of stupidity, nor is he tightening out of a misguided error in policy. Powell is tightening because the banking elites want a crash. Period.

Because of this, it is highly unlikely that the Fed will stop tightening measures, let alone reverse them. The Fed does not care about "pressure" from markets, or pressure from the White House

The Fed will continue hiking up to the neutral rate of inflation, and probably well beyond that into 2019. This is exactly what they did during the Great Depression to escalate the crisis, and it is exactly what they will do today.

Trump's trade war rhetoric is now the only lever that can be pulled to stall the market landslide. But it appears that this stalling is meant to make the crash more manageable, not stop it from happening. Trump will jawbone markets up at times, but overall there will be no progression in negotiations. The trade war will eventually escalate to include threats to U.S. bond markets and the dollar itself.

 
Get my free ebook and related materials about the Washington-Wall Street Cartel and how they screw Middle Class America below…

Yours for a brighter season,

Bruce ‘the Poor Man!’

Final Notes…
 

We are living at a time when everything is in a bubble – the current housing bubble is much larger than the one that collapsed in 2008, student loan debt has now surpassed the 1.5 trillion dollar mark, corporate debt has doubled since the last financial crisis, U.S. consumers are 13 trillion dollars in debt and the federal government is nearly 22 trillion dollars in debt.  And even though stock prices have fallen dramatically in recent weeks, the truth is that stocks are still wildly overpriced.  

A stunning new study that was just released came to the conclusion that the globe is heading for “a massive worldwide financial meltdown”that will be unlike anything that we have ever experienced before…

Previous crashes will appear as “minor stumbling blocks” in comparison to what nuclear scientists are predicting as a massive worldwide financial meltdown “such as never before” in the mid-2020s. Analysts from the Institute of Nuclear Physics of the Polish Academy of Sciences in Krak√≥w are forecasting the future of the global economy as “extremely bleak” as “nervousness of the world market is growing all the time”. The academics’ “catastrophic” predictions come from “multi-fractal” analysis of financial markets published in the journal Complexity. The researchers looked at various economic measures, including Standard & Poor’s 500 index – the largest global stock market index including the largest 500 firms, largely of a worldwide nature – from January 1950 to December 2016.

 

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3 comments:

Larry said...

Our area news interviewed line workers who acted as if this were a complete surprise despite being asked to take a hike a few months earlier in the year, whining about what will they do...as usual in MI, most did little or no planning for the future and blew all their bonus cash-very typical. Trump was right to threaten to cut off the subsidies for GM & if what I see is accurate on local media outlets, most citizens feel the same way & back Trump on this...so how in hell did the Dems win in MI?!

Mike said...

You always provide good points to ponder. I have little sympathy for the UAW workers as they have never seem to understand how much better they have it compared to the rest of us. My wife runs a dental office and when GM workers lost their dental benefits the first time around they got mighty indignant about the cost [the rest of us had been paying all along].

Dave said...

As always you hit the nail squarely on the head...workers seem to miss the obvious acting like as if they had no clue despite advance notice something was amiss at GM with its offer of buyouts and early retirement packages...I guess they really are that stupid in MI & the media had blinders on too...
You've been posting warning signs about the economy in general, such as the housing market as well even before Trump took office [as if he had much of a chance]. Well here's another one for you:
Hours after the UK Government published it's economic consequences of a NO DEAL BrExit, forecasting a 9% loss of GDP after 15 years. The head at the heart of Britains banking establishment, the Bank of England set forth it's NO DEAL Economic Armageddon scenario, literally warning of economic collapse on a scale twice that of the 2008 Financial Crisis. One of a near immediate NO DEAL currency collapse, GDP collapse of 9%, house prices crash of 30% and inflation soaring to over 6.5%. The people of Britain being subjected to Operation FEAR.