Motley Fool Money: 05.15.2009
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What is the main topic discussed in this episode?
Welcome to Motley Fool Money. I'm Chris Hill, and I'm joined by Motley Fool senior analyst James Early and Shannon Zimmerman. Guys, thanks for being here with me and not our colleague Seth Jason, who is in Italy right now on vacation. Yeah, we miss you, Seth. Coming up, we'll take a look at Google's dark side and eBay's free love. We'll look at whether it's a good time to invest in insurance companies, share a few stock ideas, and air a few beefs. But we begin with Mr. Market. Last week's optimism gave way to this week's worst-than-expected retail numbers. A reminder that investors may not want to pop the champagne just yet. We also had news that Chrysler was shutting down almost 800 dealerships and that GM was closing down 1,100 of its dealerships.
Shannon, what was the big story that caught your eye this week in terms of the markets?
Well, I actually think it is time to pop champagne. It seems rational that the market responded, at least today and on Wednesday, in the way that it did around real deal economic data. So we've kind of gotten addicted to news that wasn't as bad as we expected. And that's caused the market to be on this rush of irrational exuberance. So finally, they got checked and the retail numbers came in. worse than expected. But if anybody was paying attention, they knew that this was going to happen eventually. So income has been declining for a while. People will remain concerned about their jobs. And so they're not spending. Well, that's a shock. That's a surprise. And so the market got a dose of bad news, but that's actually good news because it's behaving more rationally.
How long this will last, who knows?
Now, when bad news is good news and good news might be bad news, you could argue that we've got a lot of head faking going on here. The analogy that I think of is from the movie The Princess Bride, which is sort of a medieval comedy movie where this guy sits down with another guy, an adversary with both glasses of wine or something. He's like, wait a minute.
How did last week’s retail numbers and dealer closures shift market sentiment?
Should I drink this? You might have poisoned it. In which case, I should switch the drinks and drink yours. But maybe you, anticipating my switching, might have poisoned yours instead. Or maybe you knew that I would anticipate your anticipation. And so it kind of goes back and forth and back and forth. And I think that's what's going on here. I mean, you know, we've got green shoots. We've got brown shoots. You know, I think we just need to step back and take a few sleeping pills and wake up when this is over. And it'll all be better in the long run.
Yeah, I think that's right. And the market is a discounting machine. And the market will turn up before the overall economy does. But it has to be looking forward to something. And so far, there's nothing that is there to be looked forward to.
Shannon, what did you make of the news coming out of GM and Chrysler?
Well, so at the level of folks who lost their jobs and the communities that have those dealerships as a part of their business infrastructure is very sad news. There's just no getting around that. It was inevitable, though. The trajectory of U.S. auto sales has been on a steep decline for a good long while now. And so this was inevitable. But it's good news in the sense that it's almost like inventory reduction. Businesses have been on an inventory reduction bender for a while. And so they're doing that in response to anemic demand. And so that's a telling detail right there. But it also sets the stage for a sharp or at least a sharper recovery whenever that really happens and consumers start spending and businesses have to restock the shelves.
The inventory in this case is dealerships, and so you have to shut those down. And as sad at the individual level as it certainly is, it's ultimately a good thing in a capitalist economy.
This is necessary. Toyota, for instance, has far fewer dealerships than Chrysler does, less than half as many. Yet they are, I think, number one, number two in market share in the U.S. I mean, they just don't need this many dealerships.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:00–1:52
2
How did last week’s retail numbers and dealer closures shift market sentiment?
1:52–5:29
3
Why do hosts argue the market is 'head faking' between good and bad news?
5:29–9:08
4
What are the implications of GM and Chrysler dealership cuts for the auto industry?
9:08–13:52
5
Should investors accept or avoid TARP money for insurance companies?
13:52–17:28