As GM Goes, So Goes The Nation

For as long as I can remember one of Wall Street’s sacred bromides has been “As GM goes, so goes the nation.” It was intended to acknowledge the significance of General Motors to the U.S. economy and America’s economic influence. If GM was having a good year, so was the economy. Car sales represent prosperity and consumer confidence and for nearly 100 years, General Motors was king of the automobile jungle.
General Motors stock has always been a staple of any serious portfolio. It has been the ultimate “widows and orphan” stock, suitable for the most conservative clients. It has also been a significant holding in countless pension and mutual funds as it consistently delivered steady growth and dividend income. That all began to change in the 1970’s when the confluence of the first Arab oil crisis, increased foreign competition and intransigent union demands began chipping away at U.S. market share.
Unfortunately for shareholders and the economy, the 1970’s look like the good old days now. Last week shares of General Motors hit a 54 year low of $9.96 a share down from $43.20 a year ago and $71 in 1998. Adding insult to injury, a financial analyst at Merrill Lynch suggested GM could go belly up by 2009. As a friend of mine said the other day “Where are the pitchforks and torches?” Why haven’t the American people taken to the streets? These are dire economic times and if GM is any indication of the health of the economy, somebody better call a doctor.
An interesting aspect of this economic unraveling is the relative lack of attention it’s getting politically. McCain and Obama seem to be talking about everything but the economy. One day it’s Iran and the next day it’s who’s more patriotic. There was even an absurd back and forth on whether being a POW made someone more qualified to be commander-in-chief. Yikes!
We’re hearing a lot about health care, gay marriage and Supreme Court vacancies but almost nothing about what either candidate intends to do about oil and the economy. Well as important as all those issues are they won’t be getting much attention down the road if Americans are burning their furniture to keep warm this winter. Now I’m not saying I have the answer but then again I’m not running for president.
The political problem is two fold. The deteriorating economy is actually good news for Sen. Obama and the democrats. The worse things get, the more motivated people will be to throw the republicans out. Potentially exacerbating the problem is that Obama will have a generous grace period to turn the ship of state around. He and the Democrats will not take the hit initially for bad economic numbers. Remember it took Ronald Reagan two years to begin undoing the economic train wreck he inherited from Jimmy Carter. So an Obama victory is no guarantee of a quick fix.
John McCain, on the other hand, intends to get elected on his national security credentials and has admitted he doesn’t know much about economics. Well he better find someone who does or all the national security bravado in the world won’t mean a thing if Americans are selling apples on street corners. This is the worst economic crisis we’ve faced since the 1930’s and we need both candidates addressing that. The rest of it is window dressing.