Auto-Pilot: Getting Nowhere FastOctober 22, 2012 Posted by: Joe Morgan, CFA
One slip, and down the hole we fall
It seems to take no time at all
A momentary lapse of reason
- Pink Floyd
The momentary lapses of reason seem to be piling up inWashington. One commentator recently spoke of corporate America'sobsession with achieving earnings in the short run, even to thedetriment of long-term success. It seems, according to thiscommentator, that Washington has followed suit and our electedleaders are now managing towards weekly poll figures rather thanlong-term economic recovery.
As one example, I now know more about GM and the rest of the autoindustry than ever before. It's a wonder there would be anyuncertainty regarding yesterday's bankruptcy filing given theincessant media coverage along with countless hours of ourgovernment representatives' time. Perhaps the drama that hasunfolded is the true cause of CBS' cancellation of GuidingLight after 72 years and some 16,000 episodes. Who wants towatch fake drama when they can get the real thing?
Unfortunately, all of this time has been wasted. It was a waste forCongress to investigate the auto companies and chide them forflying to Washington on private jets. Not because there weren'tproblems to be fixed, but because the priorities of our governmentshould not have put this single industry first. At a final tallylikely to be in the low 100-billion-dollar range but includingseveral hundred hours of research (we hope!) and analysis withinthe Beltway, the move toward bankruptcy this late in the gameunderscores the distraction this topic has been.
As corporations with large cash balances, many of our clients haveinvestment policies in place which clearly lay out the objectivesto be kept in mind when considering investment alternatives. First,preserve capital. Second, provide liquidity. And third, achieveacceptable return.
Even with these clearly stated priorities, some companies placednumber three ahead of the first two and ended up with such"wonderful" investments as auction rate securities or evenmortgage-backed securities. The result of this swapping ofpriorities has been painful.
Today, Congress and the remainder...Read More