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The Sucker Rally
By David Glenn Cox
Great news! Discover Card has come out with a new kind of credit card. Not a credit card to help eliminate the need for carrying cash, or writing clumsy checks when you are out of town. In fact, this card isn’t for buying things at all; it is for helping you to pay off the balances on all your other credit cards.
You know, I read the financial news and I listen to the experts talk about the economy. I’ve heard it described as a rough patch or a difficult first half, but with improved third and fourth quarters of '08. The prognosticators on Wall Street proclaim that their volatility problems of the last few months are over. The markets have risen back to their pre-difficulty levels. But I’m beginning to hear a new term used, “sucker rally.”
A sucker rally is a short-term rise in the market. Company A. has returned a profit better than expected; company B. has better than expected numbers as well. Company C. is in the same business as A & B, so its stock begins to rise on speculation that its profits will also be better than expected. Company A. used tax credits and deferred payments to make their profits look better; Company B. was being pursued by a suitor in a buy-out deal which caused its stock price to rise, so company C. just rose off the steam of its neighbors.
Microsoft’s assault on Yahoo caused Yahoo’s flagging stock price to rise. Yet Yahoo’s CEO maintained that Microsoft’s bid was still too low. No new products introduced, or new sales gimmicks, or even anticipated higher profits, just bravado and brinkmanship. P.T. Barnum would be so proud. Microsoft’s desire for Yahoo made the analysts wonder, if Microsoft wants Yahoo so badly, perhaps Google is underpriced? The market edges up fifty or sixty points a day, and strains to reach new highs, but trading volume is way off as most of the chickens have flown the coop.
So, a sucker rally might better be used to describe the customers that remain, rather than the market condition. This isn’t a culling, this is a last harvest. This is chasing the last chickens from the back yard of Tara, with the stark realization that some are chickens, and some have knives, and that this isn’t about eggs but Sunday dinner. They are, indeed, eating their own and tomorrow be hanged.
The market is divided between must-have industries and what I call light switch stocks, businesses that can be turned off like a light switch. Blockbuster is a light switch. Home Depot may be hurting, but they will limp along. Sears and Macy's are light switches, and as consumers race to the bottom, Wal-Mart stock rises. If they have to buy somewhere, the bottom is a safe bet. Daimler sold Chrysler because they saw this coming. Ford is pushing its F-150 as a better truck than its Chevy competitor. The comparison though is like that between the Lusitania and the Titanic, as the general public can’t afford either one, or even the gas to fill the tanks in them.
The other day in the grocery store parking lot, I saw a late model Chevy Tahoe with a sign on it that said only, “Make offer.” It reminded me of the Joads in “The Grapes of Wrath.” As they pulled into the transient camp, there was a dilapidated Model T with the same sign, “Make offer,” because it was just as obvious that no one would. A new deodorant contest advertises, “Win a new Hummer!” What would I do with it? I can’t afford to drive it and couldn’t sell it, so what would I do with it? The advertising campaign won awards but I’m guessing the award was the “White Elephant Award of '08.”
Chrysler is offering a gas card with their new trucks, guaranteeing gas prices at $2.99 a gallon for the first thirty-six thousand miles; Suzuki is offering free gas as well. Ford is offering 0% financing and thousands in discounts for someone, anyone, to buy something from somebody. I held a yard sale last Saturday. I put up signs on the main road; I lugged all that stuff out of the garage. It was a beautiful day; the temperature was in the upper seventies, the sun shining and the birds singing, and nobody came! Three people in six hours, as it occurred to me, oh, yeah, that takes gas, doesn’t it? To drive around, randomly looking for yard sales, buying things that you really don’t need.
The price of a barrel of oil when George W. Bush took office was around $27.00 a barrel; Friday it was $127.00 a barrel, a five-fold increase in less than eight years. The pain was hidden by the flood of cheap, foreign goods to make us appear prosperous. Our home prices were soaring in value, so never mind the pinch at the pump. On the first trading day of 2008, oil hit the new and then unprecedented high of $100.00 a barrel. On Friday of last week it reached $127 a barrel, or a 27% increase in 136 days.
This can’t be hidden; it is a fatal blow to the economy. Oil traders are predicting the price going to $150.00 a barrel before the end of the year. The President pleads with his bestest friends in the whole, wide world, the Saudis, to please pump more oil. They respond by offering to increase their output by 300,000 barrels a day, in a world that uses 80 million barrels a day. Congress halts 70,000 barrels a day from being poured into the strategic oil reserve, in a country that uses 22 million barrels a day. Presidential candidates Clinton and McCain suggest we remove the highway road taxes for the summer.
Sure, why not? The public has forgotten by now about the bridge collapsing in the Twin Cities, and most don’t know that the money is already spent. Maybe what we need is a national credit card to pay for road repair? Oh wait, that’s right, that’s what the highway trust fund is! Clinton and McCain suggest that we just stop making our payments. All right then, maybe a national Discover card to help us pay down our national debt!
The housing bubble led to the banking bubble, which caused the Wall Street volatility, which in turn led to the collapse of the dollar. That, in turn, caused the price of oil to rise, as dollars worth less mean oil sold in dollars costs more. Our huge national debt and our huge trade imbalance caused the dollar's collapse. For Wall Street bankers, a bailout and interest rate cuts, but because rates are so low here and so high overseas, they choose to lend the money to foreigners. You know, those people with futures and prospects.
We have become a society built on interest and speculation; we build very little and we neglect a great deal. We neglect our roads, our schools, and most of all, our people. We neglect our veterans; we pat them on the back and tell them how much we honor their service. A new GI Bill came before the Senate and John McCain said it was too expensive. Even though he is one of the richest men in the Senate, he still draws a $50,000 a year pension from the Navy. He says to the current generation, “I got mine, so you can just buzz off pal.”
That’s the name of the game, getting while the getting's good. Rather than building a society, cannibalizing a society. The American Axle strike is a perfect case in point; management is asking for 34% wage cuts in a company that earned a $37 million profit last year. Wage cuts from $28.50 per hour to $18.50. Why? Because they can, that’s why. The effect will ripple through the local economy and further depress the market for American Axle’s own products.
No matter what problem you look at in the American economy, Globalism is either directly or indirectly responsible. It has spawned a predatory class and a credit underclass that is being milked in a cynical cycle where they can’t possibly keep up, until it becomes a company-store society. There is no possibility of a general strike or general revolt. But if the millions of Americans, enslaved on the credit card merry-go-round, just took the John McCain approach and said, “Obligation be hanged, it’s too expensive,” we could watch Wall Street panic and the sucker rally collapse, as they begin to eat their own young. There’s no sucker like the sucker who believes that it's everyone else who are the suckers!
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