1. Fighting Over a Shrinking Pie
With the economy still deteriorating, the prospects for auto sales down the road are only getting uglier. That renders the strategy behind 0% financing promotions all the more dubious.
first announced in September that it would allow interest-free financing for 36 months, forcing
( DCX) and
to follow suit to keep market share. The deals were slated to last only through September. But since GM announced it would extend its promotion through Nov. 18, Chrysler and Ford have grudgingly done likewise.
The promotions have certainly boosted revenue. Ford posted record sales in October, with purchases up 36% over the previous year. But many analysts believe increased sales will probably
cannibalize future revenue.
The expensive promotions are extra painful for companies already hurting for cash. GM, Ford and the Chrysler unit of DaimlerChrysler reported losses for the third quarter. Ford, which acknowledged it might post another loss next quarter, recently halved its dividend to save cash (and installed a new CEO in an effort to reverse a continuing slump). Meanwhile, GM just lowered its fourth-quarter earnings outlook.
The upshot: The short-term sales gains from the current promotions probably won't be enough to save a bleak upcoming quarter. It seems like a smart time for automakers to conserve cash rather than fight over pieces of a pie likely to shrink in the coming months.
2. Half-Hearted Security
This week the secretary of transportation lit into the airline industry for airport security lapses in the wake of the terrorist attacks. "Someone may undergo strict screening in Kansas City, while someone else can slip a pistol by screeners in New Orleans," said Norman Mineta at a security conference.
A disgusted Mineta said he has asked government officials to take a larger role in airport security, citing the public's "growing lack of confidence" in airline safety. Late Thursday, Congress was considering whether to make airport security a federal responsibility. It's been widely reported that U.S. contract workers screening passengers and baggage receive little training compared with their international counterparts, and their minimum-wage-level pay causes high turnover.
The secretary's comments came only weeks after the government agreed to give airlines a generous $5 billion in cash, plus another $10 billion in loan guarantees as compensation for losses from the attacks.
In other words, the airlines pocketed a multibillion-dollar federal payout to help make up for the dropoff in air traffic, but they're either too incompetent or too stingy to ensure a level of security that would help reassure the public.
The raft of weak earnings reports from most major carriers was more or less expected. But continuing reports of half-hearted security -- amid new government warnings of potential attacks -- is inexcusable.
3. Glaring Oversights Regarding Money Laundering
A new government study on money laundering has revealed glaring oversights at many brokers and mutual fund companies. A GAO survey found that an estimated 83% of brokers and 60% of direct-marketed mutual funds didn't have measures to detect and report suspicious behavior that might be linked to money laundering.
The General Accounting Office cites 15 criminal and civil cases since 1997 that involve money laundering through such accounts, though the government admits it doesn't know how much activity has gone unnoticed. Law enforcement officers have worried that money launderers will be attracted to the securities industry because the U.S. system is so huge and liquid.
Until last week, brokers and mutual funds were exempt from the anti-money-laundering rules that applied to banks.
The good news is that the antiterrorism bill just signed into law requires securities firms to establish rigorous anti-money-laundering programs. Securities companies will have to verify the identity of their customers before opening accounts and report suspicious activity to the government.
Those rules make plenty of sense; it's only a shame they weren't in effect sooner.
4. Conseco's Solvency Problems
In a conference call this week,
crowed that its third-quarter operating earnings were up 49% from a year ago. "I give you these statistics with a great deal of pride," said CEO Gary Wendt. Nice try, but investors tuned to the call were more interested in whether the company will stay solvent.
Amid worries about a liquidity crisis, the stock has dropped about 80% since its recent peak in May.
During the conference call, Wendt acknowledged that "Conseco has too much debt for a company that has the assets and is in the businesses it is in." But he said the company has "excellent and predictable cash flow from operations" and "multiple options to generate additional cash."
Bondholders appear more cynical, however. TSC's Peter Eavis, a longtime Conseco bear,
pointed out in a recent column that bonds issued last June have since sunk to 51 cents on the dollar. So much for the big jump in earnings.
5. Brokers Who Lose and Steal Your Money
You know you have a crummy broker when he not only steals your money but also proceeds to lose it through bad stock picking.
says that was the case with Daniel Patrick O'Connell, who worked in the San Francisco office of New York brokerage Spencer Trask Securities. He funneled $6 million from client accounts into his own trading account, hoping to score a quick personal profit.
O'Connell told one client, a wealthy Silicon Valley family, that he'd use some of the money to purchase low-risk bonds. Instead, he burned through nearly all of it in one month investing in tech stocks.
Isn't this what stockbrokers are supposed to counsel
By the time the theft was detected, O'Connell had lost about $4.3 million of his clients' money, which he can't afford to pay back. The SEC says he has agreed to leave the brokerage industry permanently, while neither admitting nor denying the allegations. Meanwhile, the local branch of the U.S. Attorney's office has filed criminal charges.
O'Connell could not be reached.