Juggling Dynamite

Some useful perspective on Volkswagen and its importance to Germany and hence Europe, comes this week courtesy of John Mauldin:

This is not a small company. It is the largest company in Germany, and Germany is the largest economy in Europe. Volkswagen has 600,000 employees and accounts for a big chunk of the country’s exports. Those exports are what make Germany the continent’s de facto leader.

Not to mention that 40% of Volkswagen’s asset base is in its financing arm, which lends money to finance its automobiles; but the company borrows that money in the short-term markets. This short-term borrowing is what got GMAC and other financing companies in trouble during the last credit crisis. Attention must be paid.

If the worst happens to Volkswagen, the impact on Germany, Europe, and the euro will be noticeable. I see media speculation that other German manufacturers could have taken similar shortcuts. If that’s the case, then all bets are off.

And then there is the unfortunate timing of job losses that may now spread through German manufacturing just as the government has agreed to take in hundreds of thousands of refugees in need of work…

Volkswagen’s emissions cheating is one of the biggest corporate scandals in history. The revelation cost the German automaker more than $22 billion in market value, prompted its CEO Martin Winterkorn to step down and left the company scrambling to fix 11 million cars. How did decades of growth and success squeeze Volkswagen onto such a dangerous path?  Here is a direct video link.

Whatever else one may think about Carl Icahn, he makes many excellent points in this refreshingly candid 15 minute video. The observations about Wall Street [and Bay Street] and ETF mammoths (Larry Fink et al) who get rich selling risk to others (every day in every way) is too little said and very little understood by the masses who look to them for financial advice like lambs to the slaughter.

Billionaire investor activist Carl Icahn ramped up criticism of the U.S. Federal Reserve, warning about the unintended consequences of ultra low interest rates on the economy and financial markets.

“They don’t understand the treacherous path they are going down,” Icahn said in an interview with Reuters, in which he also declared his support for Donald Trump as a candidate to be the next U.S. president.

…Icahn said he felt compelled to raise red flags about the state of the financial markets because he believes if more big investors had warned about subprime mortgage market in 2007, the United States might have avoided the crisis that strangled the economy the following year.

In a video entitled “Danger Ahead” and released on Tuesday, Icahn said the Fed’s rate policy had enabled U.S. chief executives – many of whom he describes as “nice but mediocre guys” – to pursue “financial engineering” that he said has exacerbated an already wide gap between rich and poor in America. See: Ichan urges Fed to get off zero .

Here is a direct link to the video.

The emissions fraud scandal is spreading (as we suspected it would), with revelations of overstated fuel efficiency results across a host of manufacturers.  See:  Mercedes tops list of car companies overstating fuel economy.

Others are complaining that this is making a mountain out of a molehill, arguing that emissions are low and fuel economy is relatively high and present scrutiny is just regulators justifying their own existence.  See:  VW “scandal”.

I think all of this misses the point entirely. The point is that we don’t need to have any emissions. We don’t need to argue over which car is giving the best gas mileage, or who is misleading whom. We don’t need to fund even more emission regulators or drill environmentally critical areas for more oil or keep bailing out antiquated car companies that are too short-sighted and pigheaded to evolve their products out of the ICE (Internal combustion engines) ages to smarter products.  We just need to move to electric cars and continental smart grids fueled by the vast array of renewable energies all around us.  Then all of these wasteful distractions and expenditures go away and importantly, cash-strapped consumers and businesses will be able to spend less and save more, rebuilding financial strength for the future.

On a related note, lower oil prices are finally managing to drive drillers out of exploration projects in the Arctic. See: Why Shell has gone cold on the arctic.  Maybe oil companies are starting to understand that they cannot keep borrowing endlessly to go after the least cost-efficient energy on the planet (and to pay shareholder dividends) at great expense to everything else including their balance sheet, water, clean air, the biosphere and human health.  This is progress.