Independent Investor: Why Americans Should Become Detroit's Long-Term Investors

By Bill SchmickiBerkshires Columnist
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Bill Schmick
The report this week by the Congressional Oversight Panel that "it is unlikely [taxpayers] will receive the entire amount" of the $60 billion in bail-out money we gave to the auto industry ticks me off.

No way should Americans walk away from this at a loss. The solution is simple. We should swap whatever bad debt remains into equity and just sit on it.

This oversight panel was created by Congress last year to oversee the $700 billion Troubled Asset Relief Program (TARP) and I suspect there is a lot of political pressure on them to get out of the auto business. Readers may recall several columns I have written about the trials and tribulations of General Motors and Chrysler as well as my doubts about these taxpayer investments. Still, a lot of jobs were at stake including those at local dealerships, so I grudgingly went along with the U.S. government's investment in American manufacturing.

The U.S. Treasury now estimates that about $23 billion in loans are doubtful and in particular, $5.4 billion of loans to Chrysler are "unlikely to be recovered." The reason officials give is that the initial loans were given while the company was imploding and before a restructuring plan was in place. So what! I say rather than write it off, convert that $23 billion to equity along with the stock we already own in the companies.

That's exactly what foreign banks did in Latin America back in the lost decade of the '80s. At that time, various South American companies and governments could not repay their debt to Western banks. It looked like billions in loans would have to be written off causing many global bank balance sheets to take a devastating hit. Instead, Citibank, among others, came up with a solution. The money-center banks, together with the Federal Reserve and IMF, suggested a seven-year workout period from 1983-1989 where loans were rescheduled and a massive debt-for-equity swap was master-minded throughout the region.

It took a decade before the loans were paid off while in the meantime thousands of companies, both private and state-owned, swapped debt for stock which ended up in the hands of banks who, by default, became long-term investors in these struggling economies. Then, in the early '90s, investors "discovered" emerging markets including Latin America. Bolsas (stock markets) from Mexico to Chile took on new life; doubling, tripling and then quadrupling over the next several years while the equity banks had received for pennies on the dollar was suddenly worth billions.

Now, as we like to say in the money management business, the past is no guarantee of future performance, yet there is a chance if we have a little patience here we too could walk away with a big return. Besides, what do we the taxpayers have to lose? Sure, I know there will be some that say the government has no business becoming the major shareholder in American auto companies and should exit this investment at the earliest possible time. Some will even say it is un-American if we don't. I say it's a little too late for those attitudes. The horse is already out of the barn. So go ahead and call me a socialist. I say we took a huge risk when no one else would, and we deserve a commensurate return on this investment.

Now that presumes I have some faith in the future of the American auto industry, and I do. All I have read concerning the on-going restructuring taking place in research and development, in manufacturing processes, and management structures indicate to me that the Big Three are getting their act together.  Ford is clearly on the right path and so are GM and Chrysler.  After all, none of them have lost their main competitive edge — American labor and ingenuity.  I’ll bet on that. So let’s hang in there.  I believe a little patience will pay off for all of us down the road.

Bill Schmick is a registered investment adviser and portfolio manager with Berkshire Money Management (BMM), managing over $180 million for Americans in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or at wschmick@berkshiremm.com. Visit www.afewdollarsmore.com for more of Bill’s insights.

Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM.
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Cultural Pittsfield This Week: July 12-18

Next Thursday, July 18 is 3rd Thursday: Food & Drink!
July's 3rd Thursday celebrates the city's cuisine, with more than a dozen food vendors popping up at the celebration, along with the two dozen brick-and-mortar restaurants that dot North Street. There will be almost 100 vendors in all! 
 
3rd Thursday's presenting sponsor, Guardian Life Insurance Company of America, will be offering FREE snow cones at Palace Park. The Boy Scouts of America will be bringing its rock climbing wall, and Berkshire Yoga Dance & Fitness will offer FREE Zumba in Park Square. 
 
Entertainment will be provided by Berkshire Bateria, Jacob's Pillow and Music in Common, plus enjoy a sneak peak at Barrington Stage and Ragtag Theatre's  Hansel and Gretel and Berkshire Theatre Group's Shrek The Musical. 5-8 p.m.
CALLING ALL ARTISTS!
 
The Let's Go Pink Art Exhibition is a cancer awareness exhibit that will be on view at the Colonial Theatre in Pittsfield throughout October, 2019. The opening reception will be Friday, Oct. 4 from 5:30-7:30 p.m. as part of that month's First Friday Artswalk. A portion of all sales will benefit two local organizations: 20% of sales to BTG PLAYS!, 15% of sales to BMC Integrative Health Program's intuitive painting class for cancer patients, and the other 65% to the artist. Submissions will be accepted until Friday, Sept. 6. All artists will be notified of acceptance on or before Sept. 9. For more information, please email the Let's Go Pink 2019 team at auntsessy1@gmail.com.
  MUSIC & NIGHTLIFE
 
100 Years of Nat King ColeCelebrate the centennial birthday of the unforgettable Nat King Cole with timeless songs and intimate stories told and sung by two-time Grammy nominee Clint Holmes, accompanied by award-winning pianist and vibraphonist Christian Tamburr. Mr. Finn's Cabaret at Barrington Stage Company. 
Plus...  
FRI Blue Light Trio at Rainbow | FRI Hunks: The Show at The A | FRI Lita Williams at Hotel on North | FRI Karaoke Night at Friends | FRI Jessica Wilson at Rusty Anchor | SAT Food for Thought Dinner w/Simon Winchester at Hancock Shaker Village | SAT Rock 'n' Roll Dance Party at Polish Falcons | SAT Jason & Trev at J. Allen's | SAT Dan Gingras at Rusty Anchor | MON Berkshire Athenaeum Book Club at Hotel on North | MON Jazz Night at Mission | TUE Green Drinks at J. Allen's | WED Live on the Lake: Shyne at Onota Lake | WED Gruppo Mondo at Rainbow | THU Lady Di & The Dukes at Mazzeo's | THU Fabrizio & The Fever at Rainbow | THU The Picky B's at Mission
  FAMILY FRIENDLY

Explore the science of YOU during this annual celebration of science, invention and sensory fun! Explore the brain, transform into a germ, follow the life of a sneeze and more. Don't miss the grand finale at 7:15 p.m. Berkshire Museum. FREE, 5:30-7:30 p.m.
 
Plus...
FRI WeeMuse: Adventures at Berkshire Museum FRI Yoga for Kids at Berkshire Athenaeum FRI-THU Parenting Classes & Play Groups at Berkshire Children & Families | SAT Pop-up Play Day at Berkshire Museum | SAT Chow Time at Berkshire Museum SAT Designing with da Vinci at Berkshire Museum SAT Sensory-friendly Screening: Incredibles 2 at Berkshire Museum SAT da Vinci After Hours at Berkshire Museum SUN Discovery Tank Program at Berkshire Museum | MON Exploring Our World at Berkshire Museum MON Kindergarten Countdown at Berkshire Athenaeum MON Star Lab at Berkshire Athenaeum MON Stardust Cafe at Berkshire Athenaeum MON+ Learn to Code at Miss Hall's School TUE WeeMuse: Littlest Learners at Berkshire Museum TUE Designing with da Vinci at Berkshire Museum TUE Circus Minimus at Berkshire Athenaeum TUE Project SpaceCRAFT at Berkshire Athenaeum TUE Screening of Wall-E at Berkshire Athenaeum WED Little Gardeners of the Galaxy at Berkshire Athenaeum WED Solar System Paint & Snack at Berkshire Athenaeum WED Gallery Scavenger Hunts at Berkshire Museum THU Farm Friends at Hancock Shaker Village | THU Exploring Our World at Berkshire Museum THU Designing with da Vinci at Berkshire Museum THU Lego Lift Off at Berkshire Athenaeum THU Story Time at Berkshire Athenaeum
  WELLNESS
SAT Restorative Yoga w/Live Music at BYDF
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