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The Junk in the Clunk


It's unclear how taking up to $4,500 per transaction from the taxpayers' pocket boosts the economy long-term.

Sales of platform shoes and other disco era atrocities are lagging.

Congress needs to act – now.

How 'bout a Cash for Weejuns program to bring back platform shoes and boost the economy?

It would make about as much impact as the Cash for Clunkers program that has now gobbled $1 billion and has the disciples of someone other than Adam Smith in Congress burbling about another $2 billion.

Basic question: does Cash for Clunkers goose the economy?

Short-term, maybe. In July, US auto sales rose to their highest pace in 11 months. Toyota (TM) reported a 33% increase in sales, followed by Chrysler at 30%, Honda (HMC) up 14%, General Motors up 8% and Ford (F) up 7%.

People aren't stupid. They are more than happy to spend someone else's money on themselves. But it remains unclear how taking up to $4,500 per transaction from the taxpayers' pocket boosts the economy long-term. The Cash for Clunkers program simply encourages buyers to speed up a purchase that may have been made anyway – and with their own money.

If so, this proves what we already know: Washington is good at handing out other people's money, especially if it buys future votes and allows members of Congress to compliment themselves on their brilliance. And why not? After all what's another $1 billion when the budget deficit is already $1.8 trillion?

But without continued free money from Washington, auto sales will slide. Won't this turn what might have been a so-so recovery in the second half of 2009 into nothing more than a moderately encouraging third quarter followed by a downturn in the fourth and lingering sourness into 2010?

Third quarter sales should do well, but Morgan Stanley (MS) looks for "limited" return in the fourth quarter. Others say the spike in auto purchases should lower the nation's saving rate in the immediate future, even if it edges up long-term. That would suggest a minor up-tick in consumer spending but little prospect of a turnaround anytime soon.

The Wall Street Journal (NWS) sums it up nicely: "By this logic, everyone should burn the sofa and dining room set and refurnish the homestead every couple of years."

Excellent point. So, why stop at clunkers? If Weejuns don't rev your engine, adopt the Imelda Marcos-Carrie Bradsaw theory of shoes – a zillion pairs, all of them expensive. Realists may gripe that Bradshaw is a fictional character from Sex and the City. Irrelevant, comrade! Think of the starving sales staff at Saks Fifth Avenue (SKS).

Imagine what sales of a few million pairs of Manolo Blahnik boots at $1,000 or even Louis Vuitton hoofware at a mere $1,500 would do for the economy. Then it's on to glass slippers for the masses.

Eventually, we'd end up selling apples to each other. But in the meantime, if the shoe fits . . .
No positions in stocks mentioned.
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