Saturday, April 25, 2009

Democracy and Distrust

OK, admittedly folks, I have gotten off to a rough start with Google Reader. My interests are very different from yours! Who are you? You are the Yale Economics/Political philosophy majors that delight in reading "Posner-Becker", "Overcoming Bias", "The Huffington Post" and "Marginal Revolution".

I am a salt-of-the-Earth Florida cracker alligator-wrastlin' Drudge Report-readin' man! A picture is worth a thousand words, that's what I say, no need for any loggorhea-suffering New Yorker article-like explanatory maximalism! There, I said it! I like posting pictures of only recently obsolete forward-sweeping wing Soviet jet fighters.

Which leads me to my next point, I was watching
Broken Arrow this Saturday morning; for the second Saturday morning in a row it was playing on HBO digital cable. As with last weekend, I noticed something really out-of character.



Let me give you a little background, in the very rare instance you have not seen the movie.
Broken Arrow is about two American B-2 Stealth Bomber pilots "Hale" and "Deakins", played by Christian Slater and John Travolta respectively. They fight for control of two nuclear weapons in the unforgiving desert landscape of the American Southwest. Here's what I found odd. Here you have this mad-genius, a stealth-bomber pilot and Major in the US Air Force, in the midst of unfolding a brilliant plan of stealing two nuclear weapons, blackmailing the US government, and this is what he plans to do with his money:

HALE
That's where St. Judes Hospital is.
You're gonna hide the nukes near the radiology department
so they won't show up in any satellite radiation scans.

DEAKINS
I'm impressed.

HALE
How much are you gonna ask for?

DEAKINS
Enough. I've got a broker in Stockholm.
Monday morning he's going to buy me five percent of Volvo.
For the rest of my days I'm going to live off the dividends,
happy in the knowledge I'm helping to build the safest car in the world.

Now, granted, Volvo got some good publicity during that same period with the release of it's C70 model featured with Val Kilmer in
The Saint (1997), but Volvo?! Are you fucking kidding me?! When the manufacturing sector is contracting, and you should have been diversifying your portfolio! What were you thinking!
I would have been cheering for you, Maj. Deakins, if you said... "I'm thinking about a long-term strategy, investing roughly '30 percent in Domestic Equity, 5 percent in Emerging Market Equity, 20 percent in Real Estate Investment Trusts and 15 percent each in Foreign Developed Equity, US Treasury Notes and Bonds, and US Treasury Inflation-Protection Securities*' "


But, for arguments' sake let's investigate how Deakins would have done if he
had in fact invested in Volvo on February 9, 1996, when the movie premiered.

Since Deakins says the "safest
car in the world" we have to assume he is not investing in Volvo Trucks, Light Aircraft Engines, or any other Volvo Subsidiaries such as it's Marine Engine group Volvo Penta.

This is what Keith Bradsher of the New York Times had to say on January 31, 1999
January 24-30; Ford Buys Volvo Car Unit
"Henry Ford took pride in building Model T's that the common man could afford. But the market for basic transportation is increasingly unprofitable as manufacturers in places like South Korea churn out lots of cheap cars. So the Ford Motor Company has announced that it will also try to become a larger maker of luxury cars by buying the car operations of Sweden's Volvo for $6.45 billion."

"Ford said it would keep Volvo's research, design, management and much of its manufacturing in Sweden, and would not change the cars. Ford gives its luxury divisions a lot of independence. How many Americans know that Ford has already bought Jaguar and Aston-Martin in the last decade?
"

As Wikipedia points out: "Volvo Cars was owned by AB Volvo until 1999, when it was acquired by the Ford Motor Company as part of its Premier Automotive Group."


"As a result of the divestiture, the Volvo trademark is now utilized by two separate companies:

* Volvo Group - a manufacturer of commercial vehicles, etc. owned by Swedish interests.
* Volvo Cars - a manufacturer of automobiles owned by Ford Motor Company, in its Premier Automotive Group (PAG)."

So AB Volvo owned the Car, Trucks, Aircraft Engines division, etc. until somewhere around 1999 when it sold off the Volvo Cars division to Ford. So presumably Deakins could have purchased the Volvo AB conglomerate in February 9, 1996, and including dividends, etc. cashed out the rest of his holdings in 1999. How would he have done?

In early February of 1996 he would have purchased 5% of Volvo AB for $3.974 a share and would have sold his stock in early January of 1999 for $5.40.
If we divide 5.4 by 3.974 we get 1.35883241. Or about a 35.88% profit in just three years. Not too bad Deakins!


Figure 1: Stock chart from Yahoo! Finance


From Wikipedia, again:
"Recently, there were talks about what to do with Volvo Cars in the event of a market failure with US automakers ... AB Volvo responded to heated talks and decided that they do not want to see Volvo Cars fail, so they agreed to help Volvo cut costs through parternships and even a possible share ownership amongst a larger consortium. AB Volvo repeated and stood stern that they will not buy back Volvo cars nor be sole majority owner. They are only willing to become part share owner of the once car unit."

I guess the Swede's don't want to lose the prestige of the national icon that is the Volvo brand.

Dammit Deakins, you really are a mad-genius! Not only would you have made money off the sale of Volvo to Ford, right before the Auto-Industry mess of the 2000s, but you would have screwed the US over twice, first for the ransom money for the nuclear weapons, and second with the sale of a bad-apple to Ford Motor Company.

But this was Hale's response in the movie:


HALE

So that's it? You're just doing
'this for the money?
I'm kind of
disappointed.

DEAKINS

Why would you do it, Hale?

HALE
That's the thing -- I wouldn't.


DEAKINS
If you were me.

HALE

If I were you...?
(thinks, starts in)
Because ... because I got passed
over for promotion
and goddamnit
I'm going to show the bastards
that I'm smarter than them all.
(getting angry)
Because ... everyone's selling out
and cashing in, so why not me?

Now if I were Hale, at the time, I probably would have said (as I was in the sixth grade):

HALE
If I were you...? (thinks, starts in)
Aggressive investment in the technology sector;

come on Deakins, an Intel processor
can now perform
2 billion calculations a second,
haven't you seen those NASDAQ commercials on CNBC?!

That's what I would do if I were you!

And then immediately gone to the end:

HALE AND TERRY

Run to each other. They embrace, start smoothing
each other's
hair, start wiping blood off each other's faces,
start kissing,
only to be interrupted by...

THE TV REPORTER AND CAMERMAN
REPORTER
What happened here?
Hale and Wilkins and Giles share a look.

HALE

Uh...
(looks at flaming TOYOTAS) ...
somebody was trying to steal
some Toyotas.
The reporter asks more questions.

Hale and Terry walk off, arms
around each other.

As they go, Hale sticks out his hand to
Terry.

HALE
Rawley Hale.


TERRY
Terry Carmichael.
They shake hands and walk on as we...


FADE TO BLACK

THE END


*NPR interviews David Swensen:

http://www.npr.org/templates/story/story.php?storyId=6203264



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