WASHINGTON, November 16, 2012 – Over the past decade, the baking company currently known as Hostess Brands has lived on the edge of its own fiscal cliff, filing for bankruptcy at least twice as we recall. But its current bankruptcy looks like it will be its last. The company has announced it’s seeking permission from the courts to close shop forever after 82 years of existence. The reason: the intransigent Bakery, Confectionery, Tobacco Workers, and Grain Millers International Union. (What a mouthful!)
And so, “unexpectedly,” some 18,500 employees will gradually get pink-slipped as the company essentially self-terminates, another casualty of a greedy union that would rather see its members on the dole than yield to the reality that they—and weak-kneed managers—helped to create by striking every time their gold-plated benefit and retirement packages were threatened.
Right, there still could be that proverbial 12th hour deal, but, given that the company is now even recalling product that’s outbound on its trucks, it looks like RIP city for this long-lived company.
We fail to see the logic in situations like this, but unions shoot their employees all the time. Having overreached for decades, winning for their members compensation packages that, at the upper end, rival or surpass those of jobs requiring one or more college degrees, many unions seem delighted to shoot the golden corporate goose rather than accept current economic realities.
Oddly, some smaller unions, and one big one—the Teamsters—had already accepted the rollback plans that Hostess said they needed to survive. But too bad. Courtesy of the Alphabet Union, they all get to go down with the ship.
Lefty pundits wonder why union representation in America today is plunging close to single-digit percentages. Well wonder no more. Hostess is simply the latest case in point. Whether in the public or private sector, the union definition of compromise is much like that of Barack Obama: my way, or the highway.
Problem is, today’s competitive and shrinking workplace simply can no longer accommodate the unions’ Rolls Royce bennies, the likes of which are not even available to most white collar workers. To cover the costs of such packages means raising product prices to the point where consumers will immediately seek out alternatives. And that’s what puts companies out of business.
Flush with their 2012 political victories, though, the Takers will keep on taking until, to their astonishment, there are no more pieces of the fiscal pie to redistribute. In practice, this is like standing, unmoved and immovable, right in the path of an onrushing Mack Truck and declaring it will never squash you like a bug.
There’s a lesson in all of this. But judging from last week’s results, no one has been teaching this in school.
The market has been giving us teachable moments this week as well. The averages flirted with happiness yesterday, but then, as usual, in the afternoon prices collapsed again. Everybody wants out, it seems. So, sector by sector, various groups of stocks are being taken out back and shot. It’s like the Killing Fields, but without the humanity.
Even the big dividend stocks we favor are getting the St. Valentine’s Day Massacre-style treatment. The logic here is that after we go over the fiscal cliff, newly taxed big dividends will no longer be worth the investment. Ergo, let’s dump these stocks, too. It’s yet another weird variation on Going Galt, just simply withdrawing from a system that’s only going to take your money anyway, so why invest at all?
Although, like yesterday, it looks like we may have an upward bounce on options expiration Friday, the selling will likely show up again this afternoon. We face another weekend when something bad might happen.
Further, we’re also heading into thinly-traded Thanksgiving Week, so active investors would likely just as soon dump everything that they don’t absolutely love and drive over the river and through the woods to grandmother’s house without having to worry about fiscal cliffs, Greece, Syria, and the loss of Hostess Twinkies and Wonder Bread that builds strong bodies in twelve (different) ways.*
We’re maintaining our short ETFs, although they may get hit a bit today. And under cover, we’re whittling away our remaining longs. It’s just too dangerous out there, and the mattress beckons once again.
*Sources disagree with the exact slogan which often appeared on TV commercials in the 1950s.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate. He is currently long IAU, SLV, SMN, QID, and FAZ, having sold SH for a small profit near yesterday’s close, and continues to hold medium term corporate and municipal bonds.
Positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.
Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.
References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.
Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business.
Follow Terry on Twitter @terryp17
This article is the copyrighted property of the writer and Communities @ WashingtonTimes.com. Written permission must be obtained before reprint in online or print media. REPRINTING TWTC CONTENT WITHOUT PERMISSION AND/OR PAYMENT IS THEFT AND PUNISHABLE BY LAW.