The GM Plan

[Tilted]

Very true, in addition with most of the shares being held by the government and the UAW there will be very low volume which would kill its chances at climbing.


Do they have any holdings that they could liquidate?

I don't think so. I'm sure there are physical assets that they could sell (especially with the idling of plants and the phasing out of the Pontiac line), but I doubt they have significant positive equity in any of it. I suspect a lot of it is used to secure other debt. (I can't say for sure what the status of all of their assets are though, there is only so much specificity in the 10-Q's and 10-K's.)

 

[Larry Gude]

Good point BUT if you look back at Wall Street's history a companies perceived health means very little. It seems that about the time that average people gained the ability to buy and sell stocks via discount brokers any semblance of logic went away. Sure, BUT that was when someone had a story or some momentum or something. I mean, tech companies and their stocks held out the dream of being bought up and become overnight millionaires and some people bought into that dream, some people bought in on the momentum and then sold and walked away. What would GM's story be?

For example, if I recall correctly Amazon.com didn't make a profit for 6 or 7 years and it still traded at a premium and had a PE ratio in the stratosphere. Look at your favorite commodity oil. No reason at all for it to be $150 a barrel, it was all emotion and pure speculation.

You're right but, again, what's GM's story? Amazon had an upside, a reason to get on board and wait.

There needs to be a reason!

 

[Tilted]

Which goes right to my point there is no logic in equity trading anymore.

That sums it up right there - for various reasons, the equity markets are largely trading, rather than investing, platforms at this point.

 

[Pete]

You're right but, again, what's GM's story? Amazon had an upside, a reason to get on board and wait.

There needs to be a reason!

The only up side I see is that GM will be a GSE and thus will be completely safe from bankruptcy

 

[Pete]

That sums it up right there - for various reasons, the equity markets are largely trading, rather than investing, platforms at this point.

When equity trading went mainstream and the general public were invited to get E-Trade and Scott Trade accounts in addition to the boom of mutual funds the equity market went wild.

In my mind I would say there is nothing to say GM stock could not hit $5 a share several times in the next couple years. 2 good quarters, a positive news story or two and the wildfire gets lit, peaks and retreats.

 

[Larry Gude]

The only up side I see is that GM will be a GSE and thus will be completely safe from bankruptcy

Well, that's where my thoughts were headed; Uncle Sam 'directs' pension funds and other institutional investors to buy GM, or else. This creates a basis for attracting more capital and investors, especially for the reason you cite; safety. Good lord, they can guarantee a freaking dividend! Just think of what you could do with a business that can NOT fail.

Things is, this is just Orwellian 1984 ####ed up thinking, just totally messed up!

 

[Tilted]

When equity trading went mainstream and the general public were invited to get E-Trade and Scott Trade accounts in addition to the boom of mutual funds the equity market went wild.

In my mind I would say there is nothing to say GM stock could not hit $5 a share several times in the next couple years. 2 good quarters, a positive news story or two and the wildfire gets lit, peaks and retreats.

You're absolutely right - ridiculous valuations can happen in these markets. The realization of that reality is the only reason that I don't have a $50,000 short position in GM right now. Shorting is risky, especially with the possible margin ramifications, and I don't trust the sanity of the current market enough to put myself at the mercy of its whims in that way.

 

[Larry Gude]

You're absolutely right - ridiculous valuations can happen in these markets. The realization of that reality is the only reason that I don't have a $50,000 short position in GM right now. Shorting is risky, especially with the possible margin ramifications, and I don't trust the sanity of the current market enough to put myself at the mercy of its whims in that way.

How do you short a penny stock?

 

[Tilted]

How do you short a penny stock?

It's not a penny stock yet.

 

[Larry Gude]

It's not a penny stock yet.

OK, so, you'd take a, what, zero position on $50,000 worth of, what $1.85 stocks, or 270,000 shares and make $1.8499999 each?

I can see that. Absent Uncle Sam's looming presence.

 

[Tilted]

OK, so, you'd take a, what, zero position on $50,000 worth of, what $1.85 stocks, or 270,000 shares and make $1.8499999 each?

I can see that. Absent Uncle Sam's looming presence.

I would have sold (short) 25,000 shares at around $2.15/share. But, again, I wouldn't recommend that to anyone - it is a very, very dangerous trade. And, the government has shown us that they are capable of doing anything - who knows what kind of plan they might come up with that could inflate its value.

But, of the two scenarios on the table right now - neither one SHOULD result in the stock trading for more than $2. Then again, these markets can produce some crazy pricing sometimes.


EDIT: Oh, upside - the deal goes through and the stock goes to $.35 and I make $45,000 plus interest on the extra 'book' cash in my account before I unwind the trade. Downside, lunacy prevails and the stock goes to $6, triggering margin requirements (even though I wouldn't borrow money to make the trade, shorting can cause things like that), forcing me to pony up more cash or sell at a loss of $100,000 or so. You can see why I didn't make the trade - I hope. I can't really afford to piss away 6 figures.

 

[Tilted]

And, on the Chrysler front ...

UAW Leaders Recommend Approval of Chrysler Deal

Factory-level leaders of the United Auto Workers union voted unanimously Monday night to recommend approval of concessions that could give a union-run trust 55 percent ownership of a restructured Chrysler.

Union President Ron Gettelfinger said the deal will help keep the automaker out of bankruptcy.

A summary of the revised Chrysler-UAW contract says that Italian automaker Fiat Group eventually will own 35 percent of a restructured Chrysler, with the remaining 10 percent stake divided between the U.S. government and secured lenders, mostly banks and hedge funds.

So, going forward, 90% of GM will be owned by the UAW and the U.S. government, and 90% of Chrysler will be owned by the UAW and Fiat.

Usually, when a parasite bleeds its host too much, the host dies, and so does the parasite. But, in this perverse, bailout-everything-that-moves world, when you try to bleed a company to death - the government makes sure it doesn't die, and actually gives the company to you. I wonder how hard it is to destroy a company when you actually own it?

 

[Tilted]

Group harshly critical of GM debt offer | Freep.com | Detroit Free Press

General Motors bondholders -- huge and tiny -- sharply criticized the offer Monday from the company and the Obama administration to surrender $27.2 billion in debt for up to 10% of a reworked GM and some cash.

The plan, designed to cut GM's debt by $44 billion, came without input from creditors. GM said if 90% of the debt wasn't exchanged by May 26, the company would file for bankruptcy and the U.S. Treasury could buy many of its best assets in court.

The committee representing large GM creditors said the proposal was "neither reasonable nor adequate," adding that the Obama administration was driving GM to bankruptcy.

"We believe the offer to be a blatant disregard of fairness for the bondholders who have funded this company and amounts to using taxpayer money to show political favoritism of one creditor over another," according to a statement from the committee, which represents about half of the debt.

What we are doing here is unconscionable. Remember, these bonds are held by all kinds of entities - private equity, mutual funds, other pension funds. I suppose, this government misuse of its power, and taxpayer's money, to secure political favor with specific groups is only surprising in its overtness. We used our capital leverage to steal money form one group and give it to another. Now, we are using the weakened position of the ones we stole from, and the threat that their fate in OUR court system will be unpleasant, to force them into accepting even more theft.

Even if you believe that it is appropriate for our government to make sure that GM doesn't dissolve, there is no way to justify the deal they have worked out here. It is mind-boggling unfair, and serves only two purposes -to secure political favor with certain groups, and to allow the government to own GM. The government is dealing the cards, and they have stacked the deck to deal themselves and their buddies great hands. I can think of no way to interpret the situation, but that the government has decided it WANTS to own GM (and who knows what else), and it has found the excuse to make that so. There's no way around that reality.

No one would stand for this kind of unfair, and inequitable treatment, if they were on the short end of it. I sincerely hope the bondholders stick together and force this into court - I don't know how they will be able to look at themselves in the mirror if they don't.

Imagine that the government wanted to put a road though your neighborhood. They come in and say, we are gonna make you an offer, and if you don't accept it, we will end up in OUR courts to decide it - and you will get screwed even worse there. They offer the guy across the street (who voted for the present government) $650,000 for his property, which is valued at $225,000. Then, they offer you (who didn't vote for the present government) $75,000 for your property, which is valued at $395,000. That's not exactly equivalent to what is happening with GM, but it is pretty close as it relates to the deal they are asking bondholders to swallow.

 

[Tilted]

Fiat to Sign Chrysler Partnership Deal: Sources

President Barack Obama said he was hoping a merger would be worked out between U.S. automaker Chrysler and Italy's Fiat but said he was not sure "if the deal is going to get done."

"We're hoping we can get a merger where the taxpayers will put in some money to sweeten the deal but ultimately the goal is —we get out the business of building cars and Chrysler goes and starts creating the cars that consumers want," Obama said in a town-hall style meeting near St. Louis.

We, the taxpayers, will agree to give Chrysler more money, if they can get the UAW and Fiat to agree to let them (Chrysler) give themselves to the UAW and Fiat. This is beyond crazy.

Just let Chrysler go, so that some other American auto companies have a better chance of prospering. At the very least, if we liquidate Chrysler, someone who actually believes in the viability of some of its parts enough that they are willing to put their own money into them, will put their own money into them. Maybe, that way, we will be able to extract some value from them so that their creditors get back some of what they are owed (without the taxpayer having to fork it over). That would be a much better alternative. But, I guess to the government, if they can't own Chrysler themselves, the next best thing is to make sure that the UAW and Fiat owns them.

This is getting exasperating. I'm really starting to wish that I didn't understand what is going on here, so that I could pretend that it isn't utterly abominable.

The clear winner here is Fiat - they are being given a ready made opportunity, without significant risk or capital investment on their part, to enter the American auto market and compete for a share of the low end of that market. It's a no lose proposition for them, and a no win proposition for the American auto industry. Not only is our government now in the auto business itself, it is also subsidizing the foreign competition for the American auto industry - unbelievable.

 

[Larry Gude]

Fiat to Sign Chrysler Partnership Deal: Sources



We, the taxpayers, will agree to give Chrysler more money, if they can get the UAW and Fiat to agree to let them (Chrysler) give themselves to the UAW and Fiat. This is beyond crazy.

Just let Chrysler go, so that some other American auto companies have a better chance of prospering. At the very least, if we liquidate Chrysler, someone who actually believes in the viability of some of its parts enough that they are willing to put their own money into them, will put their own money into them. Maybe, that way, we will be able to extract some value from them so that their creditors get back some of what they are owed (without the taxpayer having to fork it over). That would be a much better alternative. But, I guess to the government, if they can't own Chrysler themselves, the next best thing is to make sure that the UAW and Fiat owns them.

This is getting exasperating. I'm really starting to wish that I didn't understand what is going on here, so that I could pretend that it isn't utterly abominable.

The clear winner here is Fiat - they are being given a ready made opportunity, without significant risk or capital investment on their part, to enter the American auto market and compete for a share of the low end of that market. It's a no lose proposition for them, and a no win proposition for the American auto industry. Not only is our government now in the auto business itself, it is also subsidizing the foreign competition for the American auto industry - unbelievable.

Well, lesser of two evils...lesser of two evils...

 

[Tilted]

GM Bondholders To Present Alternative Offer

Bondholders will present an alternative to General Motors' just-launched debt-for-equity exchange in a deal that would swap a 51-percent stake in a restructured company for $27 billion in debt, according to a person with knowledge of the plan.

United Auto Workers union 41-percent in a new GM while the U.S. government would not receive an equity stake, according to the person who asked not to be named because the offer had not yet been submitted.

This offer, made by the bondholders themselves, is still unfair to them, but not nearly so much so as GM/the government's offer. At least one of the parties involved is negotiating in good faith.

Almost no chance that this offer will be accepted - the Treasury has already made it clear that the bondholders are not to receive more than 10% of the company, even though they are the ones to whom the most debt, seeking to be abrogated, is owed.

 

[Tilted]

I still have no idea what GM stock buyers are thinking. The stock has come down a little since last week, to $1.83, even though the markets at large are up - however, I don't understand why it hasn't come down more.

With either of the scenarios that would seem to be on the table, I don't see how the math can justify that price. What am I missing? Seriously, if anyone can explain to me what I am missing, I would appreciate it. I'm getting a little paranoid - like the whole market world knows something that I don't know.

 

[Larry Gude]

I still have no idea what GM stock buyers are thinking. The stock has come down a little since last week, to $1.83, even though the markets at large are up - however, I don't understand why it hasn't come down more.

With either of the scenarios that would seem to be on the table, I don't see how the math can justify that price. What am I missing? Seriously, if anyone can explain to me what I am missing, I would appreciate it. I'm getting a little paranoid - like the whole market world knows something that I don't know.

Simple; There's giant mountains of money sitting on the sidelines and, as cheap as it is, it's a chance to plop down some dough on a likely winner. Obama will not, can not let GM fail. Or, at least, that's the bet.

So, they get their act together, start drawing some interests and $2 goes to $5. Then to $8 then, what, $25?

 

[Tilted]

Simple; There's giant mountains of money sitting on the sidelines and, as cheap as it is, it's a chance to plop down some dough on a likely winner. Obama will not, can not let GM fail. Or, at least, that's the bet.

So, they get their act together, start drawing some interests and $2 goes to $5. Then to $8 then, what, $25?

Sure - I understand the optimistic sentiment that might drive the equity trade - but the math has to at least be reasonable. Stock prices aren't just arbitrary numbers, they eventually have to conform, to some degree, with the reality of the businesses activity. I love Apple, as a company, but I can't just pretend that it is worth $10,000 a share because I love it so much.

At $5 a share, and under the plan that is on the table now, GM would be worth about $300 Billion. This, for a company that still has negative book value, is still losing money, and can't possibly hope to make any profits for several years. And, even if it can once again be profitable, it is going to do it by being smaller, not larger than it has been in the past. At its peak it only made $7 Billion a year. Even if it got back there, that's one heck of a PE (40+) for a large company with limited growth potential.

To justify the current stock price, someone has to believe some other scenario is on the table (not the current plan and not bankruptcy). I just can't imagine what it would be.

 

[Larry Gude]

Sure - I understand the optimistic sentiment that might drive the equity trade - but the math has to at least be reasonable. Stock prices aren't just arbitrary numbers, they eventually have to conform, to some degree, with the reality of the businesses activity. I love Apple, as a company, but I can't just pretend that it is worth $10,000 a share because I love it so much.

At $5 a share, and under the plan that is on the table now, GM would be worth about $300 Billion. This, for a company that still has negative book value, is still losing money, and can't possibly hope to make any profits for several years. And, even if it can once again be profitable, it is going to do it by being smaller, not larger than it has been in the past. At its peak it only made $7 Billion a year. Even if it got back there, that's one heck of a PE (40+) for a large company with limited growth potential.

To justify the current stock price, someone has to believe some other scenario is on the table (not the current plan and not bankruptcy). I just can't imagine what it would be.

GM isn't $10,000 a share. You can plop down $10,000 for 5,000 shares of GM and maybe lose $10,000. However, two year ago, it was $30. So, Obama and Tim pull a rabbit out of their hat, wipe out some debt, some legacy obligations, viola, that $2 could, maybe, go up 15 times. Maybe only 10.

Apple at $130 isn't likely gonna go up 15 or 10 or even 2 times. GM could jump and jump big. Greed and rational don't often go together. People buy lottery tickets.