The GM Plan

[Tilted]

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.

But, that's my point - GM can't go up 15 or even 10 times - at least I don't see how it is even remotely possible. Comparing it to the $30 price of 2 years ago is mixing apples and oranges. Under the more optimistic of the scenarios, the stock is going to be diluted 100 to 1. So, valuing the company the same as it was valued 2 years ago would require a stock price of closer to $0.30.

As it is, the pricing of the stock is telling us that GM is worth 6X what it was worth 2 years ago, simply because it's gonna trim $40 Billion worth of debt (and it has probably added close to that much negative equity in that time period anyway) and make a few cost saving moves with regard to labor and such. I'm not buying it. There would need to be some other development to justify that price. And, I'm not suggesting there couldn't be one, I just can't imagine what it would have to be - maybe the government giving, not lending, them $100 Billion.

Greed and rational don't often go together. People buy lottery tickets.

That's the thing, right there. People are buying lottery tickets. That's fine - you take a 1 in 2 million chance that you might make a million times the money you invested. In this case though, I think they are taking a 1 in 100 chance that they might make 2 times the money they invested.

 

[Tilted]

GM May Seek 1-For-100 Reverse Stock Split

GM stock is trading down 11 cents to $1.74 in after hours trading on this 'news'. This is not news, people - we already knew this based on the plan they rolled out last week.

Scenario 1:

GM: We are going to issue 60 Billion new shares of stock, so with your 600 Million shares you will only own 1/100th as much of the company as you used to.

Stock traders: Uhh, who cares? What difference does that make? Let's bid the stock up to $2.25

Scenario 2:

GM: We are going to do a reverse split and give you 6 Million shares in return for your 600 Million shares. Then we will issue 600 Million new shares. You will only own 1/100th as much of the company as you used to.

Stock traders: Oh, dang. Why didn't you say so? That's a different story. We better sell this stock.




EDIT: Since I started writing that, it is down another 13 cents to $1.61.

EDIT again: Okay, it settled out for after hours back up to $1.67. It just goes to show you - you can only fight stupid for so long, before it pushes back.

 

[Tilted]

It looks like GM traded as low as $1.17 in pre-market this morning, and last traded at $1.53.

 

[Larry Gude]

It looks like GM traded as low as $1.17 in pre-market this morning, and last traded at $1.53.

Man, shoulda shorted that thing, huh? Think of all the money you're not making!

 

[Tilted]

Man, shoulda shorted that thing, huh? Think of all the money you're not making!

True, but 'not-made' money doesn't sting as bad as lost money.

I used to spend a lot of time lamenting the trades that I didn't make, but I realized that that mindset was costing me money by motivating me to make trades that were a little too iffy. Now, the bottom of the white board in my office says, 'There are worse things than missing a trade.'

What's scary about GM - given the pseudo legal, pseudo economic systems we now live under - is that you never know when someone might suddenly change the landscape on which your value analysis is based.

Oh well - golf fixes everything - except golf.

 

[Larry Gude]

True, but 'not-made' money doesn't sting as bad as lost money.

I used to spend a lot of time lamenting the trades that I didn't make, but I realized that that mindset was costing me money by motivating me to make trades that were a little too iffy. Now, the bottom of the white board in my office says, 'There are worse things than missing a trade.'

What's scary about GM - given the pseudo legal, pseudo economic systems we now live under - is that you never know when someone might suddenly change the landscape on which your value analysis is based.

Oh well - golf fixes everything - except golf.

I would like to point out that a lost dollar and a not made dollar have exactly the same value at the store. Of course, that kind of thinking is why some people lose everything.

 

[Tilted]

I would like to point out that a lost dollar and a not made dollar have exactly the same value at the store. Of course, that kind of thinking is why some people lose everything.

Neither I, nor any of the mathematic concepts that I am familiar with, can argue with you on that. Either way, a dollar in the bank account, is a dollar in the bank account. But, the feeling in the pit of the stomach is different.

If I put myself in a position where I let some ridiculous and inappropriate decision by this government cost me a bunch of money, then I would have skin in the game so to speak (with regard to being offended). My ability to criticize this government's actions from an objective perspective and on a theoretical basis would be compromised. I can't be sure that I would be able to distinguish those motivations from the personal offense I might feel as a result of feeling like my interests had gotten screwed over.

Ah, who the hell am I kidding - I'm just trying to justify (and make myself feel better about) missing an opportunity to finance a month long tour of iconic European golf courses.

Last GM trade: $1.42

 

[Larry Gude]

If I put myself in a position where I let some ridiculous and inappropriate decision by this government cost me a bunch of money, then I would have skin in the game so to speak (with regard to being offended). My ability to criticize this government's actions from an objective perspective and on a theoretical basis would be compromised.

If you step back from this, that's what I see as the goal; get as many people as possible with some skin in the game; compromise as many groups as possible.

 

[Tilted]

GM stock is up this morning (last trade, $1.75) on news that they ONLY lost $6 Billion in the first quarter, instead of the $7 Billion that the street expected.

Some people still don't get what is going on. They continue to focus on the mice in the corner, and are completely ignoring the elephant that just quietly (or, in my opinion, not so quietly) walked in and sat down (the elephant being the dilution dynamic).

Cash burn was $10.2 Billion and revenue was $22.4 Billion. Net profits that are 27% of total revenue = great business model. Net losses that are 27% of total revenue = not so much.

 

[Tilted]

If you step back from this, that's what I see as the goal; get as many people as possible with some skin in the game; compromise as many groups as possible.

I tend to agree - in general, people vote their interests. That is what they are supposed to do. The problems lie in the reality that people are not very good at understanding and analyzing what is in their own interests (I don't mean picking their interests - I mean, figuring out how best to get there), and with the inherent weaknesses of democratic systems.

 

[Larry Gude]

I tend to agree - in general, people vote their interests. That is what they are supposed to do. The problems lie in the reality that people are not very good at understanding and analyzing what is in their own interests (I don't mean picking their interests - I mean, figuring out how best to get there), and with the inherent weaknesses of democratic systems.

And that is where the advocate, the politician comes in; they have this HUGE responsibility to be clear, well thought out, committed and a solid communicator. They have in their hands, the obligation to lead with purpose.

One of the great examples, given this threads subject, is unions; I have always argued that the core problem with unions is that they expose their people to disaster in the form of future benefits; It sounds great when I come to you and tell you I got $50k a year pension for you plus these wonderful medical benefits for when you retire out of those tightwad bastards.

Then, over time, we find that these things are only partially funded and rely, near totally, on future performance of the company; not assets set aside in gold or bonds or even T bills, but in the company meeting these glowing, wonderful projections...20 years down the freaking road.

So, does a union worker understand this? The ramifications? The implications? Who is actually looking after their interests?

We need the voices constantly, railing against bad policy. Brawling for better ones.

 

[Tilted]

A representative for GM bondholders offers a plan. It's not so much a plan, as it is the articulation of the notion that they should reach an agreement that is consistent with basic legal principles. It's hard to argue that what he is proposing isn't reasonable and fair.

He also states that they (the bondholders) are willing to go into bankruptcy rather than accept the proposal that is currently on the table. I hope that's not just talk - and I hope they won't let themselves be intimidated by the threat of Administration chastisement.

Video - CNBC.com

 

[Larry Gude]

A representative for GM bondholders offers a plan. It's not so much a plan, as it is the articulation of the notion that they should reach an agreement that is consistent with basic legal principles. It's hard to argue that what he is proposing isn't reasonable and fair.

Unless you're in Wonderland like we are now.

I'm telling you, George Bush threw the world off it's axis starting this ####. Absent him starting all this, the GOP would have lost their ever loving minds and there would have been an incredible political brawl had Obama won and said "Hey, we're gonna bail out the banks...and the insurers...and, uh, the car guys and the UAW...I need $750 bil to start, no strings attached or the world will come to an end"

There is NO effing way any of this is going on absent the GOP starting this snowball down the hill. No freaking way. This means ANYTHING is possible and I do mean anything.

 

[Tilted]

GM CEO: Bankrupty Likely, Firm May Leave Detroit

 

[Tilted]

GM Executives Dump Stock as Trading Window Opens

Six General Motors executives disclosed Monday they sold almost $315,000 in stock and liquidated their remaining direct holdings in the struggling automaker.

In filings with U.S. securities regulators, the GM insiders led by former GM Vice Chairman and product chief Bob Lutz detailed stock sales on their behalf Friday and Monday during a trading window for such transactions.

...

GM is headed for either a bankruptcy filing or an out-of-court restructuring that would wipe out current stockholders by flooding the market with new shares to pay off creditors.

The automaker's stock could be either worthless in a bankruptcy or worth less than 2 cents per share if it proceeds with its plans to issue shares to creditors led by the U.S. Treasury, the company has said.

Insider trading restrictions have prevented GM's senior executives from selling stock holdings for most of this year as the automaker has scrambled to restructure under the oversight of the Obama administration's autos task force.

But after the filing of its quarterly report with the SEC last week, GM executive officers and directors were notified a "trading window" had opened Friday, spokeswoman Julie Gibson said.

GM stock trading around $1.30 this morning.

 

[Larry Gude]

GM Executives Dump Stock as Trading Window Opens



GM stock trading around $1.30 this morning.

So, you were think about shorting, huh?

 

[Tilted]

So, you were think about shorting, huh?

Opened at $1.22 - $1.15 now. I'm just gonna have to admit that I outsmarted myself on this one.

This was one of those rare instances where it was so obvious. There didn't seem to be any reason whatsoever to think the stock wasn't heading down. As hard as I tried to think of a compelling reason why the stock wasn't grossly mis-priced, I could not.

So, what did I do? Trust myself? No. I assumed that there was no way that anyone could be that stupid (to be buying GM at $2+), so I thought there might have been something I was missing. You just don't see pricing that is so obviously wrong very often.

Reminder to self: Some people are just that stupid. Another lesson learned.

(Watch, this stock will be at $3 tomorrow. )

 

[Tilted]

GM to Pay Suppliers Pre-Bankruptcy Deadline: Report

General Motors plans to pay its suppliers before the deadline by which it must declare its bankruptcy, according to a report.

In response to uncertainty over whether GM would make creditors whole if it should opt for bankruptcy, the automaker said it will make the payments May 28 instead of June 1, the Wall Street Journal reported.

I hope the bankruptcy judge disallows these payments, though I doubt that will happen. Whether or not they are kosher isn't necessarily clear - such issues can be tricky - so I won't describe this aspect of this saga as a subversion of the law. I will describe it as disconcerting though - not too long ago they announced that they will not be making a scheduled, required payment to bondholders.

It was clear at the time when we (the previous Administration) decided to loan Detroit money, that it would effectively amount to wealth re-distribution. We facilitated on-going operations which had the effect of taking money from certain entities and giving it to others. The bondholders (and the VEBA portion of the UAW for that matter) should have been in court immediately asking for injunctive relief (which they wouldn't have gotten). Strategically, I think the failure to do so was a mistake.

 

[Larry Gude]

[ . The bondholders (and the VEBA portion of the UAW for that matter) should have been in court immediately asking for injunctive relief (which they wouldn't have gotten). Strategically, I think the failure to do so was a mistake.

Which is why you quietly extort them with the awesome power of the federal government; to keep them from taking actions that are in their fiduciary interests and responsibilities, actions and interests which are at odds with the goal; government direction and control of the economy.

It's nice for the vendors to get some TARP money without having to actually go through the process, the very public process, the GM and Chrysler had to endure. Just think of all the hearings and grandstanding we've now avoided.

The rules have change. The process for orderly change has been dismissed.

 

[Tilted]

Okay, GM stock is trading up around $1.63 now, so I'm paranoid again that I'm missing something. There has to be some piece of the puzzle that I don't know about, and other people do - or maybe the world just never runs out of stupid people.