On March 30, 2009, President Obama laid out a framework for General Motors to achieve viability that required the Company to rework its business plan, accelerate its operational restructuring and make far greater reductions in its outstanding liabilities. After two months of significant management engagement, General Motors has developed such a plan and has already begun to make progress toward its achievement. The Company has also secured commitments of meaningful sacrifice from all of its major stakeholder groups, sacrifices sufficient for this plan to proceed forward. As a result, the President has deemed GM’s plan viable and will be making available about $30 billion of additional federal assistance to support GM’s restructuring plan. To effectuate its plan, General Motors will use Section 363 of the bankruptcy code to clear away the remaining impediments to its successful re-launch.
For the better part of a century, The General Motors Corporation has been one of the most recognizable and largest businesses in the world. Today will rank as another historic day for the company—the end of an old General Motors, and the beginning of a new one.
General Motors Restructuring – Shared Sacrifice
The President made clear throughout this process that every one of the Company’s stakeholder would be expected to sacrifice, and that none would receive special treatment because of the involvement of the government. The resulting agreement is tough but fair, and has garnered broad support from GM’s major stakeholders:
Operational restructuring: GM is undertaking a significant operational restructuring that will address past failures, dramatically improve its overall cost structure, and allow the company to move toward profitability even if the auto market recovers slowly. As a result of this restructuring, GM will lower its breakeven point to a 10 million annual car sales environment. Before the restructuring, GM’s breakeven point was in excess of 16 million annual car sales.
The UAW has made important concessions on compensation and retiree health care that, while difficult, will help save jobs for active employees, pensions and health care for retirees, and make GM more competitive. In virtually every respect, the concessions that the UAW agreed to are more aggressive than what the Bush Administration originally demanded in its loan agreement with GM. Among other things, the UAW’s existing VEBA – to which GM
I’ve previously described the fundamental and technical rationales for an aggressive move to go 100% long in the US equity market. A complete argument for the countertrend rally was published in Op-Ed: Is a Countertrend Rally Inevitable?.
In this article, I’d like to update the case for what I believe will be stage II of the countertrend rally.
Fundamental Drivers
1. A series of announcements of decisive and increasingly coherent policy actions by governments and central banks around the world.
I think that there can be little doubt that this has occurred. While there are still policy measures that are yet to be announced, I believe this factor has pretty much played itself out. At this point, the risk of governments messing things up may be fairly equally balanced against any further upside from policy initiatives.
2. A dramatic turn in the economic growth dynamic.
Of all of my predictions, this has always been the most important. My proprietary statistical work has thus far proven prescient, and it’s strongly indicating that we’ll continue to see very strong momentum in the economic data through June and possibly July. Economists’ and analysts’ numbers are still too low, and so the surprises throughout the second quarter will continue to be to the upside.
Indeed, as I’ve pointed out in several articles, such as in Op-Ed: Surprises Continue to Drive the Rally, many indicators aren’t just going to show turns in the second derivative, several are actually going to show positive growth! The blue-chip economists haven’t figured this out yet. This is going to be a shocker and will keep the rally going.
3. Consensus economic views are far too bearish.
This is still the case. The media is filled with pundits talking about the “certain collapse of the dollar,” “currency debasement that will inevitably lead to inflation,” and “crushing debt levels.” Most of the arguments in favor of these apocalyptic views are based on discredited…
Mr. Koch, a managing director at the advisory firm AlixPartners LLP, will be named to the post when GM files its bankruptcy papers at 8 a.m. Monday at the U.S. Bankruptcy Court in New York’s Southern District, these people said. He will be the highest-ranking outsider in GM’s officer ranks and oversee about 60 Alix employees working for the auto maker.
Hope you sold whatever common stock you had into the ramp job the last few weeks.
Now here’s the bad news:
Assuming a New GM emerges from Chapter 11, Mr. Koch will then sit atop a new, separate management team winding down the "Old GM" that remains in bankruptcy court. In this role, he’ll likely report directly to Old GM’s board, which will be different from the New GM board.
As the steward of the Old GM, Mr. Koch will help negotiate contracts between the New GM and Old GM for certain services. He’ll also lead efforts to spin-off or liquidate Old GM’s assets, including the Saturn, Hummer, Saab and Pontiac brands, and as many as 20 factories.
Odds are that if you’re a general creditor (e.g. a supplier) you’re going to get zero for whatever is outstanding on your book in receivables from GM.
Sorry.
This will produce bankruptcies up and down the supply chain.
Count on it.
Oh, and you have to love the report that was on Bloomberg earlier, then disappeared.
Apparently, about 975 of GM’s bondholders agreed to the restructuring they sought, holding just over 50% of the debt.
The other one hundred thousand+ bondholders, including individuals who had their children’s college funds and personal retirement savings in this debt, had no say, did not vote for this action, and in fact oppose it.
They will be wiped out, recovering about ten cents on the dollar.
Under bankruptcy law it is generally true that a "significant" majority of the debtholders must agree to restructuring, not a razor-thin majority. Of course the law doesn’t seem to matter any more in this country when it comes to bankruptcy (or any other kind of law for that matter) so long as the government wants things to go a certain way, and
Just in case anyone needs to read page after page (for 68 in total) of a highly focused "research report" on why GGP is a phenomenal investment, look no further (from Ackman’s Ira Sohn presentation). It is likely that investors in the PSIV fund will also be happy to read comparable such materials for why their Ackman-managed investment in Target is down 93%.
What is quite hilarious is the very open bashing of Goldman/Merrill Lynch REIT darling Simon Property Group (SPG) on pages 53-56. Any chance a possible GGP-SPG pair trade at Pershing Square has gone horribly, horribly wrong? Either that, or based on GGP’s stock price (the market is wrong!), SPG should be trading materially lower. Readers decide.
The report is 69 pages almost all of them loaded with charts. I took a liberal selection below, adding plenty of comments, but please take a look at the original article for many additional charts. All charts below are from the article. Click on any chart to see a sharper image. Quotes from the article in italics. My comments are in plain text.
Case Shiller vs. Lawler
Nearly everyone is familiar with Case Shiller. I suspect most have not heard of Lawler. Interestingly there is a feud of sorts between the two as noted by the Wall Street Journal article Outlook for Home Prices Clouded by Spat Over Historical Trends.
Yale University economist Robert Shiller has often dazzled audiences with a chart showing home prices from 1890 to present. Someone even used Mr. Shiller’s chart to make a YouTube video that puts its viewer on a roller-coaster ride over peaks and valleys in home pricing. It’s a bumpy ride.
Now another economist, Thomas Lawler, says Prof. Shiller’s chart is "bogus." Mr. Lawler says Mr. Shiller cobbled together data that are inconsistent and sometimes unreliable. Mr. Shiller defends his work and accuses Mr. Lawler of making "wild allegations."
No one has found a precise way to measure changes in house prices. Because no two homes are exactly alike, changes in the price of one won’t necessarily be matched even by apparently similar homes nearby, much less those hundreds of miles away.
But that doesn’t stop analysts from extrapolating from what may be dubious data. In a March 30 report, T2 Partners LLC, a New York hedge-fund manager, drew on the Shiller chart to conclude that on average U.S. home prices need to drop another 13% to get back in line with the long-term trend.
Mr. Lawler has created an adjusted version of the Shiller chart, backing up his view that house prices already are nearing a bottom in much of the country. A T2 partner called Mr. Lawler’s critique "valid."
I guess we need to define "nearing a bottom". We also
A few new debt issuance datapoints for inquiring minds.
First – not only has HY issuance in May skyrocketed, but IG issuance is also on a tear. The past 2 weeks have seen a staggering amount of new investment grade issues: just over $28 billion. The average new issue coupon has dropped to a weighted average of 6.508%, while the current average spread to Treasuries on the 37 new issues since May 18 is T+322.
[click on tables and charts for larger images]
Also looking at non-TLGP issues (non-FDIC guarantees), it seems investors’ amnesia has come back with a vengeance and the pick up in non-guaranteed issues will soon surpass those coming with guarantees (the notable exception is Citi, which manged to place a non-TLGP issue two weeks back, only to go back to TLGP crutches last week).
Lastly, demonstrating that in the mindset of new issue purchasers, all is back to good, the dramatic acceleration in convertible offerings is also quite staggering. Yet, these still do not come cheap, as the average adjusted yield on the YTD converts is 12.37%, a 2.20% premium over comparable bond yields.
Mutual funds flows remain a fantastic way to gauge small investor sentiment which is often inversely correlated to future stock market returns. Stock fund flows for April surged to 12.33 billion. As you can see in the chart below stock fund flows have had a very high inverse correlation to stocks. Small investors pull their funds at exactly the wrong time and invest at exactly the wrong time. The early figures in May are also showing strong stock inflows with over $7B in flows for the first two weeks. The last time we saw flows this high was right at the March ‘08 high.
Just when you thought there is no escape from a quadrillion dollar deficit, this comes along
And on that note, Geithner "No one is going to be more concerned about future deficits than we are" (Bloomberg)
54% of GM bondholders approve debt swap plan (Reuters)
GM prepares for bankruptcy announcement (AP)
Caterpillar, Xerox say hiring won’t pick up until economy improves…. But hasn’t it been improving for three months now? (Bloomberg)
Green shoots in escapism (Financial Armageddon)
Chart of the day: Japan vs US on Quant Easing (Michael Krause’s Market Take)
Treasuries, dollar "only game in town" (Bloomberg)
Troubled bank loans hit record high (NYT)
Sotomayor comments on race, gender troubling, Republicans says (Bloomberg)
Paul Tudor Jones on the brilliance of chartists (Alpha)
Ok. You fuck me, then snub me. You love me, you hate me. You show me a sensitive side, then you turn into a total asshole. Is this a pretty accurate description of our relationship, Barack? This most recent nonsense is only the latest schizoid break. As you are no doubt aware, conspiracy theories are flying to and fro suggesting that the list of dealers that would be confiscated/dissolved/appropriated/killed by Chrysler the Auto Task Force was politically generated. Most versions of this tale mention a sort of Nixon enemies list approach to dealerships and cite snippets of data on the mostly republican political contributions of closed dealerships. We didn’t really want to believe that about you. Quips like "Dealer List Targets GOP" sound like dead cats meowing to us.
Such stories interest us, but all stories involving the Chrysler travesty and the pending GM daterape interest Zero Hedge. Zero Hedge is a bathtub of squirming desire and skepticism. Yes, we think there is a lot that goes on that someone isn’t telling us (or you). Still, parsing the dealers through an enemies list to determine closures seemed entirely unlikely to Zero Hedge. If true it should (but probably wouldn’t) be the end of any administration. That sort of rank thuggery should be the end of any administration, no matter what its denomination.
Regardless, even if some sort of preference was manifesting itself, Zero Hedge doubted that an "enemies list" would be the mechanism. It does seem that Chrysler was not particularly involved in the process. That’s suspicious, but not damning without more. It is least political poison though. It is asking for trouble anytime economic decisions like this are made with tainted or potentially tainted political methods. This from Reuters citing Leonard Bellavia, of Bellavia Gentile & Associates, who represent some of the dealers being terminated:
"It became clear to us that Chrysler does not see the wisdom of terminating 25 percent of its dealers," Bellavia said. "It really wasn’t Chrysler’s decision. They are under enormous pressure from the President’s automotive task force."
Control of the list would present the opportunity for a bit of mischief by the automotive task force. Still, Zero Hedge thought it much more likely a "crony" list would be employed, granting
We got such a good sell-off last Friday that we went 1/2 covered into the weekend on our DIA puts (a little bearish) but we had already cleaned up on quick short plays on the Dow and USO and we were very much in cash but still making bullish plays at the time. I did a 3-part series on dividend-paying stocks over the weekend, elaborating on the 21 dividend payers we picked that Tuesday along with our $104,340 Virtual Portfolio(used to be $100,000) so we had no shortage of bullish ideas but it didn’t take us long this week to turn pretty bearish.
Last Friday morning (22nd), ahead of the holiday weekend, with the Dow at 8,323, I sent out an early alert to members saying: "I’d go long on the Dow here but frankly I’m just not in the mood today. Still full covered on long DIA puts and still in the DDMs but just hanging out and watching today since you can’t take the action seriously anyway." Our plays that day ran the gamut: We sold BAC July $10 puts for $1 (now .66), took a TBT spread that has been a wild ride but right back where we started and an ICE bull call spread ($90/$100, selling $90 puts $2.33, now .57) that is right on track. All that came before 11:33 on Friday, where I rightly called a top at 8,342. We made nice profits on DIA puts and took an EXM and T hedges that are doing well. One of our best plays on Friday was the USO $32 puts at .80 we took into the weekend, those cashed out Monday morning at $1.05 (up 44%) – those USO trades were followed through in detail in our Members Only post: "Stupid Options Tricks - The Salvage Play."
As I mentioned, we have been mainly in cash for over 2 weeks now so mainly we’re just taking small opportunities and having fun while we wait for the market to break one way or the other. One article I wrote over the holiday weekend was a timely update to "How To Vacation-Proof Your Virtual Portfolio," something anyone not in cash needs to take under strong advisement and DO NOT miss the very generous free video lesson from Sage’s Market Tamers that is on that post. Our…
I could not help noticing that China’s imports from Japan fell 16.2pc in December. Imports from Taiwan fell 6.2pc. The strong yen strikes again: Honda decides to build a high-performance hybrid Acura in Ohio – instead of its home nation of Japan. The firm’s continued shift in p...
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In an effort to reach the angry mob, CNBC's Rick Santelli goes all Sesame Street on the numbers behind the US Debt Ceiling Rise. Focusing for two minutes on what this practically means for every man, woman, child, and politician, the shouting Chicagoan points out that when the US breaches this new limit then the world's entire population will be on the hook for $2,346 each (and $52,409 per US person).
The Weekly Leading Index (WLI) growth indicator of the Economic Cycle Research Institute (ECRI) posted -6.5 in its latest reading, data through January 20. The latest public data point is a reduced contraction from last week's -7.6 (a slight downward revision from -7.5). This is the highest level (i.e., least negative) since early September. However, the underlying WLI declined fractionally from an adjusted 123.3 to 122.8 (see the third chart below).
Early last December Lakshman Achuthan, the Co-founder of ECRI, spoke with Tom Keene on Bloomberg Television's Surveillance Midday. You can watch the video on the ECRI website here, with bold heading Recession Update. The eight-minute video is well worth watching in its...
Some combination of better made cars, and less Americans able to pay new car prices has conspired to push up the average age of U.S. vehicles to a new record high. Reflecting this sea change, one of the best investment g...
Shares of battered tech company Research in Motion (NASDAQ: RIMM) are seeing much strength during Friday's trading session.
Fairfax Financial Holdings released a 13G filing with the SEC this morning, in which they disclosed a 5.12% stake in Research in Motion.
Currently, shares of Research in motion are up over 4% at $16.85. Over the last year, Research in Motion is down over 72%.
Research In Motion Limited is a designer, manufacturer and marketer of wireless solutions for the worldwide mobile communications market. RIM provides platforms and solutions for access to information, including e-mail, voice, instant messaging, short message service.
Top 5 RisersStockRatingAnalysisASBCBUYMany analysts are expecting higher than previously expected long term growth from Associated Bancorp, and its near-term earnings outlook is also improving.CZZSTRONGBUYThe recent earnings history for Cosan Ltd shows significant improvement while projected valuation continues to rise.STLDBUYProjected value continues to rise for Steel Dynamics while long term increases in earnings growth are also becoming more widely expected.PSESTRONGBUYAn increasingly attractive expected long term growth rate and a significantly higher projected valuation from just a fe...
Major markets and major index ETFs corrected slightly today after the stock market’s euphoric party yesterday
Major markets suffered a slight hangover today, as the S&P 500 dropped .57%, the Dow Jones Industrial Average dropped .18%, the NASDAQ dropped .46% and the Russell 2000 Index dropped .34%, after yesterday’s crazy Fed and Tech Sector induced Wall Street Party. The NASDAQ, in particular, partied very hard, so hard in fact that the NASDAQ reached its 11 year record high.
The major market index ETFs were hungover too as the SPDR S&P 500 ETF lowered .51%, the SPDR Dow Jones Industrial ...
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This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options.
Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.
To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here
Here is the virtual portfolio weekend update. Basically a recap of the positions and some notes about the trades. As usual, I'll post the previous week's P&L for comparison. Not the greatest of week in general!
AA Money
Only transaction last week as we bought back the AA Feb 9 puts on Tuesday for close to a 70% profit. The idea is to sell another set of put as soon as we get a chance.
Previous week P&L - $400.00
We lost some ground this week, but we'll keep on selling premium!
FAS Money
We also lost some ground in this virtual portfolio, but we have sold plenty of premium for the coming week. A little correction would go a long way to help! On Wednesday we sold the FAS Feb 72 puts (already good for 50%), on Thursday we added the Jan4 78 calls and on Friday we had to roll the Jan 78 puts to the Jan 80 puts. We were hoping for these ones to expire worthless on Friday, but a late stick killed that hope.
Previous week P&L - $4372.00...
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Here's the latest Stock World Weekly. We discuss the Fed's next move, and it's new policy for more QE-cating. Brief review of Sabrient's trade ideas for 2012 (already doing well) and a few new buy-writes from Phil and Pharmboy. Enjoy! (Feedback appreciated - give some life to the comment section below.)
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
Finding new and exciting Biotech companies that target novel mechanisms is like trying to find a needle in a haystack. Sure there are many companies working on cutting edge science, but investing in those companies to reap the rewards of their work is a very dangerous game. More often than not, companies fail because the mechanism does not pan out, the compound(s) do not have pharmacokinetics (get into the body or last very long in the body), or an adverse event happens that knocks years off a development timeline. In addition, the stock can be manipulated by market makers so investors don't know which way is up. I approach investing in biotechs as a long term prospect. I continue to like our current portfolio of biotech companies (join in chat for many of those plays), and we continually add/subtract shares and sell/buy options on ...
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On March 30, 2009, President Obama laid out a framework for General Motors to achieve viability that required the Company to rework its business plan, accelerate its operational restructuring and make far greater reductions in its outstanding liabilities. After two months of significant management engagement, General Motors has developed such a plan and has already begun to make progress toward its achievement. The Company has also secured commitments of meaningful sacrifice from all of its major stakeholder groups, sacrifices sufficient for this plan to proceed forward. As a result, the President has deemed GM’s plan viable and will be making available about $30 billion of additional federal assistance to support GM’s restructuring plan. To effectuate its plan, General Motors will use Section 363 of the bankruptcy code to clear away the remaining impediments to its successful re-launch.
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Odds are that if you’re a general creditor (e.g. a supplier) you’re going to get zero for whatever is outstanding on your book in receivables from GM. 
Courtesy of 
Ok. You fuck me, then snub me. You love me, you hate me. You show me a sensitive side, then you turn into a total asshole. Is this a pretty accurate description of our relationship, Barack? This most recent nonsense is only the latest schizoid break. As you are no doubt aware, conspiracy theories are flying to and fro suggesting that the list of dealers that would be confiscated/dissolved/appropriated/killed by 
What a wild week that was!
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(