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.
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.
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.
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…
The following chart-heavy presentation from Grant Williams is among his best as he wends his way methodically from the 19th century to the present day (and into the future) examining "The Consequences of the Economic Peace." From Keynes to Kondratieff and from Napoleon to Nixon, Williams looks at the ramifications of several decades of easy credit and attempts to draw parallels with a time in history when the world looked remarkably similar to how it does now (as he notes "that last time didn’t end so well, I’m afraid.") The real day of reckoning (Williams notes rather ominously), when the unconscionable level of debt that has been built up during the fiat money era...
The cold war took another twist last week when a Senior German Politician Endorsed Russian Takeover of Crimea. Former state premier Matthias Platzeck, chairman of the German-Russian Forum business lobby and erstwhile Social Democrat (SPD) chief, is the first high-ranking German to say the West should endorse the annexation as a way to help resolve the Ukraine crisis.
Platzeck, 60, told the Passauer Neue Presse newspaper: "A wise man changes his mind - a fool never will... The annexation of Crimea must be retroactively arranged under international law so that it's acceptable for everyone."
Platzeck, Brandenburg's popular state premier from 2002 to 2013, struck a nerve in eastern Germany where there is far less support for sa...
The S&P 500 traded in a bit of a confused fashion during the morning, oscillating between its 0.23% and -0.23% intraday peak and trough in the first two hours of trading. The Second Estimate of Q3 GDP beat forecasts with its upward revision from 3.5% to 3.9%. But Consumer Confidence unexpectedly dropped, probably not a welcome signal as we approach the holiday shopping season. The index then dithered through the day in a narrow range, the only drama being whether it would log its 47th record close of 2014. It did not, ending the day with a fractional -0.12% decline. But perhaps tomorrow's close will give us a rationale for an extra helping o...
With warmer weather arriving to melt the early snowfall across much of the country, investors seem to be catching a severe case of holiday fever and positioning themselves for the seasonally bullish time of the year. And to give an added boost, both Europe and Asia provided more fuel for the bull’s fire last week with stimulus announcements, particularly China’s interest rate cut. Yes, all systems are go for U.S. equities as there really is no other game in town. But nothing goes up in a straight line, not even during the holidays, so a near-term market pullback would be a healthy way to prevent a steeper correction in January.
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based Sector...
By Rod Garratt and Rosa Hayes - Liberty Street Economics, Federal Reserve Bank of New York
In June 2014, the mining pool Ghash.IO briefly controlled more than half of all mining power in the Bitcoin network, awakening fears that it might attempt to manipulate the blockchain, the public record of all Bitcoin transactions. Alarming headlines splattered the blogosphere. But should members of the Bitcoin community be worried?
Miners are members of the Bitcoin community who engage in a proce...
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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).
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I officially bought 250 shares of EZCH at $18.76 and sold 300 shares of IGT at $17.09 in Market Shadows' Virtual Portfolio yesterday (Fri. 11-21).
Click here for Thursday's post where I was thinking about buying EZCH. After further reading, I decided to add it to the virtual portfolio and to sell IGT and several other stocks, which we'll be saying goodbye to next week.
A four-year low for the spot price of gold has had a devastating impact on Yamana Gold (Ticker: AUY), with shares in the name down at the lowest price in six years. Some option traders were especially keen to sell premium and appear to see few signs of a lasting rebound within the next five months. The price of gold suffered again Wednesday as the dollar strengthened and stock prices advanced. The post price of gold fell to $1145 adding further pain to share prices of gold miners. Shares in Yamana Gold tumbled to $3.62 and the lowest price since 2008 as call option sellers used the April expiration contract to write premium at the $5.00 strike. That strike is now 38% above the price of the stock. Premium writers took in around 16-cents per contract o...
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
Well PSW Subscribers....I am still here, barely. From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.
First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices. Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment. Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer. For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at email@example.com with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only intended at the moment of their issue as conditions quickly change. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
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