Click chart to enlargeSomething doesn't add up here. A year ago, GM was trading at just over $42 per share. Considering the market cap was $25B at the time, it makes sense that no one stepped in to buy the company. But given the chance to buy the company for $20B, there may have been some interest. If not, then maybe at $15B. Ok, $10B. Let's make a deal... $5B. Still no takers.
And there were no bidders at $4B, $3B, $2B, and still none now that it can be had for $1.6B
If a stock's price is supposedly representative of a company's value, then how can they lose 94% of their value and not attract buyers? Somewhere in the calculation of value, there must be some real estate, factories, intellectual property, etc. If all of that only accounts for the remaining 6% of the stock's price, then what was the other 94%? Was that earnings for the next 400 years? 2,000 years?
Even if we can accept that Honda, Toyota, and Nissan have no interest in buying GM even if the price were $100M, then it still doesn't answer the next question...
How does a company with a market cap of only $1.6B need $7B of taxpayer money to survive? If the company is only worth $1.6B, then with $7B they could recreate the company, all their real estate, etc, more than 4 times. If not, then GM stock is a great value, in which case Toyota (or Buffet) would buy them. And around and around it goes.
You can't have it both ways.
....
Either it's a great value, in which case where are the buyers?
.....
Or, it's not a great value, and really only worth $1.6B, in which case why don't taxpayers build a better company from the ground up with $2B instead of putting $7B into a company that's not even worth $2B in the first place?
28 comments:
Snot - you already know the answer to your question. The "bail-out" monies are not designed to save GM - only its workers (temporarily I might add) ie. this is a way for the government to keep millions off the unemployment lines and out of the soup kitchens. So the workers stay "employed" manufacturing things nobody wants, typical of govt efficiency don't you think?
On a more serious note - Snot - where is GE headed???
Could this company, the best of breed of American industry and finance, be headed to zero???
With Citi in single digits - could GE be far behind? Is this just plain delusional? GE in single digits? - insanity, fictional blubbering, shadows, lies, prophecy of a madman OR hard cold reality?
So who was the smart one to buy LDK before the earnings.
Hopefully they didn't.
Unfortunately, we do know the answer. They're too big to fail. It would wreak havoc on Michigan's economy. There was a great article some time back on the Rust Belt, which is a manufacturing area in the Northeast, primarily steel manufacturing in Pennsylvania. When the industry went bad, the people of the cities dependant on it turned to crime to survive. Drug sales soared.
It's not pretty to let an industry die, so despite it perhaps being wasted money, the government has to do something to help Detroit.
Hi Snot,
Do you think UYG is a buy now at 5.25? How low can it go ? It has fallen by 50% in last 2 weeks.
AK.
Randall, it's not so far-fetched. Both Citi and GE could go bankrupt, or require a bailout. Both charts look like they're headed that way.
People think that GE sells products, and GM sells cars, and that Harvard sells education. Not true. The CEO's of these companies gamble on credit default swaps and other highly leveraged investment vehicles. There is no real diversification in corporate America. Regardless of what companies appear to do for profit, they're really doing more gambling than anything else. This is why many believe that unless a currency is backed by something tangible (like Gold), it can get so far ahead of itself that a collapse of the entire system becomes inevitable.
I am from the Detroit area. Most of my friends are engineers in big three auto and the suppliers. The whole metro Detroit area are built around big three. I can not image what this once great area will become if the big three fails, all the business, houses, schools. Man, do not tell me the auto industry will die. Do not say that to me! please. We have already suffered too much since year 2000.
To answer the question about GM... it is the liabilities that make it not worth even just $1 billion. The fact is you couldnt pay any billionaire to take GM. It is the unions that ensure the pensions will always be hanging over the company. Until the UAW is dissolved and the stolen pensions are written off, GM will be worthless. I'm sorry to all the people who lost (or will lose) their pensions... but hey I've been ranting and raving about it for years. No one wanted to listen.
As for LDK, I bought at $13 and sold yesterday and this morning in premarket. It's a good trade, one that I made in complete confidence, and would do again and again.
No way they will let GM die.
Thats killing a lot of jobs and thats what this country needs.
Adding to more mortgage defaults and foreclosures.
That would bring the entrie world in jeopardy.
Dont forget that GM,Ford are both global companies.
I will sell my FXP and DXD positions today. Looking to start a position in DDM.
Icon,
LDK is testing 13 again. Any idea if it will breakdown?
Nice trade, Icon.
As for the automakers, the most likely scenario is that they will get the bailout which will help short term. Over the intermediate term, it is conceivable that there is a buyout or merger that leaves the big 2. Once electric cars are made available, and people can get financing, the industry should improve. Over the long term, the companies will have to start listening to the public and designing cars that people want. We always wondered why they didn't just do this in the first place. So many hard working people there, and so many resources, yet they can't seem to get their design teams coordinated with the needs of the average Joe. The Chevy Volt is a step in the right direction, but with so many bells and whistles, at $30k, who can afford it? Where is the little electric car for $18k? We don't need state of the art GPS, just give us the basic car and we'll put a Garmin in it. Demand for that car is enormous, and yet no one is making it. Go figure.
HI, our Detroit friend, problem since 2000? The crises has not started then. What the hack is going on there?
FXP-DXD --- SOLD Orders just got filled.
Placed 3 buy orders for DDM at 28 and 26 and 24
on a second thought I want to buy some NCC at the curren 1.94/share price.
The PNC offer was for 2.35/share.
Very tempted to gamble a little :-)
What do you think Snot?
Hi,Snot, are we testing 7800 level today?
Wow, I cannot believe the market is not up for the opex. There are 2.5 days left and we look like we will break down. Incredible!
HK, I'm assuming you are counting on the market braking down with your orders on DDM?
SPX broke a trendline on my chart from yesterday. That is a bearish signal. I've updated my chart to reflect the new trendlines and the new triangle that has formed.
http://i468.photobucket.com/albums/rr44/iconoclast421/SPX11-19.jpg
SPX should head towards a price that reflects an RSI of about 35.
Anon.
Yes, the market has to break down first even more before it can go up.
Sold my ultrashort ETF's to lock the profit in case the market decides to go up. I don't want bo be too close to the edge.
The market is counting for the GM bail-out but the gov. is dragging the case for too long.
The downtrend is a punishment. :-)
A statement is due for a release this week.
Any body here SHORT SKF?
I said that SPX should head towards a price that reflects an RSI of about 35. That price is 798. I will start buying at 805. I will be alot more bullish if SPX closes right around 798. If it closes lower than 790 then god knows what that will mean.
Good idea.
will do :-)
Scottrade:
Currently, there are no shares of SKF available for shorting. Please call your local branch
Out of luck :-(
There is always UYG :-)
Just filled in 2 orders.
NCC at 1.89
UYG at 5.12
Anyone notice the action on the bond index? Pretty big spike. Someone buying ahead of a big drop maybe?
The market is in no worse shape today than it was in yesterday, at least not yet. C and F are, though. Especially Ford, ouch!
The Volt is too heavy. No electric car should weigh more than 1200 lbs when you subtract the motor and batteries. 1000 lbs is ideal. GM is in a whole nother world... The EV1 was actually a fundamentally better design, and that was from 13 years ago.
Volt is a 4-sater with all the safety equipment build in on a conventional platform making it drive for 350-400 miles.
On one charge and one 6-gallon fuel tank.And this scenario is if you are doing long trips.
If you drive n more than 50 miles/day u end up using no fuel at all.
I'm sure the next gen. volt will be much better and lighter.
EV1-
2-seater
-battery only -80-100 Miles and you are done.
The safety regulations back then were diff. from nowdays.
I personally like the new Gm cars.
the pontiac (holden) G8 is awsome.
Saturn (opel) Astra or Sky or the vuew are all nice.
The new Malibu is nice.
GM is deff. going into the right directon and would be a crime to let it fail just now.
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