Wednesday, September 06, 2006

GM and Ford

Lots in the news about these two companies lately- much of it happy talk, after a long period of negative news flow. (I'm not going to get into it now, but it tangentially touches on one of my biggest pet peeves with the media: Stock going down? We see dead people; Stock going up? We see sunshine; Stock flat? We see "volatility"- never has a word been more misunderstood, yet used more often, in the history of the world. I said I'm not going to get into it- and I'm not- but I love it when they show a 5 minute chart and say how volatile the stock is trading... apparenlty not noticing the scale on the chart reflects a total range of 13 cents.)

Anyhoo, if you boil it down, there are three camps on Ford and GM: 1) will they file, or 2) won't they file, and 3) will they or won't they hire my firm for investment banking/consulting services?

Investors should be verrrry careful with both names. I would not rely on certain TV stations and major financial publications for guidance here. Nor the conflicted experts quoted in said venues. And the only source worse than the above are the CEO's of each.

It's not only the stock that folks should be worried about. The common is just the tip of the iceberg, because there are literally hundreds of billions of dollars of bonds and preferreds. In other words, in terms of total dollar values, the exposure to the stocks is dwarfed by the current value of bonds and preferreds.

My guess is a huge percent of individual investors have no clue how much exposure they have to these two names (via mutual funds), nor the fact that the whole thing is essentially a massive "junk" yard.

More importantly, the primary question of bankruptcy is academic at this point. Both are already bankrupt. (Technically, "insolvent"- a non-judicial version of "bankruptcy"). Right now the only difference between the two terms is that the institutional stockholders still have a seat at the table (along with bondholders and unions).

But these rolling restructuring plans ride on a wave of shrinking production and market share even as they give away vehicles and try to "make it up on volume" (through their finance arms, to be exact). That is a profoundly complicated business plan.

I'm a contrarian, and normally would be attracted to a stock trading below cash. But so far all I see is a rearranging of the deck chairs.

And what if they find the formula, and years from now the stocks are trading higher?

So what? So what.

There are tens of thousands of stocks that go up- and down- every day, month, year. Just because the media obsesses over a story doesn't mean I need to be there. I'm content to leave those crowded trades to those higher up the food chain.

Update: Over at Mish's Econ Blog, in his latest post, What is Ford Worth, he has laid out a colorful and very easy to follow analysis of Ford's balance sheet. Boggles the mind.


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