What will Spitzer make from GM developments

Thursday, May 05, 2005

So Wall Street was today surprised that General Motors' credit rating got slashed to junk by Standard & Poors? Where is the surprise when a company is valued at 17.5 billion dollars and has outstanding debt of some 300 billion? These publicly known facts and yesterday's bid by octogenarian Kirk Kerkorian (KK) for 28 million GM shares 3 dollars above the closing price the day before don't add up to a sound story. As Barry Ritholtz blogged correctly already yesterday, a 87-year old is not going to buy a loss-making car manufacturer to oversee a longer term turnaround of a company that has nothing in the product line that could lure car buyers when gas prices stay at the current levels or go higher, as I strongly expect. A look at the chart and the timeline of events shows one thing clearly, Eliot Spitzer please look into this.
On Tuesday GM closed below 28 dollars on heavy volume in the last minutes of trading, about a dollar more than on Friday's close. The 52-week low of 24,67 dollars was reached in the middle of April when first reports about GM's losses in the car division and huge chunk of debts appeared in MSM. On Wednesday GM opened sharply higher on the bid of Kirk Kerkorian, surging to 32.80 dollars. I again refer to Barry Ritholtz who questions the motives of KK behind his shouting bid for another 28 million shares.
One fact was certainly achieved with KK's bid. It saved GM and the sickly Dow from caving in a lot more. Imagine what would have happened, had the stock not been propped up by KK's chatter before S&P's downgrading. The timing of events looks very awkward, to say the least. The Dow would have suffered a lot more, had the downgrading come before KK's move. If it ever had come then at all. Let's see if KK will stand up to his offer. Averaged to death could then come as a very correct market term in this case.
To state it again: The known facts don't fit the picture. The DJIA has mysteriously held the 10,000 threshold by a split hair on April 20, seeing an intra-day low of 10,000.46. GM was an important factor in this downmove. A move below this psychologically incredibly important level would have certainly triggered a broader sell-off as the macroeconomic outlook cannot be seen as a reason that would encourage investors to jump into a market that projects higher interest rates (risk premiums) in the close future. What's holding up this market and how long can it prevail?
Update: Follow this link.


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