GM

Brad: Patinkin this is a blog about investment ideas ... not a way for u to try and boost ur net worth by telling ur friends to buy a stock u have a huge position in and artificially inflate the price!

No I'm just kidding. However, BD yours isnt a bad idea. I still stand by the premise that this shouldn't be a long term investment but it could get a spike if the government does step in. I did it with Bear and make some loot but you need to be sure your watching it every day.

Josh: First off, I'd stear clear of the equity markets at large right now. Corporate debt and leveraged buy out debt is trading at an average of 60-70 cents on the dollar right now and this is stuff that historically gets paid out first in a bankruptcy scenario when equity gets whiped out. You just have to be careful in selecting who has liquidity issues given the frozen capital markets as opposed to solvency issues given the recession.

GM? May as well piss upwind after a long night of drinking, it would be an easier mess to clean up. $7 billion in cash burn last quarter and the full effects of the recession haven't even raped auto sales as completely and totally as the 4th quarter most likely will.

Just so I understand completely; you've rested your investment thesis on the thought that the government is going to step in and take a big equity position or lend direct to the firm, correct? They better do so quick, GM itself has said if auto sales continue to trend downward, they run out of money next month. You really think our Federal government can effect anything that quickly? We've been hearing about the bank bail out and the TARP plan for two months now, nothing has actually happenned.

That said, I do see the rhyme to your reason. Strong political forces at play. Two iconic symbols of American stewardship of international industry are on the verge of collapse. Half a million jobs, strong labor unions and the State of Michigan are going to go full court press on the Federal Government.

The reason why I say no way on GM is; if the Feds can't make the bail out work, you are looking at Chapter 7 my friend, no creditor is going to try and steer that company through these difficult times with that kind of cash burn. I'm only inclined to go long on penny stocks where the company is profitable but looking for chapter 11 protection to help them deal with capital hungry creditors.

Good candidate, General Growth Properties. Just closed at .3786 a share... pathetic. Here is a company that is profitable, earnings after interest this year and before non-cash impairments will top $900m. THE COMPANY IS VALUED AT $120M TODAY!! Why? Huge debt load maturing this quarter and next year. Yes, GGP may have to declare Chapter 11, but only because they can't refinance debt given the credit markets, despite having top notch mall assets. If GGP does declare chapter 11, they make their creditors whole on every dollar when selling the entire portfolio at a multiple of 10 times cash earnings. Malls, in the last 5 years, have sold between a 15-20 multiple. In my opinion, there is more than $15 a share in value at GGP right now even in a bankruptcy liquidation scenario. You do the math.

jp

Brandon: Makes sense but I should clarify. I'm not looking at GM as a long term investment necessarily. I'm banking on government action which will cause a jump in price even if the company isn't ultimately sustainable.

However, JPMorgan analysts rated GM bonds a buy today. They believe that GM has enough sources of liquidity to cover them until 2010. That is taking into account economic weakness over the next 2 and a half years. Analysts at another firm said they expect GM to benefit from additional govt loans.

Agreed we are talking huge risk, but big upside potential.

Brad: Men,

I think a blog/email chain is a great idea. Here are my ideas/suggestions:

GM is a risky play. The government may bail them out but that doesn't mean the investors are saved. A lot of times the government will wait until the company is bankrupt and then make some sort of deal (see Lehman). Therefore, the bondholders have the first claim to funds, then pref. share holders and then the common stock holders. This means that they must have enough capital to go around to get to the holders of common stock (which isnt likely). This makes GM a very risky play considering they have made it clear they aren't liquid enough to make it through 2009.

Even with the $50B proposed bailout, there still isn't enough money to pay back common stock holders. $25B goes straight to the UAW to pay for pensions and healthcare. Then the other $25B is spit between the three companies. That is barely enough to cover salaries and costs; again, leaving no money for common stock holders. This is not to mention the fact that the $25B is "supposed" to be used for R&D towards alternative energy initiatives.

Any way you look at it GM is an extremely risky play. The best you can hope for is no bankruptcy, the economy to rebound quickly and consumer spending to pick up, a government bailout and a shift in consumption towards American cars. As the resident Detroiter I cannot sit here and recommend GM stock.

As of right now I only have one suggestion. Buy the S&P. It has a triple bottom at 900 and has only broken through that threshold twice. The great part is even if it tests the 5 year low (848 on Oct. 27) that is only 50 points or about 5% down from where we are now. This leaves a great opportunity to get in at or around the low. If it continues to dip then buy more and lower your cost basis. Bottom line is this isn't a risky play ... the US markets will come back and will do so strong. This is a basket so the risk is minimal and the upside is pretty apparent. The other great aspect of this is that you don't need to touch it. Buy it now and don't even look at it for 5 or 10 years. This is a great move for young professionals like ourselves.

Suggestions: FSMKX , VFINX


Phil: What is the (and Phil) all about? Your right, I should not be classified as a Gentleman rather a member of the hierarchy referred to only as Sir.

Not a bad call on the GM, although it could go down to 0 however, not likely. Yahoo stock not a bad stock also, with the brilliant minds at Microsoft, think its at $11 but I think it will get down to $7 then buy.

You could always invest in GGP stock!


Brandon: For those risky investors. I'm going to go out on a limb and call GM my pick of the day. It's a bet on the government actually infusing bailout $$... but even if they decide to take an equity stake I think that there is major upside considering its current trading levels. Politics are obviously in play here, can they really drive Detriot any further into the third world?

Under my ethical obligation of full disclosure, as of this morning I am a proud holder of GM stock. Let's hope it stays that way.