How's Your Investment in General Motors Working Out?
What investment in GM you ask? I know it's hard to keep track of all of your government sponsored holdings, but you as an American taxpayer own GM. And to hear GM's CEO Ed Whitacre, and the Obama office tell it, it has been a huge success. Proof that the government is better at running a company than the free-markets are. CEO Whitacre announced yesterday that GM is "paying back - in full, with interest, years ahead of schedule- the $6.7 billion in loans made to help fund the new GM." While this is a true statement, it only represents 11% of the $58.7 billion we gave to GM. As a refresher, a year ago President Obama's auto task force decided to bypass the bankruptcy courts, trample on bondholders rights, and restructure the balance sheet of GM. The other $52 billion we gave them was classified as equity, and that can only be repaid in an IPO. For our $52 billion we own 73% of GM's equity, the United Auto Workers own 17.5%, and the old bond holders own 9.5%. Now it is nice that they were able to pay back that $6.7 billion so fast, but was it because of their newly found business acumen, or was it just a little bit due to the fact that the government used more of our money to motivate drivers turn in clunkers to buy American cars (Cash for Clunkers)? This is like the owner of a company giving his employees extra money to buy his products so he can show revenue growth...it's fantasy land. It also didn't hurt that Toyota took a mighty fall from grace over the same time period. So when do we get our remaining $52 billion back, and will we make a profit on it? Ford's market capitalization is about $48 billion, and they aren't in bankruptcy and they actually are making money. In order to get our $52 billion back, GM would have to do an IPO of $71 billion. While it is nice that we got 11% of our money back, let's not get carried away, it will be a very long time before we see a return on the remaining 89%!
News Alert - Greece is Having Financial Difficulties
The biggest non-news of the morning is that Greece has officially requested to tap into the aid package just passed last week by the EU and the IMF. Yeah, nobody saw that coming. It appears that Greece's creative accounting was worse (or better depending on your nationality) than previously believed. Eurostat reported that Greece's deficit for 2009 was 13.6% of GDP, not the previously reported 12.7% of GDP. This is only 10.6% greater than the 3% deficit to GDP ratio limit for inclusion in the European Union! Greece and the Euro will continue to have issues for quite some time, massive austerity programs, and debt restructuring (quasi-defaults) are probable. Expulsion from the EU would be the best course for all parties involved, but is not currently likely. The EU would gain by showing the world that they are serious about maintain a strong currency. Greece would gain by being able to devalue their currency to the point that would make them competitive again, assuming that they can get their entitlement programs in order.
Investment Implications: Our indicators have had us at minimal weight in International Sovereign debt and that is where we continue to be- minimal weight.
"Cash for Tanners"
In the "why haven't we thought of this category" the European Union has a new "social tourism" project. Yes, according to European Commissioner Antonio Tajani, visiting foreign countries is a right of all citizens, including the disabled, poor families, senior citizens, and youth groups. The program goes by the name of "Calypso" the lonely Greek nymph deserted on an island. The goal of the program is to help these disadvantaged, via subsidies (supplied by taxes on those still working), enjoy the many benefits of tourism. Maybe this is a way to transfer money from those tightfisted Germans to those fun-loving Greeks. Only a matter of time before we adopt this plan here? If over 50% of your voters fall in the "disadvantaged" category (old, young, disabled, unemployed, etc) which way do you think they will vote.
Investment Implications: Going long Coppertone!
For those of you who have trouble differentiating the Keynesian School of Economics from the Austrian School of Economics this rap video does an excellent job of breaking it down:
Last week was tax week, and if you're like me you probably feel like you just threw a lot of money into a giant hole. This video is hilarious and spot-on:
Be careful out there,
Chris Wiles
This article contains the current opinions of the author but not necessarily those of the Rockhaven Capital Management. The author’s opinions are subject to change without notice. This article is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
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