Barrons on GM: Oops! We Did It Again!

by Robert Farago

Published: November 9th, 2008

Back in June, Barron’s advised [what conservative talk show host Bill O’Reilly creepily calls] “the folks” that GM shares could triple in value. Oh how we laughed! Well, surprise surprise surprise! Barron’s [sub] is now eating their words. “STAGGERING. THAT’S A FIT DESCRIPTION of the calamitous decline of auto markets in developed nations this year. U.S. October sales numbers released last week were ugly, down 32% from the year-earlier level and slamming all car makers hard. The month’s annualized selling rate was a paltry 10.5 million vehicles, the worst in more than a quarter-century. The weak financial positions of Detroit’s Big Three — General Motors, Ford and Chrysler — means their survival is at stake, and that Barron’s was wrong in describing GM as a buy late last spring.” Hey, wait a second; that sounds familiar. Market sucks. Who could have predicted this? Not our fault for missing it… GM! Anyway, how ’bout them bonds? “Our enthusiasm for GM was clearly wrong, as was a suggestion that its bonds, like the senior note maturing July 15, 2041, would be more valuable,” Barron’s writes. “They now trade at 20 cents on the dollar, versus 60 cents when the story was published.” Man the lifeboats! What? They’ve already gone? Look for GM’s stock to die a death tomorrow [Monday morning]. Trading suspended? De-listing from the Dow Jones industrial Average? Anything’s possible, and all of it’s inevitable.

Robert Farago

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4 of 18 comments

Pch101 on Nov 10, 2008
AIG bonds doubled on the news of the government bailout (Symbols XFD and KNO). Why wouldn’t there be be similar reaction with GM, especially if the current shareholders were wiped out like AIG and Fannie, etc? It's a lot to risk on something that isn't anywhere near a sure thing. Buying all the bonds would give you a debt free GM about 10 billion, it doesn’t seem like that much. No, it would not. GM would still have the debt, it would just owe it to a new bondholder, with the same obligations that it always had.

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Nick on Nov 10, 2008

This is hilarious. Years ago, I heard Louis Rukeyser at speaking engagement. He had this to say about Barron's: 'These guys have been wrong so often it's a wonder they managed to stay out of politics.' I should add that in the current environment, a picture of the nuclear tests at Bikini Atoll (surrounded by all those obsolete ships of war) would be most apropos.

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HarveyBirdman on Nov 10, 2008

Good call on the stock tanking, RF. As of 10:19 MST, GM's stock is at $3.21, down over 26%. I'm not even sure they'll make it to December at this rate. And yet, in spite of the unfolding horrors, I can't make myself look away...

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Pch101 on Nov 10, 2008
As of 10:19 MST, GM’s stock is at $3.21, down over 26%. It's a matter of time before GM gets removed from the Dow. With these price declines, GM contributes to a decline in the entire market, as traders react to movements in the indices to make their buy and sell decisions for other stocks. As GM just drags down the Dow, day after day, it hurts everyone else. We would get a bit of rally simply by taking them out of the equation.

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