Tuesday, April 28, 2009

GM At Almost $2 Makes No Sense

Does anyone know what to do with GM, other than to trade it? It is so not representative of the soon-to-be-owners that it makes little sense to buy at all. But that's never stopped anybody.

From the looks of things, the government is going to give the union enough of the common stock of GM that you will be buying something that is so diluted that it could be worth pennies on the dollar, especially because there are no plans currently to be profitable at the run rate that exists right now in this country. You have the company offering some sop to bondholders, but one can only imagine how much stock they will need and how little there will be left for existing common-stock holders when you consider that the government and the unions have the big stakes.

The ridiculous rally yesterday was simply a total misunderstanding of the coming capital structure and what it will take to win over the bondholders. It was an amazing disappointment, and the company is basically going to be owned by the unions, not existing shareholders. Why anyone would want to own a company run by the interests that have done more to destroy the company is beyond me. But there's momentum to the name, so people play it no matter how stupid it is.

I know that no one wants to hear that GM shouldn't be bought as a lottery ticket. I know there is no opportunity cost. I know it will be kept alive by the government.

I just don't see why you would bother!

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