Bankrupt Advantage
Research for Online Investors

by John Dalt

4/06/09

When an airline goes bankrupt, it gains an advantage on its competitors.  They walk away from debts, renegotiate labor contracts, and eliminate business commitments.  Their competitors do not have these advantages.  They still have to pay for the fuel they burned last month, union contracts are enforced with erroneous work rules, and they still have to take delivery on planes they ordered when times were good.

Berkshire Hathaway, Inc. is penalized today in much the same way.  They sold $750 million in AAA- rated bonds last week paying 4% while ‘government backed’ issuers sold bonds at 2.375%.  Who are these ‘government backed issuers’?   Some of our old friends in failure, Citi, Fannie May, Freddie Mac, and Bank of America.  Therefore, the reputed greatest living investor has to pay 68% more to borrow money than miss-managed companies that have government backing.

Treasury Secretary Geithner said this weekend “GM is going to be part of America’s Future”.  I was thinking about Ford as a dark horse survivor.  They have not taken government money; they could be the only survivor, picking up GM and Chrysler’s share of the market and become a true success story.  However, they cannot win if nobody else can fail.   This is the fallacy of government propping up failed businesses.  GM sells cars subsidized by taxpayers; Citi and BofA have government backing to compete with other banks that did not swim in the subprime sewer.

Ford announced today that they had cut automotive debt by $9.9 billion.  They used cash and shares to repurchase unsecured notes, bonds, and senior convertible notes at substantial discounts.  This is a company looking to the future.  I cannot wait to see them take the gloves off going after GM and Chrysler for their failures.  They should, I just hope they do.  This is not because I dislike GM!  I love their cars and pickups, but they have failed and do not deserve to be in the game.  I am not ready to buy Ford yet, but they may be worth watching.  You may want to read this article about their debt purchases in The New York Times.  Ford closed up over 15% today!

North Korea fired a rocket Sunday Morning, under the guise of putting a satellite in orbit.  It failed to make altitude for orbit, but demonstrated their ballistic missile capability.  Iran had observers at the rocket launch.  North Korea is desperate to sell missile and weapon technology to anyone with money.  Oh! Bama huffed and puffed, the U.N. did nothing.  Russia and China blocked any attempt to issue even a statement of condemnation.  The bully in the grade school playground has called the teacher’s bluff.  The Washington Post covers the U.N. meeting, and John Bolton has an insight for the long-term in the Wall Street Journal.

I was looking for one other topic to finish today’s letter.  I checked some of the usual news feeds, resource websites, etc.  A friend sent a link to Ronald Reagan’s speech to the 1964 GOP Convention.  It is 28 minutes long, but…vintage.  The fight never ends; individual freedom is always under assault.

I hope you enjoy this.  I will post it on the web site.  I have started a resource page under diversions, just for Ronald Reagan.  If you have any video's, pictures or quotes you would like to see included.  Send them to me at john@galtstock.com

Let's close today's missive with a quote from the Gipper.

"The best minds are not in government. If any were, business would hire them away."

Here is a chart showing the length of recessions since 1900, let's see how long the government can stretch this one!

Our last closed trade from the Swing Trader Service:

PO T—held 16 days for gain of 15.3%

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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