G.M. Prone, U.A.W. Driving
Research for Online Investors

by John Dalt

5/21/09

G.M. stock rose after reaching an agreement with the United Auto Workers.  It will not matter in bankruptcy, unless the government violates contract law against the secured creditors, as they did in the Chrysler case.  Details have not been released, but G.M. wanted to give the U.A.W. 39% of the company in stock, 10% to bondholders, 50% to the government, and 1% to existing stockholders.  G.M. stock was up 32% today!  Twenty-one percent of outstanding shares traded hands today.  My explanation; everyone that is not out wants out, shorts are covering.  I guess everyone wins, except the bondholders that are owed $27 billion dollars; they get 10% of a company that being kept alive to pay union pensions.

The Labor Department released revised initial claims for unemployment benefits adjusted to 631,000 for last week.  6.7 million Americans are now collecting unemployment, the most since 1967.  Economist expect a bubble from Chrysler, GM and supplier layoffs in May and June.

The market took it on the chin today with negative news grabbing the headlines. Standard and Poor’s cut Britain’s debt rating to “negative” from “stable”. Britain still maintains a “AAA” rating, but the move is seen as a warning of a possible future downgrade if budgets are not brought under control. Moody reaffirmed the U.S. credit rating as “AAA” late in the day. Interest rates jumped and the dollar sank slightly. The New York Times has a great article on the bad news rollicking the market today. The risk of losing a “AAA” credit rating is incorporated in many funds investment criteria, they can only invest in “AAA” rated securities. If a downgrade came on any sovereign debt, many funds would have to liquidate those holdings. This would create a flurry of re-pricing as that country’s debt instruments traded for cents on the dollar, or pound.

GLD, SLV, gold miner stocks, and shorting the treasuries gained today as traders moved to inflation hedges. Oil backed off its recent highs, inventories are declining but a stalled recovery does not indicate higher usage.

Natural Gas slide 10% on concerns of a stalled recovery and large storage.  If you have it as a trade, consider selling a covered call to get some money off the table.  Natural gas is a more difficult trade than crude oil, but the economy will recover.  The price has beat out a floor that should hold, any lower and wells will simply be shut in until prices rise to a profitable level.  Crude Oil is still my trade of the year, buy on dips then sell when you have met your profit target.

Quote of the day:

“I am a fiscal conservative”

----Turbo Tim Geithner

----in front of the House Appropriations Subcommittee

Oh! Bama, have you read ANY of his thoughts?

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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